Knowing when to buy bonds
  • Please forgive my lack of expertise. I built and sold a business but I do not have advanced (or even moderate) investing knowledge. Hence my question below....

    I currently have just under 200K invested but it is being managed by a financial adviser.

    I recently learned all about risk tolerance. I got in about 18 months ago and of course everyone is a genius during a bull market. But when you have a 3% drop over the course of a few days then you learn a bit more about your true tolerance. Obviously I am mostly in stocks at this point. It feels good going up but I don't like the volatility.

    I am also saving money on the side though (I continue to work) and I expect that I may eventually try to smooth out the volatility of my portfolio by buying bonds (cash is too boring/unrewarding I guess?).

    Based on everything that I have learned lately, now is definitely not the time to jump into bonds. The message that I am getting is that I should just bank the money that I save for now in cash and then when interest rates go up and then stabilize, then it is time to jump in.

    So I suppose my question is this:

    What would that look like? The 30 year treasury? The 10 year? Etc. What other signals would an investor look for as the green light to shift more money back into bonds. Or is this almost as difficult to predict as the overall stock market? People who talk about bonds seem to lead me to believe that it is easier to know when to buy bonds than it is to know when to buy stocks....but maybe I am just being misled.

    Alternatively I suppose I could just fork over more savings to my adviser, but I like the idea of doing this bit on the side for some reason. Is that unreasonable of me? I don't know. For one thing is would also minimize fees in the long run to buy my own bonds (or bond funds) through Vanguard, etc.

    Thanks for any input, I check this forum every day and appreciate the insights here.
  • @Skinnyninja I actually bought some bonds in via IEF today with the 10year at 2.5%. It's a tactical trade where I hope to make 3-5%.

    Predicting bonds is as hard as predicting stocks, hence an asset allocation recommendation mix (http://www.financialsamurai.com/2013/02/11/recommended-net-worth-allocation-mix-by-age-and-work-experience/)

    Your mention of knowing your true risk tolerance after a 3% drop is wonders to my ears as that really is the only way to know how risk averse you are.

    What does your adviser charge?
  • @ Financial Samurai - My adviser charges 1% annually. I know that is a significant chunk but I am pretty happy to pay it. I have very little investing knowledge and I had suddenly came into what was (for me) quite a lot of money. I know that fee is not trivial but it frees me up to work on more income producing activities. So it is a trade off.

    I think I will talk to him and ask him what he thinks about slowly moving me into maybe a certain percentage of my portfolio as bonds at some point. Then I may try to mirror him a bit. Not sure.

    The other possibility is that I will just start saving out of my current income, and banking the money until I see an opportunity. This may turn out to be real estate in my case as well, because right now I still rent (though my rent is criminally low at only $425/month for a 1 bedroom with utilities included). I am not totally against home ownership but I have to admit that renting has worked out very well for me over the last 18 months (a bull market turns everyone into an expert, right?).

    Anyway I appreciate your feedback and I my keep bouncing more ideas around this forum. I am a novice but I am willing to learn more.

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