I'll confess not having read all the fine links lately, so suspect this has already been addressesd to a degree. Just noted the 10 year Treasury around 1.83 -1.84% this morning. Seems like just yesterday some of us were bemused to see it under 1.5%. My crude math indicates a increase of over 20% in yield almost overnight. Checked Price's long-term Treasury fund, PRULX, and it shows a drop of 6.25% in just 3 months. Otherwise, this fund's been hot, riding the bond tide to an annual return near 12% over 3 years. Maybe - just maybe - the tide has finally turned on this greatly overvalued assets class? BTW - caught a snippet on PBS last night that new home prices are up 14% over past year. Haven't confirmed that, but if accurate, how on earth does one keep pace with the inflation that figure suggests by investing in an asset having an underlying yield of 1.84%. Just some ramblings here.
http://money.cnn.com/quote/mutualfund/mutualfund.html?symb=PRULX
Comments
I believe fundalarm is an institutional investor or works within one. I don't know if they have shared the specifics. If they have and I've forgotten, I apologize.
"My impression of this highly ambiguous creature is that he (she) spends a great deal of time working, watching football, and taking care of the little ones - but precious little contemplating economics - macro or otherwise - as most here on the board do"
I think it's ambiguous and difficult to define because it's so widespread. I know many people across different age groups and other variables and the one thing that unites many of them is that they either don't get investing, don't have time for it or that is something that they pay someone else to think about. In terms of people flocking to bonds,
I'd question what % of retail understands the effect (saying as a generality) of higher interest rates on fixed income. I'd also question what amount of retail money that is "self-directed" (meaning, not handled by a broker, etc) is going beyond the largest/most popular/most commonly owned fixed income offerings/style. Given the way things are going though, I continue to think interest rates will be at these levels for a loooong time.
Personally, I'd question (or, to put it better, would be curious) about the variability of using treasuries as an equity hedge, given variation in correlations at times (which could be short or long term), possible risks in treasuries (crisis, downgrade, whatever) and valuation/limited upside in treasuries. I dunno, just thoughts.
Lastly, I think a lot rides on the results of an election that seems a bit closer than anyone thought a few months ago. Not that I see either result as a positive at all, but which way it goes will lead to various effects.
http://www.thereformedbroker.com/
What is the opinion of your Schwab broker regarding an equity/bond mix for investments or bonds in particular?
Does the broker have an opinion as to the impact of the retiring boomers upon the investmemt markets; as at some point the inflows into retirement accounts will have to become outflows?
Regards,
Catch
"What is the opinion of your Schwab broker regarding an equity/bond mix for investments or bonds in particular?"
catch, Let me begin by letting you know how much I appreciate your contributions to MFO and I’m certainly not the only one. You’re very successful with your funds boat. Our situation is a bit different from your house. We’re at least 10 years away from retirement and presently have about 26% of our overall portfolios at Schwab allocated to bonds. Our broker recommended that at retirement we should be about 30% cash, 40% bonds, 25% domestic large caps with a healthy dose of dividend payers, no domestic small caps, & 5% international large caps as a target. We should begin to transition into this very, very gradually. No rush. Also, pay off debt now except for low interest mortgage which probably makes sense for anyone. Add maximum allowable to Roths & 403(b)s before adding new monies to taxable accounts. Update wills, end of life directives in November. Move gold coins and important papers to our safe deposit box at bank and add remaining son and daughter in law to sign in and give them sdb key immediately. All standard stuff.
"Does the broker have an opinion as to the impact of the retiring boomers upon the investmemt markets; as at some point the inflows into retirement accounts will have to become outflows?"
Our broker didn’t address this directly. Instead, he talked a bit about where not to be: individual bonds except possibly local munis where we know the players. Avoid bond ETFs and I assume by extension, ETNs, because of potential bid/ask pricing when, not if, things head south, a bit less of a concern for bond index funds, however. He thinks active management will beat bond index type funds in most spaces over the next 10 years. Going forward with reallocation into bonds, watch net expenses and especially AUM because too fat will be difficult to unwind in a sell off. Blood appears with no buyers.
Here’s what our broker likes in the intermediate sleeve: SAMFX, especially given the low net ER which approaches bond index funds and noted that management did great following the Lehman debacle– 03/09/2009. He also likes go anywhere active management multisector/unconstrained/non-traditional bond funds even with higher expenses which are the tradeoff. PONDX has gotten too bloated but likes the newer MWCRX & SUBFX though the latter is more volatile. Solid management with both of these and they don’t follow the same strategy. Maybe own them both? Dedicated EM bond funds? Too expensive. Let the unconstrained bond funds take care of it. Also, add very new LMGDX to global bond fund watch list.
Further thoughts of what our broker doesn’t like: target dated funds. DIY by dedicated self-rebalancing avoiding added fees. OK, permission granted to my wife with TCWIX in her 403b because (1) she won’t take/make the research effort and (2) fees are low enough. Also, reservations about new products coming on market designed to protect portfolios from another 2008 mostly because fees are too high for what the investor receives in return and too much must be allocated to them to make a real impact. I had already come to that conclusion. Diversification works but can rob the investor of bragging rights…until a meltdown. Along those lines our broker would recommend BBALX but we’re already in Windhaven Diversified Growth in an inherited IRA and trading account which would be redundant.
