Elizabeth Richardson wrote:
- quote -

I'm trying to retain what I have,
and therefore the bond funds - Vanguard VBMFX and VFIIX -

Thanks everyone for all the food for thought. Oddly, I feel reinforced
in my strategy of temporarily surfing gov't bonds because their
imploding interest rates lead to capital gains. This trend should
backfire as soon as rates stabilize or reverse, so by then I hope the
end of debt crises will stop the capital erosion of higher yielding
instruments like corporate bonds and bank loan funds. I hate to have
to watch for the inflection point, so was hoping to set up auto ETF
trade triggers.

The goal of holding bond funds for me is certainly not a hold-forever
profit center, it is just ballast for a ship predominantly holding
stocks. It's purpose is to offer emergency liquidity during stock
setbacks, but at not too high of a cost (like the ridiculous money
market rates now). If you need emergency money during a stock setback
you should not liquidate that stock because of the high opportunity
cost (ie. it is expected to cyclically rebound a high percentage).

I'm sort of a bond-retard, but I gather the current situation can be
summarized by clicking on the 3month sort of
http://news.morningstar.com/fundRetu...ryReturns.html and
scrolling down to bond type total returns. Only gov't is showing life,
but according to http://finance.yahoo.com/bonds/composite_bond_rates
you can see this is not due to the pathetic interest rates but a
flight to quality giving some temporary cap gains. This can only go so
far and can reverse badly to capital erosion (must be what the pundits
are yelling about).

BTW if you peek at the 5yr return on morningstar you see outsize
returns typical for emerging market bond funds. I don't consider this
part of the low-volatility ballast for my ship, but more like part of
the stock. I was hoping for various decoupled high return things to
reduce the need for low-return ballast, but it didn't work too well.
Bonds are no magic bullet though; as a youngster I inherited some 3%
ones during the insane inflation of the Carter admin. Sold them for a
tiny fraction of their face value - essentially worthless.

"Elle" <honda.lioness[at]nospam.earthlink.net> writes:

- quote -

No, I haven't made any changes due to concerns over bond rating
agencies. Just pointing out that I've already tried to diversify my
bond holdings within the limits of my constraints (muni bonds
in taxable account, what's available in my 401(k) plans), and that
since I'm taking a long-term view of my investments it's not critical
for me to preserve principal at all costs in the short term.

-Sandra the cynic

"dumbstruck" <dumbstruc[at]gmail.com> wrote in message
news:8a23308a-0249-4ccc-9ad5-a37f09b40117[at]c4g2000hsg.googlegroups.com...
- quote -

Lots of comments re: bond stratety. Are you looking to hold bonds that are
long term, medium term, or short term? Each will have a different
volatility. Personally, I own Vanguard's short term bond fund, which has
less volatility, and I am holding as a portion of my cash position. I also
have an allocation in a long term index fund, because long term is the only
option for our 401k. Long term funds have much more volatility; perhaps you
will want to see if short or medium funds are more suitable for your
cirumstances/risk tolerance.

Elizabeth Richardson

On Jan 25, 7:50 am, kastnna <kast...[at]auburnalum.org> wrote:
- quote -

I agree that this is timing the market, but, IMHO, it is
foolish to buy into bonds when you know for sure (by
minutes from Fed meetings) that interest rates are
going up.

Like wise, it would seem that it would be obvious that
buying into a bond fund is a good idea once rate cuts
begin. Except that I now have no idea what the debt
rating of a bond fund really is and I don't have the patience
to read the fine print in the funds' prospectus, and
hence I've been sticking with stable value/MM funds.

Anoop

"dumbstruck" <dumbstruc[at]gmail.com> wrote in message
news:8a23308a-0249-4ccc-9ad5-a37f09b40117[at]c4g2000hsg.googlegroups.com...
- quote -

I have not adjusted strategy except to be more suspicious of Fidelity bond
funds. All bond funds, including index funds and ETFs, select specific
issues to invest in. Fidelity has tended to try to boost performance by
overweighting MBSs. (In the past, Vanguard has attempted to boost
performance in its total bond index fund by overweighting corporates.)

Generally I do not use Treasuries, because the extra safety offered is not
of particular value, and in times when it would appear to have real value
(like now), they are still overpriced. On the rare occasions when I do use
Treasuries, I purchase short terms (bills), and don't incur the overhead of
a fund (which adds no value in issue selection).

