Bond Bubble: TAA Changes Required

Tactical Asset Allocation for Bonds

Over the last few months I've been reducing holdings in bonds and treasury ETFs.  Reduction in ETFs such as BND, HYG and TLT is not a permanent change, but one I am making due to inflation pressure and the very low interest rates.  Decreasing the asset allocation to bonds and income falls under an active management decision called Tactical Asset Allocation (TAA) vs. Strategic Asset Allocation (SAA).  While the move to decrease the percentage allocated to the bond-income asset class may last several months, do not consider it to be part of the original SAA plan.  Most of our bond-income holdings are concentrated in BND, HYG, and TIP.  I will likely hang on to TIP, if for no other reason than to see how it behaves in an inflationary environment.  TIPs are considered to be a hedge against inflation.  We shall see.

The following Seeking Alpha article only underscores this TAA move.  As I was updating portfolios in preparation for the end of the month (May) analysis, I noticed the annualized inflation rate jumped from 1.63% in January to 3.16% in April.  Check this web site to see inflation is on the rise.  Since the annualized inflation rate is part of the Retirement Ratio calculation, the new inflation rate was adjusted inside the SR worksheet of the TLH spreadsheet.  If anyone using the TLH spreadsheet needs further assistance, drop me a comment in the area provided below each blog entry.  We are here to help investors monitor their portfolios.

Newton Portfolio Update: 1 June 2011

Asset Allocation Plan for Newton Portfolio

If you are looking for an example of a portfolio with an asset allocation that looks like a mess, seek no further than the Newton Portfolio.  Below is the latest Dashboard worksheet from the TLH Spreadsheet.  Most of the asset classes are out of balance, and will continue to be until this market undergoes some sort of correction.  I am not interested in chasing a high market.  Many limit orders are in place to begin to fill the under target asset classes.  Right now, the portfolio is heavy in cash.

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