Author Topic: Dollar cost averaging into Bond Index's  (Read 4724 times)

greaps

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Dollar cost averaging into Bond Index's
« on: January 31, 2014, 11:41:48 AM »
Most of my investing is done by dollar cost averaging DCA, does the same principle of DCA into stock index funds work with bond index funds for long term investing. I have read recently bond prices are falling with the recent fears of  interest rate increases which seem inevitable. When stock prices are down I am happy with DCA, is it the same for bond index's over the long term. Am I buying more bonds at a better deal? I'm a bit confused, take for example if bonds continue to fall in prices as interest rates rise will I be building a bigger and bigger position into bonds at a deal, when bonds eventually have a turn around one day will I be positioned well being in an index?

KingCoin

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Re: Dollar cost averaging into Bond Index's
« Reply #1 on: January 31, 2014, 12:01:08 PM »
For all intents and purposes, it's the same. As bonds fall, you're buying at a higher and higher yield.

greaps

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Re: Dollar cost averaging into Bond Index's
« Reply #2 on: January 31, 2014, 12:08:11 PM »
I see how that would apply if I was buying individual short term bonds over time as interest rates rise, but how does an entire bond index fund adjust? Will we see higher and higher yields on the bond indexes as well at lower and lower prices to buy in up until it flips and rates begin to drop again?

Does anyone have a way of demonstrating what dollar cost averageing into bonds does in terms of math as interests rise and fall over time?

KingCoin

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Re: Dollar cost averaging into Bond Index's
« Reply #3 on: January 31, 2014, 12:12:56 PM »
I see how that would apply if I was buying individual short term bonds over time as interest rates rise, but how does an entire bond index fund adjust? Will we see higher and higher yields on the bond indexes as well at lower and lower prices to buy in up until it flips and rates begin to drop again?

Does anyone have a way of demonstrating what dollar cost averageing into bonds does in terms of math as interests rise and fall over time?

Yes. The math works the same whether you're buying individual bonds or a portfolio of bonds. You can look up the details of your fund and it will usually tell you what the portfolio yield to maturity (YTM) is. As the index falls, you'll see YTM rise. If you can't find YTM, you may be able to find "current yield" which is just the coupons of the bonds divided by the current price of the portfolio. This will also rise as bonds fall.

greaps

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Re: Dollar cost averaging into Bond Index's
« Reply #4 on: January 31, 2014, 01:02:49 PM »
So if your not trading bonds or looking for total return in short time line, this period of lower bond prices and rising yields is good for long term investing?

KingCoin

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Re: Dollar cost averaging into Bond Index's
« Reply #5 on: January 31, 2014, 01:07:36 PM »
So if your not trading bonds or looking for total return in short time line, this period of lower bond prices and rising yields is good for long term investing?

It's certainly better than it was 8 months ago. However, if rates continue to rise, prices will continue to fall. No one has a crystal ball though, so I'd just keep plugging along and stick to your targeted portfolio split.

mm31

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Re: Dollar cost averaging into Bond Index's
« Reply #6 on: January 31, 2014, 02:12:55 PM »
These bond threads are getting out of control. If you're in the accumulation phase, falling bond yields are not the end of the world.

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=122883&p=1799458

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=131786&newpost=1944186#p1940967

What's bad about bonds being on sale?

greaps

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Re: Dollar cost averaging into Bond Index's
« Reply #7 on: January 31, 2014, 02:43:15 PM »
Thats what I was curious about, bonds on sale. This accumulation phase, it sounded good in my head but wasn't sure If I was missing something.

KingCoin

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Re: Dollar cost averaging into Bond Index's
« Reply #8 on: January 31, 2014, 03:28:16 PM »
Thats what I was curious about, bonds on sale. This accumulation phase, it sounded good in my head but wasn't sure If I was missing something.

You're not missing anything. Bonds are still expensive on a historical basis though, so steel yourself for further decreases in price (though bonds have had a good run over the last couple weeks).

soccerluvof4

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Re: Dollar cost averaging into Bond Index's
« Reply #9 on: February 01, 2014, 04:50:49 AM »
Reits on sale as well. DCA into them as well.