For domestic "investment grade" bond investing, I prefer using funds that
are managed by houses that specialize in them, and do their own ratings (and
may invest significantly in unrated bonds). If they have adequate in-house
expertise, they can add value through knowledge of the individual securities
as well as of the market. Especially in this environment, this lessens the
risks/conflicts of interest associated with the NRSROs (Nationally
Recognized Statistical Rating Organizations).

Some examples of funds/families: Baird Core Plus Bond (BCOIX), Met West
Total Bond (MWTRX), Westcore Plus Bond (WTIBX). I would rather delegate the
allocation strategy to funds like these, that have fairly wide ranging
mandates.

Finally, munis may offer a good opportunity as insurers get downgraded.
Munis tend to be quite secure, and insurance more of a marketing tool than
something offering real value, so as insured munis get "downgraded" because
of their insurer's downgrades, the market may overreact (especially
institutions with strict requirements).

Mark Freeland
BnetOnewsX[at]sbcglobal.net

"Elle" <honda.lioness[at]nospam.earthlink.net> wrote:

- quote -

True, but the rating agencies sold their souls to the devil in the process. How
can we trust them? I guess we could believe that they understand more
conventional debt instruments better. I guess we could believe that, couldn't
we? Couldn't we?

-- Doug

On Jan 25, 2:20*am, anoop <ghanw...[at]gmail.com> wrote:

- quote -

How will we know "when interest rates have stablilized"? Historically,
there little evidence to suggest they do.

http://www.newyorkfed.org/markets/st...s/fedrate.html
http://www.bus.ucf.edu/dpi/Special%2...nds%20Rate.htm

How is this any different than trying to time the market?

"Sandra Loosemore" <noreply[at]frogsonice.com> wrote
- quote -

Sure. People go with their best information. Mine is the
proverbial hunch, based hopefully in the reading of
thoughtful, fact-filled reports. Practically speaking, how
trusting are you right now of the bond rating agencies? Does
the allocation you posted reflect changes due to what's
happened recently? From what you wrote, I am not quite sure
you made changes.

snip; please look back
- quote -

I would think the ratings reflect this difference between
high yield munis and high yield corporates.

"Elle" <honda.lioness[at]nospam.earthlink.net> writes:

- quote -

But it's not very useful to divide bonds into "good" and "garbage",
if we can't trust the folks doing the division. :-)

- quote -

I think the best strategy is to diversify your bond holdings, don't
make big bets on overly-specialized funds, etc. And, stay in it for
the long term. If you need money for the short term and cannot
tolerate any loss of principal, you'd better keep it in cash instead.

FWIW, I've had the majority of my bond allocation in a state-specific
muni bond fund (VMATX) for the last year or more, and smaller chunks
in LSBDX (available through a past employer's 401K plan) and FBNDX
(about the only choice for a core bond fund in my current employer's
plan). And I used my last chunk of bond money to buy a small stake in
PRFHX for further diversification on the tax-free side; high-yield
munis are supposed to be very low risk compared to high-yield
corporate bonds, so I'll wait and see.

-Sandra the cynic

"dumbstruck" <dumbstruc[at]gmail.com> wrote
- quote -

I think their message is for people either (1) with short
timeframes; (2) who buy all the palaver of media "analysts"
(whose expertise is very doubtful, succumbing as the media
has in recent decades to reporting such that they can sell
commercial time to advertisers, and so often lacking the
wisdom that only comes from long experience with the
markets); (3) currently a response to the lowering of the
Fed's benchmark rate; or (4) a combination.

Maybe cite a specific article, and we could discuss it, in
brief, here.

What I want is about 20-30% of my portfolio
- quote -

I think you need to look to the long term with your bonds.
They are, after all, not entirely immune to volatility. I
presume your bonds (if all in the aforementioned "good"
category) took a much smaller hit than stocks. That's the
point of holding them.

Especially when you are talking about stop-loss orders, I
think you need to take a breath and go hunt down
commentators with long experience. Do not chase returns.
Much as you want to "beat the market" by adjusting your
allocations, slow and easy wins the race.

"anoop" <ghanwani[at]gmail.com> wrote
- quote -

hit. Seems to me the media would have reported on bonds
besides MBS that took a hit. I suppose corporate bond
ratings are still about as valid as they formerly were.
Money markets have stayed in fine shape. But funds like GE's
"Enhanced cash fund" (which I think was known to invest in
MBS) did not, due to its exposure to MBS. You can find a
discussion on the GE fund here in November.

Of course the recent correction to yields on money market
and "good" bond funds is due to the Fed's lowering of the
benchmark yada rate the other day.

