Is now a good time to invest in Bond Funds?

Financial Planning - Financial planning in general. (Moderated) 

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Subject Author Date Is now a good time to invest in Bond Funds? Jay 07-04-2007  Re: Is now a good time to invest in Bond Funds? Sandra Loosemor... 07-04-2007  Re: Is now a good time to invest in Bond Funds? anoop 07-04-2007  Re: Is now a good time to invest in Bond Funds? joetaxpayer 07-04-2007
Posted by Jay on July 4, 2007, 8:36 am This is what we know: Stock markets are at a high and interest rates may have peaked or may be 25bp away from a peak. So, for a long-term investor this should be a good time to increase allocation to bonds. I am thinking of increasing my allocation to the Long-term bond fund in my portfolio over the next three months - does this make sense? Now, anything can happen, but if the interest rates do peak around here and actually start heading lower from here over the next few years - is my understanding correct -> that the Long-term bond fund will appreciate during these next few years? Thanks, Jay Posted by Sandra Loosemore on July 4, 2007, 9:35 am > This is what we know: Stock markets are at a high and interest rates > may have peaked or may be 25bp away from a peak. So, for a long-term > investor this should be a good time to increase allocation to bonds. I > am thinking of increasing my allocation to the Long-term bond fund in > my portfolio over the next three months - does this make sense? > > Now, anything can happen, but if the interest rates do peak around > here and actually start heading lower from here over the next few > years - is my understanding correct -> that the Long-term bond fund > will appreciate during these next few years? People don't usually hold bonds so they will "appreciate". Unless you think you can predict the economy and Fed decisions better than all the big institutional investors out there, you're best off thinking of bonds as an income-producing investment instead of something you can make money on by betting on the short-term direction of interest rates. (Heck, even Bill Gross has managed to screw that up recently.) So, if you've decided your long-term asset allocation plan calls for more bonds, just go ahead and buy more bonds. If you want to invest in individual bonds, I think it would make sense to build a bond ladder with different durations to start with. For a bond fund, you might DCA in, or divide your money between short, intermediate, and long term funds, or pick a good core bond fund and let its manager worry about predicting the Fed and where the best returns are likely to be. -Sandra the cynic Posted by anoop on July 4, 2007, 10:08 am > Now, anything can happen, but if the interest rates do peak around > here and actually start heading lower from here over the next few > years - is my understanding correct -> that the Long-term bond fund > will appreciate during these next few years? There are too many variables that affect long term bond rates. Even predicting which way the fed funds rate will go is not a no-brainer. My prediction based on the blogs I read is that rates (especially for long term bonds) will head higher before they head lower, so for now I'm staying away from bonds. Only when the long term bond has a better yield than what I can get in a regular money market fund will it be worth the risk of investing in it. But you have to make the call for yourself independently! Anoop Posted by joetaxpayer on July 4, 2007, 12:01 pm Jay wrote: > This is what we know: Stock markets are at a high and interest rates > may have peaked or may be 25bp away from a peak. So, for a long-term > investor this should be a good time to increase allocation to bonds. I > am thinking of increasing my allocation to the Long-term bond fund in > my portfolio over the next three months - does this make sense? To your first point; the fact the stocks are at or near their high is not necessarily a sign they are at a top, or poised for decline. Look at an S&P chart (yahoo shows a nice one) and you'll see that the market spent much of the 80's and nearly all of the 90's at a high. This can turn into a long lecture, so I'll stop with that observation. If rates have peaked and are due to fall, I'd suspect that would be a good source of fuel for further market gains, companies like to borrow more money at lower rates to expand their business. At this point in the cycle, my own gut says bonds have as much room to fall as rise. The shape of the yield curve, inverted, points toward the short term rates dropping, and longer term rising to get back to normal. As far as the prediction toward recession, I'm not on that bandwagon. JOE Similar Threads Posted May 2008 (EBITDA) Is that a good time TO INVEST in R.E. ? May 20, 2008, 3:08 pm Good Bond Funds? January 28, 2007, 3:12 pm Bond Funds - Good Idea or Not November 13, 2008, 10:56 am muni bond fund vs. "core" bond funds March 26, 2007, 10:46 am good time to roll over 401Ks? June 11, 2008, 3:11 pm Web Sites That Graph Bond Market Prices Over Time? October 1, 2008, 4:16 am Good Alternative Funds? October 15, 2006, 1:51 pm Moving IRA from stock to bond funds? April 20, 2007, 3:34 pm paper on emerging market bond funds February 4, 2008, 2:57 pm sovereign wealth funds vs. hedge funds June 21, 2007, 4:06 pm