What to use for Fixed Income allocation in 3 fund portfolio?

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RIMDBogle
Posts: 83
Joined: Thu Jul 12, 2018 10:13 pm

What to use for Fixed Income allocation in 3 fund portfolio?

Post by RIMDBogle » Fri Aug 17, 2018 10:19 pm

What to use for Fixed Income allocation in 3 fund portfolio?
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Thanks for replies to my threads.

I find in REIT link

REITs, due to the risks involved, should be treated as equity even though they have income-producing characteristics similar to bonds.

As we find in raising rate/inflation environment, bond shows negative return, how do I pick right bond asset preserve fixed income $ of portfolio?

Is it a good idea to use combination short term bond, multi sector bond, Floating rate, MBS, closed Fund, MLP etc in fixed income bucket?

We hear lot about diversification. In a 3 Fund portfolio, when is appropriate to add more asset of same class.

eg: 70/30 Port. If total port is 1M, fixed income is 300K, Equity 700K.

Do we still place single bond asst BND for 300K and place single total us equity (VTI) for 700K? :?:

Here are some list of Fixed income assets:
  • DBLSX - DoubleLine Low Duration Bond I ER 0.43% Yield 3.54
    SPSB - SPDR® Portfolio Aggregate Bond ETF ER 0.04% Yield 3.22
    EIFAX - Eaton Vance Floating-Rate Advantage I ER 1.04% Yield 4.82
    LFRAX - Lord Abbett Floating Rate A ER 0.79% Yield 4.87
    SPFLX - American Beacon Sound Point FlRtIn Instl ER 0.86% Yield 5.47
    SEMMX - Semper MBS Total Return Institutional ER 0.85% Yield 4.13
    IOFIX - AlphaCentric Income Opportunities I ER 1.52% Yield 4.98
    SEMMX - Semper MBS Total Return Institutional ER 0.85% Yield 4.13
    GHYAX - Goldman Sachs High Yield Muni A ER 0.85% Yield 2.92
    MMHAX - MainStay MacKay High Yield Muncpl Bd A ER 0.87% Yield 2.71
    PIMIX - PIMCO Income Instl ER 0.74% Yield 4.18,
    RNDLX - RiverNorth Doubleline Strategic Inc R ER 1.86% Yield 4.68
    DLINX - DoubleLine Flexible Income N ER 1.03% Yield 4.57
    GIBL - Guggenheim Total Return Bond P ER 0.83% Yield 2.72
    PFF - iShares US Preferred Stock ETF ER 0.46% Yield 5.67
    LSBRX - Loomis Sayles Bond Retail ER 0.91% Yield 5.67
    OSTIX - Osterweis Strategic Income ER 0.88% Yield 4.48
    DBLEX - DoubleLine Emerging Markets Fixed Inc I ER 0.88% Yield 4.28
    TIBAX - Thornburg Investment Income Builder A ER 1.35% Yield 2.91
    FFRHX - Fidelity® Floating Rate High Income ER 0.70% Yield 4.35
    SAMBX - Virtus Seix Floating Rate High Inc I ER 0.64% Yield 4.73
What are the assets from above list qualify for Fixed Income of portfolio in raising rate/inflation environment?

Thanks for sharing.

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galeno
Posts: 1358
Joined: Fri Dec 21, 2007 12:06 pm

Re: What to use for Fixed Income allocation in 3 fund portfolio?

Post by galeno » Fri Aug 17, 2018 11:19 pm

70% VT + 30% BND. KISS.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

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Duckie
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Re: What to use for Fixed Income allocation in 3 fund portfolio?

Post by Duckie » Sat Aug 18, 2018 5:27 pm

RIMDBogle wrote:As we find in raising rate/inflation environment, bond shows negative return, how do I pick right bond asset preserve fixed income $ of portfolio?
Pick a low-cost intermediate-term bond index fund.
Is it a good idea to use combination short term bond, multi sector bond, Floating rate, MBS, closed Fund, MLP etc in fixed income bucket?
No. You don't need the kitchen sink. One decent bond fund will do it.
We hear lot about diversification. In a 3 Fund portfolio, when is appropriate to add more asset of same class.
If by "add more asset of the same class" you mean add a different flavor, e.g. starting with a basic US bond fund (vanilla) and then adding MBS (peppermint) to the mix, the only time I think it would be appropriate would be if you added TIPS after retirement. Or maybe I-Bonds.
70/30 Port. If total port is 1M, fixed income is 300K, Equity 700K.

Do we still place single bond asst BND for 300K and place single total us equity (VTI) for 700K?
That'll work. But if you want the 3 fund portfolio, you're missing international. Part of that 70% VTI could be VXUS.
Here are some list of Fixed income assets:
SPSB is SPDR Portfolio Short-Term Corporate Bond ETF (0.07%). If you want the SPDR Portfolio Aggregate Bond ETF (0.04%) its ticker is SPAB. I don't know which you have, but if you do have SPAB it's the only item in that list that is worthwhile.

retiredjg
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Re: What to use for Fixed Income allocation in 3 fund portfolio?

Post by retiredjg » Sat Aug 18, 2018 5:46 pm

RIMDBogle wrote:
Fri Aug 17, 2018 10:19 pm
What to use for Fixed Income allocation in 3 fund portfolio?
For a tax-advantaged account of any kind, a total bond index will do. Sometimes you will not have a total bond index available, for example in a 401k. In that case, you have to pick the best of what you have.

REITs, due to the risks involved, should be treated as equity even though they have income-producing characteristics similar to bonds.
REIT mutual funds, as far as I know, are always composed of stocks. The fact that they produce dividends does not make them bonds.

