Bond investing in the current enironment

[Non_Comformist]

I really want to have a portion of my portfolio going into bonds, I invest regularly each month or biweekly depending on spare cash so purchases are done over time. I am planning on using EFT's as I really can't stand mutual funds and purchasing bonds directly does seem reasonable. My first thought was just regularly purchase a long term (20yr) treasury fund and be done with it. Unfortunately I then started thinking. With increasing rates (a given now) not only would the value of the ETF's current holdings decrease (and thus the value of the ETF) but it would be somewhat locked into the lower interest bonds.

Now I leaning to doing somewhat of manual laddered approach where I start off purchasing a short tem ETF, and gradually shift the purchases to mid then long term as rates increase.

Am I way off here? I would have absolutely 0 need to sell. Do I even need to worry about the ETF fluctuations in value?

How exactly do interest payments work on these things, I am assuming that they can be automatically reinvested thus increasing my "wealth" regardless of current trading value?

Oh anyone know anything about China Mobile, it seems currently undervalued based on historical performance but their website is absolutely worthless. They just added a dividend which brings growth into question when observed with their low multiplier.

[adios]

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I really want to have a portion of my portfolio going into bonds, I invest regularly each month or biweekly depending on spare cash so purchases are done over time.

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Ok.

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. I am planning on using EFT's as I really can't stand mutual funds and purchasing bonds directly does seem reasonable.

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Investing in funds and buying bonds directly are mucho different for the following reason. Say you poneyed up the cash to buy a 5 year Treasury. Interest rates spike through the roof and your stuck with a loser. Not really though because after 5 years you can redeem the face value of the treasury and you're not out any investment capital if rates never come in. However this is not the case with the bond fund whether it's an ETF or a mutual fund. Personally I would try to find good bond managers if you wanted to go that route.

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Unfortunately I then started thinking. With increasing rates (a given now) not only would the value of the ETF's current holdings decrease (and thus the value of the ETF) but it would be somewhat locked into the lower interest bonds

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Yep.

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Now I leaning to doing somewhat of manual laddered approach where I start off purchasing a short tem ETF, and gradually shift the purchases to mid then long term as rates increase.

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Honestly I'd prefer a stategy of buying CD's of short duration instead of doing the ETF thing.

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Am I way off here? I would have absolutely 0 need to sell. Do I even need to worry about the ETF fluctuations in value?

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FWIW I think you need to worry about the fluctuations.


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How exactly do interest payments work on these things, I am assuming that they can be automatically reinvested thus increasing my "wealth" regardless of current trading value?

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On bond funds yep you can usually re-invested from my experience. Not sure about ETFs. The interest payments are taxed as income, which does make stocks a conceivably better investment choice tax wise.

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Oh anyone know anything about China Mobile, it seems currently undervalued based on historical performance but their website is absolutely worthless. They just added a dividend which brings growth into question when observed with their low multiplier.

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I honestly don't know much about it.

[RiverMel]

Stay away from buying bonds directly. Especially corporates.

Buy inflation-indexed bond funds. Yum yum! I like VIPSX.

[GeorgeF]

As to bonds vs bond funds, funds are more convienient if you ever need to sell. You can also get diversification without a large investment from a fund. If you buy bonds you may end up with alot of little investments to keep track of insteasd of one fund.

"With increasing rates (a given now)"

Given! How many times have I said that at the poker table? It is never a given. Probably yes. Given never. As they say "there is a reason they have to run a race to find out who is going to win".

James Grant seems to think that there will be deflation
http://nytimes.com/2004/05/16/opinion/16GRAN.html

Once again the last of the Bond Bulls (and I mean the last) shows no fear:
http://www.hoisingtonmgt.com/HIMCo%20InterimUpdate200405.pdf

Hoisington has a fund WHOSX. Grant has a newsletter, www.grantspub.com (http://www.grantspub.com)