interest rate increase looming. what you gonna do ?

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anotherITguy
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Re: interest rate increase looming. what you gonna do ?

Post by anotherITguy » Sun Mar 08, 2015 6:17 pm

I'm a bit over exposed on the bond/TSP G side. I would like to wait until July, when the expected rate increase would occur, to rebalance. Is this timing the market?

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Texas Radio
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Re: interest rate increase looming. what you gonna do ?

Post by Texas Radio » Sun Mar 08, 2015 6:23 pm

accumulate, reinvest, compound - same as it ever was
A portfolio is like a bar of soap. The more you handle it the smaller it gets.

Hunky-dory
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Re: interest rate increase looming. what you gonna do ?

Post by Hunky-dory » Sun Mar 08, 2015 6:32 pm

Sell everything and use proceeds to buy frozen concentrated orange-juice futures contracts. :D

555
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Re: interest rate increase looming. what you gonna do ?

Post by 555 » Sun Mar 08, 2015 9:43 pm

The Wizard wrote:
555 wrote:I'm using TIAA Real Estate as "bonds". When interest rates get high enough (SEC yield>4% will do), I'll move to a total bond fund.
TIAA Traditional at 3.0% or more may be a better bond surrogate, but I know what you mean...
Yeah, I'm reaching for yield. :wink:

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DG99999
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Re: interest rate increase looming. what you gonna do ?

Post by DG99999 » Tue Mar 10, 2015 1:56 pm

mk1039 wrote:with interest rate expected to increase this year, what should be the strategy to handle that while our money is sitting in etfs/stocks ?
MK, I am interpreting your question a little differently (although I agree with all the "stay the course answers" in general). When 10 year treasury yields have risen from low levels, stock performance has been favorable on average. This behavior has been for rates under 4.5/5% or thereabouts. So with the 10 year around 2.1% and rates expected to move up only slightly, the impact on stocks should be positive based on historical averages. I offer this primarily as a more detailed/short term rationale to stay the course -- long-term, that concept applies for all the usual reasons.
I am not a financial professional. My posts are only my opinion on the topic. You need to do your own due diligence and consult with a professional when addressing your financial questions.

nanoanalyzer
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Re: interest rate increase looming. what you gonna do ?

Post by nanoanalyzer » Tue Mar 10, 2015 9:23 pm

I'm gonna NOT buy intermediate bonds for short-term (1-2 year), add-on investment needs. As much as I hate getting 1.1% in FDIC accounts, it's better than the potential loss of capital that is almost guaranteed with a rate bump, which is almost guaranteed at this stage of the 0-0.25% game.
"If you think stocks are like physics, you believe there must be smart people who can measure exactly where the Dow Jones Industrial Average will be in five months." -Morgan Housel

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abuss368
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Re: interest rate increase looming. what you gonna do ?

Post by abuss368 » Tue Mar 10, 2015 9:31 pm

Has this not been "looming" for many years!

Bogleheads will make no changes in strategy and will stay the course as Jack Bogle advises.

If the stock and / or bond markets drop that means there could be an opportunity to invest with securities on sale.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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avenger
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Re: interest rate increase looming. what you gonna do ?

Post by avenger » Tue Mar 17, 2015 2:36 pm

There's a rate increase looming?
cheers ... -Mark | "Our life is frittered away with detail. Simplify. Simplify." -Henry David Thoreau | [3 fund portfolio: VTI, VXUS, SV fund (yield 3.01%)]

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Runalong
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Re: interest rate increase looming. what you gonna do ?

Post by Runalong » Tue Mar 17, 2015 3:08 pm

re: timing the market - interest rates aren't really comparable to the stock market.

The stock market goes up and down but over time it goes up. It never approaches the ultimate "bottom" of zero.

Interest rates go up and down and over time they go up and down within a historically defined range.

They are currently very close to the bottom of that range.

Betting that rates will be higher in four years isn't 100% sure, but it's not a 50/50 bet either.

It doesn't seem rational to me to allocate exactly the same when interest rates are near zero as if they were say 6%.

I wouldn't bet the house on anything, but I would be allocating more to bonds (and cash), and I'd be looking at longer durations and more government and less corporate bonds, if interest rates were significantly higher than they are.

aelfa
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Re: interest rate increase looming. what you gonna do ?

Post by aelfa » Tue Mar 17, 2015 3:16 pm

nanoanalyzer wrote:I'm gonna NOT buy intermediate bonds for short-term (1-2 year), add-on investment needs. As much as I hate getting 1.1% in FDIC accounts, it's better than the potential loss of capital that is almost guaranteed with a rate bump, which is almost guaranteed at this stage of the 0-0.25% game.
I'm tempted to do this -- only using TIAA Traditional at 3% instead of FDIC accounts. Right now, I'm 50% TIAA Trad and 50% TBM (of my 40% fixed AA).

I'm torn, though, because buying on the downswing will result in higher yields for less investment spend -- shouldn't continuing to accumulate TBM accelerate the breakeven point?

Still, I can't help think maybe I should avoid the losses by moving more to TIAA Trad...

AWH_CPA
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Re: interest rate increase looming. what you gonna do ?

Post by AWH_CPA » Tue Mar 17, 2015 3:19 pm

The same thing we do every night Pinky. Try to take over the world.

That and continue saving/investing for 35 years when I retire.

bcjb
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Re: interest rate increase looming. what you gonna do ?

Post by bcjb » Tue Mar 17, 2015 3:28 pm

mk1039 wrote:
tibbitts wrote:
mk1039 wrote:with interest rate expected to increase this year, what should be the strategy to handle that while our money is sitting in etfs/stocks ?
What did you do in 2010 when rates were supposed to increase? 2011? 2012? 2013? 2014?
i didnt have money to invest at that time. now i have.
If you just started investing, (I hope) that means you have a long way to go before retirement. In that case, this isn't anything to worry about. Quite the contrary; higher yields will actually be good for you in the long term.

DVMResident
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Re: interest rate increase looming. what you gonna do ?

Post by DVMResident » Tue Mar 17, 2015 4:41 pm

After rates rise, switch contributions from Stable Value to Bond Fund.
If rates rise a lot, may change ER bond fund holdings to MM or high-yield savings.

acegolfer
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Re: interest rate increase looming. what you gonna do ?

Post by acegolfer » Tue Mar 17, 2015 4:57 pm

If you expect the overall rate will increase, then lower the duration of your bond portfolio. But note that Fed Funds rate (overnight rate) increase doesn't necessarily mean long term rates will also increase. I wish the term structure is always flat. Then we will all be bond experts.

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bengal22
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Re: interest rate increase looming. what you gonna do ?

Post by bengal22 » Tue Mar 17, 2015 5:04 pm

mk1039 wrote:with interest rate expected to increase this year, what should be the strategy to handle that while our money is sitting in etfs/stocks ?
Play more golf.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley

randomguy
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Re: interest rate increase looming. what you gonna do ?

Post by randomguy » Tue Mar 17, 2015 10:35 pm

Runalong wrote: It doesn't seem rational to me to allocate exactly the same when interest rates are near zero as if they were say 6%.
.
I remember 6%. Everyone said not to buy bonds because those were the lowest rates in like 20+ years and you would be better off waiting til they went up to something reasonable.:)

Rates will go up someday but who knows when that day is and how fast they will go up. Maybe we are on a 35 year path from 2% back up to 6% (see something like 1935 to 1970). When along that time line would have you decided that buying bonds was a good idea? If market timing was easy, everyone would do it:)

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