lawstar

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    • Mon Feb 25th 21:12 PM | Rating: 0 0
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      Making the Big Switch from Mutual Funds to ETFs
      Surprised to read the author finds bonds "dirt cheap" at the moment, since initiating a position in U.S. bonds with an "intermediate duration" NOW is hardly a way to grow (or even protect wealth) in my mind. My assumption is that the author's "total market portfolio" of bonds is roughly in line with AGG, GVI, or BND. Each of which is about 28% treasuries and agencies.

      U.S. goverment issues are, in my mind, outrageously expensive. On a risk-adjusted basis, an investment in treasuries etc. today have very limited upside, regardless how low the Fed. goes.

      I see so many problems with the timing of this core bond allocation that I will limit my discussion of the downside to a few remarks. An intermediate duration of 6 to 8 years exposes the already meager yield--paid in U.S. dollars--to the inevitability of rising rates. During this time, an investor will likely realize a negative return, as inflation and a secular devaluation of the dollar, evaporate any nominal return.

      As far as the remaining 72% of this portfolio, I am only marginally more constructive. I do concede that some junk bonds are now reasonably priced. But the indexes described have minimal exposure to this debt. For the investors with a long time horizon and desire to hold income-producing investments, the more opportune strategy NOW would be scoop up blue chips that are capable of growing dividends, in addition to exploring carefully selected MLPs, REITs, junk bonds, when fear sells genuinely "cheap" assetts.

      I'm aware that my suggestion doesn't address the issue of correlation. But other asset classes and strategies can be employed until U.S. bonds become "cheap" once again.
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