Dive into bonds?

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humanshield
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Dive into bonds?

Post by humanshield » Thu Mar 07, 2013 9:51 pm

Hello

I stumbled upon this forum and hope to get some advice as you guys seem to have a similar philosophy in investing as I do.

Let me first display my current situation. I am a software engineer working for a successful tech company. I currently rent and have very little debt. I have no short/medium term goals really, except maybe considering buying a condo/house. Obviously long term goal is a comfortable retirement.

Emergency funds: Yes
Debt: Student loans in the mid 4 digit range (1.625% interest)
Tax Filing Status: Single
Tax Rate: 25% Federal, 5.30% State
State of Residence:MA
Age:30
Desired Asset allocation: 80-90% stocks / 10-20% bonds ( This is a little vague since this is the crux of my question)
Desired International allocation: 30% of stocks

Total Portfolio is in the low 6 digits
Current Asset Allocations breakdown
Large Cap: 34.3%
Mid Cap: 18.2%
Small Cap: 15.8%
International: 19.8%
Cash: 11.9%

Current retirement assets

Taxable
11.4% cash
5.4% in company ESPP/RSU (would rather not disclose company)

7.0% in Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.05%)
4.8% in Vanguard Extended Market Index Fund Admiral Shares (VEXAX) (0.14%)
2.5% in Vanguard Mid-Cap Index Fund Investor Shares (VIMSX) (0.24%)
3.2% in Vanguard International Value Fund (VTRIX) (0.41%)
3.5% in Vanguard International Growth Fund Investor Shares (VWIGX) (0.49%)


401k
9.2% Fidelity Spartan 500 Index Fund Institutional Class (FXSIX) (0.05%)
6.4% Fidelity Spartan International Index Fund Fidelity Advantage Class (FSIVX) (0.17%)
3.3% Fidelity Spartan Extended Market Index Fund Fidelity Advantage Class (FSEVX) (0.07%)
3.1% Vanguard Small-Cap Index Fund Signal Shares (VSISX) (0.10%)
Company match? Yes, like 2% or 4% (I forget exactly)

Roth IRA
8.3% Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.05%)
6.7% Vanguard Mid-Cap Value Index Fund Admiral (VMVAX) (0.10%)
5.1% Vanguard Small-Cap Index Fund Admiral Shares (VSMAX) (0.10%)

Rollover IRA
8.3% Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.05%)
6.9% Vanguard Mid-Cap Index Fund Admiral Shares (VIMAX) (0.10%)
5.6% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) (0.16%)

Contributions
401k MAX
Roth IRA MAX
Taxable per year roughly 5K

Questions:
1. My situation is that I am 100% invested in equities. I am perfectly fine with this, but I do realize that I will eventually need to start a transition into bond funds for stability as I reach towards retirement. I would eventually like to ramp up so that when I'm 40 I am roughly 10-20% into bonds. Is this achievable if I start doing 10% of the max contribution towards bond funds? I realize also that I might need to re-balance some things to achieve this goal and/or to increase my contribution percentage.

2. Would it be bad to take my cash and put that into a Taxable bond fund account to accrue more money than my savings account? I realize that there might be some risk involved, but I probably don't need the cash right away... Unless I decide to make a down payment for a house/condo, which I am considering.

dad2000
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Re: Dive into bonds?

Post by dad2000 » Thu Mar 07, 2013 10:11 pm

My inclination would be to use the cash (assuming that it's not part of your ER) on the outside to pay off the student loans. The guaranteed return of 1.625% is much better than leaving cash sitting.

Build your fixed-income allocation in your 401K or IRA by exchanging out of some equities. My preference would be a 3-4 year CD ladder, or a short (<5 year) duration fund.

DaveS
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Re: Dive into bonds?

