I have never invested significantly in bonds but realize it's probably a good component of a well diversified portfolio.  I've always been almost fully invested in stocks.  But at my current age, and kids college on the horizon, I know some diversification is in order.  But I have really no grasp on a good bond strategy.

What is a good % range to allocate to bonds?  20-30%?  I'm 20 years from retirement and 11 years from dipping into the college savings accounts.  I lean towards an aggressive stance on investing vs conservative/moderate.

What sort of vehicles should I look at?  Should I just keep it simple with some bond funds?  Is now a good time to invest here?  Seems like rising interest rates pose a risk.

I think a general rule is, you should have the percentage of your assets in bonds/fixed/cash that is your age.  So as you age, you should be getting more and more safe with your investments.  If you're 50, about half of your money should be in stocks and half in bonds/cash/treasuries.  Since people are living longer, it's probably now "Age - 10" %.

I characterize myself as a long-term value investor...so, while no expert on bond investing, my sense is that now isn't a great "entry point" into bonds.

Rates are too low and prices are too high.

socaljacket wrote: I characterize myself as a long-term value investor...so, while no expert on bond investing, my sense is that now isn't a great "entry point" into bonds.

Rates are too low and prices are too high.

Once interest rates start going up, and they will cause the government cannot keep
them low forever, the value of existing bonds will go down.

You get the best deals in Russia. Look at how well their import versions match up to the Made in USA models:



...

We're talking about investing in blondes, right?

I have had good success for years with a corporate bond fund managed by Bill Gross himself, Pimco Corporate Opportunity (PTY).  He seems to mention it every year in the Barrons Roundtable. Pretty stellar returns for a bond fund (5 yr average= 19.8%).  He does use some leverage to get the returns up though so keep that in mind in case rates rise, and as a poster mentioned above, if rates rise most all bond funds will suffer, but this one would suffer more due to the leverage.
www.allianzinvestors.com/Products/pages/11.aspx
edit: fixed header
edit2: if you look at the link, the annual returns are volatile, so this is more risky, but I took the OP's post as looking for more speculative bond investments.

Name		1 YR	3 YR	5 YR	10 YR
PIMCO Corporate & Income Opportunity Fund	At NAV	28.84%	21.81%	19.84%	15.55%	15.57%
PIMCO Corporate & Income Opportunity Fund	At Market	29.17%	24.49%	23.61%	16.94%	17.05%

I don't claim to be a bond expert but I think this is not a good time to buy bonds. Interest rates are at a record low and they will eventually increase, probably significantly.  When that happens the value of any bonds you hold will decrease.

I have heard several investment professionals on CNBC this week say that bonds are a very bad investment at this time.

Bonds are an important part of a portfolio but it is overly-simplistic to say that at x age, you should have x% bonds. I like to think of it more as if you are very aggressive, you might not have any bonds. If you are super conservative, you have a fair amount of bonds - maybe up to 30% of your portfolio at age 40. But as others have pointed out, now might not be a good time to invest in bonds. 

You mentioned that you are invested in stocks and that you are fairly aggressive. What does that mean? I have 2 different types of stocks: Risky (25% of portfolio) and Stable (50%). The risky stocks are ones that pay almost no dividend and I expect the /share price to increase. Whereas the stable stocks pay a good dividend and any appreciation will be nominal. Simply investing more in Stable stocks might be a good way to diversify your portfolio without taking on the risk of the bond market.

Are you familliar with Dow Dogs? Find the stocks whose dividends are the highest % of their stock price. I started investing heavily in DDs about three years ago with great results. I'm very careful to only go after companies which I think will be around for the long term and I make sure to only buy when I think they are undervalued. Right now is a tough time to find values - I'm sitting on the sidelines and actually contemplating getting out of some of our better performers (J&J, Abbott, JPM).

Hope this helps.

  Bonds have been great over the last ten years because interest rates have been falling.  But they can't fall any further.  My bond exposure is in Loomis Sayles Bond Fund and Fidelity Strategic Income.  These funds invest in diversified bonds including international and high yield corporate bonds.

  I think at this point, conservative dividend yielding stocks are a better value.  My stocks are yielding close to 3% and the dividends tend to increase most years whereas bond interest is fixed.

I am closer to being where you will be in those 20 years; instead of now.

Of what we can directly control (not included are 401k's or 409A's), we are 80%+ in income producing holdings. Closed end Mutuals, Utility and Industrial Bonds, Preferred Stock.

About 5 years ago, the mix was entirely different. And I had to pay some healthy LT Capital Gains in my non-IRA accounts.

That being said, it is senseless and expensive to try and Time the Market. I dabbled in Options a while back and had my head handed to me.

I like the two Bond Funds mentioned above. Great appreciation.

