February 29, 2012, Bob Brinker's Latest Fixed Income and Bond Advice

February 29, 2012....Bob Brinker's up-to-the-minute advice on fixed-income bonds is cautionary. He recommends staying short term on bond funds and Treasurys.  Bob said: "I think there is the risk down the road of normalization of interest rates...The question is when......If you see normalization of interest rates, then you are going to see a decline in bond funds....It can be completely avoided by putting together a ladder of fully insured FDIC certificates of deposit."


INFLATION PROTECTED BONDS: Bob does not recommend TIPS now and has sold all of the Vanguard Inflation Protected Fund (VIPSX) from his Marketimer portfolios. If inflation picks up, he expects the net-asset-values to drop. Moneytalk, February 19th, Bob said: "I don't use them....My personal opinion is that the base rate that is currently being offered on Treasury Inflation Protected is insufficient to justify using them."

INTERMEDIATE TAX-EXEMPT (Vanguard Intermediate Tax-exempt fund). Moneytalk, November 2011, Bob said: "I think the reason I would not be buying that fund is because the level of interest rates is near historical lows...The Fed is committed to keeping them  (rates) down as long as the economy is slow, but the reality is, rates are really low." 

TREASURYS: Bob said:  "I think if you're going to be invested in Treasurys at this juncture, you have to have a hold-to-maturity approach....If you go out and buy a Treasury today at these historically low yields....and if you were to see higher yields you would see a reduction in the value of the principal that you paid for the Treasury....I think you do run the risk of seeing these securities go under water sometime in the next ten years." Last Sunday, Brinker reiterated that investing in laddered FDIC guaranteed Certificates of Deposit is the best way to avoid interest rate risk altogether. 

HIGH YIELDING FOREIGN BONDS:  Last week, Bob cautioned that there is currency risk when the money is brought back into the country -- for those who live in the United States and spend dollars.

GINNIE MAE BONDS:   On the air, Bob always sounds enthusiastic about the Vanguard Ginnie Mae Fund (VFIIX), but in reality, he has lowered his Marketimer model portfolio weightings by over 50%. His income portfolio weighting is now only 15%.

HIGH-YIELD BOND FUNDS: In his Marketimer income portfolio, Bob includes a 25% weighting in Vanguard High-Yield Bond Fund (VWEHX). He has recently told Moneytalk callers how well the fund has done.  Last year, Bob added Doubleline Total Return Fund (DLTNX)  which  contains about 35% low quality bonds.

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