Buy more bonds now or wait?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
SlowPoke
Posts: 5
Joined: Sat Apr 03, 2021 9:48 am

Buy more bonds now or wait?

Post by SlowPoke »

First post here, have learned a lot from other posters - Thanks! I have fairly basic investment knowledge , Bogle type portfolio with one caveat: bonds.
I am about 55/18/27 (cash). I am probably 2 - 5 yrs from retirement.
I have been avoiding buying a full complement of bond funds, I had CDs and HYMM with most of the cash, but now those are no good.

Please help me think this through: Now my concern is it seems like whatever I put into bonds now will drop in the short term. My bonds are now in Fid FXNAX a "Total Bond" fund in tax deferred accts.

I am somewhat interested in having some bond money in a Treasury fund. I am also looking into MYGAs like Canvas, 3yr at 2.75%, at least some of the fixed income could go there.

Is there a turnaround point as interest rates rise, that it makes sense to move more money from other FI into bonds, I guess very dependent on the duration of the bonds held in that fund.

Any thoughts would be appreciated.
retiredjg
Posts: 43706
Joined: Thu Jan 10, 2008 12:56 pm

Re: Buy more bonds now or wait?

Post by retiredjg »

Welcome to the forum. :D

I don't know the answer about a "turnaround point" (or even what the question means specifically).

What I do know is that your portfolio needs some kind of fixed income assets (I include cash here). It is up to you to find whatever kind of fixed income assets best suits your situation and current interest rates. This is especially true with your retirement coming soon.

If you buy a bond fund and interest rates go up, the net asset value of the bond fund will go down some....but the bonds inside the fund will start paying you more interest. So losing some value should not be a big concern considering that you have to hold SOMETHING to support preservation of what you have.

I think holding some Treasuries would be fine. I'm not familiar with MYGAs enough to comment there.
User avatar
retired@50
Posts: 5168
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Buy more bonds now or wait?

Post by retired@50 »

I agree with retiredjg, but will add that you seem to be thinking short term with regard to your fixed income.

If you're 2-5 years from retirement, that could mean that you'll be holding some sort of fixed income investment for another 35 years. Do you want to pick something you have to revisit every couple years, or pick something that you can ignore for the rest of your life?

I hold total bond market and total international bond market funds from Vanguard (VBTLX & VTABX) and have no plans to change.

Regards,
This is one person's opinion. Nothing more.
Topic Author
SlowPoke
Posts: 5
Joined: Sat Apr 03, 2021 9:48 am

Re: Buy more bonds now or wait?

Post by SlowPoke »

Thanks both for your replies.

What I was trying to say with the turnaround point comment - My feeling is, in the short term might it be better to hold some FI in something other than bond funds as it seems they will lose value as interest rates climb for, what half of the avg bond duration?? (I don't know, just trying to express the concept).

Then at some point, if interest rates stop climbing, or they reach "neutral expectations", plus some amount of time for new bonds to come into the fund - at that point switch more to bond funds as we no longer expect the math to bring prices down.

Then, a related issue - I can put some of this money - I think up to 250K should be insured by my state - into a MYGA. Does anyone know the annuities sold by Canvas Annuities? They have a 3yr at 2.75%. Any experience with them?

My thought is this might be a good place to store some FI with some return, waiting to move it later into bonds.

Anyway, these are the things I am trying to think through and decide.
Thanks for any further ideas!
User avatar
pooser52
Posts: 27
Joined: Mon Feb 15, 2021 8:38 pm

Re: Buy more bonds now or wait?

Post by pooser52 »

There are some posts which go into MYGA in some detail which you may want to review. Interest rates are very attractive as compared with other alternatives (CDs, treasuries). I looked into them, and decided not to invest in them. IMO, the restrictions on withdrawing funds were not appealing to me. You might also want to review Wiki on "bonds" which I found very helpful. You are retiring in 2 - 5 years but presumably will not be "spending" all your bond investments immediately, but over your retirement period. If so, an intermediate bond fund (with say a 6-9 year average duration) could more closely "match" your withdrawal period. In short, keeping money in low interest cash until the bond market "turns" (pays higher interest) may not be the best strategy for money that you do not need for more than 5 years. Or a combination -- mixture of 3 year MYGA and intermediate bond fund. Goal should be to match maturity duration with projected cash withdrawals.
Topic Author
SlowPoke
Posts: 5
Joined: Sat Apr 03, 2021 9:48 am

Re: Buy more bonds now or wait?

