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Sorry, this probably more appropriate for misc.invest.mutual-funds, but that
place is out of control.
I transferred a 401k from a previous employer to a personal 401k roller fund
right before the markets started tanking in September. (I don't usually get
lucky like that, so I figure I was due.) So I've had money sitting on the
sideline in cash reserves while all the carnage is taking place. I'd like
to put it to work, though, so I'm thinking of putting it into a bond fund
until things settle down a bit.
But doing some research on some of the available bond funds, I was surprised
to see some of them have had significant losses this year. I know bonds
have *some* risk -- but these numbers were a little surprising, especially
since I've heard bonds should be performing pretty well right now.
Maybe I'm confused about how these things work. Is a bond fund a good idea
right now if I'm just looking for some growth with very little risk?
Here are a couple in particular I was looking at:
FHIGX
FTABX
On Nov 13, 7:56 am, "JBradshaw" <j...@d...nnn> wrote:
> Sorry, this probably more appropriate for misc.invest.mutual-funds, but that
> place is out of control.
>
> I transferred a 401k from a previous employer to a personal 401k roller fund
> right before the markets started tanking in September. (I don't usually get
> lucky like that, so I figure I was due.) So I've had money sitting on the
> sideline in cash reserves while all the carnage is taking place. I'd like
> to put it to work, though, so I'm thinking of putting it into a bond fund
> until things settle down a bit.
>
> But doing some research on some of the available bond funds, I was surprised
> to see some of them have had significant losses this year. I know bonds
> have *some* risk -- but these numbers were a little surprising, especially
> since I've heard bonds should be performing pretty well right now.
>
> Maybe I'm confused about how these things work. Is a bond fund a good idea
> right now if I'm just looking for some growth with very little risk?
>
> Here are a couple in particular I was looking at:
>
> FHIGX
> FTABX
How do you know when and if "things have settled down a bit"?
If you are looking for very little risk, put your money in a money
market fund. I have a lot of mine in a government income fund. But I
am looking to put them into stock funds sometimes this year and early
next year. If you have a 5 year investment horizon, this is a great
time for stocks.
On Nov 13, 5:56 am, "JBradshaw" <j...@d...nnn> wrote:
> But doing some research on some of the available bond funds, I was surprised
> to see some of them have had significant losses this year. I know bonds
> have *some* risk -- but these numbers were a little surprising, especially
> since I've heard bonds should be performing pretty well right now.
There is some rhyme and reason behind the unprecedented bond fund
carnage; for example see http://money.cnn.com/2008/11/11/pf/funds/bond_funds.
moneymag/index.htm
There are issues of default risks, return to inflation, return to
appetite for risk... things that were always there but could loom
larger than ever depending on how the economy lurches. You can go to
some haven of safety, but note how even the ultrashorts have been
whacked 6% YTD. I used to love bank loan funds which gave a tad more
interest for almost zero volatility, but they got whacked 21% YTD.
Treasury bond funds are now more than ever thought to be ready to lose
capital value.
I really like the bond ETF route now - you can put out persistant buy
and sell orders to "stop loss" for instance while you snooze. Just
this morning I was surprised to wake up and find somebody had bit at
my fishing lines where I offered to buy corp bond etf at a price way
below the going rate the last few weeks. Some poor souls must have
been desperate to sell or had a poor broker, so I got a great interest
rate and sale price that was only open a few moments.
On Nov 13, 5:56 am, "JBradshaw" <j...@d...nnn> wrote:
> Here are a couple in particular I was looking at:
>
> FHIGX
> FTABX
Til now I had ignored your tickers, but then remembered a new Yahoo
capability where it magically translates the name even without hitting
enter or anything. I hope you do realize you don't normally put tax
free funds into a retirement account, although now at least
temporarily you can get a good return that way due to weird
circumstances that are alluded to in the article I posted.
"JBradshaw" <j...@d...nnn> writes:
> I transferred a 401k from a previous employer to a personal 401k roller fund
> right before the markets started tanking in September. (I don't usually get
...
