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From what I understand so far, it depends on if you hold until maturity or not, and bond funds do not.
The return on a bond held until maturity is fixed the moment you buy it and interest rate changes have no effect on the return for that particular bond. A bond fund may or may not hold until maturity - it depends on the fund and its goals. But everything I said in my post applies to a bond fund.
You need to assess what your goals are for buying bonds, or a bond fund. Is it safety from the volatility of equities? Is it for income? Is it for total return? Is it for speculation? Each of those goals will affect how you approach a bond fund.
Many investors use equities for growth and bonds for safety. That is as old as the hills. In that approach, you select bond funds not for total return, but for stability.
Some investors use equities for growth and bonds for safe income. (This includes me). Yes long term bonds and bond funds provide more income but they also take longer to respond to interest rate changes. For me, that is not worth it. I am willing to take a little less income now to more quickly enjoy higher interest rates when they come.
So you can invest in long term bonds/bond-funds and get a little better rate now but if/when interest rates rise, you will be stuck with your lower yielding bonds for quite a while. It really is a preference thing and I am not sure there is a right answer.
The return on a bond held until maturity is fixed the moment you buy it and interest rate changes have no effect on the return for that particular bond. A bond fund may or may not hold until maturity - it depends on the fund and its goals. But everything I said in my post applies to a bond fund.
You need to assess what your goals are for buying bonds, or a bond fund. Is it safety from the volatility of equities? Is it for income? Is it for total return? Is it for speculation? Each of those goals will affect how you approach a bond fund.
Many investors use equities for growth and bonds for safety. That is as old as the hills. In that approach, you select bond funds not for total return, but for stability.
Some investors use equities for growth and bonds for safe income. (This includes me). Yes long term bonds and bond funds provide more income but they also take longer to respond to interest rate changes. For me, that is not worth it. I am willing to take a little less income now to more quickly enjoy higher interest rates when they come.
So you can invest in long term bonds/bond-funds and get a little better rate now but if/when interest rates rise, you will be stuck with your lower yielding bonds for quite a while. It really is a preference thing and I am not sure there is a right answer.
It seems to me that, for right now, it's better to get a CD, and wait for interest to rise somewhat.
Good4nothin. There is no one right answer in investing. I agree with the guy that said you need to do what lets you sleep good at night. I don't see any reason to rush. You could park your cash in savings and short term CD's (in amounts that allow you to get full FDIC insurance), I know the interest rates are low but that is the world we live in. I still think Boglehead is a great site to learn the nuts and bolts of investing. You could make like a fly on the wall over there reading everyday and learn more about your different options and move when you are ready. Over half my stuff is in bond funds (mainly VBTLX). There are lots of mine fields to learn about too other than what happens when interest rates rise. Mutual fund expense rations can be snakes in the grass coiled and waiting. I delayed rolling over my 401k for a year and when I did I estimate I paid an extra 1200 in expenses to keep the money where it was. You worked hard for your money, take a little more time to learn about your options and then do only what you feel comfortable doing. There is no real harm in going slow. The worst thing you could do would be buy something you don't understand and then sell it in a panic if it should drop suddenly, locking in your loss forever.
I don't have to decide anything until 2017. I am being skeptical and questioning the adviser's advice, and I think I have a very good reason to.
If someone says they don't want risk, and you automatically recommend 90/10 bonds to stocks, without thinking at all about the current situation, that is just lazy.
Ok, I apologize. Everyone should do exactly what a financial adviser tells them. Do not be skeptical. Trust the first adviser you meet and do everything he says. Do not ask questions about it on a retirement forum.
A good fund will have a string of bond maturities, long enough to sell early and later rotate into higher yielding bonds when the time comes. There are some pretty secure, fixed income securities in the 5% range these days.
If bonds are such a poor choice, how come my TIAA total bond fund (TIBDX) has given me an average return of 4% for the past 5 years? Can any of the forum experts explain why I moved some money into the TIAA Bond Plus fund (TCBPX) and have a year to date return of just shy of 6%?
Are bonds or bond funds risky? There is some risk. For the past 5 years, we have expected interest rates to increase. A faltering world economy has kept rates low. The Fed made one very minor adjustment and keeps delaying the next rate increase. It almost makes no difference because the increase will be so minimal it will only have a psychological impact.
Regarding trust for the experts: Five years ago I started to do a lot of travel and I turned nearly half my portfolio to TIAA portfolio management. I expected to see the fees eat up some of the returns and expected to do better with my half. Five years later, TIAA has more than made up for the fees. Returns and diversification have been greater than I could achieve.
Ignorance and strong opinions can be a fatal combination. I have my share of both, but I have been able to learn from the City Data and other forums. I am much better at managing my investments. I am more confident in making sound decisions and I find I can make those decisions with minimal effort and worry. I am happy with the returns I gotten and the strength of my retirement portfolio.
If someone says they don't want risk, and you automatically recommend 90/10 bonds to stocks, without thinking at all about the current situation, that is just lazy.
Not necessarily. A lot of us feel that a 90/10 mix is just north of burying your money in your mattress as far as risk aversion is concerned.
And some of you might think it's silly to be afraid of risk. After all the market always goes up in the long run, etc.
But I have heard so many stories of people who lost 50% or more of their retirement savings in 2008. I heard one just yesterday -- a government employee lost half his retirement account in 08 because of investments he had nothing to do with. All the decisions were made by whatever company the government had hired to manage the accounts.
Maybe if you are the kind of investor who is constantly paying attention, doing your own buying and selling, you managed to not lose anything. Or if you were able to hang on until the market recovered, and had the faith that it would recover.
But it is a fact that very large numbers of people lost a third, half, or more, of their savings.
So it is not silly to be afraid of risk, when you worked hard all your life and are too old to start all over.
But being afraid of risk does not necessarily mean you have to put everything in bonds, especially at a time when bonds could easily lose value. At a time like this, financial advisers should think carefully about how to minimize risk while still getting decent returns.
It does seem to be possible, according to some of the comments here.
And I really do think there are times when CDs are the best temporary solution.
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