Help me pick a bond fund

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Yenah
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Help me pick a bond fund

Post by Yenah » Fri Jan 12, 2018 10:44 pm

The bond fund choices in my 403b don't look great to me. Which (or which combination) would you choose if you didn't have another place for your bond allocation? (My IRA is small, and I'm already using it for international, since my 403b only has two index funds, Fidelity Total Market Index and Vanguard Small Cap Index).

Lord Abbett Short Duration Income I (LLDYX) (ER 0.40)
AB Global Bond I (ANAIX) (ER 0.57)
Virtus Seix Total Return Bond I (SAMFX) (ER 0.67; 0.41 net)
PIMCO Real Return Institutional (PRRIX) (ER 0.64; 0.45 net)

We also have Federated High Yield Bond, but I wanted to stay away from High Yield.

Yenah

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Tyler Aspect
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Re: Help me pick a bond fund

Post by Tyler Aspect » Fri Jan 12, 2018 10:47 pm

You might be able to use the 403b program's most conservative target retirement fund if its expense ratio is lower than those you have listed.
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Yenah
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Re: Help me pick a bond fund

Post by Yenah » Fri Jan 12, 2018 11:01 pm

Tyler Aspect wrote:
Fri Jan 12, 2018 10:47 pm
You might be able to use the 403b program's most conservative target retirement fund if its expense ratio is lower than those you have listed.
Thanks! That is a clever idea. I just checked, however, and my 403b has terrible target retirement funds. I'll post just for laughs. The two most conservative are:

JP Morgan Smart Retirement Income (ER 0.77; net 0.62) (37% stocks, 12% cash, 51% bonds)
JP Morgan Smart Retirement 2055 (ER 1.06; net 0.80) (82% stocks, 18% bonds and cash)

We also have a stable value fund, but it is currently paying 1.6%. It adjusts every 6 months.

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BogleMelon
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Re: Help me pick a bond fund

Post by BogleMelon » Fri Jan 12, 2018 11:03 pm

You may use the stable value fund then. Not the best option, but better than actively managed bond fund or junk bond fund IMHO.
Also you may start to seriously considering maxing out your IRA and spouse IRA if you are married.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

Yenah
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Re: Help me pick a bond fund

Post by Yenah » Fri Jan 12, 2018 11:19 pm

BogleMelon wrote:
Fri Jan 12, 2018 11:03 pm
You may use the stable value fund then. Not the best option, but better than actively managed bond fund or junk bond fund IMHO.
Also you may start to seriously considering maxing out your IRA and spouse IRA if you are married.
When I read on the forums about people with stable funds paying in the 3% range I get jealous :happy
I have an aversion to actively-managed funds, but the bond funds seem to have higher returns than the stable value.

My wife also has a 403b, but hers has all vanguard fund options AND a brokerage option. Her 403b is a typical 3-fund portfolio with all Vanguard index funds. I was trying to make my 3-fund portfolio with Fidelity Total Stock Market Index and some bond choice in my 403b, and iShares IXUS (ETF similar to total international fund) in my IRA.

I suppose we could try:
My 403b --> Fidelity Total Market Index
Her 403b --> Vanguard Total International Index
Vanguard Total Bond Index

Either way it will be difficult to balance, and my wife is used to thinking of her 403b as her own diversified portfolio, so looking at our overall portfolio would be a different way of thinking for her.

Yenah
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Re: Help me pick a bond fund

Post by Yenah » Fri Jan 12, 2018 11:44 pm

Yenah wrote:
Fri Jan 12, 2018 11:01 pm
Thanks! That is a clever idea. I just checked, however, and my 403b has terrible target retirement funds. I'll post just for laughs. The two most conservative are:

JP Morgan Smart Retirement Income (ER 0.77; net 0.62) (37% stocks, 12% cash, 51% bonds)
JP Morgan Smart Retirement 2055 (ER 1.06; net 0.80) (82% stocks, 18% bonds and cash)
Oops! The most conservative other than the "Smart Retirement Income" would be the following:
JP Morgan Smart Retirement 2020 (ER 0.81; net 0.71) (50% stocks; 50% bonds)

So the JP Morgan target retirement funds are both very aggressive and the fees are pretty high.

jalbert
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Re: Help me pick a bond fund

Post by jalbert » Sat Jan 13, 2018 12:50 am

Lord Abbett Short Duration Income I (LLDYX) (ER 0.40)
AB Global Bond I (ANAIX) (ER 0.57)
Virtus Seix Total Return Bond I (SAMFX) (ER 0.67; 0.41 net)
PIMCO Real Return Institutional (PRRIX) (ER 0.64; 0.45 net)
PRRIX emphasizes inflation-linked bonds.