> Maybe I'm confused about how these things work. Is a bond fund a good idea
> right now if I'm just looking for some growth with very little risk?
>
> Here are a couple in particular I was looking at:
> FHIGX
> FTABX
First off, these are both muni bond funds and generally not
suitable for a 401k or IRA since they pay tax-free muni bond
interest (which is generally at a lower rate than comparable
taxable bonds because of the tax-free status). Note that I
say "generally" because there are still (a) potentially
taxable cap-gains when the funds trade; (b) possible AMT;
and (c) some folks might be buying them to bet on rates and
spreads rather than to collect tax-free interest;
Next - why did these two funds do poorly? For the most
part *all* bonds which aren't US Treasuries have fared
poorly over this last year. The worst hit have been some
funds which had invested in sub-prime mortgage backed stuff
(I mean legendarily bad performance - like the Schwab
YieldPlus ultra-short bond fund which, being ultra-short,
was supposed to be pretty safe - short duration meaning
not so much interest rate risk - unfortunately, they took
massive credit risk -- it's down - get this - almost 34% YTD.
Other areas of the bond market which have done miserably
have been the more credit-risky areas - high-yield (also
known as "junk") bonds have done horribly - the three
high-yield ETFs are down between 24 and 32% YTD.
But intermediate munis are down only a few percent. While
it always stinks to lose money, right now, being down only a
few percent is pretty good.
Right now we are still in a historically odd period where
muni bonds are actually yielding more than corresponding
treasuries. Which goes hand in hand with a recent
underperformance of munis and/or outperformance of
treasuries.
Anyway, the short story is that not all bond funds are
created equal. Just like the stock market, the bond
market has lots of different segments - bond asset classes,
as well as corporate sectors. And just like the stock
markets, sometimes some sectors of the bond market do
great while other sectors are stinking.
And to make a long answer longer, sure, bond funds may
be a great idea - but in order to know if they are a
great idea for you and your portfolio, we'd have to know
a lot more about you, your portfolio, which bond funds
you are considering (and, again, those ones listed above
are probably not the best for an IRA/401k) and why.
Lastly, you said you are "looking for some growth with
very little risk?". That's not what bond funds generally
do. They are usually for providing (a) income and/or
(b) diversification (ie. not perfectly correlated with
stocks, dampen volatility). But growth? Not really,
at least not by themselves.
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting
dumbstruck <d...@g...com> wrote:
> I really like the bond ETF route now - you can put out persistant buy
> and sell orders to "stop loss" for instance while you snooze. Just
> this morning I was surprised to wake up and find somebody had bit at
> my fishing lines where I offered to buy corp bond etf at a price way
> below the going rate the last few weeks. Some poor souls must have
> been desperate to sell or had a poor broker, so I got a great interest
> rate and sale price that was only open a few moments.
Stocks and ETFs alike in the last several months have seen 'prices way
below the going rates' and 'great sale prices,' only to see the prices
go lower in subsequent days or weeks. I cannot see justification for
criticizing the seller or broker.
I counsel instead seeing whether a stock or ETF is reasonably priced
based not on relativism, but on company and industry fundamentals.
Your strategies seem devoutedly short term, whereas investing in
stocks and bonds should be long term if one does not wish to gamble.
On Nov 19, 5:38 am, h...@g...com wrote:
> Stocks and ETFs alike in the last several months have seen 'prices way
> below the going rates' and 'great sale prices,' only to see the prices
> go lower in subsequent days or weeks. I cannot see justification for
> criticizing the seller or broker.
>
> I counsel instead seeing whether a stock or ETF is reasonably priced
> based not on relativism, but on company and industry fundamentals.
>
> Your strategies seem devoutedly short term, whereas investing in
> stocks and bonds should be long term if one does not wish to gamble.
No, no, no! I am giving you a reality check over and above yesterdays
complacent approach. Think of this of new tactics to tack onto the
existing fundamental or even momentum buy decisions you make. You
might add practically a whole year of expected return by these
techniques on a volatile day. It's not that you trade for the short
term, but for long term WHILE minimizing short term wastage.
