Deleted
-
- Posts: 12073
- Joined: Fri Sep 18, 2009 1:10 am
- market timer
- Posts: 6535
- Joined: Tue Aug 21, 2007 1:42 am
Re: rank order fixed income options
The ranking order depends heavily on your tax situation. Ignoring taxes, I'd rank them as follows:
1. EE bonds
2. CDs
3. The rest
Stable value could be anywhere on this list depending on the rate you're getting.
Lately, I have been buying some REITs instead of long term bonds. I think equity REITs are very similar to long term TIPS.
1. EE bonds
2. CDs
3. The rest
Stable value could be anywhere on this list depending on the rate you're getting.
Lately, I have been buying some REITs instead of long term bonds. I think equity REITs are very similar to long term TIPS.
Re: rank order fixed income options
1) TBM
2) Intermediate term corporate investment grade
3) High yield bond fund
But I would never put 100% into any one of these. The proportion I have now is about: 50%, 40%, 10%
2) Intermediate term corporate investment grade
3) High yield bond fund
But I would never put 100% into any one of these. The proportion I have now is about: 50%, 40%, 10%
Kolea (pron. ko-lay-uh). Golden plover.
-
- Posts: 46
- Joined: Thu Feb 05, 2015 11:01 pm
- Location: Ventura County
Re: rank order fixed income options
Here's my stab at this:
Tax advantaged:
1) Total Bond Index (Great diversifier for your retirement portfolio)
2) High-Yield Bond Fund
3) TIPS
4) Stable Value
5) Cash
6) International Bonds
Taxable:
1) I Bonds (Guaranteed to keep up with inflation, and at no risk to principal, little/no withdrawal penalty, somewhat tax-advantaged)
2) CDs
3) State/National Muni Bonds
4) Cash
5) EE Bonds (I loathe the idea of a fixed rate for 20+ years)
I don't like the corporate or government bond ladder since that lacks diversification and shares my dislike of having to lock away money for long periods of time for a paltry yield in today's market.
I prefer to take very little risk with my bonds, hence my adoration of I Bonds and TIPS. If you want to take some (substantial) risk, I prefer to take on credit risk through a high-yield bond fund rather than duration risk.
Tax advantaged:
1) Total Bond Index (Great diversifier for your retirement portfolio)
2) High-Yield Bond Fund
3) TIPS
4) Stable Value
5) Cash
6) International Bonds
Taxable:
1) I Bonds (Guaranteed to keep up with inflation, and at no risk to principal, little/no withdrawal penalty, somewhat tax-advantaged)
2) CDs
3) State/National Muni Bonds
4) Cash
5) EE Bonds (I loathe the idea of a fixed rate for 20+ years)
I don't like the corporate or government bond ladder since that lacks diversification and shares my dislike of having to lock away money for long periods of time for a paltry yield in today's market.
I prefer to take very little risk with my bonds, hence my adoration of I Bonds and TIPS. If you want to take some (substantial) risk, I prefer to take on credit risk through a high-yield bond fund rather than duration risk.
75% Equity : 50/50 American/International / 25% Bonds
Re: rank order fixed income options
If this is an accumulation portfolio and the entire 40% fixed income is held in a tax advantaged account, then:letsgobobby wrote:Imagine you have a long term (20+ years), 60/40 portfolio (60% stocks, 40% fixed income).
Given today's environment how do you invest the fixed income? Assume every two weeks you have to buy more fixed income; what do you buy?
100% Total Bond Fund.
Why? If my time horizon is 20+ years I'm not concerned with "today"s environment".
If this is a distribution portfolio and the entire 40% fixed income is held in a tax advantaged account, then:
50% Total Bond Fund.
50% CD's
Even though my time horizon is 20+ years, I'm taking distributions now. Taking distributions from a bond fund while NAV is dropping exposes the bond fund to premature depletion. The CD's hedge the NAV risk.
-
- Posts: 5463
- Joined: Wed Dec 28, 2011 8:56 am
- Location: North Carolina
Re: rank order fixed income options
Intermediate munis (taxable)
Intermediate corporate inv grade (pre tax)
CDs
HY corporate (pre tax)
I own some TIPS but not a big fan of them in today's environment. Ditto for treasuries.
