OK, I’m out!

That’s it – I’m moving out of my bond funds!

As many of you know, I changed by allocation at the beginning of the 2020 to reduce my bond portion from 30% to 20% of my portfolio. My reasoning was that the US Fed was keeping rates for borrowing low, so the yield I could expect from fixed assets would be low.

Of course, my timing sucked (as usual) and within 2 months of purchasing more stocks, the market tanked and the bonds became more valuable. Still, I held my course and even rebalanced In July, selling bonds and purchasing underpriced stocks – even though the market wasn’t going anywhere. That is why I have been very happy with the Nov/Dec. recovery

The US Federal Bank continues to keep rates low. The yield on the 10-year treasury is running at 0.947%! Thus, if you loan the fed $100, at the end of the year, you will have made $0.95. In ten years, you will get back $109.89. How can anyone make money in this?

So, with the S&P 500 paying a 1.6% dividend, and my Income account paying 4.19% dividends for the year, my thought is that I am going to take those bond funds in my 401K/IRAs, and convert them to mutual funds that focus on Dividend growth. For 2020, my bond funds returned about 2.2% growth and 3.0% in dividends – total of 5.2%

For my IRA/401K/Mutual Funds, I’m looking at three funds:

  • Wife’s IRAs (Trowprice): PRDGX (Dividend growth) – 13.93% 1 year / 14.49% 5 year
  • My IRAs (Vanguard): VDADX (Dividend Appreciation Index) – 15.46% 1 year/ 14.92% 5 year
  • My 401K/Deferred: VIMAX (Mid-Cap, my company does not offer a dividend growth fund, and I’m already invested in S&P500, small cap and international here) – 18.24% 1 year/ 13.28% 5 year

The plan here would be to use my rebalancing step, which I normally do in early January, to shift out of bonds and move into these new dividend growth stock funds. I’ll try and do that later this week.

Of course, knowing how well I time things, I’d expect a major market correction/crash shortly after I do this – so you’ve been warned.

So what changes are you guys making at the start of the year?

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2 thoughts on “OK, I’m out!”

  1. I’ve never seen bonds as big money makers, just as a less correlated place to put money so that when the inevitable next 30, 50 or 80% drop in the market occurs it won’t hit my entire portfolio. The argument that bonds have nowhere good to go is logical. But so is the argument that the stock market is ridiculously over priced and may make Japanese market type returns for the next ten to twenty years. Hopefully both of those assessments are overly pessimistic, but if not then it may not matter a great deal how a portfolio is constructed. I certainly supported 100% equities for almost my entire investing career, but as a retired guy I’m not that agressive anymore. 60-40 works for me.

    1. I agree with all your points. I never thought I’d “get rich” with bond returns, or stock dividends. However, I just don’t see them as a valid option at this time. My plan when we retire is to keep 1-2 years in cash, create a 3 year bond “ladder” and then have the rest in stocks. That way, I hope to be able to ride out the 50% drop in the market, when (not if) it comes.

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