As the Feds raise interest rates [Which funds should I use?]

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ddbtoth
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As the Feds raise interest rates [Which funds should I use?]

Post by ddbtoth »

What is the corresponding mutual bond funds (Vanguard) that will reflect this change to benefit? (i.e., as the interest rates fall, bonds funds supposedly rise, then as interest rates rise) what should I be looking at? I'm not into bonds yet- I've been buying VTSAX on dips (I know how BH love DCA'ing- but I won't buy in when it's all time high)- so what mutual funds does Vanguard have that will be beneficial to buy into as the Feds raise the interest rate? I know it's timing the market, but when the Feds say they're raising rate, I tend to think they will and wait to buy bonds.
BitTooAggressive
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Re: As the Feds raise interest rates

Post by BitTooAggressive »

Price of existing bonds will fall. The longer the duration the more the bond or bond fund is affected or effected. I can’t keep them straight.

So all things being equal money would flow from stocks to bonds as bonds become cheaper. So the prices of both bonds and stocks MIGHT fall.
jebmke
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Re: As the Feds raise interest rates

Post by jebmke »

I would be wary of any responses that claim to know the answer.
When you discover that you are riding a dead horse, the best strategy is to dismount.
muffins14
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Re: As the Feds raise interest rates

Post by muffins14 »

ddbtoth wrote: Mon Jan 10, 2022 9:31 am What is the corresponding mutual bond funds (Vanguard) that will reflect this change to benefit? (i.e., as the interest rates fall, bonds funds supposedly rise, then as interest rates rise) what should I be looking at? I'm not into bonds yet- I've been buying VTSAX on dips (I know how BH love DCA'ing- but I won't buy in when it's all time high)- so what mutual funds does Vanguard have that will be beneficial to buy into as the Feds raise the interest rate? I know it's timing the market, but when the Feds say they're raising rate, I tend to think they will and wait to buy bonds.
Market timing strategies generally do not work, which is why Bogleheads do not recommend them. Both for stocks or for bonds.

How much money are you keeping on the sidelines for "buying the dip"? Have you calculated how much you have lost by doing so?

The market is usually at or near all-time highs, because it goes up over time
35% NTSX, 25% AVUV, 15% NTSI, 15% AVDV, 10% VWO
Da5id
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Re: As the Feds raise interest rates

Post by Da5id »

BitTooAggressive wrote: Mon Jan 10, 2022 9:38 am Price of existing bonds will fall. The longer the duration the more the bond or bond fund is affected or effected. I can’t keep them straight.

So all things being equal money would flow from stocks to bonds as bonds become cheaper. So the prices of both bonds and stocks MIGHT fall.
Hmm. Doesn't that assume that the planned fed rate changes aren't incorporated into the existing prices? I'd assume it is personally.
BitTooAggressive
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Re: As the Feds raise interest rates

Post by BitTooAggressive »

Da5id wrote: Mon Jan 10, 2022 9:42 am
BitTooAggressive wrote: Mon Jan 10, 2022 9:38 am Price of existing bonds will fall. The longer the duration the more the bond or bond fund is affected or effected. I can’t keep them straight.

So all things being equal money would flow from stocks to bonds as bonds become cheaper. So the prices of both bonds and stocks MIGHT fall.
Hmm. Doesn't that assume that the planned fed rate changes aren't incorporated into the existing prices? I'd assume it is personally.
I am not sure on the theory on that. Maybe the market expectations are such, but the higher yielding bonds are not available yet so the exact magnitude of the effect cannot be known yet.

Also you could say the markets always have stuff priced in but we know that is not the case. Also at the end of the day it all depends on human beings reactions, which in any moment in time is not fully predictable.

Also with inflation investors may still not see them as a great deal. I think we will have to wait and see for the exact effect.
Da5id
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Re: As the Feds raise interest rates

Post by Da5id »

BitTooAggressive wrote: Mon Jan 10, 2022 9:47 am
Da5id wrote: Mon Jan 10, 2022 9:42 am
BitTooAggressive wrote: Mon Jan 10, 2022 9:38 am Price of existing bonds will fall. The longer the duration the more the bond or bond fund is affected or effected. I can’t keep them straight.

So all things being equal money would flow from stocks to bonds as bonds become cheaper. So the prices of both bonds and stocks MIGHT fall.
Hmm. Doesn't that assume that the planned fed rate changes aren't incorporated into the existing prices? I'd assume it is personally.
I am not sure on the theory on that. Maybe the market expectations are such, but the higher yielding bonds are not available yet so the exact magnitude of the effect cannot be known yet.