ANAIX emphasizes non-US bonds.

SAMFX holds about 7% emerging market debt including
2.54% allocated sovereign debt of Argentina with a 7.5% coupon. 40% is in US treasuries.

LLDYX has a short-duration credit portfolio: corporate bonds, CMBS, ABS, high yield.

SAMFX behaved the most like the total bond market index during the market turmoil of 2008/2009.

I guess if it were me, I'd use SAMFX if portfolio has a moderate to high equity allocation, and PRRIX if equity allocation is low.
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inbox788
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Re: Help me pick a bond fund

Post by inbox788 » Sat Jan 13, 2018 2:21 am

Yenah wrote:
Fri Jan 12, 2018 11:19 pm
I suppose we could try:
My 403b --> Fidelity Total Market Index
Her 403b --> Vanguard Total International Index
Vanguard Total Bond Index

Either way it will be difficult to balance, and my wife is used to thinking of her 403b as her own diversified portfolio, so looking at our overall portfolio would be a different way of thinking for her.
How old are you? What is your desired AA? Are you maxing out 403b and what other tax advantaged account can you use? Income and tax bracket? What is your current amount and percentage in each of the above accounts? What are the expense fees for the above suggestions and what other funds can you use that have EF < 0.25?

You could always think about doing bonds in taxable account, either Total Bond if you're in lower tax brackets or Tax Exempt if high. Or if you're young, just forgo bonds for now. How long do you envision staying at this employer?

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Hopeful
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Re: Help me pick a bond fund

Post by Hopeful » Sat Jan 13, 2018 5:09 am

You might want to see if your 403b offers a self directed brokerage account (SDBA) option. It is something that many plans don’t advertise. It would open up mutual fund options to you. There are some transaction fees, but I just transact once a year when rebalancing. I did this when I found out that my 403b was adding 0.4% additional fee to any Vanguard funds!!

Yenah
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Re: Help me pick a bond fund

Post by Yenah » Sat Jan 13, 2018 8:22 am

jalbert wrote:
Sat Jan 13, 2018 12:50 am
Lord Abbett Short Duration Income I (LLDYX) (ER 0.40)
AB Global Bond I (ANAIX) (ER 0.57)
Virtus Seix Total Return Bond I (SAMFX) (ER 0.67; 0.41 net)
PIMCO Real Return Institutional (PRRIX) (ER 0.64; 0.45 net)
PRRIX emphasizes inflation-linked bonds.

ANAIX emphasizes non-US bonds.

SAMFX holds about 7% emerging market debt including
2.54% allocated sovereign debt of Argentina with a 7.5% coupon. 40% is in US treasuries.

LLDYX has a short-duration credit portfolio: corporate bonds, CMBS, ABS, high yield.

SAMFX behaved the most like the total bond market index during the market turmoil of 2008/2009.

I guess if it were me, I'd use SAMFX if portfolio has a moderate to high equity allocation, and PRRIX if equity allocation is low.
Thanks for that chart, jalbert! I didn't think to check how the funds track compared to total bond.

retiredjg
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Re: Help me pick a bond fund

Post by retiredjg » Sat Jan 13, 2018 8:29 am

Yenah wrote:
Fri Jan 12, 2018 10:44 pm
Lord Abbett Short Duration Income I (LLDYX) (ER 0.40)
AB Global Bond I (ANAIX) (ER 0.57)
Virtus Seix Total Return Bond I (SAMFX) (ER 0.67; 0.41 net)<--I'd probably use this one
PIMCO Real Return Institutional (PRRIX) (ER 0.64; 0.45 net)
I like the PIMCO fund too, but I'd have to mix it with something (stable value?) to get better stability in a crash.

livesoft
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Re: Help me pick a bond fund

Post by livesoft » Sat Jan 13, 2018 8:30 am

I'd ask my wife to do us a favor and not think about her account as her own separate portfolio and put the bond fund in her account. Indeed, we have done exactly that for many years until her 401(k) changed to have an index fund.
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Yenah
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Re: Help me pick a bond fund

