Not all investment vehicles have a "lifecycle" fund but its intent is to be appropriately conservative for a target date. As the date grows closer, the fund gets more conservative in order to lessen the risk of sudden swings right before you retire.
I don't recommend day-trading, or liquidating all your investments, or anything like that. However, if there's a professionally managed fund with the specific goal of being stable along the timeframe of 11 years, I'm gonna take it.
I agree that being more conservative is probably necessary, however I think other than specific investments and... burying your cash might be the "conservative" options. Bonds were those, and no longer are now.
If interest rates drop even more, the value of bonds go up.
Right now, a 1.68% 10-year bond looks like it sucks. But next year, a 1.68% 9-year bond will beat the pants off of a 1.3% 10-year.
You can sell a 1.68% 9-year bond for a lot more money when everyone else only has 1.3% 10-year bonds. If the 10-year drops to 1%, you'll make even more money. A falling interest rate market benefits those who buy bonds, especially if no one knows where the bottom is.
It seems like if you already have high yield bonds, the value will continue to rise, as people exhaust other low yield options... however isn't this total value capped by the yield+face value? I don't really know how bond pricing works, but if you bottom out the yeild, or anticipated yeild... you should only be able to make the face value back or someone is buying negative yields.
EDIT: I _guess_ the bond reaches "maturity" in a much shorter time, which is perhaps your point. "1.68%" over 10 years is shit compared to "1.68%" over 1 year.
EDITEDIT: Also assumes you are not going to be eaten by inflation, which could push you into negative yeilds.
1. Bond prices are primarily determined by auction.
2. If a big bank (and the US Fed is one of the biggest banks) decides to make a move, smaller banks, and the general market, will shift the prices of bonds.
> EDIT: I _guess_ the bond reaches "maturity" in a much shorter time, which is perhaps your point. "1.68%" over 10 years is shit compared to "1.68%" over 1 year.
No. Its 1.68% per year over 10 years. Bond pricing is standardized upon APY (its a "notational standard": bonds all have their own terms. But you can always math-out an effective APY given any bond structure). US Treasury Bonds physically have a coupon (every year, or maybe twice a year, they give a $$ amount), and a principle (at the end of the term, you get $$ back).
Anything less than 1-year only has principle (and is commonly called a "Bill"). So you get different APYs by shifting the price of the bill. Ex: You may buy a $1000 (principle) 1-year Bill for $980, effectively earning 2.04% APY in this hypothetical example.
In any case: the reason why a 1.68% 1-year is better than a 1.68% 10-year is because you only lock up the money for 1-year (in the case of the 1-year bond). So normally, a short-term bond gives a lower APY.
Yes. That's what an inverted yield curve means. Liquid funds are "more expensive" than long-term funds. That's why things are inverted right now.
The long-term expectation (over the course of the next 10 years) is that savings accounts will drop. That's why people are willing to "only" be paid 1.6% for a 10-year, because its better to be paid 1.6% for 10 years... rather than 2.25% for this year (and then only 0.5% for the next 9 years).
In essence: the bankers are taking the opposite bet you're making. When the bankers are making a move, you probably should think about the future of money... bankers probably know more than you and I do.
> Why would anyone buy a less-flexible product that pays less?
Because they have a pessimistic view of the next 5 to 10 years. When big-money starts to make these pessimistic bets, its a recession indicator.
Earlier this year I opened up an IRA with them and I put $100 in a 3.680% APY 40 months CD. I did this because they were matching the first $100 on new IRAs, so I deposited $100 and they deposited $100.
The yield curve is inverting because buyers with serious money are buying medium-term cash instruments in defiance of naive valuation logic that the short-term cash instruments are more competitively priced.
This suggests that they see something in the near future, big enough that they are throwing the easily calculated "Net Present Value with usual assumptions" out the window when they make their purchasing decisions. Since bond buying and selling is usually done on a pure NPV basis this is a big deal and a good signal that it is time to avoid anything that might be risky until we find out what the big thing is.
Hence, buy government bonds as the single most conservative option. NPV might be partially irrelevant.
This is the greatest bull market in bonds of all time and they are starting to behave like cheap deep in-the-money options contracts, which decline slightly in value over time due to theta (time value). Options are fun.
a negative yielding bond - or a bond going towards negative yield - decreases in value one way while gaining in a value another way, the more it gains in value the deeper the negative yield goes.
Personally I'm sitting tight, but that's because I'm a long term investor not a day trader.
I haven't touched it since but now with yield curve warnings popping up, I'm starting to think I should.
I was wrong.
Not exactly a compelling argument since you could've made a risk-free return via savings accounts (Wealthfront currently has 2.3%, which I'm sure has been higher in the past).
 Nov 1999 one year prior to crash, to Nov 2012
Hmm. Isn't that known to be impossible?
Several strategies like keeping a fixed ratio of stocks to bond are effectively timing the market. You pull money out of stocks when they go up, and put money into them when they go down.
Personally, I am less interested in absolutely maximizing my returns as I am maximizing the likelihood of reaching a return threshold.
Rebalancing is really taking money out of whatever the better investment was and putting it into what was the worse investment. Consider what would happen if you rebalance an asset like a stock that’s slowly going to 0. Over time your portfolio also hits ~zero even if everything else was going well.
Sure, for a sufficiently diversified investment like the S&P 500 it’s unlikely to hit zero. But the question stands why take money out of the better investment for 50+ years? You could be moving from 10% returns to 2% returns. The theory is about timing the market, you get better returns investing after ups than downs.
PS: Though better may in fact relate to stability more than absolute percentages.
Changing your asset allocation yearly or quarterly based on news is foolish. I’d call that timing too.
As to changing asset ratios, it likely reduces maximum returns. But, wealth has diminishing marginal utility. I can save a little more to make up for a small loss in returns for a few years, it’s much harder to make up for a 50% market dip.
The key problem with timing the market is it's easy to miss out on the recovery. Most people get back in once the recovery is obvious and the big gains have already happened.
During 2008 I tried to put my money where my mouth was and not touch my investments. My portfolio went down by 35% (several hundreds of thousands). But I was in at the bottom. However, it recovered in less than 2 years and is now up about 250%, mainly because I was fully invested during all the big gains.