Post by SlowPoke »

People say things like expect a bond fund to lose the avg duration of its bonds, in percentage value, for each point interest rate rise. Do we believe that? If so, might one want to sidestep that? What is the counter argument?
User avatar
dwickenh
Posts: 2093
Joined: Sun Jan 04, 2015 9:45 pm
Location: Illinois

Re: Buy more bonds now or wait?

Post by dwickenh »

Timing the bond market(interest rates) is no easier than timing the stock market. The reason I have bonds is for ballast in case my
stocks take a dive. Total bond funds, or intermediate treasuries seem to help during a bear market. I don't own bonds for the interest
payout, but I'm glad to collect it with the ability to cash out at any time with no penalty to buy stocks when re-balancing needed.

I am 50% stock/50% bond funds.

Good luck in retirement,

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
User avatar
Beensabu
Posts: 625
Joined: Sun Aug 14, 2016 3:22 pm

Re: Buy more bonds now or wait?

Post by Beensabu »

Bonds are a buy them and wait situation currently.

You can buy them at 2/3 the duration of your timeline and wait, if you want to be conservative about it. That would be a short-term vs. intermediate term fund.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next."
MotoTrojan
Posts: 11017
Joined: Wed Feb 01, 2017 8:39 pm

Re: Buy more bonds now or wait?

Post by MotoTrojan »

Do you know more than the market does about bonds? You make it sound so easy to time the bond market (wait until rates are neutral) but bonds are priced openly, not by the Fed, and all of this (and much more) information is baked into the price available today.

Inflation expectations, rate expectations, credit risk, all of it.
rockstar
Posts: 1531
Joined: Mon Feb 03, 2020 6:51 pm

Re: Buy more bonds now or wait?

Post by rockstar »

Unless you go out 30 years in duration, you're likely to not keep up with inflation. If you have a mortgage, it's likely has a higher rate than investment grade bonds do right now. No idea if they will keep going up or stay where they are at now. I struggle to buy bonds that don't keep up with inflation. Lots of threads here about people discussing inflation and bonds. I Bonds come up a lot. I'd visit some of those threads and read up on I Bonds.
jimkinny
Posts: 1545
Joined: Sun Mar 14, 2010 1:51 pm

Re: Buy more bonds now or wait?

Post by jimkinny »

MotoTrojan wrote: Tue Apr 06, 2021 10:04 pm Do you know more than the market does about bonds? You make it sound so easy to time the bond market (wait until rates are neutral) but bonds are priced openly, not by the Fed, and all of this (and much more) information is baked into the price available today.

Inflation expectations, rate expectations, credit risk, all of it.
I know a 5 year Treasury has an SEC yield of about 0.9%. I know a savings account pays 0.5% with no term risk.

OP, consider parking your FI in a savngs account until the term risk tradeoff on yield of a bond or fund over a simple savings account is more than 0.3% (less the ER of 0.1 for a Vanguard bond fund). There seems to be some interest in fixed annuities. I see them as more closely related to a single company corporate bond than a FDIC insured account or Treasury bond. I don't know enough about them to to use for a FI.
hudson
Posts: 3829
Joined: Fri Apr 06, 2007 9:15 am

Re: Buy more bonds now or wait?

Post by hudson »

SlowPoke wrote: Sat Apr 03, 2021 10:17 am First post here, have learned a lot from other posters - Thanks! I have fairly basic investment knowledge , Bogle type portfolio with one caveat: bonds.
I am about 55/18/27 (cash). I am probably 2 - 5 yrs from retirement.
I have been avoiding buying a full complement of bond funds, I had CDs and HYMM with most of the cash, but now those are no good.

Please help me think this through: Now my concern is it seems like whatever I put into bonds now will drop in the short term. My bonds are now in Fid FXNAX a "Total Bond" fund in tax deferred accts.

I am somewhat interested in having some bond money in a Treasury fund. I am also looking into MYGAs like Canvas, 3yr at 2.75%, at least some of the fixed income could go there.

Is there a turnaround point as interest rates rise, that it makes sense to move more money from other FI into bonds, I guess very dependent on the duration of the bonds held in that fund.

