Help with Bond Allocation

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Help with Bond Allocation

Postby undbulsu » Thu Feb 14, 2013 11:05 am

401K plan at work has changed to American Funds and as such I have to re-allocate the bond portion of my portfolio. And despite reading as much as I can, bonds are an enigma.

Quick Background
Emergency Funds for 4 months, Married with 2 kids, No debt other than mortgage, Top tax bracket. Approaching the big 50.

I currently follow an allocation as follows

Large Cap Market 10%
Large Cap Value 15%
Small Cap Market 10%
Small Cap Value 10%
International 20%
Bonds 25%
REITS 5%
Precious metals 5%


Portfolio is in the upper 6 figure range and divided between IRA's (Vanguard) and 401K/Profit sharing at American Funds now. I have kept the bond portion of my portfolio entirely in the 401K because the stock choices are abysmal.

My choices are as follows (expense ratios)

RITAX American Funds American High Income Trust (1.02)
RBFXC American Funds Bond Fund of America (0.93)
CWBFX American Funds Capital World Bond Fund (1.21)
AMUSX American Funds US Government Securities (0.98)
PRRRX Pimco Real Return (1.10)
ASBAX Short Term Bond Fund of America (1.02)

Any help as to how to allocate the bond portion to get a balance between the various types of bonds would be appreciated.
Last edited by undbulsu on Thu Feb 14, 2013 11:31 am, edited 1 time in total.
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Re: Help with Bond Allocation

Postby NYBoglehead » Thu Feb 14, 2013 11:18 am

If you could add the expense ratios when you have an opportunity that would be very helpful and you will get more responses.
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Re: Help with Bond Allocation

Postby hoppy08520 » Thu Feb 14, 2013 10:29 pm

RITAX American Funds American High Income Trust (1.02)
High-yield corporate (aka junk) bonds.

RBFCX American Funds Bond Fund of America (0.93)
This fund is somewhat similar to Vanguard Total Bond Market Index fund, but the VG fund has slightly higher-quality bonds (less reward, lower risk) than the AF fund, among other differences.

CWBFX American Funds Capital World Bond Fund (1.21)
International multi-sector (government, corporate, securities), mixed-duration (short, intermediate, long) bonds.

AMUSX American Funds US Government Securities (0.98)
Intermediate-term, mostly govt, all AAA. More stable than Bond Fund of America. Historical returns close to Barclay's Aggregate Bond index (same index that Vanguard Total Bond Market Index Fund tracks), but a little less returns and a little more stable due to shorter-duration and higher quality.

PRRRX Pimco Real Return (1.10)
Primarily a TIPS fund.

ASBAX Short Term Bond Fund of America (1.02)
Shorter-term duration, high quality, very stable but minimal returns not much better than a money market fund.

Given these choices, I'd go with:
AMUSX American Funds US Government Securities (0.98)

I think this is the closest match to the Barclay's Aggregate Bond index and would be a good default choice.

If you feel more adventurous, then consider adding high-yield bonds and the global bond fund to this mix. If you choose just 1, then give it 20% (with the other 80% to AMUSX). If you choose two, then give 15% to each (with the other 70% to AMUSX). But if you do the latter, I feel like you're opening yourself up to a bit more equity-style risk, so I'd consider jumping your bond portion in your overall portfolio up a bit to maybe 30% if you choose this route. There's a lot of discussion in the forum on the role (if any) of high-yield bonds and global bonds in a portfolio, so I'd read more before you consider doing this.
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