What's going on with the market?

[explanade]

I just switched mine ... we're no longer reinvesting dividends in taxable accounts. (Still reinvesting in retirement accounts.)

I'm doing it in both.

 

[FIREd]

Are people doing DRIP with their bond funds?

Yes. Except for a muni fund, all bond funds are in our retirement accounts and we reinvest the dividends. I don't automatically reinvest the muni dividends to simplify book keeping. We also continue to add to our bond funds as required by our investment plan.

 

[pb4uski]

I just switched mine ... we're no longer reinvesting dividends in taxable accounts. (Still reinvesting in retirement accounts.)

+1 Since ER I have had dividends from taxable accounts transferred to my spending account rather than reinvested but mostly qualified dividends since my taxable accounts are all equities and no bonds.

 

[Which Roger]

Not retired yet, so yes absolutely. All bond funds are held in tax-advantaged accounts.

So who is rebalancing into bonds right now?

Since you asked, I just completed my annual rebalancing a few minutes ago. I do it every year on this date.

My desired asset allocation is 59/41 (age-10 in bonds), and since stocks have been on a roll the past year and bonds have been essentially flat, my allocation had gotten a bit out of whack, to 64/36. So I moved 5% of my portfolio from stocks to bonds.

 

[Gatordoc50]

Does anyone know what is going on with Vanguard Intermediate-Term Investment-Grade Fund Admiral Shares which dropped 0.10 today and -
Vanguard Intermediate-Term Bond Index Fund Admiral Shares which dropped 0.16 today also?
Should we hold on to these two bond funds or think of getting rid of them?

What percent of your AA do you have in bond funds? If someone had 50 percent or more of their investable assets in bond funds, I'd make some changes. The only thing that can curtail losses in bond funds in the next 5 or so years is Fed intervention or investing more on the way down. Personally, I decided that I'm unwilling to lose sleep over my bond portfolio so I made the necessary changes.

 

[Which Roger]

What percent of your AA do you have in bond funds? If someone had 50 percent or more of their investable assets in bond funds, I'd make some changes. The only thing that can curtail losses in bond funds in the next 5 or so years is Fed intervention or investing more on the way down. Personally, I decided that I'm unwilling to lose sleep over my bond portfolio so I made the necessary changes.

Or investors bailing out of stocks and increasing demand for bonds, thereby lowering interest rates, or investors believing that the fear of fed tapering is overblown, resulting in interest rates going lower, or the economy going into the tank again, so the Fed holds interest rates low indefinitely, or... The point is that nobody knows what will happen in the future, and the market has already priced in everybody's best guess. If a further decline in bond prices was a sure thing, that further decline would have already happened, because nobody would buy something guaranteed to lose money.

 

[Gatordoc50]

Or investors bailing out of stocks and increasing demand for bonds, thereby lowering interest rates, or investors believing that the fear of fed tapering is overblown, resulting in interest rates going lower, or the economy going into the tank again, so the Fed holds interest rates low indefinitely, or... The point is that nobody knows what will happen in the future, and the market has already priced in everybody's best guess. If a further decline in bond prices was a sure thing, that further decline would have already happened, because nobody would buy something guaranteed to lose money.

I don't believe that interest rates can go lower without Fed intervention. After all, the Fed is still intervening and rates have risen.

 

[pb4uski]

What percent of your AA do you have in bond funds? If someone had 50 percent or more of their investable assets in bond funds, I'd make some changes. The only thing that can curtail losses in bond funds in the next 5 or so years is Fed intervention or investing more on the way down. Personally, I decided that I'm unwilling to lose sleep over my bond portfolio so I made the necessary changes.

What changes?

 

[sengsational]

...consider selling and never again buying anything other than insured bank CDs. Don't buy stocks either, because they may also go down.

