hi yield bond fund/junk

[elainet7]

what percentage of your fixed would you invest in vanguards hi yield
I read they swoop up the highest yielding ones

[dbr]

Me? None. Here is discussion of the role of high yield funds in a portfolio: https://www.google.com/search?sitesearc ... +bond+fund

[elainet7]

rick ferri suggests 20% to hi yield

[Valuethinker]

what percentage of your fixed would you invest in vanguards hi yield
I read they swoop up the highest yielding ones

Other way. They are relatively the more conservative - ie lower yielding bonds (higher credit rating, higher safety).

You could put 20% of your bond holdings into the VG fund. That's not unreasonable. So if you were 50% bonds overall that would be 12.5%. Probably you should not be over 30% (ie 15%).

If you go back and look at the chart for 2008-09 you can see that holders had a wild ride. A truly wild ride. But it all came out well in the end, and if you hold say 12.5% that won't finish you off if it drops 40%.

I would not use other junk bond funds though -- I'd stick with VG who have a record of running a relatively conservative fund. The asset class is risky enough that you want to go with someone conservative. It's quite easy to wind up with a concentrated portfolio with significant defaults, then a rush for the exit by investors, leading to further dilution for remaining investors. That's also a significant potential problem with the junk bond ETFs that are out there.

[Broken Man 1999]

Zero.

I prefer to take the majority of my risks on the equity side.

Broken Man 1999

[deikel]

I thought the general wisdom was to take the risk on the stock side of your portfolio and not on the bond side of it, so rather then take say 20% hi yield bonds (junk bonds?), I would adjust my asset allocation by 5% more stocks

[Sandtrap]

rick ferri suggests 20% to hi yield

Curious:
Can you please provide some "Ferri" links that talk about this?
(you can insert the links in the original post using the "pencil edit icon".)

thanks,
j

[dbr]

rick ferri suggests 20% to hi yield

Curious:
Can you please provide some "Ferri" links that talk about this?
(you can insert the links in the original post using the "pencil edit icon".)

thanks,
j

It has been discussed a lot on the forum. I think the original discussion is in his book All About Asset Allocation. The argument is basically a diversity one of uncorrelated assets similar to adding extra REITs, etc. https://www.google.com/search?sitesearc ... high+yield

In my opinion the argument falls in that class of things a person can do but that there is little harm in not doing it. As mentioned, when you try to add return in bonds you also have to compare to the alternative of just allocating a little more to stocks. But Rick is a good guy and knows a lot about investing, so reading his book is a good idea. Note that this book is a little bit old at this point. I don't know if there are new editions.

[Sandtrap]

Also consider Intermediate Term Investment Grade Fund as a percentage of one's underlying funds for "fixed" allocation.
A middle road.
j

[Sandtrap]

rick ferri suggests 20% to hi yield

Curious:
Can you please provide some "Ferri" links that talk about this?
(you can insert the links in the original post using the "pencil edit icon".)

thanks,
j

It has been discussed a lot on the forum. I think the original discussion is in his book All About Asset Allocation. The argument is basically a diversity one of uncorrelated assets similar to adding extra REITs, etc. https://www.google.com/search?sitesearc ... high+yield

In my opinion the argument falls in that class of things a person can do but that there is little harm in not doing it. As mentioned, when you try to add return in bonds you also have to compare to the alternative of just allocating a little more to stocks. But Rick is a good guy and knows a lot about investing, so reading his book is a good idea. Note that this book is a little bit old at this point. I don't know if there are new editions.

Thanks for the reminder.
I do have this book.
Will look it up to review.
j

[dbr]

rick ferri suggests 20% to hi yield

Curious:
Can you please provide some "Ferri" links that talk about this?
(you can insert the links in the original post using the "pencil edit icon".)

thanks,
j

It has been discussed a lot on the forum. I think the original discussion is in his book All About Asset Allocation. The argument is basically a diversity one of uncorrelated assets similar to adding extra REITs, etc. https://www.google.com/search?sitesearc ... high+yield

In my opinion the argument falls in that class of things a person can do but that there is little harm in not doing it. As mentioned, when you try to add return in bonds you also have to compare to the alternative of just allocating a little more to stocks. But Rick is a good guy and knows a lot about investing, so reading his book is a good idea. Note that this book is a little bit old at this point. I don't know if there are new editions.