Post by DaveS » Thu Mar 07, 2013 10:28 pm

I can give you a couple or rules of thumb. 1) I cant for the life of me figure out why you have 500 index, mid cap funds, and small cap funds in each account. My bet is you could get a total stock market fund in one account at least that would be better, and less expensive than holding the three funds. For you information the total stock market is approximately 70% large, 20% Mid and 10% small. So if you wanted to tilt to smaller stocks you could own total and then some small in addition. 2) People who have both taxable and tax free accounts want to have tax efficient assets in taxable accounts, and tax inefficient in tax free. In order of tax efficiency worst to best; taxable bonds, REIT, Small Value, Large Value, Large Blend, International/Emerging due to the foreign tax credit. You don't make each account a mini portfolio - it's all your money. 3) If your saving for a specific event you don't want the bond duration to be longer than the time till the event. So if you think you might want to buy a house in 3 years you want a bond fund with a duration no longer than 3 years - take a look at Vanguard Short Term Investment Grade Fund. 4) Interest rates now are at historic lows with the most likely direction at some unknown point in the future up. So if you want a bond fund for stability in a retirement account, you don't want a high duration fund that will get clobbered if rates go up. Most recommend a duration close to 5, as in Vanguard Total Bond Market or Intermediate Term Investment Grade. All for now. Dave

humanshield
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Re: Dive into bonds?

Post by humanshield » Thu Mar 07, 2013 10:35 pm

DaveS wrote:I can give you a couple or rules of thumb. 1) I cant for the life of me figure out why you have 500 index, mid cap funds, and small cap funds in each account. My bet is you could get a total stock market fund in one account at least that would be better, and less expensive than holding the three funds. For you information the total stock market is approximately 70% large, 20% Mid and 10% small. So if you wanted to tilt to smaller stocks you could own total and then some small in addition. 2) People who have both taxable and tax free accounts want to have tax efficient assets in taxable accounts, and tax inefficient in tax free. In order of tax efficiency worst to best; taxable bonds, REIT, Small Value, Large Value, Large Blend, International/Emerging due to the foreign tax credit. You don't make each account a mini portfolio - it's all your money. 3) If your saving for a specific event you don't want the bond duration to be longer than the time till the event. So if you think you might want to buy a house in 3 years you want a bond fund with a duration no longer than 3 years - take a look at Vanguard Short Term Investment Grade Fund. 4) Interest rates now are at historic lows with the most likely direction at some unknown point in the future up. So if you want a bond fund for stability in a retirement account, you don't want a high duration fund that will get clobbered if rates go up. Most recommend a duration close to 5, as in Vanguard Total Bond Market or Intermediate Term Investment Grade. All for now. Dave
Thanks, this is insightful!
addressing point 1, thats a fair point. I will perhaps look into doing the total stock market and pair down all of my portfolios. However I would like to point out that I can't do something like that in my 401k as they don't offer that and I don't know that I like the idea of a target retirement fund.
As to points 3 and 4 thats helpful to know, as I know barely anything about bonds. Thanks!

dad2000 wrote:My inclination would be to use the cash (assuming that it's not part of your ER) on the outside to pay off the student loans. The guaranteed return of 1.625% is much better than leaving cash sitting.
Interesting, I never thought about paying the loan off as a guareenteed return of the interest, so thats a point well taken. I will definitely take that into account

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bogleblitz
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Re: Dive into bonds?

Post by bogleblitz » Thu Mar 07, 2013 11:13 pm

I was 100% equities until I read a few books and found this website last year at age 35. I changed to 20% bonds right away. Sure, you can put 10% new money into bonds. Stocks is at a new high so I recommend getting into bonds quickly now.

Pay off your debt. Keep your cash in a bank that pays 1% interest. Don't use it to buy bonds.

humanshield
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Re: Dive into bonds?

Post by humanshield » Thu Mar 07, 2013 11:19 pm

bogleblitz wrote:I was 100% equities until I read a few books and found this website last year at age 35. I changed to 20% bonds right away. Sure, you can put 10% new money into bonds. Stocks is at a new high so I recommend getting into bonds quickly now.
Do you say this because you feel like stocks could potentially sink so I should rush into bonds to save some of my money?
bogleblitz wrote:Pay off your debt. Keep your cash in a bank that pays 1% interest. Don't use it to buy bonds.
This seems to be a common theme, I will consider being more aggressive with my student loans

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bogleblitz
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Re: Dive into bonds?

Post by bogleblitz » Thu Mar 07, 2013 11:31 pm

humanshield wrote: Do you say this because you feel like stocks could potentially sink so I should rush into bonds to save some of my money?
Stocks will eventually sink and no one knows when. I recommend getting some bonds soon so that you can rebalance.

