Getting Out of Bond Funds

Bond funds are losing a ton of money since interest rates are rising and bond prices are falling. Many investors are moving their money out of bond funds.  A record amount of money was moved out of bond funds in June.  I have moved my money out of bond funds as well but I probably should have moved my money out of bond funds a few months ago.  Since I knew that my bond fund would decline in value when interest rates started rising again and I knew that interest rates would eventually have to rise I switched the bond allocation of my portfolio to a short term bond fund to lessen the eventual loss.  If I would have instead moved my money completely out of bonds and into a money market fund I would have saved myself several hundred dollars.  Of course, it is always easier to see what the correct move is in hindsight.  I’m not a proponent of market timing in general, but since it seems likely that bond funds will continue to decrease in price for a while I’m staying out of them until I think they have bottomed out or are at least close to bottoming out.

I need to figure out what to do with the bond portion of my portfolio.  I currently have it in a money market fund.  That is not a great option though, because the fund is paying basically 0% interest.  The only thing having my money in a money market fund does for me is ensure that I don’t lose money.  Although I’ll still be losing money when inflation is taken into consideration.  I don’t want to have 100% of my money in stocks so I’m not sure where else to invest the money.  Unfortunately, the bond portion of my portfolio was in my IRA with a mutual fund company and they have a limited selection of funds available.  I’m thinking that I might put that money into a stock mutual fund and use my account to invest new money in something other than stocks or bonds. What do you think I should do with the bond fund money? Invest in stocks, leave it in the money market fund, put it back in a bond fund, or something else?

One thought on “Getting Out of Bond Funds”

  1. With $13 trillion in assets, the U.S. mutual fund industry remained the largest in the world at year-end 2012. Total net assets increased $1.4 trillion from the level at year-end 2011, boosted by growth in equity, bond, and hybrid fund assets. Demand for mutual funds increased in 2012 with net new cash flows of all types of mutual funds totaling $196 billion. Investor demand for certain types of mutual funds appeared to be driven, in large part, by a continued trend toward investment diversification, the demographics of the U.S. population, and uncertainty surrounding the year-end fiscal cliff. Inflows to bond funds were quite strong and net withdrawals from equity funds picked up—their fifth consecutive year of outflows. Hybrid funds remained popular with inflows increasing again in 2012. After three years of sizable outflows, money market funds experienced a small net outflow of less than $500 million. This slowdown in net redemptions owed in large part to investors moving to cash at year-end because of fiscal cliff concerns.

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