Would You Adjust These Retirement Fund Bond Holdings?

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Would You Adjust These Retirement Fund Bond Holdings?

Postby boglesmkcents » Sun Jun 30, 2013 5:35 pm

We are both ~50 years old, ~10 years to retirement, and our asset allocation is roughly 75% stocks and 25% bonds. House is paid off and we are 80% of the way to the funds we need to retire comfortably. The bond portfolio is roughly 50% VG Total Bond Mkt, 30% VG Infl Protected Sec, 15% VG CA Int Bond Fund, and 5% I-bonds. So generally pretty heavily weighted to medium term. Feeling nervous about the inflation- protected fund and the heavy medium term bias.

We are generally very much buy and hold, re-balance end of year type investors, but wondering if makes sense to shift part of the total bond money and inflation protected money to shorter term bonds for now, as I am expecting interest rate increases more likely than decreases for the next 2-3 years.

So what do you think? Are others in a similar boat moving bond fund holdings to shorter terms, or "letting it ride"? And if moving to shorter duractions, what Vanguard fund(s) to move to? Hold Info protected securities or dump?
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Re: Would You Adjust These Retirement Fund Bond Holdings?

Postby sometimesinvestor » Sun Jun 30, 2013 6:41 pm

Assuming you have a gain on the total bond fund what I think matters in part is whether a partial exchange would be a taxable event. If that fund and the TIPS fund are in IRAS or 401ks than what matters is whether there is a short term bond fund or stable value fund. There is a risk in holding intermediate term bonds but the main issue is that there is a very little reward in holding on.Still in no sense would moving to a stock fund reduce your risk (It will increase it a lot ) but the reward may be larger.Full disclosure about two weeks ago I reduced my 401k position in total bond by about 50% but I had a good alternative (a stable bond fund paying about 2.3% . bottom line you don;t want to jump from the frying pan ito the fire so there are a number of things ,, taxes, risk tolerance ,available alternatives, your desired asset allocation etc to consider.
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Re: Would You Adjust These Retirement Fund Bond Holdings?

Postby boglesmkcents » Sun Jun 30, 2013 6:51 pm

Thanks, sti....I should have mentioned that the VG intermediate term bond fund and the VG inflation protected securities (both Vanguard funds, both intermediate term), are in rollover IRAs, and I would move the funds to something like a VG short-term index fund within the rollover IRA, so not a taxable event, simply a defensive move against the potential of continued increased prices in the bond markets. Since I tend to not trade very actively thinking about moving about 1/3 of our intermediate term holdings to a short term fund.
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Re: Would You Adjust These Retirement Fund Bond Holdings?

Postby dbr » Sun Jun 30, 2013 6:57 pm

I don't think you should spend a lot of time or thought trying to finagle bond duration in a portfolio that is 75% stocks.
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Re: Would You Adjust These Retirement Fund Bond Holdings?

Postby livesoft » Sun Jun 30, 2013 7:40 pm

There were many threads about shortening the duration of one's bond funds back in March and April. Many folks reported that they had shortened their durations including posters with over 10,000 posts. That was rather telling.

I think it is too late to shorten duration. Intermediate-term bond funds have dropped more than they should have and they will recover somewhat in the next few weeks. You might ask your question in a few weeks. In the mean-time, it might be time to buy more intermediate-term bonds while they are oversold in anticipation of the rise they will have and then after the gain, sell the funds.

Unfortunately, the money used to buy those funds has to come from somewhere and may not be available. For example, if one has extra money, maybe they want to use it to buy equities instead.

It might just be best to sit pat.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Would You Adjust These Retirement Fund Bond Holdings?

Postby boglesmkcents » Sun Jun 30, 2013 9:35 pm

Thanks Livesoft and DBR...I've been reading more today (I've had my head in the sand on investing last few months due to workload) and agree I missed the window before the recent downturn in bonds,so probably not productive to shorten duration as a short term move. I think I'll stand pat for now (as usual) and try to keep a closer eye on things.
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Re: Would You Adjust These Retirement Fund Bond Holdings?

