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1. Short term treasuries are not that different from cash. They don't rise much during a market downturn. Think of a market downturn as a spill of acid. Cash and short-term treasuries are like water. They can dilute the acid but not do anything more. Long term Treasuries are like baking soda. They can neutralize the acid.
2. If interest rates rise 1%, that means a reflating economy (and not a fake reflation built on QE), which should be good for stocks (not just in the U.S but in emerging markets as well). If all my stocks do well, I don't care if my long term Treasuries lose 20%. The stock gains will compensate. And, I can use the stock capital gains to buy more Treasuries at the higher yield.
that is precisely how all these defenseive portfolio's work . most of them have very good returns too .
unless you have a rip roaring bull market odds are your returns like stocks will be somewhere between the highs and lows of the year . these defensive portfolio's give you a smoother ride to that point rather than the big peaks and valleys that put you in the same spot .
you can compare quite a few popular portfolio's here .
the golden butterfly even with gold and long term treasury's has pulled ahead of the pack most time frames .
Back to this thread. How much lower will bond funds NAVs go? If I sell my bond fund I'd have some painful loss, but if I don't sell, the money will be locked for.... how long? a year, or more?
you are asking questions that if anyone knew we could be billionaires . no one knows .
last interest rate trend was 35 years of falling rates . perhaps it could take decades to get back to the historical averages .
no one knows .
a big drop in stocks could trigger a flight to safety and bonds and gold may soar . that is why it is rarely good to leave a portfolio un-hedged unless you have lots of time and the pucker factor to wait things out .
if maximum gains regardless of draw down and number of losing years are not your goal than you need to give a lot of thought to just what you want your portfolio to accomplish . everything will always be a trade off . you give up gain potential for less draw down potential and less number of losing years hopefully .
I think one could drive themselves crazy trying to predict and get all emerged in philosophical discussions that at the end of the day do not provide clarity or absolute direction.
Pick an allocation you can live with without needing to watch every single day. If you don't like bond funds or don't want as much of them, then hold some, but fewer. An allocation like 50% equities, 25% bonds and 25% into other or short term or cash might provide a level of comfort. Or maybe you want higher % equities, some in bonds, but more in shorter term to take advantage of other buying opportunities.
There's no one magical formula that anyone here has.
I'd follow Jack Bogle advice or some bonafide well-respected expert, not advice on C-D and similar forums.
Considering the risk/reward of buying bonds at this particular time, cash does not look like a bad alternative for that portion of one's portfolio at least in the short term.
raising short term rates is usually good for bonds .
do you know every time the fed has raised interest rates more than 1% in a year since the 1980's bonds had a very good year . only exception was 1994 .
raising short term rates reign in inflation which is good for bonds .
the left side is how much the fed raised short term rates , the right the return on an intermediate term bond fund .
so as you said , take a hint . it may turn out that bonds do quite well .
I added all the dividend/interests (please don't add that debate in this thread ) from this bond fund, and it's still less than the capital loss if I sell all. I'm thinking I may wait until the interests/dividend and the capital loss break even to sell it. Does this sound sensible?
I think one could drive themselves crazy trying to predict and get all emerged in philosophical discussions that at the end of the day do not provide clarity or absolute direction.
Pick an allocation you can live with without needing to watch every single day. If you don't like bond funds or don't want as much of them, then hold some, but fewer. An allocation like 50% equities, 25% bonds and 25% into other or short term or cash might provide a level of comfort. Or maybe you want higher % equities, some in bonds, but more in shorter term to take advantage of other buying opportunities.
There's no one magical formula that anyone here has.
I'd follow Jack Bogle advice or some bonafide well-respected expert, not advice on C-D and similar forums.
+1.
The main point is simply to save. You can argue all you want about the magical gold dragon portfolio, excess interest rates effect on Yellen's hairstyle, or whether dividends really count to get you into heaven-but if you don't put away a reasonable chunk of your income every month and put it into something you can live with without constantly fiddling with it, you're nowhere.
Perfect is the enemy of good enough. Good enough is saving something.
The cousin of perfect is paralysis, where posters are inundated with an overwhelming spray of investment ego vomitus, intended to make them feel inferior, complete with layers of charts, graphs and conflicting flip flops they neither asked for nor want.
It's the exact opposite of the spirit of finding some simplicity and peace in investing and inspiring self-confidence and encouragement. The truth is, everyone can invest, everyone can have some diversification, and it can be done without drama and teeth gnashing -- the whole basis of multi-stock and multi-bond funds is to allow one to take part in stock/bond ownership without having to be an expert and without having to white knuckle it through.
And by starting young (optimal) and prioritizing saving and investing and taking appropriate risk with some diversification, and then not panicking, many can and will become members of the double comma club.
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Yellin has been indicating raising rates for the past two years. Take the hint
