I want to stay the course but....

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invhelpme
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I want to stay the course but....

Post by invhelpme » Sun Jan 12, 2014 8:33 pm

Another stupid rehashing of bond duration folks. I have read all the talk here about staying the course with our bond funds. We own about a 50/50 mix of Vangaurd Total Bond Index Admiral and Intermediate Bond Index Admiral in our IRA's and Roth IRA's. I rebalance in the Roth's with new money when our stock Asset Allocation gets above 55% of the total portfolio. We are 50 years old and won't retire for another 15 years or so. Our AA for all portfolios is 55% stock funds and 45% bond funds. It's so hard to rebalance into these funds knowing that the probability of rising interest rates are probably going to be with us for a long time. Like all of you we don't own the funds to make money, but to reduce the volatility of a declining stock market, but it's so difficult to just keep adding money every month to see negative gains. Since we still have 15 years until retirement should I exchange some or all of Total Bond and Intermediate Bond Index to something like Short Term Bond Investment Grade or just stay the course? Thanks for your opinions and input.

John3754
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Re: I want to stay the course but....

Post by John3754 » Sun Jan 12, 2014 8:40 pm

Have you considered CDs or I Bonds as an alternative to bond funds?

livesoft
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Re: I want to stay the course but....

Post by livesoft » Sun Jan 12, 2014 8:43 pm

Sure go to shorter duration. Lots of folks have done that including me. You got lots of choices, too: I-bonds, CDs, high-yield savings accounts, and several short-term bond funds. I'm using the VSCSX / VCSH fund. Maybe it will lose money, but not enough to make me lose any sleep.
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Taylor Larimore
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Re: I want to stay the course but....

Post by Taylor Larimore » Sun Jan 12, 2014 8:47 pm

invhelpme:

Based on the information in your post, I would ignore the media and stay-the-course.

Best wishes.
Taylor
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invhelpme
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Re: I want to stay the course but....

Post by invhelpme » Sun Jan 12, 2014 8:51 pm

I have considered the 5yr. CD at Penfed paying 3%. The problem is if I sell Total Bond and Intermediate Bond Index now I will lock in last year's small loses. I really hate to do that.

sambb
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Re: I want to stay the course but....

Post by sambb » Sun Jan 12, 2014 8:53 pm

Bonds crashed LAST year. Stay the course.

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Re: I want to stay the course but....

Post by livesoft » Sun Jan 12, 2014 8:54 pm

Then as far as loss aversion goes, you need some treatment for behavior finance traps. I like "Why Smart People Make Big Money Mistakes" by Gilovich and Belsky. It's an easy to read book and makes the point clearly. After reading that book, I was so happy to sell losers that I started wishing that all my positions were losers.
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John3754
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Re: I want to stay the course but....

Post by John3754 » Sun Jan 12, 2014 8:55 pm

invhelpme wrote:I have considered the 5yr. CD at Penfed paying 3%. The problem is if I sell Total Bond and Intermediate Bond Index now I will lock in last year's small loses. I really hate to do that.
You can't have it both ways, you either keep the funds you have, or you trade all or part of them for an alternative, what other choice is there?

invhelpme
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Re: I want to stay the course but....

Post by invhelpme » Sun Jan 12, 2014 8:58 pm

Yes I have a horrible mentality when it comes to loses. I have a very bad habit of reading all the articles in Market Watch, Morningstar, CNN Money and all they do every day is scream at the people who own Intermediate bonds to sell, sell, sell NOW. The bond market will be horrifying for the next 10 years. I need to learn how to tune out the noise and not read these articles.

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Re: I want to stay the course but....

Post by John3754 » Sun Jan 12, 2014 9:50 pm

invhelpme wrote:The bond market will be horrifying for the next 10 years...
Why is the bond market horrifying? Stocks could drop by 40% next week with no warning, but the bond market is horrifying?

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Kevin M
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Re: I want to stay the course but....

Post by Kevin M » Sun Jan 12, 2014 10:11 pm

Better to look forward than backward. Recent losses don't matter much compared to expected returns. The PenFed 3% CD will almost certainly do better than an intermediate-term bond fund with an SEC yield in the 2% ballpark. See this blog post by forum member tfb to understand why: Bond Fund vs CD In the Next Five Years

I wouldn't choose the 3% CD over a bond fund because of fear or what the financial media says. I'd do it because it makes financial sense (to me anyway). Bond funds still can play a role in a portfolio for various reasons. I own CDs and bond funds.

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nedsaid
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Re: I want to stay the course but....