Intermediate corporate inv grade (pre tax)
CDs
HY corporate (pre tax)
I own some TIPS but not a big fan of them in today's environment. Ditto for treasuries.
Re: rank order fixed income options
Presumably, you have poor choices in your 401k/whatever so you have chosen a stable value fund to stand in. So you probably need to keep that one.letsgobobby wrote:Frankly, I am overwhelmed with the options. I don't like my current choices (I bonds, TBM, and stable value) and am looking for an unturned stone.
TBM offers the maximum diversification in any one fund so you should probably keep that one.
I bonds are good for folks who need to hold bonds in tax-advantaged accounts and want to defer the taxes. So you should probably keep that one too.
Since TBM is thought by some to have too much govt and not enough corporate bonds, I suppose you could add in something that has more corporates (but not necessarily a corporate fund).
Link to Asking Portfolio Questions
- Aptenodytes
- Posts: 3786
- Joined: Tue Feb 08, 2011 7:39 pm
Re: rank order fixed income options
I am putting about two-thirds my new "fixed income" contributions into TIAA traditional, which probably aligns with your stable-value/403b category. It has a floor of 3% and a current actual return of more like 3.5% the past year. Stable-value funds vary quite a bit as far as I know so I don't know that I'd generalize this recommendation. It makes sense for me.
Why don't you like your stable value fund?
The other third goes into 10-year individual TIPS, which I buy once a year in the summer auction.
I have a significant chunk in intermediate treasury bond funds, which I use for rebalancing purposes -- money sometimes goes into those funds, but for the purpose of maintaining the stock/bond balance not to target increased exposure to that asset, as I am aiming for with TRAD and TIPS. I do a back-of-the envelope stress test about once a year and figure out what liquid bond funds I'd need to be able to handle rebalancing needs if my stock funds drop by half. I make sure I've got enough to cover the rebalancing needs -- TRAD is very illiquid and the individual TIPS, while not literally illiquid, are harder to buy and sell regularly the way I can do with bond funds.
As I've said before, the bond fund tranche of my fixed income holdings slides from short to long term, and across treasury and corporate funds, based on the yield differences. These four categories are close enough to each other that although I continue to think it makes sense to choose one at a time, I would rank them as very close in your list. At present I think I'd order them intermediate treasury, short-term corporate, intermediate-term corporate, short-term treasury. I wouldn't take my eye off any of them for the next year.
Why don't you like your stable value fund?
The other third goes into 10-year individual TIPS, which I buy once a year in the summer auction.
I have a significant chunk in intermediate treasury bond funds, which I use for rebalancing purposes -- money sometimes goes into those funds, but for the purpose of maintaining the stock/bond balance not to target increased exposure to that asset, as I am aiming for with TRAD and TIPS. I do a back-of-the envelope stress test about once a year and figure out what liquid bond funds I'd need to be able to handle rebalancing needs if my stock funds drop by half. I make sure I've got enough to cover the rebalancing needs -- TRAD is very illiquid and the individual TIPS, while not literally illiquid, are harder to buy and sell regularly the way I can do with bond funds.
As I've said before, the bond fund tranche of my fixed income holdings slides from short to long term, and across treasury and corporate funds, based on the yield differences. These four categories are close enough to each other that although I continue to think it makes sense to choose one at a time, I would rank them as very close in your list. At present I think I'd order them intermediate treasury, short-term corporate, intermediate-term corporate, short-term treasury. I wouldn't take my eye off any of them for the next year.
-
- Posts: 12073
- Joined: Fri Sep 18, 2009 1:10 am
Re: rank order fixed income options
Deleted
Last edited by letsgobobby on Sat Nov 09, 2019 3:39 am, edited 1 time in total.
- stevewolfe
- Posts: 1676
- Joined: Fri Oct 10, 2008 7:07 pm
Re: rank order fixed income options
Have you considered buying brokered CD's at Vanguard in your Roth IRA (would need to be a brokerage type account)?letsgobobby wrote:CDs would involve me transferring my Roth IRA from Vanguard which I don't want to do. The 529 stable value option is intriguing.
