Time to overweight BND?
Time to overweight BND?
Market-timing being the antithesis of most Bogleheads here, but still wanted to check what people thought about moving some equity funds to BND in the current bubble in s&p500. So basically making the AA more conservative anywhere in the range from 75:25 down to 67:33 like a 10% (or maybe lower say 5%) adjustment in case something like 2000 or 2008 appears a possibility in the next several quarters. Just checking if anyone has any insightful thoughts
Last edited by ebeb on Sun Sep 26, 2021 6:19 pm, edited 2 times in total.
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
- anon_investor
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Re: Time to overweight BND?
People said that a few years ago, they missed out on some incredible returns...ebeb wrote: ↑Sun Sep 26, 2021 6:04 pm Market-timing being the antithesis of most Bogleheads here, but still wanted to check what people thought about moving equity funds to BND in the current bubble in s&p500. So basically making the AA more conservative anywhere in the range from 75:25 down to 66:33 like a 10% (or maybe lower say 5%) adjustment in case something like 2000 or 2008 appears a possibility in the next several quarters.
Re: Time to overweight BND?
Last week BND dropped more than 0.5% in one day and fell again the next day, so that it doubled its 2021 YTD loss. While I would not overweight it, I would certainly rebalance back into it at this time. I would also sell shares that went up in price after buying them. But also be aware of the price change due to going ex-dividend and take that drop into account when making buy/sell decisions.
I hope my next BND transaction will be a Sell at a nice gain, but it is only a hope and there is no way to predict the future.
I hope my next BND transaction will be a Sell at a nice gain, but it is only a hope and there is no way to predict the future.
Re: Time to overweight BND?
I am not a fan of market timing, but I am a fan of diversification, which bonds provide for a equity-heavy portfolio like yours. You might find this recent Vanguard report of interest;
https://personal.vanguard.com/pdf/ISGBRHK.pdf
https://personal.vanguard.com/pdf/ISGBRHK.pdf
- arcticpineapplecorp.
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Re: Time to overweight BND?
what does your Investment Policy Statement (IPS) tell you to do?
you have one, right?
If not, that's why you're asking us questions instead of consulting your IPS.
you have one, right?
If not, that's why you're asking us questions instead of consulting your IPS.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
Re: Time to overweight BND?
You are right, I just figured out about my AA a year or two back, the IPS is still way over my head. Maybe will get to it some day in the future.arcticpineapplecorp. wrote: ↑Sun Sep 26, 2021 6:17 pm
If not, that's why you're asking us questions instead of consulting your IPS.
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
Re: Time to overweight BND?
My IPS is in my head, though it never changes. I consult it many times (mostly the three times a month when I invest new money). It tells me to specifically avoid bonds in a portfolio that I expect any appreciable gains from and to invest in good mutual funds with a proven track record. I invest all new funds 100/0. No to BND.ebeb wrote: ↑Sun Sep 26, 2021 6:30 pmYou are right, I just figured out about my AA a year or two back, the IPS is still way over my head. Maybe will get to it some day in the future.arcticpineapplecorp. wrote: ↑Sun Sep 26, 2021 6:17 pm
If not, that's why you're asking us questions instead of consulting your IPS.
-TheDDC
Rules to wealth building: 75-80% VTSAX piled high and deep, 20-25% VTIAX, 0% given away to banks.
Re: Time to overweight BND?
An IPS does not have to be a difficult thing. Frankly, if an IPS is over your head then you most definitely should not be messing with your AA on a whim.ebeb wrote: ↑Sun Sep 26, 2021 6:30 pmYou are right, I just figured out about my AA a year or two back, the IPS is still way over my head. Maybe will get to it some day in the future.arcticpineapplecorp. wrote: ↑Sun Sep 26, 2021 6:17 pm
If not, that's why you're asking us questions instead of consulting your IPS.
Ours only exists in written format on these forums, but we are both aware of and agreed to it.
AA: 70/30
Rebalancing schedule: twice annually, the weekend after vesting RSUs settle, if bands are off by at least 5% total, with exchanges in his active 401k, as long as possible.