Post by nedsaid » Sun Jan 12, 2014 10:22 pm

My gosh, if you have another 15 years to retirement, don't sweat it. You have 15 years to reinvest the dividends. Besides bonds are UP so far in 2014.

Investment grade intermediate term bonds were down 2-3% last year and nearly caused a panic on the Boglehead Forum. I suppose those same folks are depressed now that those same bonds are up fractionally in 2014. TIPS were down 9% but after a big run-up before that. So disappointing but nothing to cry over particularly when stocks were up so strong in 2013.

My advice is to stay the course. You have a nice, conservative portfolio. I am a bit older and my portfolio is more aggressively invested. I have more to worry about than you do.

Actually as a 50 year old, you WANT interest rates to go up. People have been complaining about low interest rates for years and when they go up, they complain about that as well. If rates are higher 15 years from now, your bonds will pay more interest that you can live on. Immediate annuities will also have more attractive payouts if that happens.

The 65 year olds have some reason to worry, 50 year olds do not.
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ogd
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Re: I want to stay the course but....

Post by ogd » Sun Jan 12, 2014 10:40 pm

invhelpme wrote:Yes I have a horrible mentality when it comes to loses. I have a very bad habit of reading all the articles in Market Watch, Morningstar, CNN Money and all they do every day is scream at the people who own Intermediate bonds to sell, sell, sell NOW. The bond market will be horrifying for the next 10 years. I need to learn how to tune out the noise and not read these articles.
We all know how those prediction sperform, don't we...

Thing is, the bond market has its own predictions of rates, it's called the yield curve. Right now, it's pretty steep, meaning it's pricing in some Fed rate increases in the next 10 years (you might have noticed that the rates are still at 0 while bond yields have increased in anticipation). Something in the neighborhood of 1.5% in 5 years leading to 3% in 10 years.

If these predictions come to pass, your funds will give you about what they promise as SEC yield. If the rates increase faster & harder, you'll have been better off reducing duration. If they lag the predictions, the funds will return more.

In any event, for a move reducing duration to be advantageous, you have to guess better than the bond market, which is full of professionals making these guesses as a full-time job and their money and careers at stake. Armed with merely a remote, a Morningstar subscription and elevated cortisol levels, how much do you trust yourself to make these guesses?

That's the essence of staying the course. Not closing your eyes and refusing any input, but remembering who's on the other side of every trade, setting the price (and, dare I say, profiting minutely).

That said, things like PenFed CDs which live outside the market and are right now abnormally good (and too good to last if you ask me) might be worth keeping an eye on, if you can deal with shuffling your accounts.

invhelpme
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Re: I want to stay the course but....

Post by invhelpme » Sun Jan 12, 2014 10:41 pm

After reading many books recommended on this forum and reading posts here from the last 2 years I already knew what kind of answers I was going to get. I just needed reassurance to stay the course. I still keep hearing these media-based visions in my head of shortening my duration but am going to try and ignore the noise and look at what interest rates may do 10+ years from now. Thanks to all of you who replied. It is much appreciated.

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telemark
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Re: I want to stay the course but....

Post by telemark » Sun Jan 12, 2014 10:43 pm

What works for me is watching the bottom line for the whole portfolio. My overall return for 2013 in a 60/40 portfolio was over 14%, making the lower NAV in the bond portion seem like a very minor issue indeed.

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Re: I want to stay the course but....

Post by Toons » Sun Jan 12, 2014 10:50 pm

Simple,just keep buying total bond and reinvesting along the way :happy
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pkcrafter
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Re: I want to stay the course but....

Post by pkcrafter » Sun Jan 12, 2014 11:38 pm

How I Learned to Stop Worrying and Love the Bond. :happy

http://www.vanguard.com/pdf/icrrol.pdf

Also, you better review this:

http://www.bogleheads.org/wiki/Behavioral_pitfalls


Paul
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Re: I want to stay the course but....

Post by dewey » Mon Jan 13, 2014 12:12 am

telemark wrote:What works for me is watching the bottom line for the whole portfolio. My overall return for 2013 in a 60/40 portfolio was over 14%, making the lower NAV in the bond portion seem like a very minor issue indeed.
+1
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solonseneca
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Re: I want to stay the course but....

Post by solonseneca » Mon Jan 13, 2014 12:26 am

sambb wrote:Bonds crashed LAST year. Stay the course.
+1

Rub some dirt on it and get back in the game. Use shorter duration if it helps you sleep well at night.

Good luck.

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Re: I want to stay the course but....

