Bond 401k choices

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Whakamole
Posts: 1194
Joined: Wed Jan 13, 2016 9:59 pm

Bond 401k choices

Post by Whakamole »

First off, 20% of my bond allocation are in I-Bonds. Some will start coming due at the end of the decade. Everything else is in my 401(k).

The direct options in my plan are on the OK side:
- Vanguard Short-Term Bond Index (VBIPX): what I am currently invested in, due to ER, lower exposure to possible rising interest rates, more weighting towards treasuries - in short, the "bonds help you sleep well" gambit. Downside: 0.36% SEC yield. This is not beating the inflation I am experiencing.
- Pimco Total Return. Actively managed. This is a CIT so the fees are lower than PTTRX. I have a hard time going active in general, much less with what bonds are paying now.
- BlackRock-managed "short term investment account" which seems to be paying the most right now.

I also have access to BrokerageLink, which gives me access to Fidelity's bond funds, as well as iShares and Vanguard ETFs. Fidelity's Total Bond fund, FXNAX, has a nice ER, but it's hard to be excited at a 1.21% SEC yield with a duration over 5 years. It's done better than that this year because of rates being lowered but past performance is no guarantee of future results.

I realize that there is no such thing as a free lunch, but lunches cost more each day and it's hard to look at the significant amount I have invested in bond funds and realize that it is losing ground each year. Fidelity lets me buy TIPS, and they also have a TIPS fund, but I'm not familiar with buying them or if they are even good deals right now.
deikel
Posts: 1131
Joined: Sat Jan 25, 2014 7:13 pm

Re: Bond 401k choices

Post by deikel »

Take the risk on the stock side of your portfolio and not on the bond side. You will trick yourself into believing that bonds are safe, when in reality eg high yield corporate bonds are not nearly as safe as i bonds.

Or to put it another way. If you don't like the bond yield you have, decrease the asset allocation of bonds to increase overall yield - do not think about the bond yield separately from the overall portfolio yield (because you also don't think about the risk/efficiency/asset allocation as a separate item).
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.
lakpr
Posts: 6051
Joined: Fri Mar 18, 2011 9:59 am

Re: Bond 401k choices

Post by lakpr »

You may want to look at Target Retirement funds available in the 401k, and pick a Target Retirement Income fund or the "oldest" target retirement fund as a bond-proxy. Technically these funds have 30% stocks in them, but you can think of that allocation as an inflation-hedge, and the fund itself is your "Fixed Income" fund. Mental trick, but the yields in those funds do keep pace with inflation and behave more like bond funds than blend funds.

Like for example, Vanguard LifeStrategy Retirement Income fund or Vanguard Target Retirement Income fund.

These are usually provided in a 401k plan at much lower expense ratios than the straight-up 100% bond funds like the ones you listed.
dbr
Posts: 33842
Joined: Sun Mar 04, 2007 9:50 am

Re: Bond 401k choices

Post by dbr »

The world does not always cooperate with what you would like it to do.

If you think current low yields have gone on long enough or will go on long enough to actually affect your plans, then you will have to revise your plans, for example to spend less, save more, work longer, and retire on less. Alternatively you may be able to compensate by taking more risk holding more in stocks, but that is, well, risky.

Another perspective is that the original planning includes the present state of affairs in the possible series of events and you are still inside the bounds of the plan. Most likely this is the actual situation. Stay with what you have.
nix4me
Posts: 809
Joined: Sat Oct 13, 2018 9:32 am

Re: Bond 401k choices

Post by nix4me »

FXNAX or AGG in the brokeragelink. Both super cheap and total bond funds. Actual yield is still 2.5% but eroding...
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