Wednesday, December 1, 2010

Bond Market

Apparently, the massive inflows to the bond market have stopped after 99 weeks.

FLG was part of that because he pulled a bunch of money out of his bond funds last week. Why? you ask. He reanalyzed his portfolio and realized that he'd been too emotional back in 2008 when he setup his 401k selections. His bond allocation was too high given his risk profile. He dialed it back down to 10% from 25%.

Plus, there's just not that much upside in the short- to medium-term in bonds. Interest rates can only go up, which will kill bond prices.

Then again, FLG doesn't know shit about this stuff.


Andrew Stevens said...

There's an argument to be made that 20% of a portfolio should be in bonds (and/or cash) regardless of risk tolerance. (William Bernstein is probably one of the biggest proponents of this argument.) If you're worried about interest rate risk and have no appetite for it, stick to short-term bonds and the interest rate risk is minimal. Of course, short-term bonds aren't paying anything right now either, but you pays your money, you takes your choice.

Since I was actually planning a big bond buy in January, I've been hoping for a spike in interest rates, but I'm not holding my breath.

FLG said...


I'm not familiar with Bernstein's work. Why 20%?

My guess is that with 20% in cash and bonds, that when stocks fall, you have greater resources to take advantage of the drop during a rebalance.

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