Except that the perception, incorrect as it may be, is that buying bonds would be more stable than buying equities. If I bought equities I'd say, "psh, 5% down, what's the big deal?". If that happened in bonds, I'd be hyperventilating. Back in the "old days" the two classes moved in opposite directions. But it seems now, with so many bonds held in funds, bonds just act like equities (people flee to cash from both and everything goes down together). I never liked bond funds, and although I owned a few funds, mostly I held bonds themselves where _I_ controlled if they got sold into a crap market or held to maturity. Lately I avoided the whole bond fund fiasco by going in a stable value fund which, lately, has not gone down a penny

 

[Gatordoc50]

What changes?

I moved out of bond funds except for about 50k in an intermediate muni and about 25 k in a short term bond fund. The rest of my bond allocation went to cash, laddered individual treasuries of about 5 years and less and laddered CDs. I figure I risk about a one percent yield/ year on the upside if rates stay the same and stand to save as much as 20% if rates rise. Since I'm no longer adding to my investments I choose not to risk principal with my safer assets.

 

[mathjak107]

folks are getting to crazy about the fall in bond funds.

the reason for owning bonds is they are not stocks.

when the next black swan event comes a flight to safety is usually good for bonds.

bonds can see a nice pop in capital gains offestting drops elsewhere..cash offers no additional fighter cover.

2008-2009 saw my total market fund plunge but TLT LONG TERM TREASURIES FUND which wasn't even on the radar and a sell on everyones list soared almost 40%.

the other thing about bond funds is that over time while rates rise the share price may fall but interest rates to share holders go up as older low paying bonds mature or are sold and replaced with higher paying ones.

while yes you may be behind the curve the damage done in your fund is not going to be a free fall plummet.

if you are rebalancing and re-investing interest and dividends that too lessens the impact of rising rates.

things are still pretty ugly out there world wide and most of the world is fighting recession. our own fed sees gdp growth in the 2.3% areas and already they revised the first quarter down to 1.8%. inflation based on the numbers the fed uses is around 1% , half their targeted rate.

all in all while bonds plunging is a knee jerk reaction my opinion is they still have a place in a portfolio .

 

[bUU]

While some people are overreacting to the situation with bonds, I think other folks are way off in the opposite direction. There has been a fundamental change in the matters affecting asset allocation toward bonds, at least unless you consider us to be restarting a cycle that last began in 1954 (or perhaps soon approaching that restart point). Either way you slice it - fundamental change or restarting that cycle - it dictates a change in the manner we regard bonds in our portfolios - dictates a change to the course that we're supposed to "stay" a la "stay the course". This is simply a recognition that everything changes, and ends, so even the definition of "staying the course" must necessary change sometimes.

There should be an actual reason for owning bonds, and the issue is that the reason that has served us well for the last generation or more is probably no longer as valid as it once was, or at least not valid in the same manner. That reason, by the way, for me, has always been, very specifically, because when equity values decline bonds tended to retain or gain value. Actually, let me let Bill Gross state it more definitively: The reason to own bonds is/was "preservation of capital, income and growth, relative steadiness and typically low to negative correlations with equities". If bonds stop doing those things, or even just one of those things, the entire structure of what was once good individual investor investing strategy can fall apart. There are good reasons to believe that at least two, and perhaps three of those things aren't reliably true, anymore.

 

[mathjak107]

I agree, anyone owning bonds as their investment of choice really has to look at it at this point.

but for flying fighter cover over a portfolio is another reason.

overtime rising rates in the bond funds portfolio, rebalancing and reinvested interest can end up with more money in the cheaper shares than the shares you own today.

did you know if you bought your gold at the highest peak back in the 1980's and combined it with a S&P 500 FUND ,long term treasuries and cash in equal amounts and all you did is rebalance once a year that the gold portion today would have had just about the same return as the stock portion even though you bought at the record high back in the day.

 

[Which Roger]

I rebalanced from stocks into bonds over the weekend, and have slept very well the past couple of nights. Even if bonds are exceptionally risky right now (and I don't necessarily agree that they are, since I believe that the market is smarter than I am and everything that is known or expected is already priced in), there is no way they can be considered to be as risky as stocks. So the way I look at it, I exchanged some assets that could suffer a 50% or greater drop in value for some that would drop a lot less than that even if the worst case were to occur.