Bond Recommendation

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Anon64
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Bond Recommendation

Post by Anon64 » Sat May 26, 2018 5:24 pm

Hi all:
I am working on my 3 fund portfolio. Would you recommend either of the following bond funds for a taxable account:

Total Bond Market Index Fund Investor Shares (VBMFX)
Pennsylvania Long-Term Tax-Exempt Fund Admiral Shares (VPALX)

or some other tax exempt bond fund. I am in PA in the 35% tax bracket.
Thanks!

livesoft
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Re: Bond Recommendation

Post by livesoft » Sat May 26, 2018 5:35 pm

It is a no brainer to NOT use VBMFX/VBTLX/BND/AGG/SPAB/FSITX/FBIDX and any other total US bond market index fund in your situation in a taxable account.
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Elbowman
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Re: Bond Recommendation

Post by Elbowman » Sat May 26, 2018 5:45 pm

VPALX would be fine.

mindboggling
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Re: Bond Recommendation

Post by mindboggling » Sat May 26, 2018 6:09 pm

In general, dividends generated by a non-tax-exempt bond fund such as a total, corporate, or government bond fund are taxable at your marginal rate. A national or state tax-exempt bond fund such as a municipal bond fund are preferred. Another way to handle it is to buy more stocks in your taxable account and shift to more bonds in tax-deferred accounts such as IRA or 401k. The wiki has more information on this.

Hope this helps.
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Gill
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Re: Bond Recommendation

Post by Gill » Sat May 26, 2018 6:18 pm

Doesn’t it bother anyone to have all OP’s bonds issued by one rust belt state, or any state for that matter? Diversification is a factor that shouldn’t be. Ignored.
Gill

Anon64
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Re: Bond Recommendation

Post by Anon64 » Sat May 26, 2018 6:22 pm

Thanks all. Right now I am 10% Money Market (VMMXX), 78% US Total Market (Mix of VTSAX and VFIAX); 12% International (VTIAX).

It's kind of a mess because I'm just getting started with actually having an allocation plan (I use a target fund in my 401k so never really had a plan with my taxable account). I'm lucky that VTSAX and VFIAX have done well but realize I need some diversification so I've just started adding international. I plan to increase that to about 30% of my stock holdings to eventually get to 10% bonds / 60%US stock / 30% Int'l stock. Does that sound right or should I skip the bonds? I'm okay with being aggressive but want to be smart about it. I'm in my 30s. Thanks.
Last edited by Anon64 on Sat May 26, 2018 7:52 pm, edited 1 time in total.

livesoft
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Re: Bond Recommendation

Post by livesoft » Sat May 26, 2018 6:26 pm

Skip the bonds in your taxable account and use a bond fund in your 401(k) even if you have to ditch the target date fund.
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ruralavalon
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Re: Bond Recommendation

Post by ruralavalon » Sun May 27, 2018 9:50 am

Anon64 wrote:
Sat May 26, 2018 5:24 pm
Hi all:
I am working on my 3 fund portfolio. Would you recommend either of the following bond funds for a taxable account:

Total Bond Market Index Fund Investor Shares (VBMFX)
Pennsylvania Long-Term Tax-Exempt Fund Admiral Shares (VPALX)

or some other tax exempt bond fund. I am in PA in the 35% tax bracket.
Thanks!
In addition to Vanguard PA Long-term Tax-exempt Fund Admiral Shares (VPALX) in the taxable account to diversify consider part of the bond allocation in Vanguard Intermediate-term Tax-exempt Admiral Shares (VWIUX) ER 0.09%.

Anon64 wrote:
Sat May 26, 2018 6:22 pm
Thanks all. Right now I am 10% Money Market (VMMXX), 78% US Total Market (Mix of VTSAX and VFIAX); 12% International (VTIAX).

It's kind of a mess because I'm just getting started with actually having an allocation plan (I use a target fund in my 401k so never really had a plan with my taxable account). I'm lucky that VTSAX and VFIAX have done well but realize I need some diversification so I've just started adding international. I plan to increase that to about 30% of my stock holdings to eventually get to 10% bonds / 60%US stock / 30% Int'l stock. Does that sound right or should I skip the bonds? I'm okay with being aggressive but want to be smart about it. I'm in my 30s. Thanks.
What funds are offered in your 401k? Please give fund names, tickers and expense ratios.

Do you have any other accounts, like IRAs?

It's often better to coordinate investments among all accounts, as a single unified portfolio, rather than treat each account separately.

In the 30s I suggest around 20% in bonds. I definitely would not just skip bonds.
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Anon64
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Re: Bond Recommendation

Post by Anon64 » Sun May 27, 2018 1:06 pm

I am 100% in a target fund SSDEX. Expense ratio is pretty low (0.12%). Any problems using this for my 401k? This should be 90 stock / 10 fixed.

