Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Thanks for the tips. I will keep my eye on these funds.
Do you think there is an ideal time to get into a bond fund?
You're welcome. Is there an ideal time to get into a bond fund? Sure, but just as with stocks/stock funds, you only know that in retrospect.
Quote:
Originally Posted by Parker501
For example, hypothetically, lets say the Fed raises rates twice more this coming year and you suspect the economy is starting to take a turn for the worse. Your suspicion is rates will then start to be dropped to help with a pending recession. Is this the best time to buy? When rates are higher but you suspect they are dropping soon?
Sure, it's always better to buy when rates are high, but .5% or even 1% higher really isn't much unless you buy a long term bond fund....but they can be very volatile and generally only have slightly better long term returns than intermediate term bond funds despite having a lot more volatility. Short term bond funds don't lose as much when interest rates go up, but they don't make that much when they come down, either. Intermediate term bond funds are sort of the sweet spot as far as returns/volatility go.
Honest bond fund managers (like the folks at Dodge & Cox) will tell you that it's very, very tough to predict the short term direction of interest rates.
Right now, the bargains (and I use that term loosely) are in the riskier bond categories. High Yield bonds are paying much better interest rates than just a few weeks ago, but they are still at pretty low levels, historically speaking. Some non-US bonds and currencies are also considered a good value right now. But international/global bond funds are also much riskier than your typical intermediate term investment grade bond fund.
One of my favorite aggressive bond funds, Looomis Sayles Bond (LSBRX), is down almost 8% year to date. I've been buying extra shares this year, including recently, but I've held the fund for over a decade. That's how you make money over the long run, whether it be stocks or bonds or anything else. You buy regularly, and/or you add extra money when the fund is down. Another one of my favorites, Templeton Global Bond, is down almost 4% YTD. I add money regularly through my workplace retirement plan. Emerging market bond funds invest in corporate and government debt in emerging markets/currencies and they generally have had good returns over the last decade...but over the last 3-4 years, they've experienced flat or negative returns. This might be a good time to get into an emerging markets bond fund like T. Rowe Price Emerging Markets Bond or Fidelity New Markets Income. But these are risky categories, so it's not out of the question that they could still be flat or down over the next year or two.
So don't expect to make a quick buck in bond funds. Bonds in general aren't really designed for that. They're designed for steady and reasonably safe returns. The more aggressive categories are more like stocks in terms of volatility. The better funds in the aggressive categories (emerging markets/high yield/global/international/multisector) do get better returns, but we're still taking single digits here, nothing spectacular.
If one insists on being aggressive, a good fund to look at might be Fidelity Strategic Income (FSICX). Like Loomis Sayles Bond, it's a multisector fund that invests in a mix of high grade US bonds (government and corporate) but can also invest a certain percentage outside the US as well as in junk/high yield bonds. It has a reasonable expense ratio of .69% and decent returns in the mid-high single digits without crazy volatility (but it still will have tough years, as it did in 2008, when it lost 11%). But it is also down just over 2% YTD. Its 3 year returns are an uninspiring .75% and its 5 year returns a somewhat better, but far from spectacular 3.63%. Since junk bonds and a lot of foreign bonds/currencies have gotten beaten up lately, this is a better entry point for aggressive bond funds, but that doesn't mean the bonds they own are super cheap--just a better value than they were.
be careful with loomis sayles bond fund . they could be one of those funds with potential liquidity issues .
it has been brought to light almost 1/3 of the fund contains bonds that are not liquid and have little trading ability if needed . .
there is a reason it is down 8% and that is after all the interest is included . so it has actually tumbled more than the 8% to wipe away all the interest too ..
the failure of the 3rd ave fund shows just how important a funds liquidity is . when investors wanted out of the 3rd ave fund , it was holding to much in illiquid bonds and could not meet redemption's . the fund was locked and it is predicted investors may not be able to see their money for a year or longer and at what price they will be redeemed is open ended . .
the loomis sayles bond fund holds 28% in non liquid bonds , just a tad below dodge and cox at 31% .
be careful with loomis sayles bond fund . they could be one of those funds with potential liquidity issues .
it has been brought to light almost 1/3 of the fund contains bonds that are not liquid and have little trading ability if needed . .
there is a reason it is down 8% and that is after all the interest is included . so it has actually tumbled more than the 8% to wipe away all the interest too ..
the failure of the 3rd ave fund shows just how important a funds liquidity is . when investors wanted out of the 3rd ave fund , it was holding to much in illiquid bonds and could not meet redemption's . the fund was locked and it is predicted investors may not be able to see their money for a year or longer and at what price they will be redeemed is open ended . .
the loomis sayles bond fund holds 28% in non liquid bonds , just a tad below dodge and cox at 31% .
Thanks for the warning. If LSBRX tanks, I guess I will just add to it like I did in 2008. It really bounced back in 2009. I know there are no guarantees, but if we get a year worse than 2008, we're totally screwed anyway.
I'm a new investor and have no formal business training.
I was hoping someone can give me a brief overview of how the bond market works?
I know there are a few types (corporate, government, municipal). Are junk bonds sort of a small corporate bond and therefore more risky? Also, from what I know when you are looking at the bond market its not good for the values (rates?) to increase because the bond you previously bought is now worth less?
Some people I've heard discussing bonds make them sound like they are guaranteed to make you money vs. the stock market. Are bonds safe? 100% safe?
Finally, how does a regular person invest in bonds? I have some in my mutual fund but was curious how easy or if possible to pick individual bonds yourself - the way you can pick stocks. Do people use Etrade, Scottrade, etc?
Thanks
Bonds are a basic elementary part of every portfolio. Bonds are certainly less risky than stocks. They're like brakes on a car. You own stocks for growth but you own bonds to smooth out stock volatility.
Don't even worry about corporate, government and municipal. Pick a total bond market index fund like BND or AGG. Done.
ETrade, Scottrade, AmeriTrade. Either one.
i am in the forget a total bond fund at this point camp and go for a unconstrained bond fund that can shift around to take better advantage of situations as well as do some shorting if needed . .
a total bond fund is really a low yield gov't bond fund as that is where it's weighting is . it is more than 50% treasury's and gov't bonds and 5% totally ill-liquid bonds which don't really compensate you enough for taking the interest rate risk at this point . you can get better returns from just using a high quality corporate bond fund with about the same risk .
trying to take the easy way is likely not going to be the best way to go .
Bonds are a basic elementary part of every portfolio. Bonds are certainly less risky than stocks. They're like brakes on a car. You own stocks for growth but you own bonds to smooth out stock volatility.
Don't even worry about corporate, government and municipal. Pick a total bond market index fund like BND or AGG. Done.
ETrade, Scottrade, AmeriTrade. Either one.
Bonds are not this simple. Generally speaking, your greatest risk when investing in bonds is interest rate risk. Before you invest in individual bonds or a bond fund, you should understand this risk. Deciding how far out on the yield curve you wish to be will determine how much risk you are exposing yourself to.
Proceed with caution, because interest rate risk is fairly high right now.
it is not just interest rate risk now but as the 3rd ave failure showed liquidity risk is a concern . although it is contained in the high yeld end many main stream bond funds hold quite a bit of ill-liquid bonds . even total bond funds are holding ill-liquid bonds and they hold nothing below a certain lower grade .
etf bond funds have been also having quite a lot of volatility because they can be sold short . there are days the spreads between the discounts and premiums to nav are quite big for a bond fund .
you can buy at a premium and sell at a discount and feel even greater pain then just a rate change in nav .
Last edited by mathjak107; 12-21-2015 at 06:50 AM..
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
. I will say LSBRX does have better long term returns, though.