See rebalancing
http://www.bogleheads.org/wiki/Rebalancing

With 100% equities, you can't rebalance. So you lose the free lunch of diversification and rebalancing.
Also recommend reading some investment books, don't just listen to strangers like us.
http://www.bogleheads.org/wiki/Category ... nd_Authors

letsgobobby
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Re: Dive into bonds?

Post by letsgobobby » Fri Mar 08, 2013 12:14 am

I agree with the others. Not enough bonds - at least 20%. And there is no need to replicate the entire market within each account. Just one or two holdings per account. Finally, you are not optimally tax efficient with cash in taxable and international in tax deferred. If you want to hold cash, does your 401k offer a stable value fund?

Example

Roth IRA 20.1% VISVX
IRA 21.2% VBMFX
Taxable 20% TISM, 20% exUs small cap, 18.7% TSM

Just as an example.

humanshield
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Re: Dive into bonds?

Post by humanshield » Fri Mar 08, 2013 12:21 am

Cash is just cash I didnt mean for it to be interpreted as part of a fund

Thats also good advice about not replicating the market in every account.I think I may have some rebalancing to do

humanshield
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Re: Dive into bonds?

Post by humanshield » Fri Mar 08, 2013 5:01 pm

Thanks for the insight guys!

I've started taking steps into a better portfolio.

1.) I have begun transitioning a lot of my stocks in the tax shelters into the total stock market. I am waiting on the taxable side, since I don't want to incur the tax upon exchanging

2.) I have started my 401k to take in 20% of my contributions into a bond fund Spartan® U.S. Bond Index Fund - Fidelity Advantage Class (FSITX) (.05%). I realize this won't get me to 10-20% immediately, but it will help for now. I can always rebalance from stocks in the future when I feel the time is right

3.) I am planning to more aggressively pay off my student loans and pay that off this year.

Again, thanks for the insight, I've learned a lot since yesterday!

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yoshald
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Re: Dive into bonds?

Post by yoshald » Fri Mar 08, 2013 5:24 pm

Perhaps put some cash in US Savings I Bonds http://www.treasurydirect.gov/indiv/res ... ibonds.htm

humanshield
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Re: Dive into bonds?

Post by humanshield » Fri Mar 08, 2013 5:50 pm

I have never heard of i bonds before. Seems like they are fairly easy to understand but let me check with you!

It seems that the limitations are 1.) Only $10,000 can be purchased a year, 2.) that it has two rates, the variable inflation rate (which can be negative) and the fixed rate (which is at 0.0% right now) which together comprise the composite rate 3.) You can't withdraw within a year and within 5 years you will be penalized the last 3 interest payments 4.) Tax is not applied until AFTER you cash out the ibonds 5.) They seem to imply that you can not lose money on ibonds

It seems to me that everyone should have ibonds! why wouldn't I invest in ibonds, as even at the current fixed rate the composite rate is 1.8ish% which is more than I can say for my current bank rate! It even seems fairly liquid after a year.

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NoRoboGuy
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Re: Dive into bonds?

Post by NoRoboGuy » Fri Mar 08, 2013 7:15 pm

letsgobobby wrote:I agree with the others. Not enough bonds - at least 20%. And there is no need to replicate the entire market within each account. Just one or two holdings per account. Finally, you are not optimally tax efficient with cash in taxable and international in tax deferred. If you want to hold cash, does your 401k offer a stable value fund?

Example

Roth IRA 20.1% VISVX
IRA 21.2% VBMFX
Taxable 20% TISM, 20% exUs small cap, 18.7% TSM

Just as an example.
+1

Also, there is a reason the Treasury limits I Bond purchases: they are a good deal for you.

If you have never been through a real bear market or crash, I would like to share some thoughts with you. Having been through October 1987, the 2000 Internet bubble, and 9/11, I can say that if you had serious money in the market during one of these events (especially 1987), there is nothing I can say that will prepare you for what it feels like holding a 90-100% equity portfolio. So, please take the above advice and immediately move to at least 20% bonds. Since you are 30, you would do better with 30%. Your call, but understand high equity exposure means real risk that you will experience during your investing lifetime. Hope this helps.
There is no free lunch.

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yoshald
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Re: Dive into bonds?

Post by yoshald » Sun Mar 10, 2013 2:00 am

humanshield wrote:I have never heard of i bonds before. Seems like they are fairly easy to understand but let me check with you!