-
- Posts: 5343
- Joined: Mon Dec 15, 2014 11:17 am
- Location: midValley OR
Re: rank order fixed income options
duplicate
Last edited by itstoomuch on Sat Feb 14, 2015 11:38 am, edited 2 times in total.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
-
- Posts: 5343
- Joined: Mon Dec 15, 2014 11:17 am
- Location: midValley OR
Re: rank order fixed income options
duplicate
Last edited by itstoomuch on Sat Feb 14, 2015 11:37 am, edited 1 time in total.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
-
- Posts: 5343
- Joined: Mon Dec 15, 2014 11:17 am
- Location: midValley OR
Re: rank order fixed income options
In our situation, I move our funds between Cash and Variable Income (long bonds and utility) instruments. I just see anything less than 3% yield as being worthwhile when one can get nearly 2% in an largecap Index.
Investment grade utilities are yielding just short of 4% div yield. A month ago these same companies were in the 3.5% range. If you only care about the income, then these "may" be OK.
YMMV
http://www.treasurydirect.gov/news/pres ... atespr.htm
Investment grade utilities are yielding just short of 4% div yield. A month ago these same companies were in the 3.5% range. If you only care about the income, then these "may" be OK.
YMMV
http://www.treasurydirect.gov/news/pres ... atespr.htm
Fiscal Service Announces New Savings Bonds Rates, Series I to Earn 1.48%, Series EE to Earn 0.10%
FOR RELEASE AT 10:00 AM
November 3, 2014
Effective today, Series EE savings bonds issued November 2014 through April 2015 will earn an annual fixed rate of 0.10% and Series I savings bonds will earn a composite rate of 1.48%, a portion of which is indexed to inflation every six months. The EE bond fixed rate applies to a bond’s 20-year original maturity. Bonds of both series have an interest-bearing life of 30 years.
Rates for savings bonds are set each May 1 and November 1. Interest accrues monthly and compounds semiannually. Bonds held less than five years are subject to a three-month interest penalty.
I Bond Earnings Rate of 1.48% includes a Fixed Rate of 0.00%
The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 1.48% earnings rate for I bonds bought from November 2014 through April 2015 applies for the first six months after the issue date. The earnings rate combines a 0.00% fixed rate of return with the 1.48% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 236.293 in March 2014 to 238.031 in September 2014, a six-month increase of 0.74%.
Series EE Bonds Issued May 2005 and Later
Series EE bonds issued from November 2014 through April 2015 earn today’s announced rate of 0.10%. All Series EE bonds issued since May 2005 earn a fixed rate in the first 20 years after issue. At 20 years, the bonds will be worth at least two times their purchase price. The bonds will continue to earn interest at their original fixed rate for an additional 10 years unless new terms and conditions are announced before the final 10-year period begins.
Series EE Bonds Issued from May 1997 through April 2005
Series EE bonds issued from May 1997 through April 2005 continue to earn market-based interest rates set at 90% of the average 5-year Treasury securities yields for the preceding six months. The new interest rate for these bonds, effective as the bonds enter semiannual interest periods from November 2014 through April 2015 is 1.49%. Market-based rates are updated each May 1 and November 1.
Series EE Bonds Issued Before May 1997
Series EE bonds issued before May 1997 earn various rates for semiannual earnings periods, depending on the issue dates. Please visit http://www.treasurydirect.gov for details and current values.
Savings Bonds Over 30 Years Have Stopped Earning Interest
All Series E savings bonds have matured and stopped earning interest. Series EE bonds issued from January 1980 through November 1984 are no longer earning interest. Series EE bonds issued from December 1984 through April 1985 will stop earning interest during the next six months.
More Information
Electronic Series EE and Series I savings bonds may be bought in TreasuryDirect®, a secure, web-based system operated by Treasury since 2002. Owners of paper savings bonds can continue to redeem them at most financial institutions. Paper Series EE and Series I Bonds can only be reissued in electronic form in TreasuryDirect.
Series I paper savings bonds remain available for purchase using part or all of a federal income tax refund. For more information on this feature, visit http://www.irs.gov.
