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Discussion Starter #1
I was watching CNBC today--I know, I watch too much of it--and I saw an interview with Bill Gross of Pimco in which he stated that if or when the bond market bursts, it will take all investors, big and small, down with it.

This sounded ominous to me!!

That said, I have always heard that the best investment approach is to, first and foremost, set your asset allocation appropriate to your own circumstances and risk tolerance and then STICK WITH IT through thick and thin.

And so, I am wondering again what some of you are doing.

Are you reducing your bond exposure and going more to cash or are you switching some of your bond investments to short term bonds or are you sticking with your target asset allocation and holding either a broad bond fund or a ladder of individual bonds or a more diversified portfolio of bond funds or individual bonds? What about corporate bonds versus government bonds versus high yield bonds?

If the bond bubble does burst, I would prefer not to be one of those investors who goes down with the ship.

By the way, in a worst case scenario, what percentage of a bond portfolio could an investor lose if and when the bubble burst?

I always took comfort in my bond holdings but some of the current chatter is freaking me out a bit.

If significant losses were to incur with a bond portfolio, how long would it potentially take to regain those losses if you were invested in bond funds?

When even some of the biggest bond proponents are sounding the alarm, it is quite troubling.

When the stock markets get shaky, I just continue to hold through thick and thin. Is the same strategy for a shaky bond market appropriate?
 

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From what you say you need to be in gold as money because no one can print it away.

If you don't like that then you need to be in cash or short term bonds.
 

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I was watching CNBC today--I know, I watch too much of it--and I saw an interview with Bill Gross of Pimco in which he stated that if or when the bond market bursts, it will take all investors, big and small, down with it.

This sounded ominous to me!!

That said, I have always heard that the best investment approach is to, first and foremost, set your asset allocation appropriate to your own circumstances and risk tolerance and then STICK WITH IT through thick and thin.

And so, I am wondering again what some of you are doing.

Are you reducing your bond exposure and going more to cash or are you switching some of your bond investments to short term bonds or are you sticking with your target asset allocation and holding either a broad bond fund or a ladder of individual bonds or a more diversified portfolio of bond funds or individual bonds? What about corporate bonds versus government bonds versus high yield bonds?

If the bond bubble does burst, I would prefer not to be one of those investors who goes down with the ship.

By the way, in a worst case scenario, what percentage of a bond portfolio could an investor lose if and when the bubble burst?

I always took comfort in my bond holdings but some of the current chatter is freaking me out a bit.

If significant losses were to incur with a bond portfolio, how long would it potentially take to regain those losses if you were invested in bond funds?

When even some of the biggest bond proponents are sounding the alarm, it is quite troubling.

When the stock markets get shaky, I just continue to hold through thick and thin. Is the same strategy for a shaky bond market appropriate?
The bond market is on fire. How many times have you heard buy low, sell high. ;) technically your bond portfolio will not lose $, unless either you are getting paid less than inflation and/or you are buying on margin and/or the company goes bust. so if you have bought safe bonds (whatever that means with current ratings ;) ) and not on margin then you should ignore the day to day price and simply wait for maturity. easier said than done, I would agree on that. If you have a bond fund, alas... you are at mercy of the manager.
 

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Gross is talking his book.

The trusth is governments in spain greece ireland etc. have 3 choices:

1) Default

2) Inflate

3) Austerity

Option 1 means that bondholders and up facing the pain
Option 2 means that the pain is shared with bondholders taking most of the pain
Option 3 means that voters take the pain

Because these countries are part of the european union option 2 is not available. Therefore the have to pick between 1 and 3.

Gross is talking his book trying to guide politicians into avoiding scenarios where default and inflation are on the table.
 

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The key to investing today, whether you are an active trader or a passive asset allocator is to keep your finger on the sell trigger. If markets turn south in a significant way you have to get out quickly. And equity reallocation to lower beta stocks is not the solution as I painfully learned in the fall of '08 crash. The flip side of an oft cited investment truism is 'a falling tide sinks all boats'.
 

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The market is all about supply and demand. Talk of a bond bubble just means lots of people are chasing yield. With so much demand, the interest rates drop. This is stating the obvious.

When the demand bubble bursts, interest rates will do up. This will result in all exisring bonds to be repriced in the market. The only way to avoid the repricing is to buy something with a guarantee on its price like a GIC or an individual bond. Then after taking your lumps with low yield to maturity, you will have choice to reinvest at higher returns. What is the problem?
 

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Discussion Starter #7
Bond expert Hank Cunningham currently favours investment grade corporates in the three to ten-year maturities.