It seems that the limitations are 1.) Only $10,000 can be purchased a year, 2.) that it has two rates, the variable inflation rate (which can be negative) and the fixed rate (which is at 0.0% right now) which together comprise the composite rate 3.) You can't withdraw within a year and within 5 years you will be penalized the last 3 interest payments 4.) Tax is not applied until AFTER you cash out the ibonds 5.) They seem to imply that you can not lose money on ibonds

It seems to me that everyone should have ibonds! why wouldn't I invest in ibonds, as even at the current fixed rate the composite rate is 1.8ish% which is more than I can say for my current bank rate! It even seems fairly liquid after a year.
I agree. Everyone should buy i Bonds. I've never seen anyone say to not buy them. You almost have your points right, but I Bonds cannot have a negative rate (unlike TIPS). If there was deflation (treasuries were paying negative a few years back for a short period-almost unprecidented?), I bond's would just have a 0%.

I think you can acquire more than $10,000 (15k total/year) outside of Treasury Direct if you request your income tax refund as an I-bond. One can instruct their employer to withhold extra :dollar so you'll have more than $5000 in a refund. I think you can get up to $5000 of your refund as savings bonds. Search bogleheads for I bonds. Lots of good info.

More relevant to you original post: http://www.obliviousinvestor.com/what-h ... tes-go-up/

I also like to buy a little junk silver (1964 and older dimes, quarters, halves are 90% silver) every so often. Tricky sellers on ebay. You are buying just for the silver content and you don't want to worry about numismatic value. Unproductive asset, but I think it's good to hold a little. I paid 20 X the face value a few weeks ago I think. January I paid about 24X so it's volatile. If I look at a silver chart now, I want to buy more.

Valuethinker
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Re: Dive into bonds?

Post by Valuethinker » Sun Mar 10, 2013 4:15 am

humanshield wrote:
dad2000 wrote:My inclination would be to use the cash (assuming that it's not part of your ER) on the outside to pay off the student loans. The guaranteed return of 1.625% is much better than leaving cash sitting.
Interesting, I never thought about paying the loan off as a guareenteed return of the interest, so thats a point well taken. I will definitely take that into account
OK

- ibonds are a lost opportunity if you do not use them each year, so that's the way to grow your fixed income investments until you have used that opportunity up

- I am all for paying back student debt *but* that's a lower interest rate than you'd get on a mortgage (however there is no personal bankruptcy on student debt, so it's a higher risk form of borrowing in that extreme sense).

If you are going to buy a house within 2-3 years say than paying down student loan, whilst financially attractive, may not be worth it? What I don't know is how mortgage lenders treat student loans? Ie do they simply reduce the amount they will lend you by the size of student loan? (without considering the rate?).

Generally you should be about 20% in fixed income, and I am a BIG fan of inflation linked instruments-- that's TIPS and Ibonds. In the very long run, what hurts bond investors is inflation. Also TIPS have low correlation with stocks, so they add diversification benefit to a portfolio. However TIPS in the US pay lousy rates right now.

I would prioritize saving downpayment for a home over fixed income investment right now *except* to the extent that you are buying Ibonds.

humanshield
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Re: Dive into bonds?

Post by humanshield » Sun Mar 10, 2013 8:00 am

Okay, so the clear picture I'm starting to get from various posters is that I should have some sort of inflation protected bonds. Currently though the fixed income rate is 0%, so to me thats not the best deal even with the inflation protection right now as I would not beat inflation (just match it). I actually am REALLY enamored with the idea of Ibonds, except for the fixed income portion right now. But what about instead of Ibonds I do something more like vanguards intermediate bond fund?

What do you Bogleheads think of doing this for my cash.. I'm holding quite a bit of cash (11% of my total assets) thats sitting in an ING account gaining about .75% interest so instead of buying ibonds right now what if instead I put my money into the Vanguard Intermediate Bond Index fund? It seems to me that I can get a good return on my money and also have it be liquid. I even looked at the capital return during periods of rising interest rates (2004-2005) and the capital rates did not turn negative for the year.

Bogleheads, good idea, bad idea for me? I may or may not need the money for a house/condo, depends on how I feel about the market and if i can really stretch/afford to buy one in a Boston real estate market

letsgobobby
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Re: Dive into bonds?