I have been on the wrong end of this bad-broker/unlucky-trader
pitfall. As I reported here my broker was forced by nasdaq to reverse
my buy of RSP which cost me 24% over its underlying SP500 assets!!!!
They said they were forced to reverse all such errors over 20% that
morning (thank goodness). I bought some earlier on another spike over
it's underlying assets as well, and even had more modest spikes with
EDV bond fund. These are not closed end funds where you expect any
more than microscopic variation.
So the next bond fund I bought I put in low limit numbers, some I
didn't expect to be accepted for weeks if at all. They got snapped up
in due course in whipsaw price movement lasting only a few moments - I
don't know if it was due to error or desperation. For my own reasons I
often split a single buy among 2 brokers, and one seems to give a
consistantly horrible market price trades. Instead of dumping them I
have turned it into advantage by being very aggressive limiting my
buying or selling prices with them, and this can and does involve long
term holdings.
These approaches have dangers, and are not for everyone because you
can lose a window of opportunity. But look at the elegant
possibilities... you can rig up an auto asset allocation balance
program by putting out lowball buy orders. For stock you could offer
to buy 10% more shares at a price 10% below the current. Also 10% even
more shares at 20% below current. I shouldn't have to pound the
keyboard to show the beauty of this, which you probably do manually
with less fortunate timing anyway.
However there are dangers in using this approach, like for stop-loss
selling in volatile times because you can lock in a terrible
transitory price. But all this is much more control than throwing a
buy or sell order over the transom for end of the day mutual fund sale
- good grief, you may lose 10% in intraday market move in the few
hours between your order and the end of the day execution!
dumstruck wrote:
> I am giving you a reality check over and above yesterdays
> complacent approach.
I think that calling investing for the long run "yesterday's
complacent approach" is the parlance of someone trying to time the
market, one way or another.
We disagree. If you want more validation for your approach, try
misc.invest.stocks.
> Think of this of new tactics to tack onto the
> existing fundamental or even momentum buy decisions you make.
I think "tactics" by definition are for the short term. I hope no one
serious about financial planning considers "momentum buying" to be a
strategy.
On Nov 20, 8:10 am, h...@g...com wrote:
> I think that calling investing for the long run "yesterday's
> complacent approach" is the parlance of someone trying to time the
> market, one way or another.
>
> We disagree. If you want more validation for your approach, try
> misc.invest.stocks.
>
> > Think of this of new tactics to tack onto the
> > existing fundamental or even momentum buy decisions you make.
>
> I think "tactics" by definition are for the short term. I hope no one
> serious about financial planning considers "momentum buying" to be a
> strategy.
WHA?.... did you not notice the price action in the last 24 hours that
proved my point? That 20/30 yr treasury bond etf EDV I had mentioned
went on to gain almost 9% in the last 24 hours. So if you bought it
without limit orders like I recommended 24 hours ago and maybe used a
mutual fund YOU COULD HAVE DESTROYED ALL EXPECTED RETURN FOR ALMOST
THE NEXT 3 YEARS by paying the inflated price.
That's payback for excluding tactics from strategic investments. I AM
TALKING ABOUT LONG TERM INVESTMENTS, and bringing in some sanity to
the stodgy old approaches that is now possible due to etf vs mutual
fund structure. But using etfs does bring in some new pitfalls, which
can be mistaken for the language of a day trader, but just learns some
lessons from them.
New ideas for todays world - try some cruel shots at this one... bond
etfs probably will be bouncing up and down as we go further. One
approach is keeping 2 pools of an etf, one an accumulation pool and
the other a drainage pool. With limit orders hanging over the former
to buy, and over the latter to sell, you could keep about the same
total amount of (turning over) shares. And say the bond share values
average about the same month after month - but my scheme keeps
spitting out cap gains from drainage, and lower average basis in
accumulation. Single digit trading fees are nothing compared to the
payback in current volatility which can give you a years equivilent
returns in opportunity windows lasting a blink of a eye.
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