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bond funds and asset allocation
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dumbstruck
Apr 5, 2013, 3:41:04 AM4/5/13
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Is there much consensus on what percentage to put in bonds in these strange new days? Yields are so low, and capital loss is imminent if yields revert towards mean... uncle Ben wants to push us to risky assets. I have responded by going towards high yield muni and corp junk funds, which theoretically won't be hit as much as lower yielding bonds with incremental rate rises. But they are volatile in response to any expected rise in default rates.
So do we abandon the rule of thumb of one third Tbills? I think the Pimco guru says no, but one of the 100 highest rated financial advisors, Gregg Fisher, was on cnbc saying to dump all bonds (for a 40 year old wanting moderate risk). He did say to first stick 2 years of living expenses in a bank account, which is a bit strange because how else could most of us build that up except in the stock market.
He recommends 55% us stocks, 25% intnl stocks, 10% global reits, and 10% commodities... no bonds besides the considerable bank account. So reits play a sort of a bond proxy, but I am concerned about somebodies comment that in a retirement account the IRS can penalize you for having too much reit income and can decide to tax it more than in a regular account.
Also hooking up his other choices with other prominent advice, all commodities are expected to stay weak with China troubled, the gold trade troubled, and oil recently falling. As for international stocks, all are widely expected to do worse than the US except for Japan, but their currency is plummeting. Therefore the only candidate for that 25% (a previous advisor said it should be 50% of portfolios) is DXJ which is a Japan indexed hedged against their intentionally dropping Yen.
So do we abandon the rule of thumb of one third Tbills? I think the Pimco guru says no, but one of the 100 highest rated financial advisors, Gregg Fisher, was on cnbc saying to dump all bonds (for a 40 year old wanting moderate risk). He did say to first stick 2 years of living expenses in a bank account, which is a bit strange because how else could most of us build that up except in the stock market.
He recommends 55% us stocks, 25% intnl stocks, 10% global reits, and 10% commodities... no bonds besides the considerable bank account. So reits play a sort of a bond proxy, but I am concerned about somebodies comment that in a retirement account the IRS can penalize you for having too much reit income and can decide to tax it more than in a regular account.
Also hooking up his other choices with other prominent advice, all commodities are expected to stay weak with China troubled, the gold trade troubled, and oil recently falling. As for international stocks, all are widely expected to do worse than the US except for Japan, but their currency is plummeting. Therefore the only candidate for that 25% (a previous advisor said it should be 50% of portfolios) is DXJ which is a Japan indexed hedged against their intentionally dropping Yen.
Ron Peterson
Apr 5, 2013, 6:14:16 PM4/5/13
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On Thursday, April 4, 2013 11:50:02 PM UTC-7, dumbstruck wrote:
> Is there much consensus on what percentage to put in bonds in these strange new days?
http://www.etfbase.com/senior-loan-etfs/ gives a high-yield alternative to bonds.
> Is there much consensus on what percentage to put in bonds in these strange new days?
--
Ron
dumbstruck
Apr 6, 2013, 12:57:08 AM4/6/13
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On Friday, April 5, 2013 11:20:08 AM UTC-10, Ron Peterson wrote:
>
> http://www.etfbase.com/senior-loan-etfs/ gives a high-yield alternative to bonds.
>
>
Well, that's interesting. But in spite of being "senior" BKLN is a bit more volatile than fidelity's bank loan mutual fund over last couple of years. It gets more yield though... will be interesting to see how actively managed SRLN compares as it only has been trading the last day or so. Looks good at least for the time wise old Ben B retires and the hawkish barbarians raise interest rates.
>
> http://www.etfbase.com/senior-loan-etfs/ gives a high-yield alternative to bonds.
>
>
dumbstruck
Jun 6, 2013, 5:30:41 PM6/6/13
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Congratulations Ron, bkln and srln have been great bond refuges in the slaughter of the last week or so. The new actively managed srln is losing a bit less (not much at all).
