Dividend Payers Attractive Again As Bond Yields Fall A re-do from August 7, here.
Many sectors/funds slip past our view, in our ever changing world of investing. Most of us are too busy with family and making a monetary living to watch everything, all of the time.
Since late February of this year, we returned some of our monies back into direct investments in TIPs funds.
Yes, there are those who poo-poo such areas of investments.
The argument against, generally being that such investments have such low yields; why in the world would anyone want to invest.
Not unlike equity investing, we look at these from a price point. Yield from bonds, not unlike a dividend from an equity is not usually our focus with a fund holding. If both price and yield work together to some extent; well, all the better, eh?
As to TIPs in general; several areas may affect their value or lack of; being a safe haven, cash equivalent holdings for some funds, pension funds and the persception of inflation.
Generally, if conditions are favorable; TIPs holdings are our "cash" for parking monies.
Lastly, with active managed TIPs funds; one will find a variety of holdings. As seen in the below list; duration of holdings plays an important role, and that many TIPs funds will not be 100% in this bond area; but will also hold other investment grade bond types.
Well, anyway; just a few blips about this area.
A sampling..... YTD numbers, as of Aug 5
---LTPZ, + 17%
---STPZ, + 1.6%
---TIPZ, + 6.7%
---TIP, + 6.1%
---FINPX, + 5.9%
---ACITX, + 5.6%
---BPRIX, + 6%
Note: TIP 5 year annualized = 5.6%
Take care,
Catch
Dividend Payers Attractive Again As Bond Yields Fall What is often not mentioned in articles like this is another important fact. When bond yields fall bond funds realize capital appreciation since the bonds they bought yesterday have a higher "value" (price+coupon) than the one's they could buy today.
Capital appreciation of older issue bonds in a falling yield environment is a bond holders "alpha". If bonds are held to maturity they sell at face value...the bond holder collected their original investment plus the coupon...no harm no foul.
Many have worried themselves out of bond positions. Bonds are less important for income these days and more important to help an overall portfolio cushion against equity markets periodically faltering. When this happens investors look for a "flight to safety", they buy bonds forcing yields to fall and as a result yesterday's bonds appreciate... the bond's value goes up.
This bond appreciation provides a cushioning effect on their equity allocation and might even serve as the "dry powder" to reallocate back into equities when stocks reverse significantly.
A stock dividend will only protect a stock's value equal to it's dividend. In a stock correction, a bond's value will often times appreciate.
Dollar Cost Averaging into bonds when the stock market is moving higher by using proceeds from periodic stock profits is one way of buying bonds when they are out of favor.
How did your bond do during this last "hiccup"? Over the past month as treasury yields have lowered; the etf, EDV (long duration treasuries), has appreciated in value over 4%, while VTI (total stock market) sold off by a little over 2%.
YTD, EDV is up 22% verses VTI gain of 4%. The 22% gain in EDV is the cushion for the overall portfolio or possible the "dry powder" that an investor could reallocate if they thought stocks were a "buy" right now.
It's my feeeling LT treasury funds like EDV have a portfolio cushioning effect on stock market risk. Because of their longer duration they possess an amplification effect verses shorter duration bonds. If you are trying to protect against interest rates rising for your cash position, buy shorter duration bonds. If you are trying to cushion periodic stock market downturns (equity risk) hold longer duration bonds.
I see a place for both in a well diversified (risk adjusted) portfolio.
You Really Want To Pick Stocks ? Think About Following These Guys
Managed Accounts: Too Pricey For Retirees FYI: Managed accounts—in which 401(k) participants hire professionals to invest their retirement assets—are increasingly popular. But are they worth it?
A new report from the U.S. Government Accountability Office concludes that while these accounts can deliver higher returns and lower risk to 401(k) participants, they also charge higher fees that can offset some or all of their advantages.
Regards,
Ted
http://blogs.marketwatch.com/encore/2014/08/05/managed-accounts-too-pricey-for-retirees/tab/print/
More on the Portfolio Sleeve Management System I think that the bucket system is quite different from the sleeve approach being used by Old_Skeet and Old-Joe. As JohnChisum states, there are usually at least three different time buckets and the investments in each bucket are selected based on what the contents of the bucket are going to be used for. Morningstar uses Bucket 1 to cover two years of retirement expenses and that consists of cash, CD's, & safe ST bond funds. Bucket 2 for years 3 - 10 consists of mostly stable bond funds, including some TIP's, and possibly a conservative allocation fund like Vanguard Wellesley. Bucket 3 for years 11 -25 consists of mostly equity investments along with riskier bond funds like Loomis Sayles Bond and possibly a commodity fund. Bucket 2 is used to replenish Bucket 1 when needed and Bucket 3 is used to replenish Bucket 2 when needed. The bucket system seems more geared to the fact that withdrawals are occurring during retirement although I guess it could also be used during the accumulation phase in a slightly modified form.
More on the Portfolio Sleeve Management System Personally I think ANY system is better than lc, mc, sc, intl / 40, 20, 20, 20 tripe. Another thing it does it make people understand it is not all about comparing your performance against some index and trashing other people's opinions looking at 3 year and 5 year numbers and perpetually chasing "stAr" funds.
There is no price for ones sleep.
More on the Portfolio Sleeve Management System
"Would seem the same to me."
I think the intent is the same but the way the intent is handled seems different. I see one traditional bucket system set up for time periods, ie 1-5 yrs, 6-10yrs, 11yrs and beyond for example. The sleeve is something new or in this case the management of the sleeves as Old Joe has done with sleeves for different investment strategies. ( cash, fixed income, etc. )