Post by letsgobobby » Sun Mar 10, 2013 9:46 am

I bonds are much more tax efficient in taxable.

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midareff
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Re: Dive into bonds?

Post by midareff » Sun Mar 10, 2013 10:01 am

humanshield .....

partial quote... "As to points 3 and 4 thats helpful to know, as I know barely anything about bonds. Thanks!"

a MUST read for you and much sooner than later.

http://www.amazon.com/Only-Guide-Winnin ... d+strategy

humanshield
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Re: Dive into bonds?

Post by humanshield » Sun Mar 10, 2013 10:05 am

midareff wrote:humanshield .....

partial quote... "As to points 3 and 4 thats helpful to know, as I know barely anything about bonds. Thanks!"

a MUST read for you and much sooner than later.

http://www.amazon.com/Only-Guide-Winnin ... d+strategy
Hey, I love books! :wink:

I am literally going to buy that for my kindle now!

assumer
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Re: Dive into bonds?

Post by assumer » Sun Mar 10, 2013 11:41 am

letsgobobby wrote:I bonds are much more tax efficient in taxable.
What do you mean? You can't purchase I-Bonds in tax-advantaged accounts, as they are already tax-deferred.

Valuethinker
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Re: Dive into bonds?

Post by Valuethinker » Sun Mar 10, 2013 11:49 am

humanshield wrote:Okay, so the clear picture I'm starting to get from various posters is that I should have some sort of inflation protected bonds. Currently though the fixed income rate is 0%, so to me thats not the best deal even with the inflation protection right now as I would not beat inflation (just match it). I actually am REALLY enamored with the idea of Ibonds, except for the fixed income portion right now. But what about instead of Ibonds I do something more like vanguards intermediate bond fund?
Ibonds are a substitute for the unappealing rates available on TIPS right now.
What do you Bogleheads think of doing this for my cash.. I'm holding quite a bit of cash (11% of my total assets) thats sitting in an ING account gaining about .75% interest so instead of buying ibonds right now what if instead I put my money into the Vanguard Intermediate Bond Index fund? It seems to me that I can get a good return on my money and also have it be liquid. I even looked at the capital return during periods of rising interest rates (2004-2005) and the capital rates did not turn negative for the year.
1994 is the bond rout year in recent history. Have to go back to 1980 before that. Note things would be worse than 1994, potentially, because bonds now pay a lot lower coupons-- your total return would be lower by at least 3-4%.

If you don't need the money immediately the preferred alternative is bank CDs. You can beat institutional investors in this, they cannot invest in small enough amounts to get the benefit of FDIC guarantees-- you can. And they are paying similar or better rates than bonds of ST maturity.

The rule of thumb in fixed income investing is match maturity to need. If you need the money in 3 years, invest in bonds up to 3 years maturity (ie ST) or CDs.

CDs can normally be cashed at an interest penalty if you develop an immediate need for cash. A 'ladder' of CDs of varying maturities hedges you against rising interest rates.
Bogleheads, good idea, bad idea for me? I may or may not need the money for a house/condo, depends on how I feel about the market and if i can really stretch/afford to buy one in a Boston real estate market
Then I'd ladder CDs out to say 3 years maturity. If you decide to buy a property earlier, I believe CDs generally you can cash in at loss of interest?

letsgobobby
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Re: Dive into bonds?

Post by letsgobobby » Sun Mar 10, 2013 12:58 pm

assumer wrote:
letsgobobby wrote:I bonds are much more tax efficient in taxable.
What do you mean? You can't purchase I-Bonds in tax-advantaged accounts, as they are already tax-deferred.
"Than vanguard intermediate bond index,"'which is what OP is considering. Sorry for not completing the thought.

Default User BR
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Re: Dive into bonds?

Post by Default User BR » Sun Mar 10, 2013 1:09 pm

A downside to savings bonds for young investors is that they will likely reach full maturity at an inopportune time. Even though exempt from state taxes, you will owe on the interest in a lump sum at your marginal rate. If you're still fully-employed, that's likely to be your highest federal rate.

I am running into that now with EE bonds bought through the old employer plan at MyMegaCorp when I was a young pup. They are coming due and need to be cashed in (or at least the tax paid).


Brian

humanshield
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Re: Dive into bonds?

Post by humanshield » Sun Mar 10, 2013 2:07 pm

Gah, the more I read about bonds the more questions I have.