All new monies go to the same stock funds that already exist in the corresponding accounts (aka, we only buy bonds when rebalancing, except I believe DH has his HSA set to purchase a small amount of bonds with each purchase, not enough to affect anything overall).
RSUs and ESPP are sold immediately, settlement funds go to TSM in taxable, unless there is an anticipated cash flow need.
If needed for cash, sell taxable according to what generates the least tax for this year, including tax loss harvesting, if available.
We only expect to make changes to this IPS when we have life events. Even downshifting next year is unlikely to change this IPS, although we will keep more of RSUs and ESPP in cash in order to max out workplace savings opportunities with a smaller salary.
Re: Time to overweight BND?
The scenarios for BND look bad.
* Fed tapers and rates go up on the longer end of the curve.
* Fed does nothing and rates remain below inflation for the foreseeable future.
For bonds today, I'm just buying I Bonds. It will take time to build them up, but I feel good not taking interest rate risk right now.
Instead, I have large equity holdings. If they grow fast enough, then I'll feel less pain when the market does drop in the future. I guess, I'm protecting against downside my maximizing upside right now. I'm not sure if I would take this approach when retired, but I don't know what else to do.
* Fed tapers and rates go up on the longer end of the curve.
* Fed does nothing and rates remain below inflation for the foreseeable future.
For bonds today, I'm just buying I Bonds. It will take time to build them up, but I feel good not taking interest rate risk right now.
Instead, I have large equity holdings. If they grow fast enough, then I'll feel less pain when the market does drop in the future. I guess, I'm protecting against downside my maximizing upside right now. I'm not sure if I would take this approach when retired, but I don't know what else to do.
Re: Time to overweight BND?
Here's a simple IPS you can implement today: When considering changing my AA, I will first sit on my hands at least thirty days before changing my AA.ebeb wrote: ↑Sun Sep 26, 2021 6:30 pmYou are right, I just figured out about my AA a year or two back, the IPS is still way over my head. Maybe will get to it some day in the future.arcticpineapplecorp. wrote: ↑Sun Sep 26, 2021 6:17 pm
If not, that's why you're asking us questions instead of consulting your IPS.
Re: Time to overweight BND?
Overweighting cash makes more sense to me. IMO bonds carry a lot of the same risk (rates, inflation, systemic viability) as equities right now though obviously of different magnitude.
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Re: Time to overweight BND?
A lot of money has been lost preparing for such things. Stick to your AA and stay
the course.
the course.
Facts are stubborn things. Everything works until it doesn’t.
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Re: Time to overweight BND?
The time to get to it is now. It's really very simple. I could sum it up bare bones as: Write down the reasons for your current AA and the reasons why you plan to change it in the future if you do plan to change it. A great starting point for a reason for a change in AA is one of two events: hitting a target number (like 25x spending) or reaching retirement. You should have at the very least these simple elements in writing so you can consult them when you start thinking about tinkering.ebeb wrote: ↑Sun Sep 26, 2021 6:30 pmYou are right, I just figured out about my AA a year or two back, the IPS is still way over my head. Maybe will get to it some day in the future.arcticpineapplecorp. wrote: ↑Sun Sep 26, 2021 6:17 pm
If not, that's why you're asking us questions instead of consulting your IPS.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
Re: Time to overweight BND?
When the market is at its peak I rebalance more frequently and tend to be few percent more conservative.
I prefer active bond funds over BND, since it is easier to see interest rate trends.
I prefer active bond funds over BND, since it is easier to see interest rate trends.
- Devil's Advocate
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Re: Time to overweight BND?
5% move either way will make very little difference to most investors. Stay the course.
DA
DA
Re: Time to overweight BND?
I guess the only risk is the anticipated bubble burst doesn't happen for a long time and you end up missing out on potential growth.
Re: Time to overweight BND?
Just checked my AA and I am close to 5% deviation. So tomorrow if it stays the same I am going to convert some equity to bonds in my 401K.
Re: Time to overweight BND?
