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NFT: Bond Mutual Funds

short lease : 4/16/2018 8:12 pm

I am way out of balance when it comes to bonds in my 401k.

I was thinking about putting some future pay check deductions into Bond Mutual Funds.

When is it a good time to buy bonds (Mutual Funds - not individual bonds)?

I heard when interest rates are low the bonds loose value as the rates go up. Aren't interest rates still relatively low? Does that make Bond Funds a bad buy right now?

I have no clue when it come to Bonds ... I would think right now because the DOW and the S& P 500 (although a little volatile lately) are still trading near record highs - that this would be a great time to buy Bonds (Funds).

When Stock values are high ... Bonds are low? I am not sure it works that way though.



Anyway - thanks in advance.
Do some reading  
DC Gmen Fan : 4/16/2018 8:36 pm : link
over at the Bogleheads forum

Lots of great info there
a high yield municipal bond fund is always good to have  
gtt350 : 4/16/2018 8:48 pm : link
in your portfolio and tax free. see and or call fidelity for advice
Terrible time to buy bond funds  
NNJ Tom : 4/16/2018 9:25 pm : link
Bonds lose value (principal) when interest rates go up. Mutual funds do worse than individual issues because if you hold a bond to maturity you will get the face value back.

Its a little work, but I buy 4 week treasuries from treasury direct for my fixed income portion of my portfolio. This isn't practical for a 401(k) so cash or money market funds are a safe alternative.
You can not put tax free bonds in a 401k  
The 12th Man : 4/16/2018 10:05 pm : link
If you have questions I can help you. Email me.
RE: Do some reading  
short lease : 4/16/2018 11:39 pm : link
In comment 13916650 DC Gmen Fan said:
Quote:
over at the Bogleheads forum

Lots of great info there


Will do ... Thanks.

Bogle started Vanguard ... didn't he?
Thanks everyone ...  
short lease : 4/16/2018 11:42 pm : link
12th man - I am going to shoot you an email.
..  
Named Later : 4/17/2018 10:16 am : link
Be careful when reading the bogleheads. Their Bond concepts were developed years ago when Bonds were in a Bull Market. These days, with interest rates falling....they will generally lose your money. Take time to watch the Bond Market and get a feel for how it reacts.

A CD Ladder will have a positive return and you can roll them over if rates are still on the rise. Some of the Money Market Funds are now paying a decent rate. Treasury Direct can also be a good place to park money.
RE: You can not put tax free bonds in a 401k  
njm : 4/17/2018 10:34 am : link
In comment 13916826 The 12th Man said:
Quote:
If you have questions I can help you. Email me.


Beyond that, why on earth would you turn tax free income into taxable income, which is what would happen to the muni bond interest when it gets distributed out of the 401(k)?
timing the market  
Pascal4554 : 4/17/2018 11:10 am : link
is near impossible unless you are a professional investor or a hedge fund manager. Set asset allocation between equities and bonds based on your risk tolerance (and age). Understand the benefits of investing for the long term, diversification, and dollar cost averaging. Re-balance your portfolio annually or semi-annually based upon your decided asset allocation portfolio. Watch the expense ratios on your mutual funds. High expenses will eat into your investment return big time in the long run. I would recommend reading The Elements of Investing: Easy Lessons for Ever Investory by Malkiel.
also  
Pascal4554 : 4/17/2018 11:15 am : link
highly recommend index funds for equity and bond funds if your 401k offers those. Keeps the expenses low.
Bond funds  
Keith : 4/17/2018 11:16 am : link
arent a great place to be in a rising interest rate environment. Be careful with the duration, stay low.
Thanks Pascal and Keith  
short lease : 4/17/2018 12:53 pm : link
I know today's environment is not a good one for Bond investing but, I am in my 50's (57) and have close to nothing in my 401k regarding Bonds.

I have exactly 3 choices in Bond Funds, 2 of the 3 are index funds which I always go to before actively managed funds.

I guess I should just continue to put money in stocks - maybe move to a small percentage cash position and then buy some Bonds when interest rates are much higher. They have been so low (nothing) for a long time now (IIRC - since the Housing Bubble exploded?). I am surprised they have not increased quicker but, then we probably would not have had the bull market as long as we have. I guess you just have to take what the market is offering and invest accordingly?

Thanks again (sincerely) for everybody's input !
RE: ..  
short lease : 4/17/2018 12:57 pm : link
In comment 13917194 Named Later said:
Quote:
Be careful when reading the bogleheads. Their Bond concepts were developed years ago when Bonds were in a Bull Market. These days, with interest rates falling....they will generally lose your money. Take time to watch the Bond Market and get a feel for how it reacts.

A CD Ladder will have a positive return and you can roll them over if rates are still on the rise. Some of the Money Market Funds are now paying a decent rate. Treasury Direct can also be a good place to park money.


Are interest rates falling? I thought they were going up ... (though very slowly) and when interest rates go up Bonds (which are actually loans) lose some of their value. If you own a loan at 2% it becomes less valuable then a loan at 4% .... of course.
RE: Thanks Pascal and Keith  
Pascal4554 : 4/17/2018 4:36 pm : link
In comment 13917480 short lease said:
Quote:
I know today's environment is not a good one for Bond investing but, I am in my 50's (57) and have close to nothing in my 401k regarding Bonds.

I have exactly 3 choices in Bond Funds, 2 of the 3 are index funds which I always go to before actively managed funds.

I guess I should just continue to put money in stocks - maybe move to a small percentage cash position and then buy some Bonds when interest rates are much higher. They have been so low (nothing) for a long time now (IIRC - since the Housing Bubble exploded?). I am surprised they have not increased quicker but, then we probably would not have had the bull market as long as we have. I guess you just have to take what the market is offering and invest accordingly?

Thanks again (sincerely) for everybody's input !


Short lease - I looked up some rough guidelines from the investing book I mentioned to you on asset allocation. If you are in your 50's the recommendation is to have somewhere between 15%-35% of your portfolio in bonds. When do you plan on retiring? If you are 5-10 years from retirement having all your money in stocks maybe be risky if there is another economic downturn. If the stock market drops 20-30% right before you retire that would really suck. Better to be safe then sorry and nobody should take on risks outside of their comfort zone. If the bond market is making you uncomfortable putting some of your money in a money market fund or a short term bond fund I think is a reasonable option.

And yes, I think it is wise to take what the market is offering. To use a Gettlemen quote that also applies to investing "You can't get too cute". If you are worried that you are not earning enough of a return on your money to retire, rather then trying to take on more risk, you could consider trying to save more money.

Does your company offer you some basic financial planning advice? I would highly recommend finding a trusted financial planner (this can be difficult though, as it is hard to find someone who is truly looking out for your interests and not just trying to make money off you like a stock broker).

Another option is to look for some asset allocation or target date mutual funds in your 401k. These are mutual funds that invest in other mutual funds, and do the asset allocation for you based upon your target date of retirement. That might be a good option to consider.

Lastly, interest rates are increasing.



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