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401k bond choices

Posted: Sat Apr 28, 2018 5:07 pm
by newDDS
Hello all I am working towards rebalancing our portfolio to get back to our desired AA. My 401k is somewhat limited in the options but I was hoping for some help with which bond funds to choose. Currently the bonds I do have with this account is the US Bond Enhanced index (Primarily because when deciding last year I went with the lowest cost and what sounded the most broad. Also if I move money from this fund with the fact that there is a redemption fee of .5% for less than 90 days would that affect money that has been added the last few months? Or is that only if I was withdrawing money out of the account?

Thank you for your help!!

Below are the options through TRowe:
Gross expense Net expense
US BOND ENHANCED INDEX  0.30% 0.30%
PBDIX + 3
Redemption fee: 0.50% - 90 days or less
U.S. TREASURY LONG-TERM FUND  0.51% 0.37%
PRULX + 3

U.S. TREASURY INTERMEDIATE FD  0.52% 0.37%
PRTIX + 3

INFLATION PROTECTED BOND FUND  0.58% 0.41%
PRIPX + 3

SHORT-TERM BOND FUND  0.46% 0.46%
PRWBX + 3
NEW INCOME FUND  0.55% 0.54%
PRCIX + 3 5
GNMA FUND  0.59% 0.59%
PRGMX + 3
CORPORATE INCOME FUND  0.60% 0.60%
PRPIX + 3
SPECTRUM INCOME FUND  0.69% 0.69%
RPSIX + 3 5
INTERNATIONAL BOND FUND  0.69% 0.69%
RPIBX + 3
PIMCO TOTAL RETURN ADMIN  0.76% 0.76%
PTRAX 3
PIMCO HIGH YIELD FUND, ADM  0.81% 0.81%
PHYAX 3
EMERGING MARKETS BOND FUND  0.92% 0.92%
PREMX + 3

Re: 401k bond choices

Posted: Sat Apr 28, 2018 6:07 pm
by 2pedals
I think the US Bond Enhanced index is fine to use as the majority of your bonds in this fund, that fund is similar to the Vanguard total bond market index fund (but higher ER). The only other bond fund that would interest me in the short term bond fund to lower the average bond maturities in your portfolio. It's a trade-off to me since we are currently in a period of rising rates (but who knows what will happen next) and the fund has a relatively high ER. Does your 401k offer a stable value fund? Is so and if the rate is attractive you may wish to use that fund as well.

I would think the 90 day transaction fee is only applied to the money deposited in the fund within the last 90 days. Other money deposited before 90 days in that fund should be free from the 90 day transaction fee. Basically you have a sub account within the fund, money this is older than 90 days and some that is not. So you should be able to move the money that has been in the fund for more than 90 days without a transaction fee.

Re: 401k bond choices

Posted: Sun Apr 29, 2018 11:50 am
by newDDS
2pedals wrote:
Sat Apr 28, 2018 6:07 pm
I think the US Bond Enhanced index is fine to use as the majority of your bonds in this fund, that fund is similar to the Vanguard total bond market index fund (but higher ER). The only other bond fund that would interest me in the short term bond fund to lower the average bond maturities in your portfolio. It's a trade-off to me since we are currently in a period of rising rates (but who knows what will happen next) and the fund has a relatively high ER. Does your 401k offer a stable value fund? Is so and if the rate is attractive you may wish to use that fund as well.

I would think the 90 day transaction fee is only applied to the money deposited in the fund within the last 90 days. Other money deposited before 90 days in that fund should be free from the 90 day transaction fee. Basically you have a sub account within the fund, money this is older than 90 days and some that is not. So you should be able to move the money that has been in the fund for more than 90 days without a transaction fee.
Sounds great thank you for your help. Understanding the ins and outs of bonds has been stumping me for a while now. Until I have a better grasp on them as a whole I was hoping to own a broad base of all of them, which it sounds like that is where I am at.

Thanks again!

Re: 401k bond choices

Posted: Sun Apr 29, 2018 11:59 am
by ruralavalon
In my opinion T. Rowe Price U.S. Bond Enhanced Index Fund (PBDIX) ER 0.30% is a good choice, average effective duration = 6.03 years, average credit quality = A. I suggest that you just stick with that bond fund. I don't see anything better offered in your 401k. The fund is very similar to a total bond market index fund, it has tracked the Bloomberg Barclays U.S. Aggregate Bond Index almost exactly.

Re: 401k bond choices

Posted: Sun Apr 29, 2018 2:07 pm
by aristotelian
OP, I would recommend reading a book on bonds in general and different types. I do not like to invest in anything without at least some understanding of how they work and would be expected to behave in a portfolio. Agree with others, US Bond Enhanced Index would be a good choice comparable to Total Bond Index, but you might also consider Intermediate US Treasury. Intermediate US Treasury would have lower expected return but greater non-correlation and lower risk due to shorter duration and exclusion of corporate bonds.

Re: 401k bond choices

Posted: Sun Apr 29, 2018 3:02 pm
by newDDS
aristotelian wrote:
Sun Apr 29, 2018 2:07 pm
OP, I would recommend reading a book on bonds in general and different types. I do not like to invest in anything without at least some understanding of how they work and would be expected to behave in a portfolio. Agree with others, US Bond Enhanced Index would be a good choice comparable to Total Bond Index, but you might also consider Intermediate US Treasury. Intermediate US Treasury would have lower expected return but greater non-correlation and lower risk due to shorter duration and exclusion of corporate bonds.
Thank you for your help. I have gone back and reread the chapters on bonds from a few finance books, but I will follow your advice and find one devoted fully to bonds and how they all compare.

Thanks!

Re: 401k bond choices

Posted: Mon Apr 30, 2018 9:57 am
by ruralavalon
newDDS wrote:
Sun Apr 29, 2018 3:02 pm
aristotelian wrote:
Sun Apr 29, 2018 2:07 pm
OP, I would recommend reading a book on bonds in general and different types. I do not like to invest in anything without at least some understanding of how they work and would be expected to behave in a portfolio. Agree with others, US Bond Enhanced Index would be a good choice comparable to Total Bond Index, but you might also consider Intermediate US Treasury. Intermediate US Treasury would have lower expected return but greater non-correlation and lower risk due to shorter duration and exclusion of corporate bonds.
Thank you for your help. I have gone back and reread the chapters on bonds from a few finance books, but I will follow your advice and find one devoted fully to bonds and how they all compare.

Thanks!
Try Larry Swedroe's book, The Only Guide to a Winning Bond Strategy You'll Ever Need.