In my 401k account, I have decided to play catch up on bonds. For a buy/hold approach and to possibly re-balance and I am now going to do about 60% of my contributions into bonds (since I have 0% now, and even after a full years investing I will only probably get about 5% of my total portfolio into bonds) and am shooting to hit around 15-20% of my total portfolio into bonds.


As for the question about cash no one seems to be able to tell me that keeping my excess cash (more than 6 months supply) in a bond fund is a good idea as an alternative to a savings account for higher yield (since the point of a savings account is to preserve principle, I can understand that there is a lot of risk in putting money into a bond fund).




So I'm going to rephrase my question slightly, and ask if perhaps people think that the 11% cash holding is too much if I don't have any necessary discretionary spending that I can foresee and that it would be wiser to invest that in a taxable account as either a.) more equity/stocks or b.) dive into bonds of some sort (ibonds, intermediate term bond fund, or maybe even the MA municipal bonds). Remember, I have no kids, no mortgage, no necessary plans on buying real estate in a Boston real estate market, no car, nothing but a low interest student loan that I will probably pay off this year.

letsgobobby
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Re: Dive into bonds?

Post by letsgobobby » Sun Mar 10, 2013 2:09 pm

Brian, that is a good point.

That is why I am willing to buy $20k-$25k of I bonds per year, but not go full bore with another $20k in EE bonds. While in 25-30 years at age 64-69 I can see myself being at least partly retired and in a lower tax bracket, I'm far less certain of that being true in precisely 20 years, at age 59 - the only time EE bonds really make sense.

humanshield - you can buy stocks in your taxable account, then shift your stocks to bonds in your tax-deferred account. Or you can buy I bonds in your taxable account, which would still be much better than the low yield and taxable cash that you currently have.

humanshield
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Re: Dive into bonds?

Post by humanshield » Sun Mar 10, 2013 2:50 pm

letsgobobby wrote:Brian, that is a good point.

That is why I am willing to buy $20k-$25k of I bonds per year, but not go full bore with another $20k in EE bonds. While in 25-30 years at age 64-69 I can see myself being at least partly retired and in a lower tax bracket, I'm far less certain of that being true in precisely 20 years, at age 59 - the only time EE bonds really make sense.

humanshield - you can buy stocks in your taxable account, then shift your stocks to bonds in your tax-deferred account. Or you can buy I bonds in your taxable account, which would still be much better than the low yield and taxable cash that you currently have.
How are you able to buy 20k-25k of Ibonds a year? Isn't the max amount 10k?

letsgobobby
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Re: Dive into bonds?

Post by letsgobobby » Sun Mar 10, 2013 3:06 pm

I'm married.

humanshield
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Re: Dive into bonds?

Post by humanshield » Sun Mar 10, 2013 4:54 pm

letsgobobby wrote:I'm married.
I'm sorry for your loss



:wink:

letsgobobby
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Re: Dive into bonds?

Post by letsgobobby » Sun Mar 10, 2013 5:32 pm

Oh, I don't know... Two 403bs. Two 401as. Two IRAs. Double vision and dental coverage. And two darn adorable kids. Mostly the sacrifice is ok. 8-)

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Kevin M
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Re: Dive into bonds?

Post by Kevin M » Sun Mar 10, 2013 5:33 pm

I Bonds are good for fixed income in taxable accounts. However, rather than a bond fund I would put whatever fixed income you can into non-brokered CDs (bought directly from a bank or credit union rather than through a brokerage). You can get between 1.6% and 2% on a 5-year or 7-year CD with the ability to do an early withdrawal and pay a penalty of between 60 days and 365 days of interest, depending on the CD. This provides an expected return comparable to, if not higher than, an intermediate-term bond fund, with much less risk (if/when interest rates rise, the value of a bond fund will fall).

This is not an option in a 401k, but it is in IRA accounts and taxable accounts. You may get a higher after-tax expected return in a muni bond fund in a taxable account, but only by taking more risk.

For money you will not need for at least seven months, consider Barclays 5-year CD earning 1.85% APY with an early withdrawal penalty (EWP) of 90 days of interest. You will end up earning more than 1% APY if you do an early withdrawal after seven months, and almost 1.4% if after one year. Barclays also offers a savings account earning 1% APY, but they do not offer IRA accounts. Barclays terms and conditions explicitly state that you can do a partial or full withdrawal from the CD before maturity.

