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I'm pretty much a buy-and-hold investor, although I do re-balance regularly. And if I feel strongly that the market it going to move in a particular direction, I will overweight to take advantage of it.

So far I've been telling myself that 2005 would see modest gains in stocks and some rise in interest rates, but modest inflation. I'm starting to have second thoughts due to the action of the bond market. The rise in short term rates is what I expected and I think the Fed will stop when the Fed Funds rate is 3% to 3.5%.

What concerns me is the action of the 10 yr. and 30 yr. bonds. Those rates are falling. On the positive side I interpert that to mean the bond market doesn't see an inflation problem. But now I'm worried the bond market is forecasting a recession, and that will mean another year of negative stock returns. Corporate earnings are still growing, though slower than last year and unemployment seems to be at least holding steady, but we also have a growing federal deficit and a weak dollar policy. So is the bond market right?
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Personally, I think you will drive yourself nuts trying to decide which way the market is going to go. If you have 20 or 30 years until retirement, what difference does it make what the market does in 2005? Therefore, my advice is to NOT WORRY about the market's direction. Instead, decide how much of your portfolio you can "risk" in the various asset classes and STICK WITH IT!

JLP

http://AllThingsFinancail.blogspot.com

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In my opinion, no one has the slightest clue what will happen to the economy, though it's fun to guess. We could have 15% inflation next year. Or a recession and deflation. 2% unemployment or 12%. 2% interest rates or 12%.

It's just like speculating on the roll of a die. I live and invest with than in mind (which means basically diversifying).

Nick
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<<<Personally, I think you will drive yourself nuts trying to decide which way the market is going to go. If you have 20 or 30 years until retirement, what difference does it make what the market does in 2005? Therefore, my advice is to NOT WORRY about the market's direction. Instead, decide how much of your portfolio you can "risk" in the various asset classes and STICK WITH IT!

JLP>>>


I've been retired for 5 years so it makes a heck of a difference.
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I've been retired for 5 years so it makes a heck of a difference.

Well, that puts a whole different spin on it!

How do you currently have your portfolio structured? Do you have any equities? What percentage? Also, don't forget about international funds.

There is a delicate balance between managing a portfolio for growth and income.

JLP

http://AllThingsFinancial.blogspot.com
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Although a market is driven more or less by the whims of mass behavior, it seems folly to anthropomorphize the bond market to be a thinking being. Market analysists are very prone to this. Each day, they find a reason why the market went up or down on the basis of this or that, as though they knew, or had consulted John and Jane Market. When you wonder if the bond market has it right, you are part of that market. Do you have it right?

db
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I've been retired for 5 years so it makes a heck of a difference.


I'm also retired and invest most of my fixed income allocation in US Savings Bonds (Series EE and I). I have no "earned income" and have to place all my investments in a non-retirement, taxable account. The Savings Bonds are tax-deferred. It's one way to tackle the bond issue.

Another may be splitting your fixed income allocation between either The Total Bond Market Index Fund (VBMFX) or The Intermediate-Term Bond Index Fund (VBIIX) and The Inflation-Protected Securities Fund (VIPSX). Obviously, I like Vanguard.

The advice I read on JLP's post about sticking to your asset allocation and not trying to figure out what the economy is going to do next is pretty solid thinking, in my opinion.

Everyone has their own way of looking at things based on their life's situation. What works well for one may not for another.

Anyway...good luck!

Regards,
Bill

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Your post reminded me of a PHD thesis I read a while back, so I tracked down my link to it. Most of it is way over my head. But the parts that aren't, are very interesting.

You can find it here: http://www.mises.org/etexts/cwik-dissertation.pdf

The thesis attempts to answer why yield curves invert one year before a recession.

-Joe
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