Is this time to buy Bond?

[lanslord]

My portfolio is almost all stock and have lost 75% during the last a couple of years. I know... I learned my lesson, and begin to build a balanced portfolio.

I have sold all my individual stocks and want to have 60% stock and 40% bond all in index fund.

I assume interest rates can only go up for next a few years, that means Bond value is going down, right? It sounds not a good time to buy Bond, but looks like I have to have some bond to make my portfolio balanced, such a dilemma. Should I wait for a while to build my 40% fixed income portion? or is there any alternative for Bond? thanks a lot!

[ray420]

My portfolio is almost all stock and have lost 75% during the last a couple of years. I know... I learned my lesson, and begin to build a balanced portfolio.

I have sold all my individual stocks and want to have 60% stock and 40% bond all in index fund.

I assume interest rates can only go up for next a few years, that means Bond value is going down, right? It sounds not a good time to buy Bond, but looks like I have to have some bond to make my portfolio balanced, such a dilemma. Should I wait for a while to build my 40% fixed income portion? or is there any alternative for Bond? thanks a lot!

That's funny my today's post was a premier on bonds: http://financialhighway.com/understanding-bonds-what-are-bonds/

yea 100% stock or bond portfolio is a BIG NO, you have to have a mix of both for best results this is the efficient frontier, check out the asset allocation post.

As for bonds yea you are right they move inversely to interest rates, but couple things to keep in mind.

I talked about bonds in another thread, dont remember where.

1.Right now bond prices are very depressed, well the fed announced $300Billion long term bond purchase plan, due to perceived credit risk so yields are pretty good and very good chance for capital gains.

2. USUALLY bond prices will go down when interest rates go up, but if you hold the bond till maturity this wouldnt really effect you because you will get your principle back and all the income.

3. If you have enough funds build a bond ladder, or you can buy ETF's that do that.

Buy shorter term bonds over longer term bonds, unless you building a bond ladder.

If buying individual bonds don't get into junk bonds stick with AAA or AA bonds.

Hold Bonds in a registered plan like the RRSP or TFSA........

Hope it helps

[AllWheelDrift]

My portfolio is almost all stock and have lost 75% during the last a couple of years. I know... I learned my lesson, and begin to build a balanced portfolio.

I have sold all my individual stocks and want to have 60% stock and 40% bond all in index fund.

I assume interest rates can only go up for next a few years, that means Bond value is going down, right? It sounds not a good time to buy Bond, but looks like I have to have some bond to make my portfolio balanced, such a dilemma. Should I wait for a while to build my 40% fixed income portion? or is there any alternative for Bond? thanks a lot!
Wow, losing 75% seems excessive. The market indexes dropped "only" about 50% from their highest point in the past couple years to the recent low point. It sounds like your investment choices were particularly poor. You might want to consider ensuring your stock investments are sufficiently diversified.

In all honesty, now might be the time to be buying stocks and selling bonds. If you had a particular asset allocation you were targeting and rebalanced now, that's exactly what you'd be doing, but like so many people you're discovering your risk tollerance wasn't what you thought and are moving towards more fixed income investments at what may be a particularly bad time. (Note I use the terms might and may, because to be honest, the only thing I know is that stocks are cheap compared to a year ago, but I have no idea how they are compared to next year.)

Anyhow, advice for buying bonds stick with short term bonds. That is, stay away from anything with a duration of more than say, 5 years. If inflation kicks in, it will be devistating to long term bonds. Also be aware bonds are only as solid as the issuer. Real return bonds probably wouldn't be a bad choice.

Be careful of the quality of the bonds. If you buy a high yield "junk" bond there's a significant risk you'll lose it all if the issuer defaults.

A GIC ladder is another good option.

[lanslord]

Thanks for the replies. I'm thinking of buying a Bond index fund, like RBC Canadian Bond Index Fund, or TD Canadian Index fund e-series. Would I get yield that way? or is it better to just buy gov short term bonds?

[questrader]

Stocks and bonds have an inverse relationship. If you can hold off buying bonds for a couple of months, they'll be much cheaper this time frame down the road, because the stock market is currently aiming sky high for the next while.

[AllWheelDrift]

Thanks for the replies. I'm thinking of buying a Bond index fund, like RBC Canadian Bond Index Fund, or TD Canadian Index fund e-series. Would I get yield that way? or is it better to just buy gov short term bonds?
The effective duration of those bond index funds tends to be on the long side (I think around 8 years last time I checked) making them rather exposed to inflation risk, plus with a fund you don't have the option of holding until maturity the way you do with individual bonds. I'd say stick to a short term bond fund, or a real return bond fund if you're going the fund route. If you look at government bonds, you may find that GICs pay higher rates, but I haven't compared them lately.

[ray420]

Stocks and bonds have an inverse relationship. If you can hold off buying bonds for a couple of months, they'll be much cheaper this time frame down the road, because the stock market is currently aiming sky high for the next while.
The relationship is true but now u r getting into market timming if the portfolio is long term than just figure out ur asset allocation and start using dollar cost average to build the portfolio

[partytime2009]

75% loss???????? How in the world did you manage that one. And worse of all, why in the world did you liquidate all of your holdings at such depressed rates. You bought at inflated prices and you panicked and sold into these prices which is the opposite of what you should have done. I hope that the stocks you liquidated are either in bankruptcy or near bankruptcy cause that's about the only thing that would explain your last action.

Anyways though, the past is the past. Picking individual stocks I think should be mostly left to institutional investors. If you are going to invest either go with broad market ETFs or industry specific ETFs. As hard is it still is, it is much easier to predict where a specific market or industry is headed than trying to predict what the future holds for one single company. In general, I find financials and energy to be very appealing at the moment.