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About 1 to 1 1/2 years ago, feeling that the market was overvalued..and having this confirmed after reading the book "Valuing Wallstreet"..I liquidated my 401k stocks and put all into high grade corporate bonds paying about 6 1/2-7% interest...2-7 year maturities.

As interst rates have dropped..the bond values have increased however the only way I can realize this increase is sell. But then I would probably reinvest the proceeds at a lower interest rate. To add to it..if/when interest rates start going up..I figure I will loose my gains at an even faster rate.

So..I'm thinking at some point.. it may be best to go to cash.

Does anyone know of any quantitative way to make this decision? Any
formulae out there with a solution..given various assumptions?

Is it time to sell bonds? Obviously it isn't time to buy them.

When to sell? Comments? Thanks.
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What are your goals?

What is your timeframe?

Are you going to be investing more money as time goes on, or are you limited your current investment capital?

You mention one success predicting stock prices. That doesn't make a trend. Interest price movements are notoriously hard to predict. Short-term and medium-term rates don't always move in sequence.

Would you be able to reach your goals if you just said "Okay, I'm going 15% stocks, 40% bonds, 55% cash and periodically rebalancing"?
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You might like:
A History of Interest Rates
by Sidney Homer, Richard Sylla

http://www.amazon.com/exec/obidos/ASIN/0813523338/qid=999273420/sr=2-1/ref=aps_sr_b_1_1/103-5832118-0337436

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Try reading "Beating the Dow with Bonds" by O'Higgins.
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Does anyone know of any quantitative way to make this decision?

You might look at some of the bond yields or how far above or below they're trading relative to par value, some treasuries are at near historic lows, which would suggest that the capital appreciation has done at it can do.

My inclination would be to take your profits and maybe go 50% cash/ 50% cheap stocks with a maximum of 25% stock. You'd get the security of money market for 1/2 of the money (although the return is about 3%) and have a hedge against the bonds getting clobbered if/when people leave bonds for stocks.

You might consider a very small portion of the money in high yields, their spreads to treasury are enough (in my eyes anyways) to justify taking on some of the that credit risk. I have about 5% in high yields in a fund atm.

- FjordReject

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What are your goals?

My goals are protection of capital...using interest income generated to selectively pick individual stocks. I like to do my own investing..and lean against picking some allocations (x% bonds, y% stocks etc)..and forgetting about it. The type of account I have (401k)..allows me unlimited trading for a fixed fee a year...so commissions are not a question. I find that having my life savings capital safe in fixed income..while employing the income generated into equities..gives me the best of both worlds..ability to sleep at night..while taking some chances.





What is your timeframe?

At the current time..my timeframe is probably 10-15 years...until I retire.

Are you going to be investing more money as time goes on, or are you limited your current investment capital?

I will be investing more in a separate 401k plan with my new employer.
My bonds are in another account that I set up when I left my prior long term employer.



You mention one success predicting stock prices. That doesn't make a trend. Interest price movements are notoriously hard to predict. Short-term and medium-term rates don't always move in sequence.

You are absolutely right about this with 1 or 2 exceptions. While most of the time it is impossible to predict interest rates when they are in middle ground...when they they are at extremes , the odds are in your favor to do so. The stock market was at record valuation (over past 100 years) at end of 1998 (read "Valuing Wallstreet")...which could not be sustained. Exact timing is not possible..but probably no necessary.



Would you be able to reach your goals if you just said "Okay, I'm going 15% stocks, 40% bonds, 55% cash and periodically rebalancing"?


See above. For the current time..it is my goal to pick stocks with income generated with fixed income. Currently..my account is 10% equities and growing.


Returning to my original question...I am looking for advice as to what to do with bonds at this time that have appreciated. Interest rates will probably stabilize for 'awhile'..but eventually head up. There may be 1 more or at most 2 more Fed cuts...and that's it.
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