Page 1 of 1

I know I am not supposed to time the market, but...

Posted: Tue Jul 28, 2020 11:10 am
by LearningAlot
Seeking advice on bond fund allocation in my retirement nest egg.
My policy has been 1/3 in stable value(duration 3 yrs) and 2/3 in intermediate bond fund (6 yr duration).
As rates have declined, the intermediate fund has obviously performed very well (+7.6% YTD, + 9% last 12 mos)
This has driven the bond fund to become 80% and the stable value 20% of my bond fund allocation.
The current Sec yield for the stable value is 2.25% and the intermediate bond fund is 1.2%

My policy tells me to bring these funds back to the 1/3 and 2/3 allocation.

I am tempted to move much more than that to stable value and significantly reduce the intermediate bonds
because the intermediate bond fund's interest rates are so low and the stable value will generate more income
and if interest rates start to increase, I won't experience the negative impact to the price of the intermediate
bond fund.

Any advice would greatly be appreciated.
Thanks in advance!

Re: I know I am not supposed to time the market, but...

Posted: Tue Jul 28, 2020 11:23 am
by anon_investor
When is the next rate reset for your stable value fund? Is there a restriction on how long funds have to stay within the stable value fund before you can transfer them into another fund?

Re: I know I am not supposed to time the market, but...

Posted: Tue Jul 28, 2020 11:26 am
by livesoft
Move back to 1/3 and 2/3, then come back and ask this question on September 28, 2020.

Re: I know I am not supposed to time the market, but...

Posted: Tue Jul 28, 2020 11:45 am
by Stinky
LearningAlot wrote: Tue Jul 28, 2020 11:10 am Seeking advice on bond fund allocation in my retirement nest egg.
My policy has been 1/3 in stable value(duration 3 yrs) and 2/3 in intermediate bond fund (6 yr duration).
As rates have declined, the intermediate fund has obviously performed very well (+7.6% YTD, + 9% last 12 mos)
This has driven the bond fund to become 80% and the stable value 20% of my bond fund allocation.
The current Sec yield for the stable value is 2.25% and the intermediate bond fund is 1.2%

My policy tells me to bring these funds back to the 1/3 and 2/3 allocation.

I am tempted to move much more than that to stable value and significantly reduce the intermediate bonds
because the intermediate bond fund's interest rates are so low and the stable value will generate more income
and if interest rates start to increase, I won't experience the negative impact to the price of the intermediate
bond fund.

Any advice would greatly be appreciated.
Thanks in advance!
That’s rebalancing. And updating your IPS effectively.

I’m fine with your proposal.

Re: I know I am not supposed to time the market, but...

Posted: Tue Jul 28, 2020 12:14 pm
by sycamore
How much more would you move to SV? 50% or 75% ?

In any case, go through the exercise of computing how much difference it would make in increased yield (assuming that the SV and bond fund yields hold steady for a year).

Then put that in context of your whole portfolio. If your fixed income is a small percent of the portfolio, it probably doesn't matter much anyway.

Re: I know I am not supposed to time the market, but...

Posted: Tue Jul 28, 2020 12:25 pm
by Walkure
LearningAlot wrote: Tue Jul 28, 2020 11:10 am My policy has been 1/3 in stable value(duration 3 yrs)
How does a stable value account even have a duration?

Re: I know I am not supposed to time the market, but...

Posted: Tue Jul 28, 2020 12:30 pm
by balbrec2
Walkure wrote: Tue Jul 28, 2020 12:25 pm
LearningAlot wrote: Tue Jul 28, 2020 11:10 am My policy has been 1/3 in stable value(duration 3 yrs)
How does a stable value account even have a duration?
As contracts expire, the money must be reinvested in a new current rate contract. If rates are lower then the
overall rate drifts lower over time. works the same but in reverse if rates have been rising.

Re: I know I am not supposed to time the market, but...

Posted: Wed Jul 29, 2020 8:27 am
by LearningAlot
anon_investor wrote: Tue Jul 28, 2020 11:23 am When is the next rate reset for your stable value fund? Is there a restriction on how long funds have to stay within the stable value fund before you can transfer them into another fund?
My 401K has no restriction on how long funds have to stay in the stable value fund

Re: I know I am not supposed to time the market, but...

Posted: Wed Jul 29, 2020 8:30 am
by LearningAlot
Walkure wrote: Tue Jul 28, 2020 12:25 pm
LearningAlot wrote: Tue Jul 28, 2020 11:10 am My policy has been 1/3 in stable value(duration 3 yrs)
How does a stable value account even have a duration?
I do not know, it is listed as such in the fund description (it is a Vanguard fund in a 401K)

Re: I know I am not supposed to time the market, but...

Posted: Wed Jul 29, 2020 8:42 am
by LearningAlot
anon_investor wrote: Tue Jul 28, 2020 11:23 am When is the next rate reset for your stable value fund? Is there a restriction on how long funds have to stay within the stable value fund before you can transfer them into another fund?
Not sure on reset date, based on past experience, in low interest rate periods, the stable value will have a higher interest rate than the intermediate bond fund a long time (well over a year). Of course, when interest rates go back up, the SEC yield in the intermediate bond fund will quickly
become higher than the stable value

Re: I know I am not supposed to time the market, but...

Posted: Wed Jul 29, 2020 9:11 am
by grabiner
What you are doing is not necessarily timing the market, because one of your options (the stable value fund) is outside the market. The price and yield of bonds are determined by the market, but the yield of your stable-value fund is determined by a contract and will not change in the same way the bond market changes.

If the stable value fund is fully liquid, and yields on the stable value fund have stayed the same while bond yields have fallen, the stable value fund has become more attractive. Normally, higher-yielding fixed income has more interest-rate risk (or other types of risk such as credit risk), but you are insulated from the market effect.

Re: I know I am not supposed to time the market, but...

Posted: Wed Jul 29, 2020 9:29 am
by anon_investor
LearningAlot wrote: Wed Jul 29, 2020 8:42 am
anon_investor wrote: Tue Jul 28, 2020 11:23 am When is the next rate reset for your stable value fund? Is there a restriction on how long funds have to stay within the stable value fund before you can transfer them into another fund?
Not sure on reset date, based on past experience, in low interest rate periods, the stable value will have a higher interest rate than the intermediate bond fund a long time (well over a year). Of course, when interest rates go back up, the SEC yield in the intermediate bond fund will quickly
become higher than the stable value
Check with your 401k plan admin, the guranteed interest rate and the date of the next reset should be available. For example in my 401k plan, the guranteed interest rate is for 3 months, and the new rate is announced about 2 weeks before the current rate ends. You should look into this. It probably make sense to utilize the stable value fund as long as the rate is higher than the bond fund.