SSDEX
State Street Target Retirement 2045 Fund

Holdings:
State Street Equity 500 Index II Portfolio 38.31 %
State Street Global Equity ex-U.S. Index Portfolio 34.83 %
State Street Small/Mid Cap Equity Index Portfolio 16.94 %
SPDR Portfolio Long Term Treasury ETF 9.55 %
STATE STREET INSTL US GOVERNME OPEN-END 0.33 %
State Street Aggregate Bond Index Portfolio 0.25 %
U.S. Dollar -0.20 %

livesoft
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Re: Bond Recommendation

Post by livesoft » Sun May 27, 2018 1:18 pm

Anon64 wrote:
Sun May 27, 2018 1:06 pm
I am 100% in a target fund SSDEX. Expense ratio is pretty low (0.12%). Any problems using this for my 401k? This should be 90 stock / 10 fixed.
The only problem is that it might force you to have some bonds in taxable. It's not the end of the world to have a tax-exempt bond fund in taxable for you, but I wouldn't do it myself.
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Kevin M
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Re: Bond Recommendation

Post by Kevin M » Sun May 27, 2018 1:30 pm

Anon64 wrote:
Sun May 27, 2018 1:06 pm
I am 100% in a target fund SSDEX. Expense ratio is pretty low (0.12%). Any problems using this for my 401k? This should be 90 stock / 10 fixed.

SSDEX
State Street Target Retirement 2045 Fund

Holdings:
State Street Equity 500 Index II Portfolio 38.31 %
State Street Global Equity ex-U.S. Index Portfolio 34.83 %
State Street Small/Mid Cap Equity Index Portfolio 16.94 %
SPDR Portfolio Long Term Treasury ETF 9.55 %
STATE STREET INSTL US GOVERNME OPEN-END 0.33 %
State Street Aggregate Bond Index Portfolio 0.25 %
U.S. Dollar -0.20 %
I think what people want to know is what stock and bond funds are available to you, and what are the expense ratios (ERs). The idea being to use a bond fund in the 401k instead of holding the bond fund within the TR fund, and then hold two or three stock funds to get something similar to the stock allocation in the TR fund (or whatever you actually want).

Then you could just hold stocks in taxable.

As already mentioned, if can be more effective to look at all of your accounts as a single portfolio, and do your AA across all accounts considered as one. This way you can use the best funds in the 401k, and in your case hold your bonds in the 401k, and then supplement with funds in IRA or taxable accounts to get the AA you want with the best funds available across all accounts.

Kevin
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livesoft
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Re: Bond Recommendation

Post by livesoft » Sun May 27, 2018 1:46 pm

The OP could have the target date fund in the 401(k) PLUS a bond fund. If the bond fund would amount to 1/9th of the assets in 2 stock index funds in taxable, then that would mean that the 3 funds (2 stocks fund in taxable and 1 bond fund in tax-deferred) would have a 90:10 stocks:bonds ratio ... the same as the target date fund at the present time.
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Anon64
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Re: Bond Recommendation

Post by Anon64 » Sun May 27, 2018 1:55 pm

These are the 401k options with expense ratios for my new employment. This is probably a different question, but would it be a bad idea to move my old 401k (all in TRRKX which is T Rowe Price target 2045 to this account. the expense ratio for TRRKX is 0.76%). Thanks again.

Name Gross Expense Ratio
Large Blend
SSgA S&P 500 Index Non-Lending Series Fund Class N
0.02%

Mid-Cap Blend
CRM Small/Mid Cap Value Inst
0.94%
SSgA Russell Small/Mid Cap NL C
0.05%

Foreign Large Blend
Dodge & Cox International Stock
0.63%
SSGA Global All Cap Equity Ex-U.S. Index Non-Lending Series Fund Class K
0.10%

Target-Date 2015
Target-Date 2020
SSGA Target Retirement 2020 Non-Lending Series Fund Class K
0.12%
Target-Date 2025
SSGA Target Retirement 2025 Non-Lending Series Fund Class K
0.12%
Target-Date 2030
SSGA Target Retirement 2030 Non-Lending Series Fund Class K
0.12%
Target-Date 2035
SSGA Target Retirement 2035 Non-Lending Series Fund Class K
0.12%
Target-Date 2040
SSGA Target Retirement 2040 Non-Lending Series Fund Class K
0.12%
Target-Date 2045
SSGA Target Retirement 2045 Non-Lending Series Fund Class K
0.12%
Target-Date 2050
SSGA Target Retirement 2050 Non-Lending Series Fund Class K
0.12%
Target-Date 2055
SSGA Target Retirement 2055 Non-Lending Series Fund Class K
0.14%
Target-Date 2060+
SSGA Target Retirement 2060 Non-Lending Series Fund Class K
0.39%
Target-Date Retirement
SSGA Target Retirement Income Non-Lending Series Fund Class K
0.12%