As we find in raising rate/inflation environment, bond shows negative return, how do I pick right bond asset preserve fixed income $ of portfolio?
No bond will always preserve your value. Bonds are better at preserving your value than stocks and most other things. CDs will work too.

In general, any broad bond fund (contains lots of different kinds of bonds) of intermediate term and with a low cost will do. Total bond Index is a good example. If you don't like total bond index, there are others that will work.

Is it a good idea to use combination short term bond, multi sector bond, Floating rate, MBS, closed Fund, MLP etc in fixed income bucket?
The total bond index contains many of those things. It is very diversified. I do not know if it contains everything you listed. It does contain short term bonds, intermediate term bonds, long term bonds, government bonds, mortgage backed securities, and corporate bonds.

We hear lot about diversification. In a 3 Fund portfolio, when is appropriate to add more asset of same class.

eg: 70/30 Port. If total port is 1M, fixed income is 300K, Equity 700K.

Do we still place single bond asst BND for 300K and place single total us equity (VTI) for 700K? :?:
That would work. You have to remember that Total Bond and Total Stock are very diversified. There are probably several thousand bonds and maybe 3000 stocks in that 2 fund portfolio.

What are the assets from above list qualify for Fixed Income of portfolio in raising rate/inflation environment?
The only one I would consider from this list is this one - SPSB - SPDR® Portfolio Aggregate Bond ETF ER 0.04% This is a Total bond index ETF. Very diversified and low cost. The rest have high fees.

I see that Duckie has noted that the ticker and name are not consistent. What is it that you have?

RIMDBogle
Posts: 83
Joined: Thu Jul 12, 2018 10:13 pm

Re: What to use for Fixed Income allocation in 3 fund portfolio?

Post by RIMDBogle » Sun Aug 19, 2018 2:12 pm

Thanks for your reply/suggestions. I did review the listed bonds for evaluation, but I find most of the bond assets shows negative YTD returns.

I want to check with experienced folks in this form to get insight. Here are the ETFs available in TDA Commission FREE list. I added Expense ratio, SEC Yeild & YTD returns for review.

TDA Commission FREE list
  • SPSB SPDR® Portfolio Short Term Corporate Bond ETF Short-Term ER 0.07 SEC Yeild 3.14% YTD 0.54

    SPAB SPDR® Portfolio Aggregate Bond ETF Intermediate-Term Bond ER 0.04 SEC Yeild 3.22% YTD -1.18

    SPIB SPDR® Portfolio Intermediate Term Corporate Bond ETF Corporate ER 0.07 SEC Yeild 3.64 YTD -0.72

    SPLB SPDR® Portfolio Long Term Corporate Bond ETF Corporate Bond ER 0.07 SEC Yeild 4.60 YTD -4.93

    SPTL SPDR® Portfolio Long Term Treasury ETF Long Government ER 0.06 SEC Yeild 2.99 YTD -3.38

    SPTS SPDR® Portfolio Short Term Treasury ETF Short Government ER 0.06 SEC Yeild 2.58 YTD -0.17

    STIP iShares 0-5 Year TIPS Bond ETF Inflation-Protected Bond ER 0.06 SEC Yeild 5.64 YTD 0.84

    SUB iShares Short-Term National Muni Bond ETF Muni National Short ER 0.07 SEC Yeild 1.66 YTD 0.97

    FLOT iShares Floating Rate Bond ETF Ultrashort Bond ER 0.20 SEC Yeild 2.48 YTD 1.59

    FLRN SPDR® Bloomberg Barclays Investment Grade Floating Rate ETF Ultrashort Bond ER 0.15 SEC Yeild 2.52 YTD 1.54

    MBG SPDR® Bloomberg Barclays Mortgage Backed Bond ETF Intermediate Government ER 0.06 SEC Yeild 2.84 YTD -0.5
Other Total Bond asset for comparison
  • BND Vanguard Total Bond Market ETF ER 0.05 SEC Yeild 3.13 YTD -1.14

    FTBFX Fidelity® Total Bond Fund ETF ER 0.45 SEC Yeild 3.5 YTD -0.71
Here is the portfolioVisulizer Comparison for

SPAB SPDR® Portfolio Aggregate Bond ETF Intermediate-Term Bond

FLRN SPDR® Bloomberg Barclays Investment Grade Floating Rate ETF Ultrashort Bond

TIP iShares 0-5 Year TIPS Bond ETF Inflation-Protected Bond

https://www.portfoliovisualizer.com/bac ... ion3_3=100,

It shows exposures for Corporate Bonds, Long-Term Treasuries, Intermediate-Term Treasuries & Short-Term Treasuries.

What is the correct mix for current raising interest/inflation situation?

If the asset in portfolio shows negative YTD, how do we commit new $ into this asset?

Thanks for your guidance.

retiredjg
Posts: 34158
Joined: Thu Jan 10, 2008 12:56 pm

Re: What to use for Fixed Income allocation in 3 fund portfolio?

Post by retiredjg » Sun Aug 19, 2018 3:34 pm

RIMDBogle wrote:
Sun Aug 19, 2018 2:12 pm
What is the correct mix for current raising interest/inflation situation?
SPAB SPDR® Portfolio Aggregate Bond ETF Intermediate-Term Bond ER 0.04 SEC Yeild 3.22% YTD -1.18 is the bond fund to use.
If the asset in portfolio shows negative YTD, how do we commit new $ into this asset?
Just buy it.

That is not intended to be a smart a$$ answer. Its the answer. Many things are counter-intuitive when it comes to investing.

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