Post by Yenah » Sat Jan 13, 2018 8:52 am

inbox788 wrote:
Sat Jan 13, 2018 2:21 am
Yenah wrote:
Fri Jan 12, 2018 11:19 pm
I suppose we could try:
My 403b --> Fidelity Total Market Index
Her 403b --> Vanguard Total International Index
Vanguard Total Bond Index

Either way it will be difficult to balance, and my wife is used to thinking of her 403b as her own diversified portfolio, so looking at our overall portfolio would be a different way of thinking for her.
How old are you? What is your desired AA? Are you maxing out 403b and what other tax advantaged account can you use? Income and tax bracket? What is your current amount and percentage in each of the above accounts? What are the expense fees for the above suggestions and what other funds can you use that have EF < 0.25?

You could always think about doing bonds in taxable account, either Total Bond if you're in lower tax brackets or Tax Exempt if high. Or if you're young, just forgo bonds for now. How long do you envision staying at this employer?
- We are both 49 and both professors who will likely be at our current employers for the rest of our working lives.
- We were 100% in equities until I got nervous in May 2017 and moved us to 30-70 (30% equity; 70% mix of bonds, mmkt, and stable value) (We were very good at only checking every year or so when we were 100% equities, and made it through 2008-2009 without any worries, but I think approaching 50 and the balance getting bigger caused my reaction of fear. I know the Boglehead way is "stay the course" but I think it was probably time to revisit our AA anyway. I also discovered this forum while doing a web search as part of trying to figure out our AA going forward, so that's a plus.)
- We think we want to go 60-40 for our asset allocation
- We are maxing out both 403b accounts and have children in college, so we aren't currently saving much in taxable
- We have 3 tax-deferred accounts. My 403b (31% of total) my rollover IRA (20% of total), and my wife's 403b (49% of total).
- Our marginal income is taxed at the new 24% rate
- My 403b sucks. The only funds under 0.25 are the only three index funds in the plan, and all are US equities (Fidelity total market index, A mid-cap index, and Vanguard small cap index)

I would like to try to work through my employer to get better fund choices, but in the short term I'm thinking the best solution will probably be to use best-of-breed funds in each of the three accounts available to us, and use the actively managed funds in smaller quantities only as necessary for balancing.

So, assuming we want 40% bonds 40% US stocks and 20% international stocks we could do the following:
My 403b --> All Fidelity total market index (My 403b is 31% of our total balance)
My IRA --> All Total International (My IRA is 20% of our total balance)
My wife's 403b --> Enough Vanguard Total Stock Market Index to get us to 40% US stocks overall
--> Remainder in Vanguard Total Bond Market Index, which will be 40% of our total

Since the IRA no longer gets contributions, as things grow I will probably need to have some international and/or bonds in my 403b eventually. I can use SAMFX and American Funds Euro Pacific Growth at that time. It should be OK, since the bulk of our investments will still be in the low-cost 3-fund portfolio.

Yenah
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Re: Help me pick a bond fund

Post by Yenah » Sat Jan 13, 2018 8:54 am

livesoft wrote:
Sat Jan 13, 2018 8:30 am
I'd ask my wife to do us a favor and not think about her account as her own separate portfolio and put the bond fund in her account. Indeed, we have done exactly that for many years until her 401(k) changed to have an index fund.
Thanks, livesoft! I think that is what we need to do.
Hopeful wrote:
Sat Jan 13, 2018 5:09 am
You might want to see if your 403b offers a self directed brokerage account (SDBA) option. It is something that many plans don’t advertise. It would open up mutual fund options to you. There are some transaction fees, but I just transact once a year when rebalancing. I did this when I found out that my 403b was adding 0.4% additional fee to any Vanguard funds!!
Thanks, Hopeful! I'm guessing that we don't have a SDBA option, but I should check to make sure. That would be great if we did!

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ruralavalon
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Re: Help me pick a bond fund

Post by ruralavalon » Sat Jan 13, 2018 9:25 am

Yenah wrote:
Fri Jan 12, 2018 10:44 pm
The bond fund choices in my 403b don't look great to me. Which (or which combination) would you choose if you didn't have another place for your bond allocation? (My IRA is small, and I'm already using it for international, since my 403b only has two index funds, Fidelity Total Market Index and Vanguard Small Cap Index).