Here's the thing:ebeb wrote: ↑Sun Sep 26, 2021 6:04 pm Market-timing being the antithesis of most Bogleheads here, but still wanted to check what people thought about moving some equity funds to BND in the current bubble in s&p500. So basically making the AA more conservative anywhere in the range from 75:25 down to 67:33 like a 10% (or maybe lower say 5%) adjustment in case something like 2000 or 2008 appears a possibility in the next several quarters. Just checking if anyone has any insightful thoughts
- If you are considering adjusting your AA and making it more conservative because you're worried about the possibility of a market downturn or crash, then your current AA is too aggressive. If you're not prepared to handle something like 2000 or 2008 with your current AA, then you are exceeding your risk tolerance. You don't change your AA because you think something is maybe about to happen. You choose an AA that allows you to best tolerate almost anything happening, at any time, for who knows how long. One that you are willing to hold when the market is soaring, when the market is crashing, when the market is going sideways, when bond yields are high, when bond yields are low, when rates are rising, when rates are falling, when we are experiencing stable inflation, when we are experiencing higher than expected inflation, when we are experiencing disinflation, etc.
- If you are considering temporarily adjusting your AA in order lose less on the downside and then adjusting it right back again later in order to make more on the upside, then that's tactical asset allocation, which is hard to get right. There are a lot of people who get paid to try to do that and still don't get it right. If you are wrong about the "when" of the downside, you may very well change it back again and go "oops, missed out on gains" before the downside occurs only to go "oops, now it's going down" once it does occur. If you do get that "when" right (or just hold on long enough for the downside out of sheer tenacity), then you have to be right about the "when" of the upside. If you are wrong about that, then you either go "oops, it's still going down" or "oops, missed out on gains". And even if you hold on to the temporary adjustment long enough both ways, it could end up making no difference (or be worse) than just holding your original AA the whole time. The potential for dissatisfaction is high.
So... are you willing to hold your current AA come what may? If not, which AA would you be willing to hold?
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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Re: Time to overweight BND?
The 5-yr treasury rate has climbed from 0.36% to 0.97% in 2021 as of 9/26. Despite that large rise in rates, the total return of BND was -1.15% over the period, and now has an SEC-yield of 1.31%. BND has returned 6.47% since 1/1/2020. Cash has returned about 0.5% since 1/1/2020.
Re: Time to overweight BND?
I suggest looking at some sample IPS’s for ideas and then getting a simple IPS written as it will almost certainly save you headaches and money both now and down the road.ebeb wrote: ↑Sun Sep 26, 2021 6:30 pmYou are right, I just figured out about my AA a year or two back, the IPS is still way over my head. Maybe will get to it some day in the future.arcticpineapplecorp. wrote: ↑Sun Sep 26, 2021 6:17 pm
If not, that's why you're asking us questions instead of consulting your IPS.
Re: Time to overweight BND?
My only question right now is a bond mutual fund vs cash for the money waiting to go into I bonds, have no intention of altering investment ratios due to recent performance. Frankly I am not that interested in BND yet. It offers daily volatility that can be comparable to 1/2 of expected annual return. That is a pretty raw deal for an extra few hundred a year in income. If it falls below $80 a share that might be a sign that it is selling at a reasonable price for the volatility you must accept. It was a good deal around this time 2018.
70% Global Stocks / 30% Bonds
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Re: Time to overweight BND?
I suspect BND has more downside risk at the moment than SPY. Rates are probably heading higher.
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Re: Time to overweight BND?
There is a saying that a bad year for bonds is like a bad day for stocks. Armageddon for BND is like a bad week for SPY. Rates have been sharply higher already this year.Escapevelocity wrote: ↑Mon Sep 27, 2021 7:57 am I suspect BND has more downside risk at the moment than SPY. Rates are probably heading higher.
Historical max drawdowns are shown here:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
Re: Time to overweight BND?
