Help on 401K bond fund selection

[jobyts]

My wife's new company offers the following non-stock categories for her 401K plan. We both come in the Prem Watsa deflation wagon. Which one of the below funds should she pick? Plan to reallocate to more aggressive stock funds after a major correction.

 

Thanks,

 

 

High Yield Emerging Market Bond

Inflation Protected Bond

Interest Income

Total Bond Market

Long Term Corporate Bond

 

International Real Estate

 

(Stocks) ( Japan, Latin America, China, Emerging Asia)

 

Blended Fund - Conservative Alloc.

Blended Fund - Convertibles

Blended Fund - Moderate Allocation

Blended Fund - World Allocation

 

Bond Investments - Emerging Markets

Bond Investments - High Yield Bond

Bond Investments - Intermediate Gov't

Bond Investments - Intermediate-Term

Bond Investments Long Government

Bond Investments Long-Term Bond

Bond Investments Multisector Bond

Bond Investments Short Government

Bond Investments Short-Term Bond

Bond Investments World Bond

[Jurgis]

If you expect bond crash, then put money into money market, 401(k) should have it.

 

If you're deflationist, then it's harder: you want long term I guess, but you would have to look at average maturity.

[jawn619]

My wife's new company offers the following non-stock categories for her 401K plan. We both come in the Prem Watsa deflation wagon. Which one of the below funds should she pick? Plan to reallocate to more aggressive stock funds after a major correction.

 

Thanks,

 

 

High Yield Emerging Market Bond

Inflation Protected Bond

Interest Income

Total Bond Market

Long Term Corporate Bond

 

International Real Estate

 

(Stocks) ( Japan, Latin America, China, Emerging Asia)

 

Blended Fund - Conservative Alloc.

Blended Fund - Convertibles

Blended Fund - Moderate Allocation

Blended Fund - World Allocation

 

Bond Investments - Emerging Markets

Bond Investments - High Yield Bond

Bond Investments - Intermediate Gov't

Bond Investments - Intermediate-Term

Bond Investments Long Government

Bond Investments Long-Term Bond

Bond Investments Multisector Bond

Bond Investments Short Government

Bond Investments Short-Term Bond

Bond Investments World Bond

 

those look they have some hefty fees. check for fees and pick the one with the lowest fees first. And stay away from high yield and muni bonds.

I wouldn't recommend bonds though.... bonds are just yielding so little right now

[thepupil]

if you really want to bet on deflation, or perhaps more precisely, bet on a decline in nominal interest rates, then go for the long term government bonds.

 

You'll get the most duration for the buck.

 

You'll also be subjecting yourself to very meager and most likely negative nominal and real returns should the desired scenario not occur, but if you want to make that bet there's no need to introduce other risks to the trade. Just go for the purest form of duration: long term government bonds

[jobyts]

Thanks all for the responses.

 

When the experts talk about the bond market bubble, are they talking about only high yield bonds? or it is going to affect all of them - short term, long term? From the posts above, it seems that long term bonds will be less severely affected.

Please correct me if I'm wrong.

Also if I expect the yield curve to flaten out or inverted within a year or two, should I be in long term or short term bonds?

 

Mostly I'll stick with the money market, with my lack of knowledge on the bond market.

[Jurgis]

jobyts,

 

There are two radically different opinions about bond market:

 

1. Rates are going to go up. Then bonds are in the bubble: if yields rise, prices have to drop. They will all crash. High yield may crash less than mainstream, but if there's a rout it's likely gonna affect all bonds. If you believe in this, you keep money in Money Markets or super short term funds or floating rate securities - the last one is still somewhat risky.

 

2. There's going to be deflation with rates going towards zero or negative. This is totally opposite to case 1. If this is the case, the long term bonds will do best like thepupil said.

 

Unfortunately, you have to pick which camp you are in. Or you can hold something like 50/50 to be in the middle for muddle through... It's not a simple choice I am afraid. :)

[CorpRaider]

Of course, you could just Bogle it and hold some intermediate term government bonds purely as "ballast" to reduce the volatility in your overall portfolio rather than trying to do a Jeffrey Gundlach impersonation.  Or you could set your AA to 90-10 a la WEB's advice to Astrid's trustee.