Check out http://www.depositaccounts.com to help find the best deals on CDs.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

Hastibe
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Re: Dive into bonds?

Post by Hastibe » Sun Mar 10, 2013 10:51 pm

Kevin M wrote:Barclays also offers a savings account earning 1% APY, but they do not offer IRA accounts.
On the note of savings accounts, I found two banks offering slightly higher yields: one at 1.05% APY for amounts over $2,500 and another at 1.10% APY for amounts under $35,000. See this thread.

Valuethinker
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Re: Dive into bonds?

Post by Valuethinker » Mon Mar 11, 2013 12:42 pm

humanshield wrote:Gah, the more I read about bonds the more questions I have.

In my 401k account, I have decided to play catch up on bonds. For a buy/hold approach and to possibly re-balance and I am now going to do about 60% of my contributions into bonds (since I have 0% now, and even after a full years investing I will only probably get about 5% of my total portfolio into bonds) and am shooting to hit around 15-20% of my total portfolio into bonds.


As for the question about cash no one seems to be able to tell me that keeping my excess cash (more than 6 months supply) in a bond fund is a good idea
Because it is not against a ladder of CDs. that's why we are not able to tell you it's a good idea.
as an alternative to a savings account for higher yield (since the point of a savings account is to preserve principle, I can understand that there is a lot of risk in putting money into a bond fund).
ST bond fund you shouldn't lose more than say 5%. 10% is possible, but 5% is probably a reasonable risk.


So I'm going to rephrase my question slightly, and ask if perhaps people think that the 11% cash holding is too much if I don't have any necessary discretionary spending that I can foresee and that it would be wiser to invest that in a taxable account as either a.) more equity/stocks or b.) dive into bonds of some sort (ibonds, intermediate term bond fund, or maybe even the MA municipal bonds). Remember, I have no kids, no mortgage, no necessary plans on buying real estate in a Boston real estate market, no car, nothing but a low interest student loan that I will probably pay off this year.
Then you need enough money to survive between jobs. Depends on your profession, whether you'd need to relocate etc. I have been saying over a year's expenses (at a reduced level) in this market, as it has been so tough to get a job. Things are looking up in the USA at least, so that may now be overly conservative.

Most of us, in your situation, plan to buy a house at some point.

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Re: Dive into bonds?

Post by Valuethinker » Mon Mar 11, 2013 12:44 pm

letsgobobby wrote:Oh, I don't know... Two 403bs. Two 401as. Two IRAs. Double vision and dental coverage. And two darn adorable kids. Mostly the sacrifice is ok. 8-)
You watch the hoops singles go through on the mating and dating game, and it's nice to have someone to come home to, pop a video on, crack a bottle of wine, b*tch about work, family, solve the problems of the world...

'It was the best of times. It was the worst of times' -- I think Dickens was writing about marriage ;-).

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Re: Dive into bonds?

Post by Valuethinker » Mon Mar 11, 2013 12:53 pm

humanshield wrote:
letsgobobby wrote:I'm married.
I'm sorry for your loss



:wink:
When you are young the possibility that the next gorgeous nubile young body with the long hair, that laughs at your jokes, is into skateboarding or rock gigs or surfing or whatever... that's fun, that expectation. Worth, sometimes, all the grief and pain when it doesn't work.

Get to middle age. Having someone at home, waiting to hear you b*tch about the boss, talk about the kids, when the phone rings in the middle of the night and you have to fly 3,000 miles to the funeral, your father's corpse too damaged to see, hug you when you cry as you lower your father's ashes into the cold ground, who pulls together when you lose your job and says she knows you'll find another, holds your hand in the hospital before the anaesthesia nurse slams a huge and painful needle into your arm, hugs you close as you watch the planes slam into buildings where your friends have worked, and as you walk by a bus you used to take, blown to pieces... smile in that wise way when you say the same thing for the 100th time...

That's really irreplaceable. Being single gets old.

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Kevin M
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Re: Dive into bonds?

