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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35367  
Subject: Re: Poll: Bonds as % of assets Date: 5/10/2010 8:50 PM
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My bond allocation has decreased considerably since 2008, not by any conscious decision of mine, but because the stocks have increased so dramatically in price.
I keep planning to rebalance. Of course, last week, I was thinking that my rebalancing was too late, as stocks plunged. Today the lost value was regained.
Meanwhile the bonds keep doing what they are supposed to do, which is pay their coupons on time. In today's mail was notice of a June 1 call, the second in the past month, both from muni bonds.
Clearly those in charge of municipal pursestrings think interest rates will be rising and that now is the time to lock in rates lower than what they are currently paying me.
If that is the case, I am likely to be able to get higher coupons by waiting awhile until that prediction becomes fact. Meanwhile, although my bond allocation is at an all-time low, it seems prudent to stick with my dividend-paying stocks in companies that have been announcing earnings above estimates and increasing their dividends, while waiting for interest rates to rise.

Meanwhile, there is no gain in keeping cash. Brokerages are paying 0.01% and such on free cash. This is a real incentive to calculate upcoming expsnses carefully and not keep extra money in cash accounts. So the cash component of my brokerage accounts stands below 0.5%.

Normally I'd have a bond allocation well over 50%--but not now. The interest being offered doesn't justify it.

If the dividend on common shares is a higher % than the same company is paying on their bonds, and it is my assessment that the company is doing well, then I'll opt for the stock. The dividend will be increased in good times, while the interest on the bond will not be increased--it may be eliminated by an early call.

I insist on buying bonds at a discount, giving me built-in capital gains at maturity. I do maintain a ladder to keep cash flow for the foreseeable future, and I want a coupon that will provide a positive return after inflation. I want my money back on time, so I avoid the weakest part of the credit spectrum.

All one reads suggests that as one ages, the bond portion of the portfolio should rise to reduce risk. Yet I'm retired now, and the bond portion is lower than it has ever been.

Now, I just keep finding more compelling values in stocks.

Best wishes, Chris
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