Also you could say the markets always have stuff priced in but we know that is not the case. Also at the end of the day it all depends on human beings reactions, which in any moment in time is not fully predictable.
Your answer was that "Price of existing bonds will fall". I believe lots of that fall happens in advance, but your answer implies that it will happen when they actually make the change. As I understand it, historically it is the Fed making changes that are *not* as anticipated that causes the market to shift abruptly when the change occurs.

If you believe you (or a hedge fund, or whatever) knows that bonds are not priced appropriately given the planned rate hikes, you/they can surely make money doing that. But the rest of us probably can't.
BitTooAggressive
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Re: As the Feds raise interest rates

Post by BitTooAggressive »

Da5id wrote: Mon Jan 10, 2022 9:51 am
BitTooAggressive wrote: Mon Jan 10, 2022 9:47 am
Da5id wrote: Mon Jan 10, 2022 9:42 am
BitTooAggressive wrote: Mon Jan 10, 2022 9:38 am Price of existing bonds will fall. The longer the duration the more the bond or bond fund is affected or effected. I can’t keep them straight.

So all things being equal money would flow from stocks to bonds as bonds become cheaper. So the prices of both bonds and stocks MIGHT fall.
Hmm. Doesn't that assume that the planned fed rate changes aren't incorporated into the existing prices? I'd assume it is personally.
I am not sure on the theory on that. Maybe the market expectations are such, but the higher yielding bonds are not available yet so the exact magnitude of the effect cannot be known yet.

Also you could say the markets always have stuff priced in but we know that is not the case. Also at the end of the day it all depends on human beings reactions, which in any moment in time is not fully predictable.
Your answer was that "Price of existing bonds will fall". I believe lots of that fall happens in advance, but your answer implies that it will happen when they actually make the change. As I understand it, historically it is the Fed making changes that are *not* as anticipated that causes the market to shift abruptly when the change occurs.

If you believe you (or a hedge fund, or whatever) knows that bonds are not priced appropriately given the planned rate hikes, you/they can surely make money doing that. But the rest of us probably can't.
Well the Fed does not set long term rates but as the Fed stops buying bonds assuming they do things will become very interesting on rates and such. This will all tie together and probably beyond me. If the Fed actually starts selling it’s bonds then what? What happens to interest rates when and if the Fed stops buying bonds? What if all the bonds are not sold?
RubyTuesday
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Re: As the Feds raise interest rates

Post by RubyTuesday »

No on knows. Really.

The purpose of the Fed telegraphing their likely rate hikes is to minimize or dampen any surprise market reaction. To the extent possible, the market is already pricing rate hikes in.

And bonds may do fine even in the face of Fed hikes, which only set short term rates. Longer term rates in the yield curve are set by much larger market forces, albeit impacted by Fed buying bonds also. We do not know the impact of the Fed tapering their buying.

There are many reasons to buy or hold bonds… as a ballast to dampen equity volatility, as a source for future duration matched liabilities, as a source of funds for rebalancing should equities crash, among others.

If bonds were a rational part of your AA, they still are.
“Doing nothing is better than being busy doing nothing.” – Lao Tzu
Da5id
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Re: As the Feds raise interest rates

Post by Da5id »

BitTooAggressive wrote: Mon Jan 10, 2022 9:59 am
Da5id wrote: Mon Jan 10, 2022 9:51 am
BitTooAggressive wrote: Mon Jan 10, 2022 9:47 am
Da5id wrote: Mon Jan 10, 2022 9:42 am
BitTooAggressive wrote: Mon Jan 10, 2022 9:38 am Price of existing bonds will fall. The longer the duration the more the bond or bond fund is affected or effected. I can’t keep them straight.

So all things being equal money would flow from stocks to bonds as bonds become cheaper. So the prices of both bonds and stocks MIGHT fall.
Hmm. Doesn't that assume that the planned fed rate changes aren't incorporated into the existing prices? I'd assume it is personally.
I am not sure on the theory on that. Maybe the market expectations are such, but the higher yielding bonds are not available yet so the exact magnitude of the effect cannot be known yet.

Also you could say the markets always have stuff priced in but we know that is not the case. Also at the end of the day it all depends on human beings reactions, which in any moment in time is not fully predictable.
Your answer was that "Price of existing bonds will fall". I believe lots of that fall happens in advance, but your answer implies that it will happen when they actually make the change. As I understand it, historically it is the Fed making changes that are *not* as anticipated that causes the market to shift abruptly when the change occurs.