Thanks for the reminder.
I do have this book.
Will look it up to review.
j

I haven't looked again at the book for a long time, so if you don't find it there the discussion is probably in our Forum somewhere.

[Sandtrap]

rick ferri suggests 20% to hi yield

Curious:
Can you please provide some "Ferri" links that talk about this?
(you can insert the links in the original post using the "pencil edit icon".)

thanks,
j

It has been discussed a lot on the forum. I think the original discussion is in his book All About Asset Allocation. The argument is basically a diversity one of uncorrelated assets similar to adding extra REITs, etc. https://www.google.com/search?sitesearc ... high+yield

In my opinion the argument falls in that class of things a person can do but that there is little harm in not doing it. As mentioned, when you try to add return in bonds you also have to compare to the alternative of just allocating a little more to stocks. But Rick is a good guy and knows a lot about investing, so reading his book is a good idea. Note that this book is a little bit old at this point. I don't know if there are new editions.

Thanks for the reminder.
I do have this book.
Will look it up to review.
j

I haven't looked again at the book for a long time, so if you don't find it there the discussion is probably in our Forum somewhere.

[capjak]

Should investors choose to include junk bonds for their diversification and potential high returns? Rick Ferri's All About Asset Allocation suggests 20% of fixed income or 10% of the overall portfolio for early-accumulators, midlife-accumulators, and pre- and active retirees. John Bogle comments that a modest "seasoning" of higher-yielding bonds may be appropriate.[2]

https://www.bogleheads.org/wiki/High_yield_bonds

[badger42]

Me? 25%. But that's with 50% in TIPS and 25% in nominal treasuries, so there is essentially no other credit risk in my bond allocation.

[Valuethinker]

I thought the general wisdom was to take the risk on the stock side of your portfolio and not on the bond side of it, so rather then take say 20% hi yield bonds (junk bonds?), I would adjust my asset allocation by 5% more stocks

That is true.

However OP has also been asking about Preferred Stock ETF.

So it's clear OP wants yield.

It's a hard call but I think the Vanguard HY fund is likely to be safer, overall, than a Preferred Stock ETF. That might not be true of more aggressive HY funds which take bigger risks (invest in companies with lower credit ratings, seeking higher yield).

I trust the VG guys that if it does hit the fan, again, they have enough higher quality bonds in the portfolio that they can fund any withdrawals by panicky investors without excessive dilution to the buy-and-hold crowd. The fund survived 2008-09 without an implosion. Some of these ETF structures I think are untested in a race for the exits scenario.

[sschoe2]

I was tempted to buy some high yield tax exempt in the passed. I did not like some of their holdings like Chicago Public Schools and such.

[deikel]

I thought the general wisdom was to take the risk on the stock side of your portfolio and not on the bond side of it, so rather then take say 20% hi yield bonds (junk bonds?), I would adjust my asset allocation by 5% more stocks

So it's clear OP wants yield.

I think we all want that one way or another. My concern is that most people do not understand the risk of high yield bonds and because this product carries the word bond in it, they equate that with 'relatively safe' because they think long term treasuries....

An approach with the same (theoretical) yield, but a change in asset allocation to more stocks seems a better reflection of the underlying risk.

Or to phrase it another way, if your bond allocation currently gives you 2% return/income, you increase 25% of the bond portion to a high yield and improve overall yield to ...I don't know 3% ?...possibly at higher fees since the high yield bods are probably managed...compared to just change your stock allocation accordingly....whats the point of the tinkering around ?

In case of a market melt down, depending on where the high yield bonds come from you get additional foreign/currency conversion risk, risk to the underlying corporation (if corporate bonds) ect.

...maybe I am just lazy....that's just too much for me...feels like CDAs of CDAs

[pkcrafter]

what percentage of your fixed would you invest in vanguards hi yield
I read they swoop up the highest yielding ones

15-20% max. Keep in mind that high yield bond will have the volatility and potential down side of a 40% stock/60% bond portfolio.

Paul

[Valuethinker]

I thought the general wisdom was to take the risk on the stock side of your portfolio and not on the bond side of it, so rather then take say 20% hi yield bonds (junk bonds?), I would adjust my asset allocation by 5% more stocks

So it's clear OP wants yield.

I think we all want that one way or another. My concern is that most people do not understand the risk of high yield bonds and because this product carries the word bond in it, they equate that with 'relatively safe' because they think long term treasuries....