Intermediate-Term Bond
FIAM Core Plus Commingled Pool Cl K
0.33%

Stable Value
Wells Fargo Stable Value Fund Q (25)
0.48%

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Kevin M
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Re: Bond Recommendation

Post by Kevin M » Sun May 27, 2018 3:52 pm

Anon64 wrote:
Sun May 27, 2018 1:55 pm
These are the 401k options with expense ratios for my new employment. This is probably a different question, but would it be a bad idea to move my old 401k (all in TRRKX which is T Rowe Price target 2045 to this account. the expense ratio for TRRKX is 0.76%). Thanks again.
You have excellent, low-cost stock funds in the SSgA family. You could build something similar to what's in the stock portion of the TR fund at lower cost.

I am not familiar with the intermediate-term bond fund, so unless someone else is, you'd have to provide more information about it. Some folks might just say use it regardless. Most Bogleheads tend to go with intermediate-term or short-term bond funds, but most of the bonds in the TR fund are long-term Treasuries, which have very high term risk. This can work out well in a flight-to-quality scenario where stocks are crashing, as in late 2008, but in the rising rate environment we've been in lately, longer-term bonds will lose more. On the other hand, with only 10% in bonds, it doesn't make much difference what bond fund you use.

What is the rate being paid on the stable value fund? Sometimes a stable value fund can be a good choice, especially if the rate is comparable to an intermediate-term bond fund. There is no term risk in an SV fund, there is some credit risk, but historically it has not been much of a problem.

I would indeed transfer from the old 401k, since you have much lower cost options in the new plan.

Kevin
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ruralavalon
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Re: Bond Recommendation

Post by ruralavalon » Mon May 28, 2018 10:39 am

I also think it's a good idea to rollover the old 401k into your new 401k, because of the high quality funds with low expense ratios.

Can you post a link to the fact sheet for FIAM Core Plus Commingled Pool Cl K, ER 0.33% (the intermediate-term bond fund)?
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wk99
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Re: Bond Recommendation

Post by wk99 » Sun Jul 08, 2018 7:44 pm

By reading this thread I realized that bond index funds are better suited to be in non taxable accounts such as 401k. I was thinking of adding VBMFX in my 401K, but the only Bond options i can see available to me there are:
  • PIMCO Total Return Fund Institutional Class
  • Vanguard Institutional Total Bond Market Index Trust
Is any of these similar to VBMFX, which I can use?

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Taylor Larimore
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Re: Bond Recommendation

Post by Taylor Larimore » Sun Jul 08, 2018 7:54 pm

wk99 wrote:
Sun Jul 08, 2018 7:44 pm
By reading this thread I realized that bond index funds are better suited to be in non taxable accounts such as 401k. I was thinking of adding VBMFX in my 401K, but the only Bond options i can see available to me there are:
  • PIMCO Total Return Fund Institutional Class
  • Vanguard Institutional Total Bond Market Index Trust
Is any of these similar to VBMFX, which I can use?
wk99:

The Vanguard Institutional Total Bond Market Index Trust is almost identical to VBMFX. It would be my choice.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Kevin M
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Re: Bond Recommendation

Post by Kevin M » Sun Jul 08, 2018 7:59 pm

wk99 wrote:
Sun Jul 08, 2018 7:44 pm
By reading this thread I realized that bond index funds are better suited to be in non taxable accounts such as 401k. I was thinking of adding VBMFX in my 401K, but the only Bond options i can see available to me there are:
  • PIMCO Total Return Fund Institutional Class
  • Vanguard Institutional Total Bond Market Index Trust
Is any of these similar to VBMFX, which I can use?
With a quick web search on "Vanguard Institutional Total Bond Market Index Trust", you can find the Vanguard web page for it. Click on the Portfolio tab, and toward the bottom of the page, you'll see:
The trust portfolio currently invests all its assets in Institutional Select shares of the Vanguard Total Bond Market Index Fund
So it's exactly the same as VBMFX, except lower cost (cost can vary by 401k plan though, from what I can tell).

Kevin
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wk99
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Re: Bond Recommendation

Post by wk99 » Sun Jul 08, 2018 8:04 pm

Thanks Taylor and Kevin! Your guidance is much appreciated. I will also go through its vanguard page now to try and understand it further.

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