To find more information on savings bonds and which ones are still earning interest, visit Fiscal Service’s website http://www.treasurydirect.gov. The Savings Bond Calculator and Savings Bond Wizard® tools, which are helpful for calculating redemption values, also can be found on the site. The website provides information and instructions for opening an on-line account to buy electronic savings bonds and Treasury marketable securities: bills, notes, bonds and Treasury Inflation Protected Securities (TIPS).
TreasuryDirect and Savings Bond Wizard are registered marks of the U.S. Department of the Treasury.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
-
- Posts: 11647
- Joined: Sat Oct 04, 2008 11:42 am
Re: rank order fixed income options
If I was looking to buy every two weeks, I'd look into mutual funds so the transactions can be automated. TBM or Intermediate Term Bond Index in tax advantaged accounts, Intermediate term tax exempt bond fund for taxable accounts if in high tax bracket.
- abuss368
- Posts: 27850
- Joined: Mon Aug 03, 2009 2:33 pm
- Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
- Contact:
Re: rank order fixed income options
For every other week investments, consider Total Bond in tax advantage and Intermediate Tax Exempt in taxable.
Keep investing simple.
Keep investing simple.
John C. Bogle: “Simplicity is the master key to financial success."
-
- Posts: 12073
- Joined: Fri Sep 18, 2009 1:10 am
Re: rank order fixed income options
Deleted
Last edited by letsgobobby on Sat Nov 09, 2019 3:39 am, edited 1 time in total.
Re: rank order fixed income options
VWALX
VWIUX
In taxable, for income, non-taxable, conservative high-yield muni and intermediate muni
VWIUX
In taxable, for income, non-taxable, conservative high-yield muni and intermediate muni
-shum
Re: rank order fixed income options
I don't understand the appeal of EE bonds. You get 3x higher yield in a savings account and 6x higher yield in TBM.letsgobobby wrote:Any further ideas?
I am buying EE bonds this year, and all our 403b and 401a investments go to total bond market and stable value in equal proportions.
With any remainder I plan to buy Vanguard intermediate tax exempt.
I'm planning to skip I bonds this year given the negative real after tax return.
I bonds may have a "negative real return" but they still dominate EE bonds for all inflation rates 0.3% and above. If you're in the 25% bracket EE bonds have a "negative real return" at 0.225% and above as well. Remember it's not the absolute rate that matters but the rate relative to alternative investments. There's no sense in ruling out an investment for a particular reason just to choose another investment that is worse. In a low interest rate environment, positive real yields are no longer an entitlement. You just have to accept that reality and either increase your savings rate, decrease your withdrawals, or take on more risk.
Monthly or yearly movements of stocks are often erratic and not indicative of changes in intrinsic value. Over time, however, stock prices and intrinsic value almost invariably converge. ~ WB
-
- Posts: 12073
- Joined: Fri Sep 18, 2009 1:10 am
Re: rank order fixed income options
Deleted
Last edited by letsgobobby on Sat Nov 09, 2019 3:39 am, edited 1 time in total.
- market timer
- Posts: 6535
- Joined: Tue Aug 21, 2007 1:42 am
Re: rank order fixed income options
Consider utilities for your taxable account. They share some characteristics with long term bonds, but with better tax treatment and likely higher returns.letsgobobby wrote:Any further ideas?
Re: rank order fixed income options
I'm very concerned about my fixed income options. I know that it is "market timing" but I just can't see the point of going into a bond fund at this time when rates will undoubtedly rise. Nor am I comfortable with any of the standard other instruments.
As a consequence my fixed income allocation is dispersed among the following:
CDs
Cash/MMF
I don't have a "Stable value" option.
As a consequence my fixed income allocation is dispersed among the following:
CDs
Cash/MMF
I don't have a "Stable value" option.
The closest helping hand is at the end of your own arm.
-
- Posts: 2327
- Joined: Mon Oct 31, 2011 8:36 pm
Re: rank order fixed income options
1) HY Savings (1.05%)
2) I Bonds
3) Treasury bond funds combined to provide 4 years duration
4) CDs
I prefer to take risks with equities rather than fixed income, so no credit risk for me (corporate or munis).
