I'm planning to put about 20% of my portfolio into bonds, for now--the allocation will increase as I am approaching retirement.I've picked several funds that each offer some combination of qualities I like: high returns, hedge against interest risks, hedge against inflation, and especially, hedge against declining dollar vs. other currencies. Of course no one fund will be perfect so I want several, to balance various strategies. But 8 seems like a lot, for just bonds!

Do you see any duplication in these choices? (It seems to me they each cover different strategies, but I could be missing something). And how would you allocate among them?

VIPSX, LSBRX, PSAFX, PFBDX, PAXHX,CIU, EDF, WIP.

tia,

aalan

Are you proposing these for a single tax-deferred account? What is your time horizon until retirement? VIPSX is a fine fund as is LSBRX, but I would avoid Pimco's PFBDX unless you're prepared to play with fire: the fund is unhedged against the USD and can swing as much as 1% in either direction in a single day as the dollar rises or falls (as it did yesterday). Secondly, I don't think you need any of the three etfs you selected. For an intermediate-term bond fund, it's hard to beat Bill Gross's record with Pimco Total Return or Harbor Bond. I miss seeing an investment-grade bond fund like AGG (cheaper) or Loomis Sayles' LSIIX (better).

[quote user="closer"]Are you proposing these for a single tax-deferred account? What is your time horizon until retirement?[/quote]

Hello, closer, thanks for the chance to clarify.

I can put about 1/3 of this into my Roth; the rest will have to be taxed. But I'm in a low tax bracket, so that's a secondary issue. Still, I'd like to hear suggestions as to how to prioritize the space I do have in the Roth. Thanks for raising that issue!

 I fudged a bit when I said "retirement." I work as a musician, so the transition from accumulation to withdrawal of funds is going to be subtle. I'd like to be able to count on the income sector of my portfolio to return about 8%; when the growth sector performs well, I'll increase the income base and be able to invest more conservatively.

 [quote] VIPSX is a fine fund as is LSBRX, but I would avoid Pimco's PFBDX unless you're prepared to play with fire: the fund is unhedged against the USD and can swing as much as 1% in either direction in a single day as the dollar rises or falls (as it did yesterday).[/quote]

Fire will have to be my friend, then. As I see it, it's the dollar that is unreliable, and apt to be more so.  Based on what I'm reading these days, I think I'll feel safer in Euros, Yen, Reals, Swiss Francs, etc. A little volatility won't bother me, if it ensures against an outright loss of value. 

[quote] . I miss seeing an investment-grade bond fund like AGG (cheaper) or Loomis Sayles' LSIIX (better).[/quote]

Do you rate all foreign funds as below-investment grade? Of the eight on my list, only EDF and PAXHX are speculative, even nominally. That said, LSIIX looks like a good suggestion, in the same ballpark as what I had in mind.

I think it's pretty late in the USD's devaluation cycle: To see what I mean, go to the M*'s Snapshot page for the Merk Hard Currency Fund (MERKX) and look at its chart for the past three years. I don't think you're going to see the sort of appreciation you expect in the euro and some of the other currencies you mention above. Some global bond funds like Loomis Sayles' LSGLX buy mainly investment-grade sovereign bonds; MERKX also buys European corporate bonds denominated in euros. As someone who observes Pimco's PFBDX on a regular basis, I stress again this fund is more volatile than you think; when the USD strengthens, it won't ensure "against an outright loss of value."

[quote user="closer"]I think it's pretty late in the USD's devaluation cycle: To see what I mean, go to the M*'s Snapshot page for the Merk Hard Currency Fund (MERKX) and look at its chart for the past three years. I don't think you're going to see the sort of appreciation you expect in the euro and some of the other currencies you mention above. Some global bond funds like Loomis Sayles' LSGLX buy mainly investment-grade sovereign bonds; MERKX also buys European corporate bonds denominated in euros. As someone who observes Pimco's PFBDX on a regular basis, I stress again this fund is more volatile than you think; when the USD strengthens, it won't ensure "against an outright loss of value."[/quote]

I certainly appreciate your POV, closer. If the dollar's fall is cyclical, you're right. If it's based on fundamental differences between US and other countries' financial behavior, maybe not. I hope the dollar does get stronger; that will enrich us all. And, I want enough foreign-currency investments to protect against the alternative.

aalan 

IMO?

If you have a +5 yr basis ahead of you? > LSBRX

Why? 9% apy past 10 yrs  & 10% past 5 yrs. Pretty tough to beat..and a 7.35% Yield..

