401K Rollover/Bond Choice/Swedroe Confusion

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AdmiralAdama
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401K Rollover/Bond Choice/Swedroe Confusion

Post by AdmiralAdama »

I have 30 tabs open and my Macbook Air is wheezing, so I thought I might ask the hive mind here about choice of bonds at Vanguard.

I'm completely confused, especially when trying to figure out what exactly Mr. Swedroe recommends to actually buy and hold, if you agree with his skepticism towards Total Bond Fund due to MBS lean....

(im talking about threads like http://www.bogleheads.org/forum/viewtop ... 0&t=111370)

Right now I'm moving about 100K of a 401K to Vanguard from a job I just left. I had Pimco Total Return.

Now I'm wondering, what exactly does Swedroe suggest as a bond holding right now, if you were to buy a lump sum --- is it the Intermediate Bond Fund?
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Kevin M
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Re: 401K Rollover/Bond Choice/Swedroe Confusion

Post by Kevin M »

Have you considered non-brokered CDs? Larry includes them in his list of reasonable fixed-income alternatives. You can earn about the same on a NB 5-year CD as the TBM SEC yield (about 2%), with interest-rate risk limited to the early withdrawal penalty (about 1% for an EWP of 180 days of interest).

If you stick with bond funds, and want to avoid MBS (per Larry), you can use treasury or investment-grade funds. You get higher yields from NB CDs than the intermediate-term treasury fund, and with same credit risk (none) and much less interest-rate risk. You get higher yields than CDs with intermediate-term investment grade bond fund, but of course more risk.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
pastafarian
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Re: 401K Rollover/Bond Choice/Swedroe Confusion

Post by pastafarian »

We own a single bond fund, TBM in our IRAs...and a single tax exempt bond fund in our taxable account.
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TheTimeLord
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Re: 401K Rollover/Bond Choice/Swedroe Confusion

Post by TheTimeLord »

AdmiralAdama wrote:I have 30 tabs open and my Macbook Air is wheezing, so I thought I might ask the hive mind here about choice of bonds at Vanguard.

I'm completely confused, especially when trying to figure out what exactly Mr. Swedroe recommends to actually buy and hold, if you agree with his skepticism towards Total Bond Fund due to MBS lean....

(im talking about threads like http://www.bogleheads.org/forum/viewtop ... 0&t=111370)

Right now I'm moving about 100K of a 401K to Vanguard from a job I just left. I had Pimco Total Return.

Now I'm wondering, what exactly does Swedroe suggest as a bond holding right now, if you were to buy a lump sum --- is it the Intermediate Bond Fund?
He's skeptical of Government Mortgage Backed? What more risk does he see than FDIC insured or U.S. Treasuries in those?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
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Kevin M
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Re: 401K Rollover/Bond Choice/Swedroe Confusion

Post by Kevin M »

StarbuxInvestor wrote: He's skeptical of Government Mortgage Backed? What more risk does he see than FDIC insured or U.S. Treasuries in those?
I think the main issue is that with MBS, homeowners can refinance at lower rates when interest rates drop, thus you don't get the same capital gain potential from falling rates. So basically there's a call built into the bonds, which is a negative for bond owners.

I believe this results in negative convexity in the duration curve, whereas for non-callable bonds there is positive convexity. With positive convexity, rate increases at higher rates result in less capital loss and rate decreases at lower rates result in higher capital gains, so positive convexity is a good thing for bond owners.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
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