You’ve been rewarded for sticking with Vanguard GNMA. Over the last 52-weeks it has returned 5 percent and through the first half of this year it is up 4.5 percent. A lot of investors sold their GNMA last year when the Fed began its taper talk. And at the beginning of this year the so called experts said bonds were dead—making it even harder for you to hang in there. I’m glad you did. Aren’t you? Still all the chatter is about stocks. This week the Dow and S&P 500 both had record closings. Tech is way overbought and bonds are being left for dead, again. But the prudent investor would … [Read more...]
A 50% Loss
Most investors have forgotten what 2008 felt like. The numbers were not pretty, especially for those who took a 50% loss. Dick Young explains in his March 2014 Intelligence Report. It's impossible to have it all ways. In order to craft an investment portfolio that can act as an all-weather armadillo, you must be willing to forgo potentially substantial upside rewards to balance against the horror of a downside wipeout. If you are retired or saving for retirement in the not-too-distant future, you can easily get a knot in your stomach when you look at the basic math of downside portfolio … [Read more...]
The 10 Largest Bond Funds: Part II
Yesterday I wrote to you about how the 10 largest bond funds are increasing risk by loading up on junk bonds. The only fund company of the group not doing this is Vanguard. No surprise there. Vanguard always seems to do the right thing for investors. But there’s another narrative inside this grouping of behemoths that I want to share with you today. Who is the biggest holder of junk and who will pay the price when markets turn? DoubleLine Total Return bond fund has loaded its portfolio with 28% of its assets junk rated. You may recall this beauty of a quote from its manager. He said that … [Read more...]
52-Weeks with Vanguard GNMA
Vanguard GNMA is up 2.5% year-to-date and is in the black over the past 52-weeks. It’s been a rewarding couple of months for those that have hung in there. … [Read more...]
Setting Your Course for 2014
What I’m about to share with you is something I’d like you to share with or teach to your spouse. In 2008 some of the smartest guys in the room sat and watched as their mutual funds lost close to 50%. Meanwhile boring old Vanguard GNMA made money. That’s all the proof I need to make sure my well balanced portfolio owns Vanguard GNMA. It would be nice to be able to buy just one balanced mutual fund and be done with it. But there are none out there today that fit the bill. Don’t get me wrong, I love the world class Vanguard Wellesley fund. There is no better low cost balanced fund. But without … [Read more...]
Counterbalancing for the Crushing Market Declines
A counterbalanced portfolio is your key to investment success. For an example of how counterbalancing works I’ll point you to the Vanguard Wellesley fund. For my taste, a “one size fits all” fund simply does not exist today. But this one comes pretty close. Take a look at the years where stocks were destroyed. When you’re in retirement or close to it, you can’t afford to take the big hits. Counterbalancing—the 60% bonds and 40% stocks in Wellesley—helps to ease the pain. E.J. Smith works with new investors that have $2 million or more to invest. He can be reached … [Read more...]
Add to Vanguard GNMA
Over the last three years GNMA bonds have paid investors an average of 150 basis points over treasuries. That’s a terrific excess return for full faith and credit securities. In a market full of junk, it’s comforting to have the risk reduction characteristics of full faith and credit securities. And the volatility, compared to treasuries, has been more predictable. Hang with your Vanguard GNMA and if you have a five year window add to it. But don’t treat it like an alternative to cash because it’s not. It’s an investment. … [Read more...]
Bond Funds’ Biggest Losers
Closed-end bonds funds have taken a huge hit recently. Leverage can be a killer when rates go up. As Tom Lauricella at The Wall Street Journal reports: Worries about Federal Reserve policy have hit a favorite destination for mom-and-pop investors: closed-end bond funds. These mutual funds have suffered outsize losses during a rough month for bond funds overall. The average high-yield closed-end bond fund is down 10.7% in the past month through Thursday, according to Morningstar Inc. That compares with a 3.4% decline for its open-end counterpart. The same features that help closed-end … [Read more...]
Why You Should Beware Bond ETFs
Recent market volatility has been jarring for some investors. The volatility has whacked bond ETFs particularly hard. Last week bond ETFs sold off sharply and their prices diverged from their net asset values (NAVs). If one considers the characteristics of ETF investing, deviations from NAV should not happen. Especially hard hit last week were emerging market bonds, as evidenced by the iShares JPMorgan USD Emerging Markets Bond Fund (EMB). On Friday the discount of EMB shares to NAV was 1.93% (Chart 1). While that may not sound like much, in today’s low interest rate environment, that is … [Read more...]
What’s Your Fund Manager Doing behind Your Back?
In a recent article titled Fund Managers Seduced by Facebook, Joe Light of the Wall Street Journal exposes some poor practices of actively managed mutual funds. Some of the funds that bought shares wouldn't normally be considered natural investors in a high-growth technology company like Facebook. For example, some of the demand for Facebook came from funds designed primarily to invest in dividend-paying companies or low-priced "value" stocks. Facebook is neither. If Facebook doesn’t fit the fund’s profile, why would managers invest in it? Most were probably looking to make a quick buck in … [Read more...]
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