2) I Bonds
3) Treasury bond funds combined to provide 4 years duration
4) CDs
I prefer to take risks with equities rather than fixed income, so no credit risk for me (corporate or munis).
VT 60% / VFSUX 20% / TIPS 20%
Re: rank order fixed income options
I wasn't aware, I assumed they were like I bonds but fixed. I now understand - thanks!letsgobobby wrote:You are aware that EE bonds have a 3.5% return if held for 20 years?
Now I don't know why anyone would hold a 30 year treasury at 2.86% when you can hold an EE bond and lock in 3.5% for 20 years.
Monthly or yearly movements of stocks are often erratic and not indicative of changes in intrinsic value. Over time, however, stock prices and intrinsic value almost invariably converge. ~ WB
Re: rank order fixed income options
market timer wrote:The ranking order depends heavily on your tax situation. Ignoring taxes, I'd rank them as follows:
1. EE bonds
2. CDs
3. The rest
Stable value could be anywhere on this list depending on the rate you're getting.
Lately, I have been buying some REITs instead of long term bonds. I think equity REITs are very similar to long term TIPS.
I'm sorry but, really?
To answer the OP, my fixed income holdings are largely determined by the funds available in our two 401k's and my TSP. We have all this money in these tax advantaged accounts and it has to go somewhere and since the fund choices are limited we have most of our bonds in Total Bond Market Index funds and the G Fund.
If I had free reign I would probably use Treasuries or CDs only to complement my 80% small value and REIT tilted portfolio, and possibly even long term treasuries, but I have to adapt my "ideal" portfolio to the accounts and fund choices actually available to me.
I think many people here have made strong cases for using CDs vs the usual intermediate term bond fund like TBM or treasuries, but again I can't hold CDs in my 401k and my IRAs are full of REITs. CDs might be the smarter way to go if I had a good place to put them.
Re: rank order fixed income options
When withdrawing funds, it is nice to have the flexibility of taxable accounts too. That might lead you to munis as well.
-shum
- market timer
- Posts: 6535
- Joined: Tue Aug 21, 2007 1:42 am
Re: rank order fixed income options
Equity REITs, along with utilities, tend to have very stable dividend streams that rise with inflation. The volatility of these assets is more a function of the discount rate than earnings, as the former is more variable. Rather than equity vs. fixed income, I like to categorize assets along two dimensions: cash flow predictability and cash flow duration. Equity REITs and utilities both have high cash flow predictability and high cash flow duration. As I like to think in real (not nominal) terms, TIPS offer the highest cash flow predictability. In this quadrant, equity REITs and utilities share many characteristics with long term TIPS. Now, there is also a component to returns that depends on credit spreads, which one could argue is also a different kind of discount rate. Over the past two years, as 30-year real yields have ranged 0.5% to 1.6% and credit spreads have not varied much, there has been a very strong correlation in returns between eREITS, utilities, and long term TIPS.Bracket wrote:market timer wrote:I think equity REITs are very similar to long term TIPS.
I'm sorry but, really?
Re: rank order fixed income options
Sorry, but what is "utilities" in this context? Is this a new asset class? Are there funds for it? I've not heard about it before...
Re: rank order fixed income options
Offered as a comment neither in support nor opposition:market timer wrote: Rather than equity vs. fixed income, I like to categorize assets along two dimensions: cash flow predictability and cash flow duration.
This categorization is fundamentally different from the usual "bonds vs stocks" categorization because it is based on observed historical price action. The more canonical "government bonds" vs "stocks" thing is a categorization based on the legal status of the security. "Legal status" -> "empirical correlation" is a _huge_ shift in mindset.
- market timer
- Posts: 6535
- Joined: Tue Aug 21, 2007 1:42 am
Re: rank order fixed income options
Investopedia defines the utilities sector as follows: "A category of stocks for utilities such as gas and power. The utilities sector contains companies such as electric, gas and water firms and integrated providers." Utilities tend to be regulated monopolies and have stable, rising dividends. Check out the S&P utilities sector ETF XLU.AndroAsc wrote:Sorry, but what is "utilities" in this context? Is this a new asset class? Are there funds for it? I've not heard about it before...
