Here is a year-to-date update.
Allocating the fixed income portion of invested assets has been a challenge for investors over the past few years and continues as rates refuse to rise in tandem with experts' expectations, corporate spreads widen, and international worries mount. This was especially true since the last update, as investors piled into Treasury securities and sold high-yield and international bonds.
Not long ago, investors could put the bulk of fixed income assets in an index fund tracking the Barclay's Aggregate Index and then go to thinking about the stock portion of assets. Not true in 2013, and still not true as we approach the end of 2014. Most observers continue to believe that rates will head higher, especially once the Fed starts its expected increasing of the Federal Funds rate in mid-2015.
Important dynamics in today's market are the rising dollar and the lower yields globally. For example, the yield on the 10-year German Bund is 0.56%, 166 basis points below the 2.22% yield on the 10-year U.S. Treasury! From the perspective of a European investor looking globally, an extra 1.66% in a depreciating Euro market is mighty attractive!
As you can see, the returns vary widely among the different funds. Since the last update, long duration Treasury notes and bonds have outperformed high yield instruments; and the yield curve has flattened. Note the -3.81% performance of the international high yield fund! Note, also, the payoff for being in the 7 - 10 year part of the Treasury curve at 8.45% versus 2.70% for the 3 - 7 year sector!
Unfortunately, most 401(k)s do not offer a decent selection of bond funds - you are typically forced to select from a couple. On the other hand, if you have an IRA, you have the selection available below as well as many others - another reason in favor of rolling over 401(k)s.
In general, you want to limit, to the extent it makes sense, the bond exposure of your investable assets in your taxable accounts--where they will get hit with your marginal tax rate as ordinary income--and invest your bond allocation in qualified accounts like 401(k)s, 403(b)s and Roths.
The bogey in the bond market is AGG, the Barclay's Aggregate Bond Index: it is to the bond market what the S&P 500 is to stocks. Thus, the overall market has achieved a return of 5.63% to date. Given that the Treasury portion of this index has increased in weighting over the past few years, it has been especially well positioned for a market where investors are piling into Treasury securities.
Disclosure: this post is for educational purposes. Individuals should do their own research or consult a professional before making financial transactions.
|CSJ||0.48||1-3 YR. CORP.|
|IEI||2.70||3-7 YR. TREAS.|
|IEF||8.45||7-10 YR. TREAS.|
|IHY||-3.81||INT'L. HIGH YLD.|
|BSJF||0.48||2015 HIGH YLD.|
|LQD||7.84||INVEST GRADE CORP.|
|BOND||6.27||PIMCO TOTAL RET.|
|HYS||0.44||0-5 YR. HIGH YLD.|