Any thoughts would be appreciated.
SlowPoke,
If you haven't read these books, consider reading... viewtopic.php?p=5372762#p5372762

With fixed income, I go with the best available; I don't agonize for long about the rates. I'm 100% fixed.
My major holdings are going to be treasuries and CDs.
10 year treasuries were paying 1.67% yesterday: https://www.treasury.gov/resource-cente ... data=yield
I saw a non-callable 10 year brokered CD paying 1.8%...Bank of India (FDIC)
High yield savings are OK. Live Oak Bank is paying .7%
Total bond is OK, but not as a major holding
AAA/AA/A munis are OK if they fit your situation. Maybe look at the SEC yield to estimate long term payout. Look at a table of distribution yields to predict short term payouts. I speculate that VWIUX will payout more than 1.5% over the next 12 months.
MYGAs: I would consider buying. Larry Swedroe went with one. Most of the good deals are B++ or lower. I would learn everything about my state's guarantee association. You already know that your state does not guarantee that you'll get your money back.
I don't own any TIPS but I'm looking hard at ibonds and a non-rolling TIPS ladder.

Bottom line, Even though rates are low, I'm going to stay with high quality fixed income products.

EDIT: I also plan to "duration match" in the future. viewtopic.php?t=318412
Last edited by hudson on Wed Apr 07, 2021 6:42 am, edited 1 time in total.
User avatar
vineviz
Posts: 9454
Joined: Tue May 15, 2018 1:55 pm

Re: Buy more bonds now or wait?

Post by vineviz »

jimkinny wrote: Wed Apr 07, 2021 5:14 am
MotoTrojan wrote: Tue Apr 06, 2021 10:04 pm Do you know more than the market does about bonds? You make it sound so easy to time the bond market (wait until rates are neutral) but bonds are priced openly, not by the Fed, and all of this (and much more) information is baked into the price available today.

Inflation expectations, rate expectations, credit risk, all of it.
I know a 5 year Treasury has an SEC yield of about 0.9%. I know a savings account pays 0.5% with no term risk.
The things you know are only partly true.

Both the savings account and the Treasury have term risk.

The AMOUNT of the term risk FOR YOU depends on when you're going to spend the money. If it's more than 5 years from now, the savings account has MORE term risk than the Treasury note.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Topic Author
SlowPoke
Posts: 5
Joined: Sat Apr 03, 2021 9:48 am

Re: Buy more bonds now or wait?

Post by SlowPoke »

Thank you all for the many ideas. Hudson, I may go ahead and get the Swedroe bond book https://www.amazon.com/Only-Guide-Winni ... 0312353634. I’ll start with the free part I can read online!
User avatar
retired@50
Posts: 5168
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Buy more bonds now or wait?

Post by retired@50 »

SlowPoke wrote: Wed Apr 07, 2021 2:38 pm Thank you all for the many ideas. Hudson, I may go ahead and get the Swedroe bond book https://www.amazon.com/Only-Guide-Winni ... 0312353634. I’ll start with the free part I can read online!
Check your local library... Where all books are free.

Regards,
This is one person's opinion. Nothing more.
MotoTrojan
Posts: 11017
Joined: Wed Feb 01, 2017 8:39 pm

Re: Buy more bonds now or wait?

Post by MotoTrojan »

jimkinny wrote: Wed Apr 07, 2021 5:14 am
MotoTrojan wrote: Tue Apr 06, 2021 10:04 pm Do you know more than the market does about bonds? You make it sound so easy to time the bond market (wait until rates are neutral) but bonds are priced openly, not by the Fed, and all of this (and much more) information is baked into the price available today.

Inflation expectations, rate expectations, credit risk, all of it.
I know a 5 year Treasury has an SEC yield of about 0.9%. I know a savings account pays 0.5% with no term risk.

OP, consider parking your FI in a savngs account until the term risk tradeoff on yield of a bond or fund over a simple savings account is more than 0.3% (less the ER of 0.1 for a Vanguard bond fund). There seems to be some interest in fixed annuities. I see them as more closely related to a single company corporate bond than a FDIC insured account or Treasury bond. I don't know enough about them to to use for a FI.
Treasury doesn't pay state tax, and even without that factored in the 5 year treasury is paying nearly 2x the yield.

What happens if rates collapse? The 5 year treasury still gets a nice cap-gain tail-wind, while the savings account goes to 0%.
User avatar
abuss368
Posts: 24200
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Buy more bonds now or wait?

