Bond fund allocation

DavidV

Does anybody know any professional recommendations for bond portfolio allocation between Treasury, corporate, HY, emerging market, and other type of bonds, and their duration? There are many advices for stock portfolio based on risk tolerance, but I did not see anything similar for bonds. Probably, bond allocation should depend on overall bond percentage in the portfolio. However, I am not sure how. Thanks in advance.

Crash

No magic recipe. Just keep the more exotic and high yield stuff small, particularly later during work and into retirement. I took a look at their recent "Bond Squad" entries in the Morningstar Discussions. There's a whole big menu, over there. At 61, I'm 43 stocks, 39 bonds. The rest is cash or "other," held in the funds. Some might say I'm too heavy in stocks. But I do believe I'm in the ballpark of what's not overly-risky. Don't over-think it. If you are high-income, use a lot of munis, but not exclusively. ...Actually, I've chosen three separate bond funds, and after that, I let the Fund Managers do the arranging. PREMX, PRSNX, DLFNX. But I have two "Balanced" funds holding both stocks and bonds, too. MAPOX and PRWCX. But PRWCX is closed right now, unless you're already into it. Look also at DODIX. MWTRX. But these are solely open-ended. Others can clue you in to closed-end funds. I even forget whether there is such a thing as a bond ETF..... There are indeed professionals here, and they can give you something "from the horse's mouth."

davidrmoran

>> professional recommendations for bond portfolio allocation between Treasury, corporate, HY, emerging market, and other type of bonds, and their duration?

What bond fund managers are for, as Crash suggests. Pimco, Double, Fidelity, D&C, Berwyn, Vanguard, many others.

There are indeed lots of bond etfs, yes, if you want passive.

Old_Skeet

Hi @DavidV,

One of the newsletters that I read and I believe will be helpful, to you, and offers good information is linked below for both stock and bond allocations along with their recommended composition. See page six of the newsletter for details on the bond portfolio.

http://funds-newsletter.com/jan16-newsletter/jan16_new.htm

Ted

@DavidV & MFO Members Here are some suggestions.
Regards,
Ted
Suggested Bond Time Period Allocations:
25 Years + To Retirement:
11-25 " " "
1-10 " " ":
Retirement:
:
http://www.seninvest.com/article13.htm

hank

@DavidV: Thanks for the question which is very bond specific. As you suggest, with bonds there are many variables in terms of credit quality, duration, structure and place of issuance (in the case of foreign securities). I find it best to invest in broader income-focused or asset allocation funds and let an expert sort this all out. T. Rowe Price's summary and annual reports for RPSIX (available on their website) probably should be required reading. The fund is not for everyone, but its composition offers insights into how someone might structure an income based portfolio. There's many other fine funds with similar objectives but different approaches. Max mentioned some.

My take on RPSIX's current approach is that the fund is pretty much avoiding bonds further out than 10 years duration and also underweighting government bonds in favor of mid-grade and lower quality corporates. The near 50% weighting in BBB and lower is most interesting. I don't think Price is including the fund's near 20% equity stake in their credit analysis, so that needs to be taken with a grain of salt.

(I attempted to cut & paste some relevant features from their summary page. But the fund's approximately 20% stake in equities made presenting an accurate representation too difficult.)

View Summary: http://www3.troweprice.com/fb2/fbkweb/composition.do?ticker=RPSIX

BobC

If we are in a period of rising interest rates, I would be cautious with bond holdings in terms of duration, maturity, quality. At some point, there may be an opportunity to lock in 3, 4, 5% in CDs and short-term bonds. That's a ways off, for sure. But that would be a way to reduce potential volatility. We have clients that came to us with old single-premium fixed annuities that have minimum-interest guarantee of 5%. We told them to hang on to these. They were purchased in the 1990s when 5% seemed impossibly low. Just goes to show us.