Re: rank order fixed income options
I'm so dumb. I thought it was some designation of an asset class, didn't know it was referring to utility companies. But those are stocks, so why are we talking about them in a fixed income context? One might as well say that dividend-paying stocks should be an alternative to fixed income. Has there been any evidence to show that utility stocks perform/behave differently from regular stocks?market timer wrote:Investopedia defines the utilities sector as follows: "A category of stocks for utilities such as gas and power. The utilities sector contains companies such as electric, gas and water firms and integrated providers." Utilities tend to be regulated monopolies and have stable, rising dividends. Check out the S&P utilities sector ETF XLU.AndroAsc wrote:Sorry, but what is "utilities" in this context? Is this a new asset class? Are there funds for it? I've not heard about it before...
Re: rank order fixed income options
This is a very interesting alternative I haven't seen mentioned much. With VWALX, do you not worry that you are taking on too much credit risk and interest rate risk? I see a 15% dip in late 2008. Isn't it recommended that fixed income investments be stable in price? In contrast BND increased 1% over the same period.shum wrote:VWALX
VWIUX
In taxable, for income, non-taxable, conservative high-yield muni and intermediate muni
They want stability so they can rebalance and hit their target AA. for this reason I think illiquid assets like I/EE bonds, CDs, and volatile bond funds fail their purpose a ballast. If you're not rebalancing then you are getting hurt worse by market volatility because you won't be buying low or selling high like you should be, and your risk profile is varying arbitrarily over time.retiredjg wrote:There are people who believe that bonds are for income rather than for stability. Using that reasoning, dividend paying stocks can be a substitute for bonds.
This thinking is not wise in my opinion, but there are people who think that way. I understand that their reasoning is that the dividend paying stocks just keep on paying through thick and thin. I suspect that someday they will not keep paying through thick and thin and some people are going to be scrambling because they will have lost both their income and their stocks' value.
Last edited by rca1824 on Thu Aug 06, 2015 4:08 pm, edited 3 times in total.
Monthly or yearly movements of stocks are often erratic and not indicative of changes in intrinsic value. Over time, however, stock prices and intrinsic value almost invariably converge. ~ WB
Re: rank order fixed income options
There are people who believe that bonds are for income rather than for stability. Using that reasoning, dividend paying stocks can be a substitute for bonds.
This thinking is not wise in my opinion, but there are people who think that way. I understand that their reasoning is that the dividend paying stocks just keep on paying through thick and thin. I suspect that someday they will not keep paying through thick and thin and some people are going to be scrambling because they will have lost both their income and their stocks' value.
This thinking is not wise in my opinion, but there are people who think that way. I understand that their reasoning is that the dividend paying stocks just keep on paying through thick and thin. I suspect that someday they will not keep paying through thick and thin and some people are going to be scrambling because they will have lost both their income and their stocks' value.
Link to Asking Portfolio Questions
Re: rank order fixed income options
1/3 Stable Value, 1/3 Intermediate bond fund, 1/3 short term bond fund
Re: rank order fixed income options
But are dividend paying stocks "required" to pay dividends like how bonds pay out interest? In a bad economy, can those companies simply reduce or not payout dividends?retiredjg wrote:There are people who believe that bonds are for income rather than for stability. Using that reasoning, dividend paying stocks can be a substitute for bonds.
This thinking is not wise in my opinion, but there are people who think that way. I understand that their reasoning is that the dividend paying stocks just keep on paying through thick and thin. I suspect that someday they will not keep paying through thick and thin and some people are going to be scrambling because they will have lost both their income and their stocks' value.
Re: rank order fixed income options
I do not believe there is any requirement to pay dividends. I don't see how there could be such a requirement.
I've never owned dividend paying stocks (except as part of the total market), but people here report that their dividend paying stocks just keep paying even during a crash. The only way that can happen is for the company to cannabalize itself. Apparently they are pretty good at it - perhaps they have large reserves.