I wish there was some asset class that would not just give yield and hold value, but elevate upwards if stocks get pummeled. Bonds, gold, etc don't seem dependable for that, and shorts/options are a minus-sum-game.
I wish there was some asset class that would not just give yield and hold value, but elevate upwards if stocks get pummeled. Bonds, gold, etc don't seem dependable for that, and shorts/options are a minus-sum-game.
David S Meyers CFP
Jun 7, 2013, 9:35:28 PM6/7/13
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On 2013-06-06 15:30:41 +0000, dumbstruck said:
> Congratulations Ron, bkln and srln have been great bond refuges in the
> slaughter of the last week or so. The new actively managed srln is
> losing a bit less (not much at all).
As floating-rate funds, they should not move directly with interest
> Congratulations Ron, bkln and srln have been great bond refuges in the
> slaughter of the last week or so. The new actively managed srln is
> losing a bit less (not much at all).
rates - as interest rates move, the investments change their interest
rates, too.
However, as lower-credit-quality securities, expect these to be more
highly correlated with the stock market and the strength of the economy
in general -- they can get pummelled if defaults start to rise. I.e.,
more like junk bonds than treasury bonds.
Somewhere between these things is another fund which may be worth
looking at, the iShares Floating Rate Note ETF (FLOT), which holds
investment-grade floating rate notes. The current duration, as
expected, is about 0.13 (floating rate notes have very short duration -
the measure of interest-rate sensitivity), and an average credit
quality of A. Don't be surprise, of course, that the yield is less
than 1%.
> I wish there was some asset class that would not just give yield and
> hold value, but elevate upwards if stocks get pummeled. Bonds, gold,
> etc don't seem dependable for that, and shorts/options are a
> minus-sum-game.
[note that I *not* making a recommendation for or against FLOT, BLKN or
any other security mentioned here]
--
David S. Meyers, CFP®
http://www.MeyersMoney.com
disclaimer: discussions in misc.invest.financial-plan are for
educational purposes only and should not be construed as financial
advice. For personal financial advice, please consult directly with a
professional.
dumbstruck
Jun 9, 2013, 1:21:11 AM6/9/13
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On Friday, June 7, 2013 2:40:01 PM UTC-10, David S Meyers CFP wrote:
>
> As floating-rate funds, they should not move directly with interest
> rates - as interest rates move, the investments change their interest
> rates, too.
>
> However, as lower-credit-quality securities, expect these to be more
> highly correlated with the stock market and the strength of the economy
> in general -- they can get pummelled if defaults start to rise. I.e.,
> more like junk bonds than treasury bonds
I used to be an advocate of floating mutual ffrhx and was warned here of it's downside. It then fell 25% in the 2008/9 crash. Not a huge concern to a momentum watcher who can jump out early... however somebody claimed these funds can't liquidate shares at the true prices in big runs, and I think went on to say it's easier for etfs. I did get burned recently with etfs in junky muni's... didn't watch them too closely since since the news seemed OK, but I guess Puerto Rico is the big muni junk kahuna and is in deepening trouble.
>
> As floating-rate funds, they should not move directly with interest
> rates - as interest rates move, the investments change their interest
> rates, too.
>
> However, as lower-credit-quality securities, expect these to be more
> highly correlated with the stock market and the strength of the economy
> in general -- they can get pummelled if defaults start to rise. I.e.,
> more like junk bonds than treasury bonds
> Somewhere between these things is another fund which may be worth
> looking at, the iShares Floating Rate Note ETF (FLOT), which holds
> investment-grade floating rate notes. The current duration, as
BTW, I notice in the dip of fall 2011, these funds fell even worse than floating rate ones IF you figured how long it would take for their yield to make up for capital loss. Over 2 years worth for the "safe" ones, and under 2 for the floating rates.
> So you want upside with no downside. Join the club!
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