Lord Abbett Short Duration Income I (LLDYX) (ER 0.40)
AB Global Bond I (ANAIX) (ER 0.57)
Virtus Seix Total Return Bond I (SAMFX) (ER 0.67; 0.41 net)
PIMCO Real Return Institutional (PRRIX) (ER 0.64; 0.45 net)

We also have Federated High Yield Bond, but I wanted to stay away from High Yield.

Yenah
I suggest Virus Seix Total Return Bond Fund Class I (SAMFX) ER 0.41%. It is an intermediate-term investment grade bond fund; average effective duration = 6.09 years, average credit quality = BBB; 48% government bonds, 19% corporate bonds, 19% securitized. The expense ratio is moderate, not high. The fund held up well in the 2008-09 troubles.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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BogleMelon
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Re: Help me pick a bond fund

Post by BogleMelon » Sat Jan 13, 2018 9:43 am

Yenah wrote:
Fri Jan 12, 2018 11:19 pm
BogleMelon wrote:
Fri Jan 12, 2018 11:03 pm
You may use the stable value fund then. Not the best option, but better than actively managed bond fund or junk bond fund IMHO.
Also you may start to seriously considering maxing out your IRA and spouse IRA if you are married.
When I read on the forums about people with stable funds paying in the 3% range I get jealous :happy
I have an aversion to actively-managed funds, but the bond funds seem to have higher returns than the stable value.

My wife also has a 403b, but hers has all vanguard fund options AND a brokerage option. Her 403b is a typical 3-fund portfolio with all Vanguard index funds. I was trying to make my 3-fund portfolio with Fidelity Total Stock Market Index and some bond choice in my 403b, and iShares IXUS (ETF similar to total international fund) in my IRA.

I suppose we could try:
My 403b --> Fidelity Total Market Index
Her 403b --> Vanguard Total International Index
Vanguard Total Bond Index

Either way it will be difficult to balance, and my wife is used to thinking of her 403b as her own diversified portfolio, so looking at our overall portfolio would be a different way of thinking for her.
The role of bonds in a portfolio is not the yield, the main goal to hold bonds is to smooth the ride and reduce your risk. Stocks is for the gains though.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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ruralavalon
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Re: Help me pick a bond fund

Post by ruralavalon » Sat Jan 13, 2018 10:34 am

Yenah wrote:
Fri Jan 12, 2018 11:19 pm
. . . . .
I have an aversion to actively-managed funds, but the bond funds seem to have higher returns than the stable value.
Like you my preference is a good index fund rather than a good actively managed fund.

Also the primary purpose of a bond allocation is to provide portfolio safety and volatility reduction, rather than returns. Still do not ignore returns.

There are good actively managed bond funds, and Virtue Seix Total Return is a good choice for an intermediate-term bond fund. It's duration, credit quality and diversification are good, and it weathered the 2008-09 storm well so it provided the safety you want from a bond fund. I would not hesitate to use it in the absence of an intermediate-term bond index fund.


Yenah wrote:My wife also has a 403b, but hers has all vanguard fund options AND a brokerage option. Her 403b is a typical 3-fund portfolio with all Vanguard index funds. I was trying to make my 3-fund portfolio with Fidelity Total Stock Market Index and some bond choice in my 403b, and iShares IXUS (ETF similar to total international fund) in my IRA.

I suppose we could try:
My 403b --> Fidelity Total Market Index
Her 403b --> Vanguard Total International Index
Vanguard Total Bond Index

Either way it will be difficult to balance, and my wife is used to thinking of her 403b as her own diversified portfolio, so looking at our overall portfolio would be a different way of thinking for her.
Livesoft's idea of treating all accounts together as a single unified portfolio is also a good idea. That's often the best way to build a very diversified, very low expense portfolio.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

inbox788
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Re: Help me pick a bond fund

