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Yes even short term very safe bond fund moves the opposite to stocks, that's what I noticed with VFSUX. In the end it see saw back to the exact price I purchased for the whole month. Maybe I meant bond funds. But anyway, I've decided I could handle the loss of Wellesley, max lost was 2008, about 5%, so I moved my money to Wellesley instead. I hope it's not a bad move.
don't bet the ranch on them moving opposite .
t's a general rule of thumb that stocks and bonds move in the same direction. While that hasn't always been the case, it has been the general trend of the market since the late 1990s.
lower rates , the better bonds do and the better stock prices do . higher rates -lower stock prices .
that relationship has been in significant flux since the late 1990s, swinging back and forth between a positive correlation – stocks and bonds moving in the same direction which is the historical pattern of negative correlation, and zero correlation – meaning they essentially have no relationship.
while you may see a flight to safety to treasury's on the big stock down days they tend to not do that as much as move together most of the time .
that is why the fed lowering rates has stocks going up . whatever is good for bonds is usually good for stocks and whatever is bad for bonds is bad for stocks
Last edited by mathjak107; 04-26-2016 at 03:19 AM..
the general rule of thumb is anything that is good for bonds is better for stocks .
but stocks can be very volatile and bonds are not stocks so they are likely to fall less . that tempers volatility in a portfolio while providing a source of cash to buy when stocks tumble and are better value.
unless you are buying treasury bonds there is guarantee your bonds will go up in a recession .
2008 saw long term treasury bonds soar 40% while corporate bonds were down . high yield and international bonds got crushed .
bond funds are just collections of bonds due in different years . at the end of the day there is little difference between bonds and bond funds .
if rates and inflation rise getting back your 1k 30 years later as an example on a bond and having it buy 500 bucks worth of goods is still a loss . a bond fund has its interest rate rise over time as bonds are bought and sold if rates rise it offsets a drop in nav eventually . in the end they are the same .
but stocks can be very volatile and bonds are not stocks so they are likely to fall less . that tempers volatility in a portfolio while providing a source of cash to buy when stocks tumble and are better value.
And if, like NewbieHere, you're buying individual bonds and holding them to maturity (rather than investing in a bond fund), the fluctuation of the bond's value on the secondary market doesn't matter so much, since you're not planning on selling it before it matures. You'll get a fixed amount of interest from the bond every year (unless it's a TIPS), unlike the variable amount of dividend income stocks produce, which makes planning a reliable income stream easier. So bonds have a place in the portfolio, particularly for older folks who may be counting on generating a steady income from their investments.
it still works out close . the rise in interest over time on the bond fund offsets the nav change .
the bond fund has a rising interest rate if rates rise while an individual bond does not .
a bond fund can buy and sell bonds hoping to capitalize on credit rating up grades , an individual bond will not benefit from any changes .
of course credit rating down grades can work against you but bond analysts hopefully are not a sleep at the switch and unload those bonds before.
in the end there will not be a whole lot of difference as long as you do not sell the bond fund prematurely meaning you have to stay long enough to match the funds duration value . that would be no different then having to hold a bond until maturity and the fact you can lose money if you don't .
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