But for both Types and Taxable? I gave up Bonds in my taxable port.. Just put it in my AMBF's with A Much Higher TE ( Tax effecientcy) > OAKBX,PRPFX & FPACX and far better rtns as well as safety in Bear Markets. ( Last time around, future? who knows )

I also found that 20% in bonds isn't enough to make much of a Difference.. Wondering why Most Pro' Firms use a 60/40 Index port.. even a 40/60 Index Port is only about a 1% less apy for the past 10 yrs..

and It all depends> Wait till 5 yrs prior to your Retirement Yr to reevaluate how much ( if any) you should have in Bonds to preserve Capital. But, if you end up Not having enough by then to achieve your retirement Needs? Then You maybe best ( or have to ) to remain or  put More  in Equity funds ( or AMBF's) ...

eg: If you figured out that you will need to have $1 million at retirement time ( using the traditional 4% WD rule ) + whatever other Income from SS to achieve your Income retirement Needs and you need to save $10,000 yr to achieve that Goal and you can't? then Bonds aren't going to get the job done and your pretty much forced more if not all into Equity funds  and take your chances.. Since Primary Index Equities have paid ave of 9% past 10 yrs vs 6% for bonds.. and a 3% apy  difference is  = to Double your $ over 24 yrs.  So, IAD.. (ItAllDepends) and hopefully you won't have to wear them after retiring either ...LOL

Aalan:

I think that generally you have compiled an admirable list. 

 I am not sure I would worry about "too many" bond funds. Remember, besides the usually-cited risks (i.e. market risk, credit risk, interest-rate risk, currency risk, etc.), investors need to also consider manager risk.    Simplicity is wonderful in principle, but managers can get stale, some will leave their fund, and all will eventually die.   So diversify away some manager risk -- always.

With that said. the funds that least interest me on your list are:

EDF -  Its a CEF.  I simply do not trust CEFs.  Over time, I think they will lose NAV.  This is not a criticism unique to EDF, but to CEFs in general.

PAXHX - There will come a time to own junk.   But between now and then,  junk bonds could get ugly.

I will throw you a suggestion for one additional  fund for your consideration (a new fund, not yet actually released).   PIMCO's  Global Advantage bond fund, to be managed by Mo. El-Arian.  I will basically be allocating the bulk of the taxable-bond portion of my portfolio between that and LSBRX.

Good luck.

[quote user="pining4Lenore"]

Aalan:

I think that generally you have compiled an admirable list. 

 I am not sure I would worry about "too many" bond funds. Remember, besides the usually-cited risks (i.e. market risk, credit risk, interest-rate risk, currency risk, etc.), investors need to also consider manager risk.    Simplicity is wonderful in principle, but managers can get stale, some will leave their fund, and all will eventually die.   So diversify away some manager risk -- always.

[/quote]

Wow, what a treat to see this thread revived after a month of forgetting about it.

Poe, thanks so much for the reassurance. Some of my specific choices have changed (PLMDX is now a big presence), but it's good to know I'm not making it needlessly complicated.

[quote] 

With that said. the funds that least interest me on your list are:

EDF -  Its a CEF.  I simply do not trust CEFs.  Over time, I think they will lose NAV.  This is not a criticism unique to EDF, but to CEFs in general.

PAXHX - There will come a time to own junk.   But between now and then,  junk bonds could get ugly.

[/quote]

Noted. My CEF bond allocation is down to about 1%. PAXHX is not as junky as the name implies--it has a lot of unrated emerging-sovereign holdings. And yes, I'm being cautious with that, too.

[quote]  

I will throw you a suggestion for one additional  fund for your consideration (a new fund, not yet actually released).   PIMCO's  Global Advantage bond fund, to be managed by Mo. El-Arian.  [/quote]

Me, too--I'm holding the place of honor open for that one!  

Thanks

Aalan 

Before you buy any bonds / bond funds, especially any US gov't issues, you should read Bill Gross' June newsletter:

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+June+2008.htm

Personally, for investment grade fixed income, I generally recommend buying individual issues in a laddered portfolio.  It's easier to control your duration and costs this way.  The economics are more reasonable for funds dedicated to foreign and high-yield fixed income.  But, as a previous poster suggested, the outlook for junk bonds is not particularly good right now.

 Interestingly, Bill Gross mentioned in a recent interview that he was buying big money-center bank issues, which have been beaten up recently... like Bank of America.  I've seen some pretty attractive BofA issues lately. 

But, whatever you do.... stay short!  Gross recommended not going out even 5 years.  And I concur.  The average duration of the portfolios I manage are currently just a tad over 2 years.

Good luck!