I am a bit light on bonds for my age (which is 47), as I am expecting a pension with a 2% annual COLA, as well as SS for myself and hubby. The pension and SS should be enough to cover our basic necessities, which allows me to take more risk (or less risk) with my portfolio if I choose. Since I still have 20 years to go before I plan to retire, I am choosing to put 15% of my AA in bonds. I have found that just to maintain that 15% allocation in bonds over the past several years I have had to direct almost 30% of new monies into bond funds. But I am not considering changing my AA right now. My IPS (which exists only in my head and as embodied on my tracking spreadsheets) calls for me to reevaluate my AA and saving/investing plans every 5 years. I reevaluated at 45, and will do so again at 50. In the meantime I use rebalancing bands and direct new monies towards lagging assets to maintain AA.
I just started buying I bonds this year, but I think of those as part of my emergency fund rather than my bond allocation.
I just started buying I bonds this year, but I think of those as part of my emergency fund rather than my bond allocation.
Tell me, what is it you plan to do with your one wild and precious life? |
~Mary Oliver
Re: Time to overweight BND?
Nobody told me the S&P was in a "current bubble."
I need to get out more.
I need to get out more.
Re: Time to overweight BND?
Yeah you got the scoop now, I get out more but only on bogleheads...what with all the covid and other bad stuff flying around
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
Re: Time to overweight BND?
So many problems here.Northern Flicker wrote: ↑Mon Sep 27, 2021 2:01 amThe 5-yr treasury rate has climbed from 0.36% to 0.97% in 2021 as of 9/26. Despite that large rise in rates, the total return of BND was -1.15% over the period, and now has an SEC-yield of 1.31%. BND has returned 6.47% since 1/1/2020. Cash has returned about 0.5% since 1/1/2020.
That is not a large rise in rates.
Cash in a HYSA returned more than 0.5% since 1/1/2020.
You are comparing an instrument with 7 years of duration risk to one with 0.
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Re: Time to overweight BND?
1. If you are thinking that you need to adjust your AA because you think the S&P is in a bubble, then you probably have your AA set too high already because you aren't comfortable with the possibility of a large drop in equity prices.
2. Adjusting your AA by 5% or even 10% won't really make a huge difference anyway, so I wouldn't worry too much about it.
2. Adjusting your AA by 5% or even 10% won't really make a huge difference anyway, so I wouldn't worry too much about it.
Re: Time to overweight BND?
Remember the other part of the reason market timing is so difficult: you have to be correct twice.ebeb wrote: ↑Sun Sep 26, 2021 6:04 pm Market-timing being the antithesis of most Bogleheads here, but still wanted to check what people thought about moving some equity funds to BND in the current bubble in s&p500. So basically making the AA more conservative anywhere in the range from 75:25 down to 67:33 like a 10% (or maybe lower say 5%) adjustment in case something like 2000 or 2008 appears a possibility in the next several quarters. Just checking if anyone has any insightful thoughts
Guess when to get out
Guess when to get back in.
Keep your AA and rebalance periodically.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." |
|
--Jason Zweig, quoted in The Bogleheads' Guide to Investing
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Re: Time to overweight BND?
The 5-yr treasury rate has nearly tripled this year.000 wrote: ↑Mon Sep 27, 2021 3:45 pmSo many problems here.Northern Flicker wrote: ↑Mon Sep 27, 2021 2:01 amThe 5-yr treasury rate has climbed from 0.36% to 0.97% in 2021 as of 9/26. Despite that large rise in rates, the total return of BND was -1.15% over the period, and now has an SEC-yield of 1.31%. BND has returned 6.47% since 1/1/2020. Cash has returned about 0.5% since 1/1/2020.
That is not a large rise in rates.
Cash in a HYSA returned more than 0.5% since 1/1/2020.
You are comparing an instrument with 7 years of duration risk to one with 0.
Not sure what problems you are referring to-- these are actual outcome data. Intermediate treasury rates rose 60-65 basis points over 9 months, and BND returned -1.15%. Its duration is 6.8 years, but the return was not -4.28% as would be calculated by multiplying the rate rise and duration -(0.63 x 6.8). Bonds may lose value if rates rise, but many people overestimate the magnitude of the effect. Duration estimates the impact of a 100 bp instantaneous rise in rates on a single bond. The effect of such a rise in rates over a longer period for a properly designed bond portfolio is much less pronounced.