Post by Kevin M » Mon Mar 11, 2013 5:23 pm

Hastibe wrote:
Kevin M wrote:Barclays also offers a savings account earning 1% APY, but they do not offer IRA accounts.
On the note of savings accounts, I found two banks offering slightly higher yields: one at 1.05% APY for amounts over $2,500 and another at 1.10% APY for amounts under $35,000. See this thread.
You can get even higher rates on limited amounts in a reward checking account. I see 3% and even 4% on up to $10K or $15K on the reward checking accounts page at http://www.depositaccounts.com.

Kevin
Last edited by Kevin M on Mon Mar 11, 2013 8:03 pm, edited 1 time in total.
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Re: Dive into bonds?

Post by assumer » Mon Mar 11, 2013 5:52 pm

Kevin M wrote:
Hastibe wrote:
Kevin M wrote:Barclays also offers a savings account earning 1% APY, but they do not offer IRA accounts.
On the note of savings accounts, I found two banks offering slightly higher yields: one at 1.05% APY for amounts over $2,500 and another at 1.10% APY for amounts under $35,000. See this thread.
You can get even higher rates on limited amounts in a reward checking account. I see 3% and even 4% on up to $10K or $15K on the reward checking accounts page at http://www.depositacccounts.com.

Kevin
How is it that banks' checking accounts offer better interest rates than savings accounts / CD's? I'd gladly set up direct deposit and be sure to use my debit card XX times per month for guaranteed 4% on checking...

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Re: Dive into bonds?

Post by Kevin M » Mon Mar 11, 2013 6:29 pm

assumer wrote: How is it that banks' checking accounts offer better interest rates than savings accounts / CD's? I'd gladly set up direct deposit and be sure to use my debit card XX times per month for guaranteed 4% on checking...
You can read all about reward checking accounts at http://www.depositaccounts.com, which is the resource I use exclusively for CDs and bank/credit union accounts. I assume they make enough on the transaction fees they charge the merchants, but I only use mine for small transactions (typically $10 or less), and then use my 2% cash-back credit card for most other purchases. Also, it may be a way to attract customers so they can get their business for more lucrative accounts or products.

Rates and balance caps change frequently, so where you get 4% or 3% today may only give you 2% or 1% some months or years down the road. I used to get 3% on up to $30K, but first they reduced the balance cap, then they reduced the rate to the point where it wasn't worth it (I had two reward checking accounts at the time). My current account only pays about 1.75% on up to $10K, but all my kids have accounts there, and we transfer money back and forth, so the convenience is worth it to me despite the less than competitive rate. I've become too lazy to chase another reward checking account.

Kevin
Last edited by Kevin M on Mon Mar 11, 2013 8:03 pm, edited 1 time in total.
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Re: Dive into bonds?

Post by assumer » Mon Mar 11, 2013 7:56 pm

Kevin M wrote:
assumer wrote: How is it that banks' checking accounts offer better interest rates than savings accounts / CD's? I'd gladly set up direct deposit and be sure to use my debit card XX times per month for guaranteed 4% on checking...
You can read all about reward checking accounts at http://www.depositacccounts.com, which is the resource I use exclusively for CDs and bank/credit union accounts. I assume they make enough on the transaction fees they charge the merchants, but I only use mine for small transactions (typically $10 or less), and then use my 2% cash-back credit card for most other purchases. Also, it may be a way to attract customers so they can get their business for more lucrative accounts or products.

Rates and balance caps change frequently, so where you get 4% or 3% today may only give you 2% or 1% some months or years down the road. I used to get 3% on up to $30K, but first they reduced the balance cap, then they reduced the rate to the point where it wasn't worth it (I had two reward checking accounts at the time). My current account only pays about 1.75% on up to $10K, but all my kids have accounts there, and we transfer money back and forth, so the convenience is worth it to me despite the less than competitive rate. I've become too lazy to chase another reward checking account.

Kevin
Thanks. So you're saying it's not really too good to be true.

Also, FYI, you and the previous poster put three "c"s in your website link.

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Re: Dive into bonds?

Post by Kevin M » Mon Mar 11, 2013 8:11 pm

assumer wrote: Thanks. So you're saying it's not really too good to be true.

Also, FYI, you and the previous poster put three "c"s in your website link.
(Fixed the links in my previous posts)

No, not too good to be true. I first mentioned reward checking accounts in my blog in December of 2009, Your Cash Stash, and had been using them before that. I more recently dedicated a blog post to Reward Checking Accounts.

Kevin
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