In my 401k my bond percentage was about 30% and stable value was about 20% The available bond is vanguard's total bond , stable value paying about 1.5%. In late may and early june I made major moves out of bonds into stable and as a result my fixed income proportion is roughly 40% stable, 10% total bond + about another 3% in bonds stemming from a position in Vanguard Wellington. My timing I think has not been great but not awful and because I don't like to make big bets I still have maintained a moderate bond position. I can take a resonable amout of risk (maintained a 60%equity position through 2008 to late 2012 when talk about the fiscal cliff, sequestor etc made me reduce stocks by about 5% by moving partially from stock funds to balanced .
I am thinking of reversing the stable/bond proportions when the 10 year gets to 3% but I have heard arguments for 3.25 and higher rates up to 3,75. I understand that all these rates are historically low but other than listening to the latest talking head on cnbc how can I know/guess when to switch back One way I suppose , which might or might work out is just to rebalance if my bond proportion drops by 20% .(from 10%-8%) and go to an equal weight but while I have a theoretical elemaentary understanding of the bond market (i.e rates rise ,prices fall ) I have no idea how to speculate on a top. Any ideas ? Thanks in advance
Comments
I am guessing that stable value funds will not pay as much as they have in the past due to the financial crisis. Some stable value funds broke the $1.00 per share barrier and most will not risk that again. There may even be new rules as to what a stable value fund can hold. Others can answer that.
What I want to know is why the adage "Buy low and sell High" does not apply to bonds as well as stocks? If the share price of a bond fund is going down and you are reinvesting dividends, even though they are low, are you not buying more shares for a cheaper price? Eventually bonds will go up just like stocks. Is this thinking wrong?
For now I am keeping my bond/cash allocation around 35-40%. Over time that 60/40 and even 50/50 stock to bond ratio, in my opinion, is the long term sweet spot.
Art
I personally would take the risk with equities and currently what would be a traditional bond allocation in shorter duration bonds via RPHYX. I am OK with low returns as I intend to use this pile if market goes through a big enough correction to purchase more equity. You can use your stable value fund in this way.
Art, I plan to stick with some percentage of income, not less than 20% nor greater than 40%, as part of my overall portfolio's asset allocation. Presently, my near term thinking is not when to load more fixed income but when to continue to off load some more of it.
After closely following my fixed income sleeve since May, almost on a weekly basis, I trimmed my fixed income sleeve this past week and let one fund go. I used some of the proceeds to add to a global stock fund position (PGROX) which holds mostly global titian type stocks. My thinking is that this class of stocks will be able to grow both their revenue and earnings while at the same time maintain and perhaps even grow their dividend along with increasing their stock valuation as the global economy recovers. I may be a little early in doing this with the upcoming "Washington" Federal budget talks and the effect of anticipated political wrangling might have on asset valuations.
So, in my fixed income sleeve I let one (NWQAX) go and still currently hold three short duration funds (LALDX, THIFX & ITAAX) along with two multi sector income funds (NEFZX & LBNDX). I was going to select another multi sector income fund to replace NWQAX but decided instead to go the global titian stock fund route over also using a floating rate type bond fund (EVBLX). My thinking is that most all fixed income securities are going to face some headwinds with the exception being floating rate securities in a rising interest rate environment … and, even these floating rate securities have been known to be volatile at times due to credit risk. So, I went with a large cap global high quality stock fund.
My portfolio’s new target asset allocation is 20% cash, 25% income (decreased by 5%), 45% equity (increased by 5%) and 10% alternative. My thinking is that fixed income is going to continue to face headwinds as interest rates rise and money gets reposition to other asset classes, perhaps a good bit of it to global equities. I am still looking at TSIAX and may open a position in it soon thus returning to a six position fixed income sleeve. According to Morningstar’s Instant Xray analysis the portfolio now bubbles close to my target allocations plus being about 105% long and 5% short and with a third of my equities being in foreign stocks with good coverage to Greater Europe & also Greater Asia.
I have pretty much left my hybrid income sleeve alone as it seems to be keeping a good upward movement pace while at the same time putting some jingle in my pocket. I’ll let these “hired” fund managers decide what assets and how much of each type to hold. Currently, this sleeve holds the following funds: CAPAX, FKINX, ISFAX, PASAX, PGBAX and AZNAX. Hopefully, PASAX will pick up its pace soon as it is the lager in its sleeve.
And, so it goes in these interesting times …
I think cash is king right now. I'm taking some profits and will continue to do so next week if market does not behave.