This does not seem sustainable to me - some companies are going to have to reduce or stop the dividends during a crash (when you most need your income) or go out of business (your stock value goes to zero). It is for this reason that I would not depend too heavily on dividend producing stock - it likely would work, but failure could be devastating.
For the purposes of this thread though, I think it is simply foolish to use dividend paying stock as a substitute for bonds. It changes the risk or your investments.
I've never owned dividend paying stocks (except as part of the total market), but people here report that their dividend paying stocks just keep paying even during a crash. The only way that can happen is for the company to cannabalize itself. Apparently they are pretty good at it - perhaps they have large reserves.
This does not seem sustainable to me - some companies are going to have to reduce or stop the dividends during a crash (when you most need your income) or go out of business (your stock value goes to zero). It is for this reason that I would not depend too heavily on dividend producing stock - it likely would work, but failure could be devastating.
For the purposes of this thread though, I think it is simply foolish to use dividend paying stock as a substitute for bonds. It changes the risk or your investments.
Link to Asking Portfolio Questions
Re: rank order fixed income options
I think it is foolish too, but in this thread we have people substituting or equating utilities and REITs with bonds, and in this discussion here:retiredjg wrote:I do not believe there is any requirement to pay dividends. I don't see how there could be such a requirement.
I've never owned dividend paying stocks (except as part of the total market), but people here report that their dividend paying stocks just keep paying even during a crash. The only way that can happen is for the company to cannabalize itself. Apparently they are pretty good at it - perhaps they have large reserves.
This does not seem sustainable to me - some companies are going to have to reduce or stop the dividends during a crash (when you most need your income) or go out of business (your stock value goes to zero). It is for this reason that I would not depend too heavily on dividend producing stock - it likely would work, but failure could be devastating.
For the purposes of this thread though, I think it is simply foolish to use dividend paying stock as a substitute for bonds. It changes the risk or your investments.
http://www.bogleheads.org/forum/viewtop ... 6#p2528056
We have Burton Malkiel recommending that we replace bonds with dividend paying stocks. It seems to me these ideas are gaining traction. All I can say is good luck with all that.
- patrick013
- Posts: 3301
- Joined: Mon Jul 13, 2015 7:49 pm
Re: rank order fixed income options
I prefer individual bonds over funds so......
1-2 year national rate CD's - will have no bond duration with these.
then, when rates have risen,
10 year TRSY yielding at least 4% perhaps 5% . Best idea with current info.
Hold till maturity.
then, don't know, no ideas after that.
Sounds like a plan to me.
1-2 year national rate CD's - will have no bond duration with these.
then, when rates have risen,
10 year TRSY yielding at least 4% perhaps 5% . Best idea with current info.
Hold till maturity.
then, don't know, no ideas after that.
Sounds like a plan to me.
age in bonds, buy-and-hold, 10 year business cycle
- Taylor Larimore
- Posts: 32842
- Joined: Tue Feb 27, 2007 7:09 pm
- Location: Miami FL
Vanguard Total Bond Market Index Fund
letsgobobby:letsgobobby wrote:Imagine you have a long term (20+ years), 60/40 portfolio (60% stocks, 40% fixed income).
Given today's environment how do you invest the fixed income? Assume every two weeks you have to buy more fixed income; what do you buy?
Please answer by rank ordering the following investment choices from most appropriate to least. If your answer is variable, say based on what factors, and why.
The choices are:
EE bonds
I bonds
CDs or CD ladder
total bond market index fund
state or national muni bonds or bond fund or ladders
high yield bond fund
short, intermediate, long term corporate bond fund or ladder
short, intermediate, long term nominal government bond fund or ladder
TIPS, TIPS ladder, or TIPS fund
cash
stable value fund in 401k, 403b, etc
stable value fund in 529
international bonds (say which ones/which funds)
other (if I get a lot of others that share a missing option, I will add it to the list)
Frankly, I am overwhelmed with the options. I don't like my current choices (I bonds, TBM, and stable value) and am looking for an unturned stone.
When choices are difficult, it is often because it makes little foreseeable difference. In my opinion, ALL of the options you listed should provide safety and income for your portfolio.
My personal choice is Vanguard Total Bond Market Index Fund for its safety, convenience and simplicity.
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle