I know I am not supposed to time the market, but...
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I know I am not supposed to time the market, but...
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!
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!
- anon_investor
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- Joined: Mon Jun 03, 2019 1:43 pm
Re: I know I am not supposed to time the market, but...
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...
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...
That’s rebalancing. And updating your IPS effectively.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!
I’m fine with your proposal.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Re: I know I am not supposed to time the market, but...
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.
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...
How does a stable value account even have a duration?LearningAlot wrote: ↑Tue Jul 28, 2020 11:10 am My policy has been 1/3 in stable value(duration 3 yrs)
Re: I know I am not supposed to time the market, but...
As contracts expire, the money must be reinvested in a new current rate contract. If rates are lower then theWalkure wrote: ↑Tue Jul 28, 2020 12:25 pmHow does a stable value account even have a duration?LearningAlot wrote: ↑Tue Jul 28, 2020 11:10 am My policy has been 1/3 in stable value(duration 3 yrs)
overall rate drifts lower over time. works the same but in reverse if rates have been rising.
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Re: I know I am not supposed to time the market, but...
My 401K has no restriction on how long funds have to stay in the stable value fundanon_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?
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Re: I know I am not supposed to time the market, but...
I do not know, it is listed as such in the fund description (it is a Vanguard fund in a 401K)Walkure wrote: ↑Tue Jul 28, 2020 12:25 pmHow does a stable value account even have a duration?LearningAlot wrote: ↑Tue Jul 28, 2020 11:10 am My policy has been 1/3 in stable value(duration 3 yrs)
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Re: I know I am not supposed to time the market, but...
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 quicklyanon_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?
become higher than the stable value
Re: I know I am not supposed to time the market, but...
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.
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.
- anon_investor
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Re: I know I am not supposed to time the market, but...
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.LearningAlot wrote: ↑Wed Jul 29, 2020 8:42 amNot 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 quicklyanon_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?
become higher than the stable value