An approach with the same (theoretical) yield, but a change in asset allocation to more stocks seems a better reflection of the underlying risk.

Or to phrase it another way, if your bond allocation currently gives you 2% return/income, you increase 25% of the bond portion to a high yield and improve overall yield to ...I don't know 3% ?...possibly at higher fees since the high yield bods are probably managed...compared to just change your stock allocation accordingly....whats the point of the tinkering around ?

In case of a market melt down, depending on where the high yield bonds come from you get additional foreign/currency conversion risk, risk to the underlying corporation (if corporate bonds) ect.

...maybe I am just lazy....that's just too much for me...feels like CDAs of CDAs

Deikel

If you tracked the Preferred Stock thread it will become clear to you the nature of the conversation.

OP is driving straight at Rick Ferri's advice, and at holding yield funds. Asking whether a Preferred Stock ETF could be treated as a bond fund.

If you asked me my counsel would be much more along the lines of Larry Swedroe - don't bother, you will only wind up hurting yourself by increasing the correlation between your equities and your fixed-income investments - and that correlation will show up at the worst time i.e. the next time we have financial stress/ bear market/ financial crash even.

But that's not what is going on here - OP has made a basic mental decision to seek higher yield.

So the nature of the advice has to be couched to the audience. If we just say "purity says own US Treasury bonds, nothing else" OP is very likely to go off and buy whatever high yielding investment or instrument appeals - look at the way the questions are being asked. We haven't even discussed Leveraged Loan Funds (since most of these are floating rate, perhaps they won't suit in any case).

My advice is therefore that if one is seeking yield, the Vanguard High Yield fund is as reasonable a way of doing it as any. On the basis of the conservatism of the managers - they likely won't get caught in the sort of liquidity freeze scenarios we have seen with other open-ended structures investing in illiquid assets that are also risk-correlated (i.e. there's a rush for the exit just when things get bad, generally).

Bonds are bonds, and they are safer than stocks. That's generally true, although not true at the lower levels of sub investment grade (junk/ High Yield) credit ratings. It may or may not be true of Preferred Stocks but you'd have to pick your Preferreds pretty carefully to avoid callability and an absence of investor protections.

Whereas if we say "yes, own 20% like Rick Ferri says" to the OP then that's not a portfolio-ruining decision even if it is a decision you or I might not take.

[dbr]

[ure of the conversation.

OP is driving straight at Rick Ferri's advice, and at holding yield funds. Asking whether a Preferred Stock ETF could be treated as a bond fund.

If you asked me my counsel would be much more along the lines of Larry Swedroe - don't bother, you will only wind up hurting yourself by increasing the correlation between your equities and your fixed-income investments - and that correlation will show up at the worst time i.e. the next time we have financial stress/ bear market/ financial crash even.

But that's not what is going on here - OP has made a basic mental decision to seek higher yield.

So the nature of the advice has to be couched to the audience. If we just say "purity says own US Treasury bonds, nothing else" OP is very likely to go off and buy whatever high yielding investment or instrument appeals - look at the way the questions are being asked. We haven't even discussed Leveraged Loan Funds (since most of these are floating rate, perhaps they won't suit in any case).

My advice is therefore that if one is seeking yield, the Vanguard High Yield fund is as reasonable a way of doing it as any. On the basis of the conservatism of the managers - they likely won't get caught in the sort of liquidity freeze scenarios we have seen with other open-ended structures investing in illiquid assets that are also risk-correlated (i.e. there's a rush for the exit just when things get bad, generally).

Bonds are bonds, and they are safer than stocks. That's generally true, although not true at the lower levels of sub investment grade (junk/ High Yield) credit ratings. It may or may not be true of Preferred Stocks but you'd have to pick your Preferreds pretty carefully to avoid callability and an absence of investor protections.

Whereas if we say "yes, own 20% like Rick Ferri says" to the OP then that's not a portfolio-ruining decision even if it is a decision you or I might not take.

I admit not following the previous mentioned thread, but a reminder to anyone seeking higher yield in a portfolio really is to first consider why not just increase the stock allocation. Certainly that makes more sense than looking at preferred stocks. That said, if a person chooses to switch over a holding of 20% in bonds to high yield bonds (Vanguard fund anyway) that is perfectly fine though it might not be particularly helpful.