I have never invested in bonds until this year. When the 10y hit 5% I thought it was close to peaking so bought Fidelity Long Term Bond Index in my 401k.

I understand if I directly owned the bond the value has risen with the drop in coupon rates.

I don't quite understand how the fund works. I am up in the quarter on it 16%. Is the fund still holding the previous high coupon securities? I am trying to figure out if I hold or sell if I assume rates will be going down.

Does that make sense?

Bond prices should have an inverse relationship with interest rates. So as rates decrease your bond funds should increase. Seems like you made a good call by buying near 5%.

Yes thanks

My question is in a long fund when does that previous buy no longer make a difference?

I assume they are always buying new bonds?

Trying to figure out exit

It really depends on they type and duration of the bonds the fund holds, but generally speaking the best time to sell is when the Fed has stopped lowering rates and before they raise them again

Dr T and the Women said:

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Yes thanks

My question is in a long fund when does that previous buy no longer make a difference?

I assume they are always buying new bonds?

Trying to figure out exit

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These are typically managed by a Fund Manager who is buying and selling bonds based on what's happening in the market. You are going to have multiple numbers of bonds in the fund that all mature at different times so I'm not sure how you plan your exit other than based on macro economic conditions.

What kind of bonds are in it? Is it focused on a specific bond type such as municipal or corporate?

I did the same but my only choice was broad market bond fund.


I bought when it was down between 10 to 15%, and as high as down 20% from a previous 5 or so year peak


I figure sell when it's up around that much and I'll also look at the S&P and other funds prices I'll move that money into, if I can catch those low around the same time

Bond funds do not pay fixed income, nor day they have maturity dates. The yield on your initial investment shouldn't change much (principal will go up if rates drop, income stays the same) - current yield may change. If you reinvest the income, your income will go up. If nav goes up, current yield drops. The bond market is very efficient on this way.

If you want to time the fixed income asset class, you need to focus on principal value moves not income.

ETA: inn other words, doesn't matter if they still hold the initial bonds.... Say they bought $1,000,000 par value 4% coupon for $850k. You are up 15% plus 1/4 of interest. Income is still $40,000/year. You hold it if happy to get $40k/year, you time it, hoping rates drop more than expected on current value of fund becomes > par.

jamey said:

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I did the same but my only choice was broad market bond fund.


I bought when it was down between 10 to 15%, and as high as down 20% from a previous 5 or so year peak


I figure sell when it's up around that much and I'll also look at the S&P and other funds prices I'll move that money into, if I can catch those low around the same time

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Good luck!

I'd love to see any actual Alpha you guys created with this activity. There is no period in 2023 you could've exited IVV and bought MUB and come close to outperforming. Buy bonds to smooth volatility or income... Very rare you will beat the market with bonds.

cjsag94 said:

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I'd love to see any actual Alpha you guys created with this activity. There is no period in 2023 you could've exited IVV and bought MUB and come close to outperforming. Buy bonds to smooth volatility or income... Very rare you will beat the market with bonds.

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I just want to always have the most diverse total portfolio possible

so that is some

gold miners
every 11 sectors of the S&P
sector tracker ETFs
cash
BTC
corporate 401Ks (3 of them with different investments)
private brokerage
corporate bonds (coming up on 24 January maturation date!)

LMCane said:

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cjsag94 said:

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I'd love to see any actual Alpha you guys created with this activity. There is no period in 2023 you could've exited IVV and bought MUB and come close to outperforming. Buy bonds to smooth volatility or income... Very rare you will beat the market with bonds.

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I just want to always have the most diverse total portfolio possible

so that is some

gold miners
every 11 sectors of the S&P
sector tracker ETFs
cash
BTC
corporate 401Ks (3 of them with different investments)
private brokerage
corporate bonds (coming up on 24 January maturation date!)

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Understood, but this thread was about short term market timing moving in and out of bond funds.

Analyze a 2 year chart of s&p vs MUB. Creates an interesting case study of how individual investors under perform by moving in and out of things. This strategy sounds good until you realize it actually created selling low and buying high actions... But masked by a 16% upswing in the under performing investment.

The biggest benefit of moving to bonds was actually when it was at its high point... Because that was the one period where it out performed, by being down less than S&P.

It might have been easier to buy a single muni, that way you're in charge. The value will follow the market just like a bond fund, the coupon payments are entirely predictable, and no one is selling part of your holdings to facilitate withdrawals. And you can sell in $5k increments just about whenever you want. And not get taxed.

I have an Aggregate Bond Index Fund and a High Yield Bond Fund option in my 401k. Which would make the most sense with the interest rates possibly peaking out?

Agg

Get out either after they are done cutting rates or after everyone has peaked on guessing where the fed will cut. Guggenheim is a highly respected bond team. They think bonds have more to run.

They highly likely hold the same bonds when you bought. New cash would buy new bonds. They may trade some but that would benefit you and would be a small percentage.

Harkrider 93 said:

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Get out either after they are done cutting rates or after everyone has peaked on guessing where the fed will cut. Guggenheim is a highly respected bond team. They think bonds have more to run.

They highly likely hold the same bonds when you bought. New cash would buy new bonds. They may trade some but that would benefit you and would be a small percentage.

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thank you

It's Time to Say Goodbye to 'T-Bill and Chill' - AllianceBernstein - Commentaries - Advisor Perspectives

Better defined than mine.