The graph for this backtest shows the differences in ups and downs of stocks and bonds visually:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
We are not talking about the high interest rate risk of EDV (which I think most individual investors should avoid):
https://www.portfoliovisualizer.com/bac ... ion3_3=100
Re: Time to overweight BND?
BND is OK. I own it, but it's not a major holding because BND holds a lot of investment grade/corporate bonds.ebeb wrote: ↑Sun Sep 26, 2021 6:04 pm Market-timing being the antithesis of most Bogleheads here, but still wanted to check what people thought about moving some equity funds to BND in the current bubble in s&p500. So basically making the AA more conservative anywhere in the range from 75:25 down to 67:33 like a 10% (or maybe lower say 5%) adjustment in case something like 2000 or 2008 appears a possibility in the next several quarters. Just checking if anyone has any insightful thoughts
I would go with a fund or ETF with safer holdings....like TIPS/treasuries.
I like munis better than investment grade/corporate holdings. Munis aren't a fit for everyone.
If you haven't read these books, maybe take a look:
viewtopic.php?p=5372762#p5372762
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Re: Time to overweight BND?
Maybe even consider writing in a new post on the forum. That way you can ask for help with any of the pieces you don't understand. Plus you can benefit from the collective wisdom of other Bogleheads to help you refine it further as needed.birdog wrote: ↑Mon Sep 27, 2021 4:07 amI suggest looking at some sample IPS’s for ideas and then getting a simple IPS written as it will almost certainly save you headaches and money both now and down the road.ebeb wrote: ↑Sun Sep 26, 2021 6:30 pmYou are right, I just figured out about my AA a year or two back, the IPS is still way over my head. Maybe will get to it some day in the future.arcticpineapplecorp. wrote: ↑Sun Sep 26, 2021 6:17 pm
If not, that's why you're asking us questions instead of consulting your IPS.
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
Re: Time to overweight BND?
Trying to keep this straight in my head. While agree that single bond will lose value when interest rate rises with no chance of later recovery till maturity, BND consisting of thousands of bonds with different maturity would probably lose value during the term when interest rates rise but holding it for the longer period would probably bring it back to higher value again once the feds start reducing interest rates at the next crisis as it happened from 2016-2019 rate rise and 2019-2021 drop. And with the current equity bubble the feds hands may be forced sooner than later to drop rates after they start raising it. Interestingly 2021 seems to be only the 4th time since early 1990s when Total Bond index annual return may be in negative.Northern Flicker wrote: ↑Mon Sep 27, 2021 5:00 pm
Duration estimates the impact of a 100 bp instantaneous rise in rates on a single bond. The effect of such a rise in rates over a longer period for a properly designed bond portfolio is much less pronounced.
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
Re: Time to overweight BND?
BND may lose value temporarily when interest rates rise, or it may not. If it does temporarily lose value, it may regain that prior to any future reduction in interest rates.ebeb wrote: ↑Mon Sep 27, 2021 9:10 pmTrying to keep this straight in my head. While agree that single bond will lose value when interest rate rises with no chance of later recovery till maturity, BND consisting of thousands of bonds with different maturity would probably lose value during the term when interest rates rise but holding it for the longer period would probably bring it back to higher value again once the feds start reducing interest rates at the next crisis as it happened from 2016-2019 rate rise and 2019-2021 drop. And with the current equity bubble the feds hands may be forced sooner than later to drop rates after they start raising it. Interestingly 2021 seems to be only the 4th time since early 1990s when Total Bond index annual return may be in negative.Northern Flicker wrote: ↑Mon Sep 27, 2021 5:00 pm
Duration estimates the impact of a 100 bp instantaneous rise in rates on a single bond. The effect of such a rise in rates over a longer period for a properly designed bond portfolio is much less pronounced.