He is a fan of Rob Arnott and prefers SFLNX as a long term core over ARTLX.
We now have a pretty thorough work sheet for retirement we’re working on that Schwab provided. When we make our 2013 contributions to our Roths in January, we’ll reallocate adding some new ideas regarding bond funds. I imagine we’ll add to RPHYX (Thanks, David Snowball!) and purchase MWCRX and SUBFX. Rick
Thank you for taking the time with your detailed report. I read this as you and yours taking a most active role in sorting out all things financial; as well as structuring the life changing events that will affect all of us in some fashion or another. All of this effort will provide a peace of mind going forward.
Your broker also seems to have a good handle with his/her thoughts regarding investment areas. As should be expected, we will not all agree with what to include or exclude in these areas; and at the very least, to be able to be flexible with what comes our way in the investment world.
As we all know, active fund managers; not unlike we individual investors are all going to have periods of "not as good as we had hoped for periods" with our investment mixes. But, I am also inclinced to believe that for most individual investors; at least regarding bond funds and likely equity funds, too; our house will lean more towards active managed funds versus buying etf's or index funds. If one is skilled enough to determine which bond or equity sectors have favor; then etf's and/or index funds may provide what is needed for portfolio growth, regardless of the bond/equity mix ratios.
I note this as I/we, at our house; believe the "unwinding" from 2008 will continue for several more years into the future; and surely don't know all of the directions coming for investment areas.
A short summary with investment fund choices for our house at this time is to remain active in our own management of fund types that are mostly actively managed; versus attempting to use more narrow sectors for either bonds or equities. Although our "cash" is with TIPs funds at this time.
As to your other personal notes; and are in line with what we have done, is to greatly reduce or eliminate debt of all types going into retirement. 'Course, this will vary for everyone's particular circumstances; but unless a household is in a postion with mortgage deductions and all that goes along with "schedule A" tax deductions, any heavy debt burdens will indeed be debt burdens not desired in retirement. Also funding 401k, 403b's and Roth's to your acceptable limits for your(s) time periods until retirement.
The investment mixes we currently hold are vastly different from our pre-2008 melt holdings of 90% equities. Time will tell as to portfolio changes that may/will be required in the future years and we hold to the "never say never" axiom.
A final question. Your broker noted a 30% cash position. Does this mean a money market type of holding or something else? We do maintain an emergency cash account at a local credit union; but this is not part of our active investment portfolio.
Lastly, your wife may choose to review the TIAA-CREF 2010 fund as this will be a bit more conservative, if that is a desire. While all vendors "Target Date" funds will not be invested in the same fashion; one does not have to lock into the date of a fund only based upon their projected retirement year.
Okay, hoping I didn't write like an invesment preacher; but only from the perspective of no cash flow from any employment in perhaps less than 6 months and having traveled through part of the jouney and decisions, of pre-retirement.
Thank you for your kind comment about the "Funds Boat" writes.
Take care of you and yours,
Mark
A more concise unpacking regarding bond funds: Our broker is all for unshackling bond fund managers going forward. He believes tying them a particular index/style box will not work out too well for individual investors. They’ll need versatility even though investors will pay higher fees and know in advance that they’ll be dead wrong some of the time. Stronger managers with lower AUM will be another factor to consider because it’s easier to turn a bass boat than a barge. Also, avoid specific category bond funds (ie bank rate funds) in the reach for yield. He’s not saying that yield isn’t important because it is but managers need some leeway. Make them earn their fees.
“A final question. Your broker noted a 30% cash position. Does this mean a money market type of holding or something else?”
Our broker’s allocation for cash is stick with the basics: Money market fund for emergencies (and a smokin’ deal on a vintage guitar is not an emergency, Rick) and CDs. Those are where the 30% belong even though yield is obviously anemic and won’t keep up with inflation. Savers are in a tight spot but alternatives are too risky and pricey.
“Lastly, your wife may choose to review the TIAA-CREF 2010 fund as this will be a bit more conservative, if that is a desire. While all vendors "Target Date" funds will not be invested in the same fashion; one does not have to lock into the date of a fund only based upon their projected retirement year.”
We’ve considered the “through”, contra American Century “to”, target date funds from TIAA-CREF: TCWIX (2020), TCNIX (2015), & TCTIX (2010). Charting all three since inception 01/17/07 reveals that they perform exactly as expected, especially 10/09/2007 – 03/09/2009. However, the bond question in relation to allocation in hanks original post in this thread is the issue here. Maybe continue with 2020 and switch to 2015 in a few years? That’s really more of a question of how we THINK bonds will do in the future versus stocks while realizing that we need both. What our broker thinks, and I agree, is that nobody should expect bonds to perform better in total returns than stocks over at least the next 10 years. Then again, I couldn’t have dreamed that what happened to all markets 2000-2009. But I do know this much: diversification still works long term and expenses matter. Rick
: