colonel wrote:Is it time to lesson my investments in a couple of intermediate bond funds?
I currently own Pimco's Total Return Fund (PTTRX) in my 401K and my wife owns Harbor Bond Fund (HABDX) in her IRA. These make up the bulk of our bond funds although we do own non US bonds, municipals and high yield funds as well but to a lesser extent. We are both within 10years of retirement. The durations of both funds is less than 5yrs but I am worried about the impact of rising interst rates on these funds. Thinking about reducing some exposure and moving into a short term ETF.
Any thoughts or Pros/Cons?
If you hold longer than the duration, you will make more from increased dividends than you will lose by decreased price, for every bump up in interest rates. If rates steadily climb, the break even point is about equal to the duration plus half the time it takes interest rates to climb, but with the maximum loss also reduced accordingly.
Moving to short term also has it's risks, in that you may move too early or too late. And then you have to determine when to jump back into longer term bonds once rates plateau.
Another thing to consider is determining when are your going to start withdrawing from the bond funds. Is it right when you retire, say in 10 years? Or is it gradually over 20-30 years of retirement (i.e. 10-40 years from now)? However, you should have some funds in short term and some in savings or CD's in case an unexpected expense occurs right when the market declines significantly.