What to do with my Government bond fund?

[searching4silver]

So I work for the feds and our 401K type plan only has so many options with regard to where to put yur money. They are;

Federal Government short term bonds
A broader bond index fund (Govt, muni, corperate bonds)
A International stock market index
A large cap stock market index
A Total Stock market index

Now with the recent downgrading of us debt, I would like to move out of the Governement short term bond fund, however I am not sure what to? I feel the stock market is alittle high considering that it is at almost a 3 year high. And keep in mind our 401K type plan dosen't have a cash option nor am I going to pull the money out and pay the tax penilty.

Any advice?

[BamaJoe]

Under the conditions you outlined I would go with the International Stock fund. Get as much invested out of the US and dollars as possible.

[DeanStockwell]

Agreed, Bamajoe. Internationale stocks still are great growth candidates. Just be sure to read the prospectus to make sure the risk tolerance is for you. Yet that still seems like the best long term investment out of the four.

[theo]

I don't believe the international stock index fund is a great option. Just because the investment is labeled "international" does not mean you will be protected from the ravages of a devaluing U.S. dollar (and most other fiat currencies). Some of the companies influencing this index fund are likley to be foriegn banks and insurance companies which are likley to struggle in a high interest rate environment. Actually, many of these companies may hold U.S. dollars and debt. Also, many large foreign companies depend heavily on U.S. consumer demand and will lose value as that demand dries up.

I wouldn't take all my money all of the short-term bond fund as it will give you higher returns as interest rates rise. You won't be fully protected from inflation but its better than holding cash and not as risky as the foreign index.

Having said all that, if you think high inflation as strong possibility you still should consider dumping your 401k and taking the tax penalty.

[John_doe]

I was wondering the same thing. I have some of the 30 year bonds, but with treasuries taking a nosedive in the near future, I was wondering where to go. Will the 30 year bonds see the same hits as the short term bonds? Also what kind of timeframe are we working with before these things tank?

I don't have a lot invested so it's not a HUGE ordeal, but I would like the money to be in a hedged position.

[NotABigDeal]

Eh, your bonds are worthless. Send them to me....

Deal

[John_doe]

Eh, your bonds are worthless. Send them to me....

Deal

I was thinking about just letting them go until maturity, they want you to sell the early. The government gaurentees them to at least face upon reaching maturity. Inflation is going to have it's way with it however.

[John_doe]

I'm going to be honest, I don't see what the big fuss is all about with treasuries. The past 3-6 months they have actually done pretty good. I might be narrow sighted, but they are worth at least face at maturity, making it a minimal risk investment. I think I'll hang on to mine.

[silverhalide]

I am probably the only one here but I agree it is time to be switching into bonds seeing what is currently happening to money velocity coupled with QE2 ending . However, I would look for bonds derived in AUD NZD and/or NOK since their rates have further to fall.