Postby MN Finance » Sun Jun 30, 2013 11:06 pm

I dont think it matters if someone uses intermediate or short bonds (though I personally have an opinion) but I certainly think its a mistake to shift from the long term strategy because we think we know something about the future. If you leave NY to drive to CA bc the kids want to see the ocean, you can set the GPS for SF or LA and either one will get them to the ocean just fine. But if you change the destination a few times along the way, chances are decent you will end up taking a longer, less efficient route. You would have likely been better off setting the destination from the start and not goofing around.
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Re: Would You Adjust These Retirement Fund Bond Holdings?

Postby boglesmkcents » Tue Jul 02, 2013 1:02 am

good food for thought, mnfinance....thanks....
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Re: Would You Adjust These Retirement Fund Bond Holdings?

Postby G-Money » Tue Jul 02, 2013 6:59 am

Stay the course. Everything you read about the markets has already been priced in, including, for example, the market's collective expectations about future interest rates.
Don't assume I know what I'm talking about.
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Re: Would You Adjust These Retirement Fund Bond Holdings?

Postby Tom_T » Tue Jul 02, 2013 4:38 pm

G-Money wrote:Stay the course. Everything you read about the markets has already been priced in, including, for example, the market's collective expectations about future interest rates.

How are collective expectations of future rates meaningful?
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Re: Would You Adjust These Retirement Fund Bond Holdings?

Postby ogd » Tue Jul 02, 2013 4:45 pm

Tom_T wrote:How are collective expectations of future rates meaningful?

The expectations are those of people with training in the field, hungry for profit, with giant computers and PhD statisticians on call, working 14 hours a day on this very issue. Even if you're not particularly humble, that opinion deserves some respect. Particularly if expressed through money at stake.
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Re: Would You Adjust These Retirement Fund Bond Holdings?

Postby boglesmkcents » Wed Jul 03, 2013 12:05 am

Thanks ogd...although interest rates are so low by historical standards, I see your point about not being able to predict the future -- I never would have guessed that interest rates would stay this low for this long. As a diehard buy-and-hold, dollar-cost averaging investor, if I'd tried to time the market, I would have done so much worse over the years. Steady as she goes.
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Re: Would You Adjust These Retirement Fund Bond Holdings?

Postby rickmerrill » Wed Jul 03, 2013 12:31 am

MN Finance wrote:I dont think it matters if someone uses intermediate or short bonds (though I personally have an opinion) but I certainly think its a mistake to shift from the long term strategy because we think we know something about the future. If you leave NY to drive to CA bc the kids want to see the ocean, you can set the GPS for SF or LA and either one will get them to the ocean just fine. But if you change the destination a few times along the way, chances are decent you will end up taking a longer, less efficient route. You would have likely been better off setting the destination from the start and not goofing around.


MN Finance,

That's the best analogy I've seen yet for staying the course but I do wonder why someone in NY would drive all the way to CA to show their kids the ocean? Just had to say it!

Rick
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Re: Would You Adjust These Retirement Fund Bond Holdings?

Postby MN Finance » Wed Jul 03, 2013 12:07 pm

rickmerrill wrote:
MN Finance wrote:I dont think it matters if someone uses intermediate or short bonds (though I personally have an opinion) but I certainly think its a mistake to shift from the long term strategy because we think we know something about the future. If you leave NY to drive to CA bc the kids want to see the ocean, you can set the GPS for SF or LA and either one will get them to the ocean just fine. But if you change the destination a few times along the way, chances are decent you will end up taking a longer, less efficient route. You would have likely been better off setting the destination from the start and not goofing around.


MN Finance,

That's the best analogy I've seen yet for staying the course but I do wonder why someone in NY would drive all the way to CA to show their kids the ocean? Just had to say it!

Rick


Good point! I guess you could start in Chicago and switch from NC and CA periodically and find yourself driving in circles - I'll use that next time.
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