BND will probably lose value temporarily if rates rise unexpectedly (like if they suddenly decided to raise FFR to 1-1.25% at the next meeting). That is incredibly unlikely. I'm reasonably sure the "let's break it and see what happens" mentality doesn't fly over there anymore. They are doing their very best to signal literally everything. If everyone is talking about it, then it's expected. Expected rate raises are factored into the price already. Expected rate increases don't have anywhere near the effect that some people seem to think.
Just like stock funds, bond funds fluctuate in value. Only a whole lot less dramatically (as long as you manage duration to an intermediate range).
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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Re: Time to overweight BND?
A large bond portfolio such as BND has bonds maturing regularly, I would think daily, and being reinvested at the new higher rate. Bond coupon payments not only provide a source of return to offset principal loss, but are reinvested at the new higher rate. And as bonds get closer to maturity, their duration shortens. The effect of a past rate increase is not a constant effect, but decreases as the bond gets closer to maturity.ebeb wrote: ↑Mon Sep 27, 2021 9:10 pmTrying to keep this straight in my head. While agree that single bond will lose value when interest rate rises with no chance of later recovery till maturity, BND consisting of thousands of bonds with different maturity would probably lose value during the term when interest rates rise but holding it for the longer period would probably bring it back to higher value again once the feds start reducing interest rates at the next crisis as it happened from 2016-2019 rate rise and 2019-2021 drop. And with the current equity bubble the feds hands may be forced sooner than later to drop rates after they start raising it. Interestingly 2021 seems to be only the 4th time since early 1990s when Total Bond index annual return may be in negative. :shock:Northern Flicker wrote: ↑Mon Sep 27, 2021 5:00 pm
Duration estimates the impact of a 100 bp instantaneous rise in rates on a single bond. The effect of such a rise in rates over a longer period for a properly designed bond portfolio is much less pronounced.
This is not to say that BND is without risk, but it is not comparable to equity risk. Moreover, overall portfolio risk is what matters.
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Re: Time to overweight BND?
This isn't alot of data, but a 50-50 mix of intermediate treasuries and short-term TIPS has experienced a smaller max drawdown than either asset class alone over the period in question:
https://www.portfoliovisualizer.com/bac ... tion2_3=50
https://www.portfoliovisualizer.com/bac ... tion2_3=50
Re: Time to overweight BND?
Adding into the mix 33:33:34% BND seems to give the best CAGR with bit higher drawdown.
https://www.portfoliovisualizer.com/bac ... tion3_3=34
https://www.portfoliovisualizer.com/bac ... tion3_3=34
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
Re: Time to overweight BND?
That is only 8 years of data mind you, assuming it will be the same in the future seems bold. That said, specific bond fund selection probably isn't all that important compared to say percentage of equities owned.ebeb wrote: ↑Tue Sep 28, 2021 3:20 pm Adding into the mix 33:33:34% BND seems to give the best CAGR with bit higher drawdown.
https://www.portfoliovisualizer.com/bac ... tion3_3=34
Re: Time to overweight BND?
Although the correlation of bonds and interest rates is well know, I continue to buy to my asset allocation. My portfolio goes up and down. that’s just part of investing.
"I started with nothing and I still have most of it left."
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Re: Time to overweight BND?
ebeb I found https://www.whitecoatinvestor.com/how-t ... statement/ to be helpful as a template and then I just changed the details to fit me. The WCI site is bogged down with ads, so I copied it without formatting to a Word document, printed it out, annotated it, and then made a Google doc.ebeb wrote: ↑Sun Sep 26, 2021 6:30 pmYou are right, I just figured out about my AA a year or two back, the IPS is still way over my head. Maybe will get to it some day in the future.arcticpineapplecorp. wrote: ↑Sun Sep 26, 2021 6:17 pm
If not, that's why you're asking us questions instead of consulting your IPS.
Then every time I make a change, I put in the date I make the change so I can lock myself out of implementing that change for 30 days so as to avoid doing anything dumb.
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Re: Time to overweight BND?
I absolutely agree. I do not understand the appeal of bonds. In fact CD's ,which are better than bonds now, will actually start increasing interest payouts soon. Your $ in CD's never go down in value...and they do not lose value to inflation nearly as much as some investors claim. CD's get a bad rap.
