I have some fears but I am still buying individual, intermediate term municipal bonds and adding to an intermediate term, tax free bond fund. The value of the individual bonds may go down if interest rates rise. Howver, the steady flow of dividends is nice. The bond fund is a little bit more troubling but it is still the best place to park money at the moment. Together, these bond investments represent 30% of my portfolio.
DFW Age 58
I'm keeping an eye on the bond market. We're fortunate that we don't need to take any distributions from our portfolio, and the majority of our investible assets are run by an extremely large pension fund manager whose choice of bond funds is limited but very select.
I've probably made more changes to the portfolio between mid-2009 and early 2010, than I previously did in the six years prior. We have recouped all our losses and are currently on track for an 8% gain in 2010. But who knows what might happen in the next month, LOL!
Because of the 'warning articles' I've been seeing, I'm comfortable with having (what is for us) an extremely unusual allocation for 2010: one third equities, one third Dodge & Cox's short- and medium-term fixed income fund, one third in PIMCO's Real Return Strategy Option fund. I've always had a high regard for PIMCO funds and I was very pleased when one of the best ones was finally offered as a fund choice.
The US GDP is starting to grow on target, which means inflation is not far behind. Whether we can continue what seems to be a winning Keynesian strategy in a world where Europe seems determined to plunge itself into a double-dip recession, is a true wild card. I think it's inevitable some EU members are going to have to default on bank debt within the next two years, which may eliminate the euro as a currency.
Inflation is murder on bonds. I would not be comfortable holding any long-term bonds, and would restrict any medium-term bonds to a modest percentage, preferring to hold short-term bonds instead. But as we are restricted to funds, I'm comfortable using D&C's fund, as it's one of the most well-regarded income funds with an excellent long-term ROI, meaning it's well managed. PIMCO's fund is one of their 'fund of funds' offering, so it's considered more of a 'balanced' fund than a straightforward bond fund (e.g., it holds emerging market bonds, etc.).
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