Interest rates have been on the low side since about 2001.
But the Fed's job is to control the money supply to minimize
inflation and recession. Interest rates have always varied
as a result. Have they been unusually volatile? I don't
think so, but someone else might want to google and post
here.

Of note perhaps is that bank (U.S. and overseas) preferred
stocks took a huge hit recently but seem to be recovering.
Non-bank preferreds, not so much. This reflects investors'
doubtfulness about the banking system. Remember, banks have
long been priced on the low side when it comes to P/Es.
Arguably this crisis is one reason why. It's perfectly
reasonable for investors to doubt all issues of a bank,
preferred, common stock, whatever, in this situation.

I personally was glad the European Central Bank left
interest rates unchanged, following the cut here. This gives
me more confidence in the integrity of the world economy in
the coming months. Not that the U.S. Fed's rate cut was
wrong. That still remains to be seen, IMO.

1.5 cents

On Jan 24, 1:36*pm, "Elle" <honda.lion...[at]nospam.earthlink.net> wrote:
- quote -

Yeah, I'm puzzled because a lot of commentators from the bond trading
pits seem to say to flee treasuries and other stuff... for reasons I
don't understand. What I want is about 20-30% of my portfolio
stablized or at least relatively decoupled from stock returns. Used to
keep that about half and half bonds and money market, but over several
stock crashes the bonds sagged as well, and the MM can be low return
anyway.

So more recently (for non-stocks) I have used a collage of hedge-like
things including intnl reits, bank loan funds, emerging market bond
funds, commodities, and long-short funds. These mostly swooned
together recently (in a delayed fashion, giving false reassurance) so
I moved more to the traditional bond funds. These are doing pretty
good, but I can't make sense of the risks that are being repeated on
the news. Might be most reassuring if there was a zero-coupon bond ETF
which I could protect with a stop-loss sell order, but I don't know of
any. Well, I find the emerging debt funds give huge returns over time
if you just wait out the storms, but that doesn't satisfy my hedging
desire.

On Jan 24, 3:36 pm, "Elle" <honda.lion...[at]nospam.earthlink.net> wrote:

- quote -

Now that we can no longer trust the bond rating agencies,
how do we go about deciding what bond/bond fund will
be good? I had planned to buy into a bond index fund
when interest rates stabilized, but with all the subprime
mess, I've just stayed with a stable value/money market
fund.

Anoop

What overall allocation strategy are you using?

Your query puzzled me, because AFAIC, there are only two
bond categories: Good and garbage. Good includes CDs,
treasuries, and what's called high quality "investment
grade" corporate bonds. The garbage includes junk bonds, the
issues of certain undeveloped countries, etc.

The typical online asset allocator is referring only to the
good ones when it spews out a percentage for bonds.

If you're asking about mortgage backed securities, they have
been an anomaly this past year. They once were what I would
call a bond fund with more risk than the "good" bond funds,
and less risk than junk bond funds. What happened to them
makes me not trust the bond rating agencies anymore.

It also sounds like you are trying to chase bond returns.
That's a mistake. The good ones are not very volatile. They
just hum along, earning the "prevailing interest rate," and
reduce your portfolio's overall volatility. Letting a person
sleep at night.

In article
<8a23308a-0249-4ccc-9ad5-a37f09b40117[at]c4g2000hsg.googlegroups.com> ,
dumbstruck <dumbstruc[at]gmail.com> wrote:

- quote -

I don't see bonds as a good bet for the small investor. You
cannot possibly own enough bonds to get over the risk of default,
and even high rated bonds are going into default. Bond funds
would seem to increase diversity, but they end up being mostly
bets on interest rates, and those look like they will be falling
until a new government is formed and gets the economy back on track.

-john-

--
================================================== ====================
John A. Weeks III * * * * * 612-720-2854 * * * * * *john[at]johnweeks.com
Newave Communications * * * * * * * * * * * * http://www.johnweeks.com
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Any thoughts about bond allocation strategy in light of recent events?
Hold steady, or change the percentage or type of bond holdings?

Commentators are saying the Treasuries are terrible values now, due to
flight to quality raising costs and falling interest rates. I guess so
if you want to hold to maturity, but if you are holding a mutual fund
or etf for a limited time, things are looking pretty good as your old
inventory increases in value.

Bank loan funds have been a great disapointment, continually losing
value due to the crises. Commentators say the next good bond area will
be corporates, after the bottoming has happened and defaults start to
look less likely. Tempted to go the bond ETF route in the future
because can maintain stop loss orders over them...