If you are willing to accept some risk, 5 percent of your fixed income portfolio could be invested in a high yield ETF such at the iShares XHY ETF.

Also, he favours corporate bonds issued by non-cyclical companies such as utilities or companies with strong balance sheets such as BCE, Molson Coors, Brookfield Asset Management, H&R REIT, Emera and senior deposit notes of the chartered banks.

Source: www.canadianmoneysaver.ca
 

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If this senior's asset allocation is 60 percent equities and 40 percent bonds, should I maintain this asset allocation in light of the following??

http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/why-looking-in-the-rear-view-mirror-is-a-good-way-to-crash-your-portfolio/article1690718/
IMHO: I think the conclusion from the article is not to build your portfolio in one shot. If you have bought 60% of your equity in Jan1 2000 then you would be down. My approach is to be in cash till a bear market and then slowly accumulate blue chip stocks (or index) and when it is in the bull market accumulate cash/bonds. it takes a lot of discipline. but it is worth it. So right now when everyone is crying, it is the best time to accumulate stocks.
 

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Discussion Starter #10
While I don't believe in market timing, if I was sitting on lots of cash right now, I might defer putting it to work for another couple of months theorizing that November 1 might be a better entry point than September 1.

However, you just never know for sure.:confused:
 

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While I don't believe in market timing, if I was sitting on lots of cash right now, I might defer putting it to work for another couple of months theorizing that November 1 might be a better entry point than September 1.

However, you just never know for sure.:confused:
Market timing has never worked for me.
 

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I'm sitting on a pile of cash right now and big stock market gains like we had today make me itch to get back in. This is what I would have done in the past... this time I'm waiting a little bit longer to see if this rally has staying power.

Staying in cash isn't exciting, but it sure allows me to sleep at night. ;)
 

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Discussion Starter #13 (Edited)
Everybody's different but I find that I sleep better just by staying invested and not having to worry about when is the best time to sell and when is the correct time to get back in.

Very few investors are very good at that.

Also, I try not to jump from investment to investment trying to chase hot stocks or funds or trying to dump them at just the right moment which is usually a recipe for long term ultimate failure--unless you're lucky!!
 

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I truly suggest reading "Intelligent Investor". Probably one of the best book ever written on investment. Once you read this, you probably will avoid any market timing. :)
 

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Alphatrader,

Graham does suggest making tactical shifts in asset allocation depending on market valuation.

While he reccomends 50/50 mix of stocks and bonds, he does suggest shifting between 25%-75% equity allocation.

This is the same as market timing, except instead of being either or, it is saying we cannot be 100% certain if stocks or bonds will do better so while we favour one of the two we will keep enough of the other in case we are wrong.

So yep, graham was a market timer. Only difference was he based his timing on fundamentals rather than technicals.
 

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Alphatrader,

Graham does suggest making tactical shifts in asset allocation depending on market valuation.

While he reccomends 50/50 mix of stocks and bonds, he does suggest shifting between 25%-75% equity allocation.

This is the same as market timing, except instead of being either or, it is saying we cannot be 100% certain if stocks or bonds will do better so while we favour one of the two we will keep enough of the other in case we are wrong.

So yep, graham was a market timer. Only difference was he based his timing on fundamentals rather than technicals.
After reading, "Intelligent Investor, Chapter VI, 1,General Market Policy - Formula Timing", I conclude differently. Then again, I have been known to be wrong. cheers,
 

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Try page 2 of chapter 4: General Portfolio Policy - The defensive investor.

"We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequent inverse range of between 75% and 25% in bonds. There is an implication here that the standard division should be an equal one, or 50-50 between the two major investment mediums. According to tradition the sound reason for increasing the percentage in common stocks would be the appearance of the "bargain price" levels created in a protracted bear market. Conversely, sound procedure would call for reducing the common-stock component below 50% when in the judgement of the investor the market level has become dangerously high."

He then goes on to say that in his judgement at the time of writing market levels are high and only 25% of investment should be in common stock.

Graham was a market timer. He just did not time his purchases based upon momentum. Rather he based them upon mean reversion.
 

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I'd pull the trigger.
I sold my TD eSeries bond fund couple of months back during the previous fall in yields, for a decent profit.
You can get back in again once (if) the recovery is underway and interest rates rise again.
 

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Just sold $33,000 in bonds. Took my recent end-of-the-month coupon and now locked in on profit. I had to sell them anyway. After recently going over our total asset allocation, I realized we have WAY too much fixed income. Need more growth. So this is a good time to sell and fix our allocation.
 
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