I am 70 and am putting some of my portfolio into bonds. At present have 14% (Dodge&CoxIncome, Van. Intermediate Bonds,VanShort Term BondsVan Total Bond Mkt) Have about 4 years in cash. Want to put about 30% more in bonds. Am looking at some Fidelity but haven't found one I like yet.
Anyone with ideas of some more good bond funds?
In a severe bond market downturn, one could see the fund returning 0 one year (ie the price fall offsets the income). Maybe even -5%. Very difficult to see things being worse than that.
Both funds have low MERs, which is highly desirable.
Let me add that I would avoid funds which invest in 'high yield' or 'junk' (or in the case of index bond funds, more than a small proportion of the fund in such bonds). Such bonds don't always provide returns commensurate with the risk and as we are moving into more uncertain economic times, the risk that the borrowers cannot repay is much greater than it has been.
Why do you think you need *more* bond funds? Do you enjoy juggling an over-complicated portfolio? Personally, I think a single diversified core bond fund like DODIX or VBMFX would be fine for most folks. Outside of a tax-sheltered account and depending on your income, you might want to look at a state-specific muni bond fund, but if you're already retired this might not make sense for you. You might consider a short-term bond fund for at least part of your bond portfolio if you want to take on less risk, but nowadays you can get fully-insured bank CDs that pay more or less the same return, so why bother?
-Sandra the cynic
it's interesting that I have the Vanguard GNMA, LT Bond, & Prime MM. All were about the same performance, but I did sell the GNMA awhile back, and now it appears to be the front runner in yield & returns :)
LT Bond - the yield curve is inverted (short rates are above long rates, an unusual phenomenon, conveying some chance of a recession), long bonds have not done that well
Prime MM is a money market fund?
GNMA - mortgage backed securities normally do poorly when interest rates *fall*, because of a phenomenon known as 'negative convexity'. Basically, when interest rates fall, homeowners refinance their mortgages, and the bond holders get back the money they have invested, before they want it.
This is a big problem with MBS, and why, for example, David Swensen doesn't recommend them in his books.
My concern with the mortgage backed securities (MBS) market now is that the average level of credit quality of mortgages has fallen significantly: there has been lending to people who would once never have gotten mortgages, and at much higher income multiples than was historically the case. If the US housing market continues to fall (which I expect) there is significant credit risk for mortgage holders. Also there has been massive hedge fund activity in this area, and history teaches that when it goes wrong for hedge funds, the market correction is brutal, and large.
*all* depends on what is in a particular MBS-- which mortgages. But if the MBS market becomes a bear market, *all* MBS (virtually) will increase their risk 'spread' over US treasury bonds.
I had Vanguard GNMA VFIIX & LT Corp VWESX, and after some head scratching basically sold all & am holding in ladder CDs and Vanguard MM account.
I might put some back into the VBMFX index fund but it is emotionally hard to stuff anything into a 5% account when the S&P is at 15%... I know I should be "protecting" some assets, it's just hard to hit the enter key on those exchanges.
Remember the 5% yield on a bond is 'locked in' if you hold that bond to maturity.
The 15% return on the SP500 is *last year's return*. It is an entirely historic number.
The only return that you are (almost) sure to get on an SP500 fund next year is the 2% or so dividend yield.
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