To each investor their own
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Re: Time to overweight BND?
CDs lose value when interest rates rise. They just aren't marked-to-market daily like bond funds are. If you buy a CD that pays a 1% APR ewuivalent with compounding and rates rise so that you could be 2% APR with compounding, then your CD is now equivalent to a smaller CD earning the higher yield with compounding, but that returns the same amount of cash (principal + interest) to you at maturity. The two just have different proportions of principal and interest in their maturity value.Engaging in sloth wrote: ↑Tue Sep 28, 2021 3:50 pmI absolutely agree. I do not understand the appeal of bonds. In fact CD's ,which are better than bonds now, will actually start increasing interest payouts soon. Your $ in CD's never go down in value...and they do not lose value to inflation nearly as much as some investors claim. CD's get a bad rap.
To each investor their own :D
Last edited by Northern Flicker on Tue Sep 28, 2021 4:15 pm, edited 1 time in total.
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Re: Time to overweight BND?
Northern Flicker wrote: ↑Tue Sep 28, 2021 4:04 pmCDs lose value when interest rates rise. They just aren't marked-to-market daily like bond funds are.Engaging in sloth wrote: ↑Tue Sep 28, 2021 3:50 pmI absolutely agree. I do not understand the appeal of bonds. In fact CD's ,which are better than bonds now, will actually start increasing interest payouts soon. Your $ in CD's never go down in value...and they do not lose value to inflation nearly as much as some investors claim. CD's get a bad rap.
To each investor their own
Bonds lose more $
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Re: Time to overweight BND?
Not so. see my edit. Bonds with credit risk may lose more due to risks beyond interest rate risk. If you buy a 5 year treasury at 1% or 5 yr CD at 1% with the same interest payment schedule, and hold to maturity, they will have the same value.
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Re: Time to overweight BND?
Right. Also the overall portfolio risk should be what is evaluated. We might see a different result if we have persistent high inflation, but among intermediate bond subclasses, treasuries exclusively have been the best diversifier of equity risk over the past 25+ years.Da5id wrote: ↑Tue Sep 28, 2021 3:28 pmThat is only 8 years of data mind you, assuming it will be the same in the future seems bold. That said, specific bond fund selection probably isn't all that important compared to say percentage of equities owned.ebeb wrote: ↑Tue Sep 28, 2021 3:20 pm Adding into the mix 33:33:34% BND seems to give the best CAGR with bit higher drawdown.
https://www.portfoliovisualizer.com/bac ... tion3_3=34
A 60/40 portfolio optimized to miminize variance or maximize sharpe ratio or minimize conditional value-at-risk or minimize max drawdown where the bond portfolio may be drawn freely from various intermediate-term bond subclasses has over the last 25 years achieved the optimal configuration with treasuries as the only bond holding:
https://www.portfoliovisualizer.com/opt ... ints=false
https://www.portfoliovisualizer.com/opt ... ints=false
https://www.portfoliovisualizer.com/opt ... ints=false
https://www.portfoliovisualizer.com/opt ... ints=false
Re: Time to overweight BND?
There is always the possibility that the market will drop like 2000 or 2008, or even 1929! Events like these can come suddenly and without warning.ebeb wrote: ↑Sun Sep 26, 2021 6:04 pm Market-timing being the antithesis of most Bogleheads here, but still wanted to check what people thought about moving some equity funds to BND in the current bubble in s&p500. So basically making the AA more conservative anywhere in the range from 75:25 down to 67:33 like a 10% (or maybe lower say 5%) adjustment in case something like 2000 or 2008 appears a possibility in the next several quarters. Just checking if anyone has any insightful thoughts
So, my first thought is you have too much in equity. When choosing an allocation you must consider need, ability and willingness. Your question says you don't have the willingness or possibility ability to hold as much risk as your current AA has.
What is your current asset allocation (AA)?
What ever it is, lowering it enough to accept market fluctuation without considering getting out of equities is required. Jumping in and out of equity based on concerns or worries simply does not work and ends up providing much lower returns over time.
Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.