Post by abuss368 »

The simple answer is no one knows! Develop an asset allocation based on timeframe, goals, and tolerance for risks. This is the most important decision an investor can make.

In rising markets an investor may tell themselves they do not need more bonds. They are fine. When the tide pulls back, these same investors may have second thoughts (or panic).

Tony
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
abuss368
Posts: 24200
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Buy more bonds now or wait?

Post by abuss368 »

Consider one simple fund like Total Bond Market. For good reason this is the largest bond fund on the planet and holds the market weight of the investable bond market.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
UpperNwGuy
Posts: 4977
Joined: Sun Oct 08, 2017 7:16 pm

Re: Buy more bonds now or wait?

Post by UpperNwGuy »

SlowPoke wrote: Mon Apr 05, 2021 12:12 pm What I was trying to say with the turnaround point comment - My feeling is, in the short term might it be better to hold some FI in something other than bond funds as it seems they will lose value as interest rates climb for, what half of the avg bond duration?? (I don't know, just trying to express the concept).

Then at some point, if interest rates stop climbing, or they reach "neutral expectations", plus some amount of time for new bonds to come into the fund - at that point switch more to bond funds as we no longer expect the math to bring prices down.
OMG.... that sounds way too complicated, way too much work, and way too prone to making a mistake. I'm sticking to my intermediate-term bond funds with the knowledge that, if I hold them longer than their durations, everything will be fine.
UpperNwGuy
Posts: 4977
Joined: Sun Oct 08, 2017 7:16 pm

Re: Buy more bonds now or wait?

Post by UpperNwGuy »

SlowPoke wrote: Tue Apr 06, 2021 5:32 pm People say things like expect a bond fund to lose the avg duration of its bonds, in percentage value, for each point interest rate rise. Do we believe that? If so, might one want to sidestep that? What is the counter argument?
The counter argument is simple. If you hold the bond fund for its duration or longer, you recover the loss in NAV. I invest for the longer term, so intermediate-term bonds work for me. I don't care if the NAV goes down if it comes back up later on.
jimkinny
Posts: 1545
Joined: Sun Mar 14, 2010 1:51 pm

Re: Buy more bonds now or wait?

Post by jimkinny »

vineviz wrote: Wed Apr 07, 2021 6:15 am
jimkinny wrote: Wed Apr 07, 2021 5:14 am
MotoTrojan wrote: Tue Apr 06, 2021 10:04 pm Do you know more than the market does about bonds? You make it sound so easy to time the bond market (wait until rates are neutral) but bonds are priced openly, not by the Fed, and all of this (and much more) information is baked into the price available today.

Inflation expectations, rate expectations, credit risk, all of it.
I know a 5 year Treasury has an SEC yield of about 0.9%. I know a savings account pays 0.5% with no term risk.
The things you know are only partly true.

Both the savings account and the Treasury have term risk.

The AMOUNT of the term risk FOR YOU depends on when you're going to spend the money. If it's more than 5 years from now, the savings account has MORE term risk than the Treasury note.
This is only partially true. It assumes a steady state which is never what happens in the real world. Yes, if every thing remains the same for 5 years, a higher yielding Treasury bond would be the better alternative. For me, maybe not you, the 0.4% extra yield I would get now, is simply not worth it to me to take 5 years of term risk in a 5 year term Treasury right now. That term risk is mine as soon as I buy the bond. The savings account requires me to to keep the savings account and has no day to day term risk. It's value won't fluctuate as the interest rates rise and fall. It has an opportunity cost. I am giving up 0.4% per year. I do this, because the 0.4% premium of a bond is too small for my willingness to take the term risk. This is no different than someones decision to buy a 5 year Treasury instead of 10 year Treasury. By using a savings account I am getting a FDIC account and getting about 50X the yield of a 1 month Treasury that has a yield of 0.01%. I just don't wan't the risk for the 0.4% premium and that opportunity cost is what I am paying to avoid what I see as the bigger risk and that is the 5 year term risk.
bikechuck
Posts: 912
Joined: Sun Aug 16, 2015 9:22 pm

Re: Buy more bonds now or wait?