Post by YDNAL » Mon Jan 13, 2014 6:43 am

invhelpme wrote:Like all of you we don't own the funds to make money, but to reduce the volatility of a declining stock market, but it's so difficult to just keep adding money every month to see negative gains. Since we still have 15 years until retirement should I exchange some or all of Total Bond and Intermediate Bond Index to something like Short Term Bond Investment Grade or just stay the course? Thanks for your opinions and input.
You answered you own question. If the strategy is to mitigate Equity risk, plus added concerns with interest rate risk, then use Short Term bonds.

Question: You have a 15 year timeframe to retirement.... why is Duration difficult to understand?
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TheTimeLord
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Re: I want to stay the course but....

Post by TheTimeLord » Mon Jan 13, 2014 9:27 am

invhelpme wrote:Yes I have a horrible mentality when it comes to loses. I have a very bad habit of reading all the articles in Market Watch, Morningstar, CNN Money and all they do every day is scream at the people who own Intermediate bonds to sell, sell, sell NOW. The bond market will be horrifying for the next 10 years. I need to learn how to tune out the noise and not read these articles.
Well if you don't want to lock in last year's losses you can wait and lock in this year's loses too. But seriously here is a secret that many may or may not agree with. Profit and loss is just for taxes, your portfolio is where it is this very second not more no less. Because of this your decisions should be based on today's value not the value 6 months ago. That's why people rebalance because they are looking at their portfolio value today not when they deposited the money. You are where you are not where you were.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

Tom_T
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Re: I want to stay the course but....

Post by Tom_T » Mon Jan 13, 2014 9:33 am

sambb wrote:Bonds crashed LAST year. Stay the course.
I agree with your advice, but I wouldn't say that bond losses are all behind us. Few people would be shocked if rates went up another point this year. It sounds like the OP should stick with short-term funds, and maybe mix in CDs and/or i-Bonds.

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Re: I want to stay the course but....

Post by bayview » Mon Jan 13, 2014 9:55 am

invhelpme wrote:Yes I have a horrible mentality when it comes to loses. I have a very bad habit of reading all the articles in Market Watch, Morningstar, CNN Money and all they do every day is scream at the people who own Intermediate bonds to sell, sell, sell NOW. The bond market will be horrifying for the next 10 years. I need to learn how to tune out the noise and not read these articles.
Unsubscribe. :D

Seriously. Those recovering from substance abuse and addiction are told to change their friends and where they hang out. I would recommend doing the same, not because of addiction or abuse, but because you are currently not able to get them out of your head.

It's confusing enough reading only Bogleheads every day. :shock:
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

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TheTimeLord
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Re: I want to stay the course but....

Post by TheTimeLord » Mon Jan 13, 2014 9:56 am

bayview wrote:
invhelpme wrote:It's confusing enough reading only Bogleheads every day. :shock:
Amen
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Re: I want to stay the course but....

Post by abuss368 » Mon Jan 13, 2014 10:03 am

Tune out the noise and stay the course.

If you really wanted to make a change, I would combine the Intermediate with Total Bond. Total Bond is all any investor needs.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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kenyan
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Re: I want to stay the course but....

Post by kenyan » Mon Jan 13, 2014 10:48 am

I think you should stay the course.

If you choose to shorten duration, you need a plan. Are you going to stay with short-term bonds for the rest of your investing career? If so, recognize that you are almost certainly costing yourself money in the long term. If not, then what is your plan to get back into intermediates? A short-term market timing move like this will probably cost yourself money as well, but if it helps you sleep, I guess it's your scratch.
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Re: I want to stay the course but....

Post by pkcrafter » Mon Jan 13, 2014 11:35 am

invhelpme wrote:Yes I have a horrible mentality when it comes to loses. I have a very bad habit of reading all the articles in Market Watch, Morningstar, CNN Money and all they do every day is scream at the people who own Intermediate bonds to sell, sell, sell NOW. The bond market will be horrifying for the next 10 years. I need to learn how to tune out the noise and not read these articles.
Patient: Doc, it hurts when I move my arm like this.
Doc: Stop moving your arm like that. :wink:


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Re: I want to stay the course but....

Post by letsgobobby » Mon Jan 13, 2014 11:47 am

dewey wrote:
telemark wrote:What works for me is watching the bottom line for the whole portfolio. My overall return for 2013 in a 60/40 portfolio was over 14%, making the lower NAV in the bond portion seem like a very minor issue indeed.
+1
Me three.

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Re: I want to stay the course but....

Post by leonard » Mon Jan 13, 2014 11:59 am

Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

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Re: I want to stay the course but....

