Sunday, August 28, 2005

Time to Sell?

I think I'm going to sell my bond funds (CHTMX, MBDFX and HXBAX). The more I learn about how they are affected by rising interest rates, the more now seems like the time to do it. I think having these funds in my portfolio helped me out when the stock market wasn't doing as well, but I think they might be heading into a long term slide as interest rates increase, so their usefulness may be over. The share prices are down slightly from when I bought them, but my ROI is still in the black because of dividends paid, so I don't feel like I'm losing a ton of money from a panicked dump. But I definitely could have earned more from that $7000 over the past couple of years. Oh well, lesson learned.
This will only be the second time I've ever sold any of my investments. Some people seem to have the problem of selling too soon, perhaps I am just the opposite... BRSIX is up about 107% from when I bought, but I can't decide if I should take the money and run, or wait it out and hope it keeps going up.
Now I have to research some other funds to put that money in...


Brian said...

Curious, what percentage of your portfolio is invested in bonds?

Typically you will see very little difference in overall performance in the long term from a portfolio made up of 20% bonds compared to one without any bond holdings at all, but you greatly increase your risk without the diversification that bonds provide.

You're correct, in that, in the past rising interest rates have adversely affected the returns of bonds, but interestingly, this has not been the case this time around thus far.

Are these bond funds being held in a tax sheltered account? Sorry, I was unable to find a post where this might have been discussed previously.

Madame X said...

They are not in a tax sheltered account, and are about 25% of this portfolio, which is just a savings/investment portfolio, separate from IRA/401K etc.

Brian said...

You will be better served to keep bond investments inside tax sheltered accounts as these are very tax inefficient.

Taylor Larimore over at posted the following list which helped me.

4-Step Rule for Tax Efficient Fund Placement:

1. Put your most tax-inefficient funds in 401ks, 403bs, Traditional IRAs and similar retirement accounts. When full..
2. Put your next most tax-inefficient funds in your Roth(s). When your Roth(s) are full-
3. Put what's left into your taxable account.
4. Try to use only tax-efficient funds in taxable accounts.

Here is a list of securities in approximate order of their tax-efficiency. (Least tax efficient at the top.):
Hi-Yield Bonds
Taxable Bonds
REIT Stocks
Stock trading accounts
Small-Value stocks
Small-Cap stocks
Large Value stocks
International stocks
Large Growth Stocks
Most stock index funds
Tax-Managed Funds
EE and I-Bonds
Tax-Exempt Bonds

Good luck!

mmb said...

I am in the same boat as you. My bonds have been my worst performer despite the volatility of the stock market, particularly of late. The bonds don't go up and down. They just seem to go down and stay there! That said, I considered selling and decided against it. I need to do more research first.

Madame X said...

Hmm, two of the funds are tax-exempt bond funds... I do seem to remember that being part of the reason I bought them!

Brian said...

My apologies madame x...I was speaking about the later (MBDFX).

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