Also, if you have any self directed IRA's, Roth's; my advice is to churn in them, not taxable accounts. Delay the taxable events as much as possible.

my $.02

swarmee wrote: I think a general rule is, you should have the percentage of your assets in bonds/fixed/cash that is your age.  So as you age, you should be getting more and more safe with your investments.  If you're 50, about half of your money should be in stocks and half in bonds/cash/treasuries.  Since people are living longer, it's probably now "Age - 10" %.

I liked that rule and wanted to apply it, but investment counselors don't go along with that anymore even with -10%.  It may be more like -30% or -40%.  I push to buy more bonds but my tax CPA and investment counselor both strongly advise against it.  Government spending and interest rate policies have changed all the rules.  My expertise of 25 years ago is totally "out the window."

It's not a great time to get into bonds, but I don't think it's a great time to get into stocks, either.

I have about 30% of my IRA in FIBAX (Fidelity) - a low exp. ratio intermediate bond index fund. It's at about 4.43% return this past year. Paltry compared to the equities in my portfolio, but it allows me to sleep a little better. (risk tolerance)

As others have said, if not equities right now, i don't know where..... This is the rally nobody loves.

LaGrangeJacket wrote: It's not a great time to get into bonds, but I don't think it's a great time to get into stocks, either.

  I believe in reversion to the norm.  Bonds are currently at an all time high (i.e. interest rates are a record lows).  Stock prices are at or slightly below historical valuations.  So I beleive the easy money has been made in stocks, but they still have upside potential if earnings continue to grow.

  (I wish I had understood this ten years ago when interest rates were high and stock valuations were way above the historical norms)

okeefe wrote:
  Stock prices are at or slightly below historical valuations. 

What?

The best long-term measure of value, the cyclically-adjusted price-earnings ratio (which averages profits over ten years), is at 22.9, around 39% above its long-term average, according to Robert Shiller of Yale University. An alternative measure, the Q ratio, which compares shares to the replacement cost of net assets, shows the American market as 50% overvalued, according to Smithers & Co, a consultancy. The dividend yield on the market is 2.6%, compared with the historical average of 4.1% (although share buy-backs partly compensate for this shortfall).

Given the current combination of low bond yields and high equity valuations, Antti Ilmanen of AQR, a fund-management group, calculates that the prospective return from a balanced American portfolio is the lowest it has been for a century.

Link

LaGrangeJacket wrote:

okeefe wrote:
  Stock prices are at or slightly below historical valuations. 

What?

The best long-term measure of value, the cyclically-adjusted price-earnings ratio (which averages profits over ten years), is at 22.9, around 39% above its long-term average, according to Robert Shiller of Yale University. An alternative measure, the Q ratio, which compares shares to the replacement cost of net assets, shows the American market as 50% overvalued, according to Smithers & Co, a consultancy. The dividend yield on the market is 2.6%, compared with the historical average of 4.1% (although share buy-backs partly compensate for this shortfall).

Given the current combination of low bond yields and high equity valuations, Antti Ilmanen of AQR, a fund-management group, calculates that the prospective return from a balanced American portfolio is the lowest it has been for a century.

Link

http://online.wsj.com/mdc/publ...21-peyield.html


 Trailing P/E on the Dow is 15.79 and on the S&P 500 is 18.41.   Historical valuations are in the mid teens.  Small caps appear to be overvalued.

okeefe wrote:

LaGrangeJacket wrote:

okeefe wrote:
  Stock prices are at or slightly below historical valuations. 

What?

The best long-term measure of value, the cyclically-adjusted price-earnings ratio (which averages profits over ten years), is at 22.9, around 39% above its long-term average, according to Robert Shiller of Yale University. An alternative measure, the Q ratio, which compares shares to the replacement cost of net assets, shows the American market as 50% overvalued, according to Smithers & Co, a consultancy. The dividend yield on the market is 2.6%, compared with the historical average of 4.1% (although share buy-backs partly compensate for this shortfall).

Given the current combination of low bond yields and high equity valuations, Antti Ilmanen of AQR, a fund-management group, calculates that the prospective return from a balanced American portfolio is the lowest it has been for a century.

Link

http://online.wsj.com/mdc/publ...21-peyield.html


 Trailing P/E on the Dow is 15.79 and on the S&P 500 is 18.41.   Historical valuations are in the mid teens.  Small caps appear to be overvalued.

The historical mean for the S&P is 15.5, and the median is 14.5, putting the S&P anywhere from 19% to 27% overvalued.  On top of that, corporate profit growth is slowing, which will not improve the P/Es. 

Regardless, it is not true that stock prices are "at or slightly below historical valuations."

CCsGhost wrote: I have about 30% of my IRA in FIBAX (Fidelity) - a low exp. ratio intermediate bond index fund. It's at about 4.43% return this past year. Paltry compared to the equities in my portfolio, but it allows me to sleep a little better. (risk tolerance)

As others have said, if not equities right now, i don't know where..... This is the rally nobody loves.

Your risk is too great and your sound sleep is unjustified.  Sorry.