Post by terrabiped » Mon Jan 13, 2014 12:48 pm

In any event, for a move reducing duration to be advantageous, you have to guess better than the bond market, which is full of professionals making these guesses as a full-time job and their money and careers at stake. Armed with merely a remote, a Morningstar subscription and elevated cortisol levels, how much do you trust yourself to make these guesses?
+1
If you choose to shorten duration, you need a plan. Are you going to stay with short-term bonds for the rest of your investing career? If so, recognize that you are almost certainly costing yourself money in the long term. If not, then what is your plan to get back into intermediates?
++1

I second those that say the course. But, if someone is thinking of "strategically" shortening and lengthening duration based on interest rate forecasts, I would say work out that strategy on paper first and document it in your IPS. Don't make decisions ad hoc based on the latest chatter in the media or even the latest chatter in this forum.

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LH
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Re: I want to stay the course but....

Post by LH » Mon Jan 13, 2014 1:34 pm

there is always a "but"

If changing duration was successful, you could get a bond fund that could do it for you and win.

you cannot, because there is no such thing as a bond fund that can successfully time duration.

Take your desired action, and put yourself in japan for the past twenty years. Sure go short, and lose out for 20 years on the higher interest rate for going medium.

Its just timing. Humans feel great with timing, expectantly though, humans lose while feeling great.

The "but" is what passive indexing is meant to help you avoid. Its the "but" that does you in to some extent or another. (cue beavis and butthead laugh)

There is always a great rational reason to time. No one says, hey, I am an idiot, I am going to time just for the heck of it.

No.

They say, but this time is different, I have reason X, therefore I will time.

Rinse repeat lose.

Humans lose timing again and again and again, always with a great sounding reason. Always with a "but" "tactical" "strategic" whatever, blah, blah, blah. One guy is selling with a great list of reasons, another guy is buying the same friggin thing, at the same friggin price, with an wonderful list of reasons to do the exact opposite, welcome to the market.

Having a reason, having a "but", is near meaningless. Everyone has a reason. The market makes it such, that the reasons balance out, and neutralize each other expectantly at the equilibrium market price.

So hey, time away, but realize, there is nothing special about it. Its par for the losing timing course.

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Re: I want to stay the course but....

Post by gvsucavie03 » Mon Jan 13, 2014 1:51 pm

leonard wrote:OP - What happened since Dec 29th.

http://www.bogleheads.org/forum/viewtop ... 8#p1901648
:twisted:

invhelpme
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Re: I want to stay the course but....

Post by invhelpme » Mon Jan 13, 2014 10:00 pm

gvsucavie03, You got me there I'll admit. Very hypocritical on my part and quite embarrassing to say the least. It all boils down to reading so many articles like Powell's latest one on the Market Watch website. I think to myself what if interest rates slowly rise for 15 years and I lose money every year in bonds. Then I will look back and wished I would have been all in CDs. It is an addiction that has to stop. I need to delete every one of those investing websites. I thank all of you who are a lot wiser than I for your responses and reassurance. I will stick with my original IPS and ride it out until the end and hope for the best.

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Re: I want to stay the course but....

Post by joe8d » Mon Jan 13, 2014 10:53 pm

Tom_T wrote:
sambb wrote:Bonds crashed LAST year. Stay the course.
I agree with your advice, but I wouldn't say that bond losses are all behind us. Few people would be shocked if rates went up another point this year. It sounds like the OP should stick with short-term funds, and maybe mix in CDs and/or i-Bonds.
+1
All the Best, | Joe

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Re: I want to stay the course but....

Post by HawaiiBrewer » Tue Jan 14, 2014 4:14 am

invhelpme wrote:gvsucavie03, You got me there I'll admit. Very hypocritical on my part and quite embarrassing to say the least. It all boils down to reading so many articles like Powell's latest one on the Market Watch website. I think to myself what if interest rates slowly rise for 15 years and I lose money every year in bonds. Then I will look back and wished I would have been all in CDs. It is an addiction that has to stop. I need to delete every one of those investing websites. I thank all of you who are a lot wiser than I for your responses and reassurance. I will stick with my original IPS and ride it out until the end and hope for the best.
Great idea, I never have been one to read the Wall Street Journal or any other financial rag. 30 yrs ago I subscribed to Bob Brinkers monthly letter but that lasted about a year before I got bored and ended up with 25 different mutual funds. Today, the Bogleheads forum provides all I need with filtering out the BS from the media. I watch CNN but they have even stopped having Ali Velshi spend much time doing financial reporting. My wife likes Suse Orman's show but Suse isn't too hard core and promotes common sense ideas: pay off credit cards, don't spend what you don't have. Get more hobbies and you won't have time for the Morningstar, WSJ, Finacial Times etc...and you'll have more fun.
Aloha :beer
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