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One of the other concerns about bonds and bond funds I have heard expressed is the concern about a bond bubble. With so much money flowing into bonds and bond funds it will become increasingly difficult for fund managers to invest in quality instruments or to keep money in cast etc etc etc. At a future point if folks decide to rush out of bonds and there aren't buyers? Stability and equilibrium are always the desired outcome.
http://www.smartmoney.com/investing/...w-bond-bubble/
But in a remarkably short period, a lot of those fantastic bond deals have faded away, with a good many bonds now yielding half what they did last summer. And while a return on a corporate, municipal or Treasury bond might look better compared to a bank account (then again, what doesn’t?), many bonds are carrying a lot more risk. When some investing pros look at the bond market and the frenzied demand for fixed income, they do not like what they see. “It has a bubble look to it,” says Thomas Atteberry, manager of FPA New Income, one of the largest independent bond funds.
http://www.smartmoney.com/investing/...w-bond-bubble/
In the late 1990s, it was tech stocks. In the middle of this decade, it was real estate. And today bonds are the investment people can’t seem to get enough of, unlikely as that may seem. Lured by their perceived safety—not to mention some spectacular deals, the kind unseen in decades (read: 15 percent yields)—investors plowed $313 billion more into bond funds than they took out in the first 10 months of 2009. That’s a staggering amount considering that over the same time investors withdrew about as much money as they put into stock funds.
I don't think you and Bill Gross disagree that much. He is talking becoming more diversified across his fund and you are already diversified across your portfolio. I think the issue he and others are concerned about are people putting 90% or more of their investments in bonds as a flight to safety and thinking they will get the same returns moving forward that were realized previously. I don't think you would put baskets 2 and 3 all in bonds.
My biggest personal worry is about my Fidelity Balanced fund which I know you also own. The are required to have a certain amount of the portfolio in bonds and while that ratio may have history on it's side I am not sure about the future. That is a fund that is prone to having to much money to properly invest and moving forward it could be the safe side of their historical equation that creates the problem. I don't own any target dated funds and think they could really be a major problem. Funds that have reached their target dates or soon will/might be to heavily weighted in fixed investments (especially after losing money during the meltdown). I am considering breaking everything into non blended funds as they may be the best way to go. I have cut my position in the Fidelity Total Bond fund. That is as much a result of my evolving financial position. The biggest worry is not the actions of the individual investor as an individual but in what is appearing to be a herd mentality towards bonds. Indications are that individual investors were returning to the equity market (at least up until Goldman Sachs) and perhaps money will begin to find a happy medium between bonds and equities. I have accounts with other brokerage houses and like to keep it that way in order to avoid institutional sameness which has been discussed previously. There is probably a paradigm shift occurring for folks like us and we just need to be aware of. Unfortunately to many don't have the time or inclination to stay on top of and they are probably the ones who missed the current runaway bull train.
These are all important and on topic discussions because how do calculators take all of this into account and what are the planning and return assumptions they are making.
fidelity equity income
fidelity blue chip growth
fidelity low priced stock fund
investment grade bond
fidelity short term bond fund
cash
equities 35% cash 27 %bonds 38%
as you and i know trying to predict no matter who you are is not very accurate. i respect bill gross alot and he knows how to run a bond fund but the reality is his fortune telling powers are the same as everyones here.
even the same events play out differently.
the first iraq war we dropped like a rock after the first attack...
the 2nd time we soared after the first attack
in 2007-2008 the fed was starting to raise short term rates.. stocks were breaking new highs.
there wasnt one pro who had long term treasuries on the buy list. nope everyone said sell. short term rates were already rising, long term rates were already so low they hardley were worth buying.
then events not even on the radar sent stocks plunging and long term treasuries from the low levels of interest they were already at soared a whopping 30% in value to the dis-belief of all the soothsayers.
if your an investor be an investor...dont think your smarter then the markets and are going to make all the right moves...
diversify and let it roll and stop thinking about whether you will be right or wrong. in 15 years you will be very far ahead...
dont have money you can invest for 12-15 years ? then maybe the financial markets arent for you
fidelity balanced is an interesting fund.. its a little more volatile then puritan because it has a smaller market capitalization..
puritan on the other hand holds more large cap but the bond portion dips below investment grade.. puritan has maybe as much as 25% high yield while balanced fund has about 8%.
balanced is actually run by 10 managers each representing a segment of the markets... its headed by bob stansky former magellan manager
on the other hand puritan has only 1 manager ramen arani running equities and george fischer running the bond side.
this is why i subscribe to the newsletter, not for market timing but to know what the heck my money is really going into.
Magellan Fund - Wikipedia, the free encyclopedia
Robert ‘Bob’ Stansky is a direct disciple of Peter Lynch’s having worked as his research assistant from 1984 to 1987. During his time at Magellan Stansky managed to return 238% for the fund. However, the S&P 500 index returned 274% during the same period. This marked the only regime where Magellan underperformed the market. Magellan’s portfolio closely resembled the S&P 500 during Stansky’s tenure--so much so that Stansky himself helped coined the phrase ‘closet indexer’.
With regard to one fund VTINX (Vanguard Retirement Income), Morningstar gives the following info on bond holding maturity and duration: Average Eff Duration 4.68 Yrs
Average Eff Maturity 7.32 Yrs
Average Credit Quality AAA
.....any thoughts on the risk of that configuration going forward? The fund represents maybe 25% of total holdings in my portfolio
actually what morningstar shows for holdings isnt accurate or representative of current holdings. ...thats why i use the newsletter.. what they list is only a representation of what kinds of stocks the fund has held from time to time in the top holdings . why they even bother to list these things is beyond me, and to boot they put a date on it like 3/31/2010 so you think its accurate at least until then but i believe they use a little foot note and if you read it they tell you its not an accurate representaion of current holdings only the types of issues the fund has held at some point ..
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