Post by inbox788 » Sat Jan 13, 2018 1:08 pm

Yenah wrote:
Sat Jan 13, 2018 8:52 am
- We are both 49 and both professors who will likely be at our current employers for the rest of our working lives.
- We were 100% in equities until I got nervous in May 2017 and moved us to 30-70 (30% equity; 70% mix of bonds, mmkt, and stable value)
Looks like you might be stuck with poor fund choices for a decade or two. Guess it's time to make the best of a poor situation, and deal with getting out after you retire. The pendulum swung all the way to the other direction as far as AA. I've seen glidepaths in some target date funds where one remains in 90% equities into 50's and more gradually (over 10 or so) gets to 30/70, not overnight. Still, being 100% equities turned out to be the better outcome and switching when you did was not. Anyway, some older rules of thumb like 100-age in bonds (others choose 110 or 120) point to AA 50-70% equities. I think target date funds are still at 80-90% or just beginning the glidepath towards age 65 retirement.
So, assuming we want 40% bonds 40% US stocks and 20% international stocks we could do the following:
My 403b --> All Fidelity total market index (My 403b is 31% of our total balance)
My IRA --> All Total International (My IRA is 20% of our total balance)
My wife's 403b --> Enough Vanguard Total Stock Market Index to get us to 40% US stocks overall
--> Remainder in Vanguard Total Bond Market Index, which will be 40% of our total
Sounds like a good plan, and that's what I'd be looking to do with your choices.
Since the IRA no longer gets contributions, as things grow I will probably need to have some international and/or bonds in my 403b eventually. I can use SAMFX and American Funds Euro Pacific Growth at that time. It should be OK, since the bulk of our investments will still be in the low-cost 3-fund portfolio.
My aversion to high fees and active funds would drive me to seek another solution, but you can cross that bridge if you get there.
ruralavalon wrote:
Sat Jan 13, 2018 10:34 am
There are good actively managed bond funds, and Virtue Seix Total Return is a good choice for an intermediate-term bond fund. It's duration, credit quality and diversification are good, and it weathered the 2008-09 storm well so it provided the safety you want from a bond fund. I would not hesitate to use it in the absence of an intermediate-term bond index fund.
Most of the funds did alright despite their higher expense fees, but they all did it with some increase level of risk (longer duration, international risk, etc.) When choices are limited, you have to compromise, but do so with eyes open.

Argentinian bonds?!? Also, there is a difference between gross and net expenses that may need to be bridged (i.e. rising expenses).
https://www.virtus.com/products/seix-to ... cteristics

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ruralavalon
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Re: Help me pick a bond fund

Post by ruralavalon » Sat Jan 13, 2018 1:26 pm

I still feel that the Virtue Seis intermediate-term bond fund is the better bond fund in your 403b. The fund is overweight in AAA credit quality U.S. government bonds, compared to its benchmark, and Argentine bonds are just 5.16% of the fund (see the "portfolio" tab for the fund on Morningstar). If you need a bond fund in your 403b, then in my opinion this is the one to use.

We all feel that the more ideal solution is treating all accounts together as a single unified portfolio, and using the Vanguard bond index fund in her 403b for the portfolio bond allocation. When one spouse is reluctant, I often add that family harmony is more important than getting an ideal portfolio.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

inbox788
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Re: Help me pick a bond fund

Post by inbox788 » Sat Jan 13, 2018 3:35 pm

ruralavalon wrote:
Sat Jan 13, 2018 1:26 pm
I still feel that the Virtue Seis intermediate-term bond fund is the better bond fund in your 403b. The fund is overweight in AAA credit quality U.S. government bonds, compared to its benchmark, and Argentine bonds are just 5.16% of the fund (see the "portfolio" tab for the fund on Morningstar). If you need a bond fund in your 403b, then in my opinion this is the one to use.
Agree, it's the best from a bad lot and if you have not other choice, it's decent enough. The Argentine bonds are higher risk, but paying off now, but if they should have another crisis, I'd expect they'll underperform, and be replaced by another better performing at the time active fund, so looking backwards, it gives the perception that active funds are always performing well. It's just another form of survival bias.

I was wrong about the glidepath at least as far as Vanguard is concerned. It starts 25 years before retirement and 15 year before retirement it's already down to 75 (from 90 starting). I sometimes deviate substantially, but I use it as a guideline, and decide whether I want to be more aggressive or conservative and a check to see how far from the norm I'm getting, kind of like looking at the speed limit signs and knowing the speed limit on a road even if you don't always drive the speed limit, at least you know if you're going too fast or too slow.

https://investor.vanguard.com/mutual-fu ... rview/0695

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