What is the best way to invest my fixed income allocation within my IRA?

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Richard1580
Posts: 33
Joined: Fri Aug 25, 2017 7:53 pm

What is the best way to invest my fixed income allocation within my IRA?

Post by Richard1580 » Wed Aug 15, 2018 5:41 pm

Question:
What is the best way to invest my fixed income allocation within my IRA?

Parameters:
I do not expect to need to withdraw from these funds until I hit RMD’s in 10-11 years.
Primary concern is protection of principal.
Secondary concern is to maximize return but minimize the time required to monitor investments.
While I could move the funds, I would prefer to keep them at Fidelity.

Expectations:
Interest rates will be increasing over the next 1-3 years.

Options (as I currently see them):
- Keep funds in intermediate term bond fund (FTBFX), mix a drink and don’t worry about it.
- Build a 3 or 5-year CD/bond ladder using Fidelity’s bond ladder tool.
- Move funds to a short-term bond fund and wait for a sign from the heavens that interest rates have stabilized, and then transfer to an intermediate-term bond fund. 😊

Currently, CDs seem to offer a better return than bonds over the short term, and with FDIC insurance, should be as risk free as Treasuries (provided I do not exceed the $250K/bank limit).

Other options?

Silk McCue
Posts: 1112
Joined: Thu Feb 25, 2016 7:11 pm

Re: What is the best way to invest my fixed income allocation within my IRA?

Post by Silk McCue » Wed Aug 15, 2018 5:59 pm

I copied this from a post I made within the past couple of days.
Achievacu.com is offering a 5 year IRA CD at 4.2% rate. This rate has been up since May but is still available today. Once you are 59.5 you are able to withdraw funds without any Early Withdrawal Penalty.

I recently shared the process that I went through to open my account in post found using the link below. This 4.2% would be far superior to the deferred Annuity IMHO. Once you have moved that big chunk of change out you should simply re-balance your remaining holdings to meet your overall Asset Allocation. My post describes what I did.

viewtopic.php?f=10&t=252530#p4043711
Cheers

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David Jay
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Location: Michigan

Re: What is the best way to invest my fixed income allocation within my IRA?

Post by David Jay » Thu Aug 16, 2018 9:41 am

I think you may be doing a backwards-looking evaluation. FTBFX is already up to a 3.5% SEC yield (and climbing). With a 10 year initial time horizon (actually a 30+ year time horizon before total withdrawal) I would leave it where it is. Mix that drink.

Unless you truly enjoy chasing yield - in the same way as the folks who chase credit card bonuses. Then have fun researching, purchasing and rolling over CDs for the next 30 years.

Me? I'm looking for "set it and forget it" finances in retirement.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

mega317
Posts: 2554
Joined: Tue Apr 19, 2016 10:55 am

Re: What is the best way to invest my fixed income allocation within my IRA?

Post by mega317 » Thu Aug 16, 2018 4:54 pm

I think you can't time the bond fixed income market just like you can't time the stock market, but the penalties for getting it wrong are much less than with stocks. So if you want to take a very mild gamble at the expense of potentially lower returns and increased complexity, I don't really have a problem with it. How much of your portfolio is this?

Also if your *primary* concern is protection of principal then I might suggest that an intermediate-term bond fund is too risky for you. It would of course warrant further discussion about if that's what you really meant and if that's the best thing for you.

Richard1580
Posts: 33
Joined: Fri Aug 25, 2017 7:53 pm

Re: What is the best way to invest my fixed income allocation within my IRA?

Post by Richard1580 » Thu Aug 16, 2018 5:23 pm

About 40-45% of the portfolio is fixed income. About half of the fixed income is in the IRA. As I said, I don't anticipate needing to draw on it at all, but will need to start pulling RMDs in 10-11 years. This is more of an academic exercise than anything else. Until recently, I never even owned any fixed income investments, being entirely in equities with a cash reserve. A single digit drop in my fixed income portfolio does not concern me, but obviously I want to minimize losses in a market of rising interest rates.

If I could, I would be inclined to move from an intermediate bond fund to a short term bond fund, but that is not an option in my 401K. My only alternative would be a money market. In a couple of years I will be moving the 401K to an IRA and will have much more flexibility. Given my timelines, it is a toss up between staying with the intermediate bond fund and sucking up some small losses over the next year or two, or bailing and moving to a money market for a year or two. Ultimately, I see myself in an intermediate bond fund.

There is never a crystal ball around when you need one ...

mega317
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Joined: Tue Apr 19, 2016 10:55 am

Re: What is the best way to invest my fixed income allocation within my IRA?

Post by mega317 » Thu Aug 16, 2018 10:28 pm

Richard1580 wrote:
Thu Aug 16, 2018 5:23 pm
A single digit drop in my fixed income portfolio does not concern me
Then take a gander. According to portfoliovisualizer.com, the worst year of the last 30 for the "total US bond market" was -2.66%. Perhaps intermediate bonds are just fine for you after all.

Richard1580
Posts: 33
Joined: Fri Aug 25, 2017 7:53 pm

Re: What is the best way to invest my fixed income allocation within my IRA?

Post by Richard1580 » Fri Aug 17, 2018 5:40 am

Good point. I should have looked at that earlier. Guess I will make that drink. :happy

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