If you believe you (or a hedge fund, or whatever) knows that bonds are not priced appropriately given the planned rate hikes, you/they can surely make money doing that. But the rest of us probably can't.
Well the Fed does not set long term rates but as the Fed stops buying bonds assuming they do things will become very interesting on rates and such. This will all tie together and probably beyond me. If the Fed actually starts selling it’s bonds then what? What happens to interest rates when and if the Fed stops buying bonds? What if all the bonds are not sold?
I don't know, that is why I let the market set prices for me. All those scenarios are possible and will have impacts, but I don't believe I have *better* insights than the market as a whole.
wetgear
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Re: As the Feds raise interest rates

Post by wetgear »

ddbtoth wrote: Mon Jan 10, 2022 9:31 am What is the corresponding mutual bond funds (Vanguard) that will reflect this change to benefit? (i.e., as the interest rates fall, bonds funds supposedly rise, then as interest rates rise) what should I be looking at? I'm not into bonds yet- I've been buying VTSAX on dips (I know how BH love DCA'ing- but I won't buy in when it's all time high)- so what mutual funds does Vanguard have that will be beneficial to buy into as the Feds raise the interest rate? I know it's timing the market, but when the Feds say they're raising rate, I tend to think they will and wait to buy bonds.
Most of the price change is already reflected as everyone is working with the same information and the market has adjusted accordingly. Also most bogleheads prefer lump summing to DCAing as it is better 2/3 times.
BitTooAggressive
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Re: As the Feds raise interest rates

Post by BitTooAggressive »

Da5id wrote: Mon Jan 10, 2022 10:03 am
BitTooAggressive wrote: Mon Jan 10, 2022 9:59 am
Da5id wrote: Mon Jan 10, 2022 9:51 am
BitTooAggressive wrote: Mon Jan 10, 2022 9:47 am
Da5id wrote: Mon Jan 10, 2022 9:42 am

Hmm. Doesn't that assume that the planned fed rate changes aren't incorporated into the existing prices? I'd assume it is personally.
I am not sure on the theory on that. Maybe the market expectations are such, but the higher yielding bonds are not available yet so the exact magnitude of the effect cannot be known yet.

Also you could say the markets always have stuff priced in but we know that is not the case. Also at the end of the day it all depends on human beings reactions, which in any moment in time is not fully predictable.
Your answer was that "Price of existing bonds will fall". I believe lots of that fall happens in advance, but your answer implies that it will happen when they actually make the change. As I understand it, historically it is the Fed making changes that are *not* as anticipated that causes the market to shift abruptly when the change occurs.

If you believe you (or a hedge fund, or whatever) knows that bonds are not priced appropriately given the planned rate hikes, you/they can surely make money doing that. But the rest of us probably can't.
Well the Fed does not set long term rates but as the Fed stops buying bonds assuming they do things will become very interesting on rates and such. This will all tie together and probably beyond me. If the Fed actually starts selling it’s bonds then what? What happens to interest rates when and if the Fed stops buying bonds? What if all the bonds are not sold?
I don't know, that is why I let the market set prices for me. All those scenarios are possible and will have impacts, but I don't believe I have *better* insights than the market as a whole.
I am not sure I do but sometimes I think I do. But all this priced in is always based on theory, models, perfect information or at least information known at the time, and rational responses by humans. Over time it is helpful but any instant in time I am not so sure.
dbr
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Re: As the Feds raise interest rates [Which funds should I use?]

Post by dbr »

I can't guarantee that it works better but it is certainly easier, less stressful, less prone to making behavioral mistakes, less time consuming, and possibly less expensive to arrive at a portfolio that is expected to meet your needs over many decades of investing than to read the newspaper (okay, internet news site) and change things around every time it looks like there is a better answer. It is more than just suggesting that timing the market is difficult.

I myself did not own any bonds until about 40 years ago. We had some money in some farmland, and relatively speaking not a lot of money anyway. From that point on everything resolved down to some variety of intermediate term bond funds as a middle course in bonds. The expectation is that returns come and go but the portfolio plan meets what is required of it. Based on that my current holding of 50% intermediate Treasuries and 50% intermediate TIPS (since TIPS funds were launched) is not going to change. Of course I am aware prospective real yields are not good and that we have a somewhat flat yield curve. That possibility is certainly allowed for in the planning. It might also be true that we retired at a good time to retire and not every year is a best year. But that can't be dealt with by worrying about what the FED might do in 2022.
RetiredCSProf
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Re: As the Feds raise interest rates [Which funds should I use?]

