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Author: TwoCybers 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 76418  
Subject: Re: Bonds vs equities - OT? Date: 7/24/2013 3:42 PM
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Tuni in today's world it is almost impossible to address the question you have with knowledge of the specific holdings. I am saying the terms "bonds" and "fixed income" can and today often do cover things way beyond the likes of an AT&T bond maturing in 2025 paying X%. An example BEIBLX name Eaton Vance Floating Rate - sounds like a bond mutual fund. In reality it is composed of corporate loans whose interest rate is adjustable - think Adjustable rate mortgage as something similar.

If you own mutual funds that are traditional bonds (example VBMFX) at some point in the near future (5 years of less) the principle of that holding is likely to drop well over 5% -- maybe 15%. In short if 5 years in the time frame, changes are excellent you will have more money by selling VBFXM and burying the cash in your back yard. This fund has lost more than 1% in the last 12 months even though its bonds pay dividends every month. This is interest rate risk.

Since the funds are not needed for living expenses today, I would say put them in a Balanced, Actively managed fund with a few decades of history. To excellence one are Vanguard's Wellington and Dodge & Cox Balanced. Both these funds have returned over 7% in the period from June 2008 to June 2013. There are damn few investments of any kind that can claim that. Yes in high growth periods like the 1990s these will not do as well. But given your fiduciary responsibility and the age of the person to get the money, you could do much worse.

I am personally putting our funds largely in VWENX - I view it as a simple retirement portfolio. Yes VWENX has 30% bonds, but when you drill down and look at he interest rate risk, it is low. DODBX has bond holdings that range from 20% to as high as 50% - right now it is about 20%. Both these funds have excellent ratings by Morningstar.

Gordon
Atlanta
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