Post by bikechuck »

UpperNwGuy wrote: Wed Apr 07, 2021 5:52 pm
SlowPoke wrote: Mon Apr 05, 2021 12:12 pm What I was trying to say with the turnaround point comment - My feeling is, in the short term might it be better to hold some FI in something other than bond funds as it seems they will lose value as interest rates climb for, what half of the avg bond duration?? (I don't know, just trying to express the concept).

Then at some point, if interest rates stop climbing, or they reach "neutral expectations", plus some amount of time for new bonds to come into the fund - at that point switch more to bond funds as we no longer expect the math to bring prices down.
OMG.... that sounds way too complicated, way too much work, and way too prone to making a mistake. I'm sticking to my intermediate-term bond funds with the knowledge that, if I hold them longer than their durations, everything will be fine.
Unless I am missing something your approach will work better for people in the accumulation phase and not so well for people in the deaccumulation phase.

Those of us in the deaccumulation phase might need to draw from our bonds funds in years where equities crater and interest rates are rising.
User avatar
vineviz
Posts: 9454
Joined: Tue May 15, 2018 1:55 pm

Re: Buy more bonds now or wait?

Post by vineviz »

jimkinny wrote: Thu Apr 08, 2021 8:13 am
vineviz wrote: Wed Apr 07, 2021 6:15 am
jimkinny wrote: Wed Apr 07, 2021 5:14 am
MotoTrojan wrote: Tue Apr 06, 2021 10:04 pm Do you know more than the market does about bonds? You make it sound so easy to time the bond market (wait until rates are neutral) but bonds are priced openly, not by the Fed, and all of this (and much more) information is baked into the price available today.

Inflation expectations, rate expectations, credit risk, all of it.
I know a 5 year Treasury has an SEC yield of about 0.9%. I know a savings account pays 0.5% with no term risk.
The things you know are only partly true.

Both the savings account and the Treasury have term risk.

The AMOUNT of the term risk FOR YOU depends on when you're going to spend the money. If it's more than 5 years from now, the savings account has MORE term risk than the Treasury note.
This is only partially true. It assumes a steady state which is never what happens in the real world. Yes, if every thing remains the same for 5 years, a higher yielding Treasury bond would be the better alternative. For me, maybe not you, the 0.4% extra yield I would get now, is simply not worth it to me to take 5 years of term risk in a 5 year term Treasury right now. That term risk is mine as soon as I buy the bond.
Note that I never said anything about which alternative was "better". That subjective evaluation depends entirely on your preferences.

I merely observed that both instruments have term risk, which is true, and that your investment horizon is what determines which instrument has more of that risk for you.

Over a full five-year period, the Treasury note will not return less than 0.9% (in your example) no matter what happens to interest rates in the intervening years.

Over that same five-year period, the savings account could return substantially less (or more) than 0.5%. That's the risk.

In late 2019, the 5-year Treasury offered virtually NO yield premium over the best savings account rates after all. The fact that savings accounts are now yielding 1/4 of what they were then illustrates the risk of using short-term instruments for long-term investment goals.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
User avatar
vineviz
Posts: 9454
Joined: Tue May 15, 2018 1:55 pm

Re: Buy more bonds now or wait?

Post by vineviz »

bikechuck wrote: Thu Apr 08, 2021 9:02 am Unless I am missing something your approach will work better for people in the accumulation phase and not so well for people in the deaccumulation phase.

Those of us in the deaccumulation phase might need to draw from our bonds funds in years where equities crater and interest rates are rising.
If that happens, just withdraw what you need from whichever asset class is the most overweight in the portfolio.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Topic Author
SlowPoke
Posts: 5
Joined: Sat Apr 03, 2021 9:48 am

Re: Buy more bonds now or wait?

Post by SlowPoke »

I would keep a fixed percent in fixed income in any case so non equity funds would be available for use. Haven’t quite nailed down the composition of that FI yet however...
hudson
Posts: 3829
Joined: Fri Apr 06, 2007 9:15 am

Re: Buy more bonds now or wait?

Post by hudson »

SlowPoke wrote: Wed Apr 07, 2021 2:38 pm Thank you all for the many ideas. Hudson, I may go ahead and get the Swedroe bond book https://www.amazon.com/Only-Guide-Winni ... 0312353634. I’ll start with the free part I can read online!
Yes!
I got my money's worth out of the book. I also got a good feel for fixed income.
My favorite Boglehead authors: Larimore, Ferri, Swedroe, W.Bernstein
Post Reply