Post by RetiredCSProf »

Fixed income is subject to credit risk, interest-rate risk, and inflation risk. Shifting allocations across fixed-income vehicles can improve capital preservation and increase income in a changing economic environment; for example:

Cash is subject to inflation risk, but no credit risk or interest-rate risk

U.S. intermediate treasury bond funds have low credit risk but high sensitivity to rising interest rates

Floating-rate bond funds have high credit risk and tend to stay flat in relation to interest-rate changes

International bond funds may serve as ballast when interest rates rise in the U.S.

Non-traditional (unconstrained, strategic income, "absolute return") bond funds have very high credit risk but may offer a higher return in an environment of rising inflation and rising interest rates

Theoretically, you can improve your return from bond funds by knowing how and when to shift your investments and by having a high risk tolerance.
BitTooAggressive
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Re: As the Feds raise interest rates [Which funds should I use?]

Post by BitTooAggressive »

RetiredCSProf wrote: Mon Jan 10, 2022 4:44 pm Fixed income is subject to credit risk, interest-rate risk, and inflation risk. Shifting allocations across fixed-income vehicles can improve capital preservation and increase income in a changing economic environment; for example:

Cash is subject to inflation risk, but no credit risk or interest-rate risk

U.S. intermediate treasury bond funds have low credit risk but high sensitivity to rising interest rates

Floating-rate bond funds have high credit risk and tend to stay flat in relation to interest-rate changes

International bond funds may serve as ballast when interest rates rise in the U.S.

Non-traditional (unconstrained, strategic income, "absolute return") bond funds have very high credit risk but may offer a higher return in an environment of rising inflation and rising interest rates

Theoretically, you can improve your return from bond funds by knowing how and when to shift your investments and by having a high risk tolerance.
I have switched to short term tips. But as you point out every investment type has risk. There is no free lunch so to speak.
aristotelian
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Re: As the Feds raise interest rates [Which funds should I use?]

Post by aristotelian »

The good thing about a diversified portfolio is it works over a variety of conditions. I plan to just stay the course knowing that sometimes different asset classes will be going up and down, hopefully not all at the same time. Also remember the market knows everything you know about the Fed raising rates. The question is what happens when something changes.
CZjc1330
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Re: As the Feds raise interest rates [Which funds should I use?]

Post by CZjc1330 »

As several have noted -- No one knows. Suggest you not chase wobbly interest change suggestions.
Just buy VTI and relax. Long term you will be ahead :moneybag and without the angst. :sharebeer
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mrpotatoheadsays
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Re: As the Feds raise interest rates [Which funds should I use?]

Post by mrpotatoheadsays »

ddbtoth wrote: Mon Jan 10, 2022 9:31 am what mutual funds does Vanguard have that will be beneficial to buy into as the Feds raise the interest rate?
While I don't have any historical metrics. It has long been said that banks benefit from raising rates; they can lend at a higher margin. For 2021, when the 10-year Treasury went from 0.92% to 1.51%, the Vanguard Financials Index Admiral (VFAIX) rose over 35%.

When it comes to bond funds, none. The federal fund rates are for transactions between banks and credit unions. The rates may or may not effect the bond market. If there is a correlated effect, up and up, then your money is safer in shorter term bonds. E.g. Look at the total returns of short (-0.69%), intermediate (-2.60%) and long (-4.63%) Treasury funds for 2021. As you can see by the negative returns, safer is not necessarily beneficial.
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ddbtoth
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Re: As the Feds raise interest rates [Which funds should I use?]

Post by ddbtoth »

Thank all of you, this makes sense.
Activesloth
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Re: As the Feds raise interest rates [Which funds should I use?]

Post by Activesloth »

I made some changes. Kept 60% anchored to VOO. Bought Berkshire and VFH. Sold Apple. All set for 2022.
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arcticpineapplecorp.
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Re: As the Feds raise interest rates [Which funds should I use?]

Post by arcticpineapplecorp. »

ddbtoth wrote: Mon Jan 10, 2022 9:31 am I've been buying VTSAX on dips (I know how BH love DCA'ing- but I won't buy in when it's all time high)-
Not sure where you got the notion that BH love DCA'ing. Lump sum investing has tended to outperform DCA'ing. Also, regarding "all time highs" read what George Sistri recently wrote:
2021 was a banner year for domestic stocks. There were 70 new all-time highs in the S&P 500 - nearly one-third of all
trading days. Thus, 69 times someone could have said “Not today. I don’t want to invest at an all-time high” and been
wrong. Avoiding stocks after a new all-time high is a silly idea that should be put to rest once and for all.

source: https://oncoursefp.com/images/Vectors%2 ... 0final.pdf
you probably think you're doing better buying on the dips, but if the market has gone up more than it has gone down, could you be giving up more than you think you're gaining? I recommend you read It's Better To Face the Correction by Larry Swedroe.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
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