Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Rebalancing is hard. The winners seem to keep winning, and the losers keep losing. If I had kept all of my winners over the years and sold the losers, I’d be much better off, but certainly less diversified. Bond funds are supposed to add stability to a portfolio, but they seem to have lost that ability. Just another source of volatility.
If you monitor portfolio volatility (via SD from Portfolio Visualizer, Stock Rover, etc), you will find that rises as portfolio gets more equity heavy in the bull markets.
Rebalancing is a way to bring portfolio SD back to your comfort level. It's a compromise between greed and fear.
In taxable accounts at least, without rebalancing your gains in successful positions can become so high that it is psychologically almost impossible to sell.
With a fund or ETF you have some automatic rebalancing (unless you own Barons Partners 50% TSLA) but with single stocks it becomes a problem.
I have owned Berkshire for decades and only sold it once. It is sorta another exception because it is so diversified. If I hadn’t “rebalanced” CSCO near the peak I would not be very happy.
My problem is that bond funds that I bought 3 years ago are still losing money, even with higher yields and additional shares bought every month through automatic reinvesting. It is hard psychologically to keep putting money into investments that keep losing value. In theory, I should be lowering the risk of my portfolio, but my bond fund returns seem to show otherwise.
Well, there are m-mkt funds and ultra-ST bond funds - USFR (substitute for T-Bill rolls at 15 bps), ICSH, JPST, etc). Those are paying around 5% with little risk.
In 2022, the broader bond index lost 12% with the rising interest rate. It is likely that many investors are still in the negative territory even after a 5.7% gain in 2023. In hindsight, moving to cash ( cash equivalent) before March 2022 would be good but that would considered market timing. For now there are viable bonds suggested by @yogibb above since the yield curve is still heavily inverted.
I’ve already moved a substantial portion of my bond/income allocation to ultrashort bond funds, CDs and money market's. I’m just surprised that intermediate bond funds continue to bleed money. I’ve still a fair amount of money in intermediate funds because I figured they would rebound sooner or later, but later has turned out be longer than I expected. Now that some of my CDs are starting to mature, I’m having to decide whether to continue with short-term investments or start inching back into intermediate bonds.
If you monitor portfolio volatility (via SD from Portfolio Visualizer, Stock Rover, etc), you will find that rises as portfolio gets more equity heavy in the bull markets.
Rebalancing is a way to bring portfolio SD back to your comfort level. It's a compromise between greed and fear.
"...I’ve already moved a substantial portion of my bond/income allocation to ultrashort bond funds, CDs and money market's. I’m just surprised that intermediate bond funds continue to bleed money. I’ve still a fair amount of money in intermediate funds because I figured they would rebound sooner or later, but later has turned out be longer than I expected. Now that some of my CDs are starting to mature, I’m having to decide whether to continue with short-term investments or start inching back into intermediate bonds."
It will all depend on when the Fed cuts rates, ie if interest rates trend higher as the economy holds up
Who knows? A good rule of thumb is to try to match the yield to the duration. Currently anything out past 5 years could be a problem.
Long term bonds are risky and will probably pay off only if there is a recession.
@Tarwheel: My bond funds are all at the short-end, but not ultra-short. TUHYX = 3.48 years, and PRCPX = 3.08 years. Both junk. Together, I am at least breaking even with them now. The larger one is TUHYX, and I bought at the WORST time. I have been riding it up and out of the low-point of its funk. Without trying to do it, I bought PRCPX at the very BEST time to do it. The point is that my dividends (still reinvested) are all "gravy," now. No use switching horses in midstream. Unless a recession does finally arrive. Then I'll move to MM or I.G. bonds.
"...REBOUND SOONER RATHER THAN LATER, but later has turned out to be longer than I expected." I know the feeling. And I know it's "apples and oranges," but I have to constantly remind myself why I still hold BHB, my regional bank. As far as I know, the institution is completely solid. But investors want lower interest rates before Financials will go anywhere. (Yet today, my single stocks bucked the trend downward, with the exception of PSTL. Strange.)
Comments
Rebalancing is a way to bring portfolio SD back to your comfort level. It's a compromise between greed and fear.
With a fund or ETF you have some automatic rebalancing (unless you own Barons Partners 50% TSLA) but with single stocks it becomes a problem.
I have owned Berkshire for decades and only sold it once. It is sorta another exception because it is so diversified. If I hadn’t “rebalanced” CSCO near the peak I would not be very happy.
Who knows? A good rule of thumb is to try to match the yield to the duration. Currently anything out past 5 years could be a problem.
Long term bonds are risky and will probably pay off only if there is a recession.
"...REBOUND SOONER RATHER THAN LATER, but later has turned out to be longer than I expected."
I know the feeling. And I know it's "apples and oranges," but I have to constantly remind myself why I still hold BHB, my regional bank. As far as I know, the institution is completely solid. But investors want lower interest rates before Financials will go anywhere. (Yet today, my single stocks bucked the trend downward, with the exception of PSTL. Strange.)