Hi group
I am 51 years old & attempting to get my AA to 65/35.I just added the TIPS fund to my bond portfolio which only consisted of the total bond market.What other funds could I add to achieve more diversification in this environment? My thoughts are either/both GNMA and/or medium term treasury.Is this the right time to add these type of funds? Is GNMA the wrong fund to get in right now because of the mortgage crisis? Thanks.
~Marty~
Assuming you mean, say, the Vanguard Total Bond Market fund, you are pretty fully diversified in bonds. It's about 24% treasuries and 36% mortgage pass-thrus (though mostly FNMA, not GNMA, but they're very closely correlated). Adding more or both of GNMAs or treasuries doesn't constitute futher diversification at this point, but, rather, conscious overweighting of an asset class within fixed-income.
If your focus is asset allocation, the question of whether or not it's the right time to increase your bond allocation is really more of a question of how far you are from your target allocation - if you're very far from it, it's time to get closer, but that's a matter for your asset allocation plan more than a measure of market conditions.
Total Bond already includes GNMA and Treasuries. TIPS is probably the only real option to add. Maybe high-credit foreign bonds if you need some currency hedge due to overseas spending.
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