What bond fund to use to buy a SPIA

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CWRadio
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What bond fund to use to buy a SPIA

Post by CWRadio »

I plan on buying a joint SPIA (Single Premium Immediate Annuity).

I have 55% bond fund IRA portfolio which consist of five bond funds:

VTIP (YTD -0.470) Vanguard Short-Term Infl-Prot Secs ETF 24% of bond portfolio
DIPSX (YTD - 5.41) DFA Inflation-Protected Securities I 24% of bond portfolio
VFSUX (YTD -5.05) Vanguard Short-Term Investment-Grade Adm 24% of bond portfolio
VBILX (YTD -9.91) Vanguard Interm-Term Bond Index Adm 24% of bond portfolio
PFUIX (YTD -12.78) PIMCO International Bond (Unhedged)Instl 4% of bond portfolio

My Question:
Which bond fund do I use to fund the buying of the joint SPIA?

Paul
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David Jay
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Re: What bond fund to use to buy a SPIA

Post by David Jay »

I would tend towards the short term.

I would not spend a TIPS fund.
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Munir
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Re: What bond fund to use to buy a SPIA

Post by Munir »

I would suggest VTIP since it has the best YTD record. If you don't want to sell it because it is anti-inflation, then I suggest VFSUX.
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Re: What bond fund to use to buy a SPIA

Post by 000 »

Isn't VBILX the closet thing to a SPIA in terms of denomination (nominal vs. CPI) and term?
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Re: What bond fund to use to buy a SPIA

Post by hudson »

CWRadio wrote: Sat Apr 30, 2022 6:57 pm I plan on buying a joint SPIA (Single Premium Immediate Annuity).

I have 55% bond fund IRA portfolio which consist of five bond funds:

VTIP (YTD -0.470) Vanguard Short-Term Infl-Prot Secs ETF 24% of bond portfolio
DIPSX (YTD - 5.41) DFA Inflation-Protected Securities I 24% of bond portfolio
VFSUX (YTD -5.05) Vanguard Short-Term Investment-Grade Adm 24% of bond portfolio
VBILX (YTD -9.91) Vanguard Interm-Term Bond Index Adm 24% of bond portfolio
PFUIX (YTD -12.78) PIMCO International Bond (Unhedged)Instl 4% of bond portfolio

My Question:
Which bond fund do I use to fund the buying of the joint SPIA?

Paul
I'd sell the PIMCO because the ER is likely high and it's only 4%.
Next I'd sell the short term investment grade.
I'd keep the TIPS until last.
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CWRadio
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Re: What bond fund to use to buy a SPIA

Post by CWRadio »

Thank you all for your replies and council. I think I will start with VFSUX Vanguard Short Term Invest Grade bond fund. Only down -4.72 as of May 12. Paul
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Re: What bond fund to use to buy a SPIA

Post by arcticpineapplecorp. »

CWRadio wrote: Fri May 13, 2022 10:15 am Thank you all for your replies and council. I think I will start with VFSUX Vanguard Short Term Invest Grade bond fund. Only down -4.72 as of May 12. Paul
If it's not too late...

1. Unfortunately, since it's an IRA you won't get a tax loss harvesting opportunity from selling shares that have likely lost value relative to original purchase. That being said...

2. I'd sell PFUIX (YTD -12.78) PIMCO International Bond (Unhedged)Instl 4% of bond portfolio. Here's why:

a. not just because of the higher cost (but that is important), but because I don't buy international bonds, let alone unhedged inernational bonds. You want international bonds to be hedged, not unhedged. You want international stock to be unhedged, not hedged.

b. this international bond fund is not an index fund, so you're not guaranteed to get the return of the international bond index. You could underperform. Why take that risk with assets that are supposed to be safe?

c. Plus the other 4 funds would then be 25% each. It seems like the international bond is either an afterthought or too small of a tilt to make a meaningful difference. why complicate the portfolio for no additional benefit?

In the target date retirement income fund with vanguard the international bond index fund makes up 23% of the fixed income allocation. Your international bond fund makes up 4% of your fixed income allocation.

d. Also and finally, look at the performance of Vanguard total international bond index fund and your PIMCO international unhedged bond fund:

Image

source:
https://www.portfoliovisualizer.com/bac ... ion2_2=100

pimco's performed way worse and had much lower risk adjusted returns.

what do you think now?
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vineviz
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Re: What bond fund to use to buy a SPIA

Post by vineviz »

CWRadio wrote: Sat Apr 30, 2022 6:57 pm My Question:
Which bond fund do I use to fund the buying of the joint SPIA?
A SPIA is a nominal (i.e. not inflation adjusted) product, so the first level of consideration would be to use one of your nominal bond funds as a source. That means your options are:

VFSUX : Vanguard Short-Term Investment-Grade Adm 24% of bond portfolio
VBILX : Vanguard Interm-Term Bond Index Adm 24% of bond portfolio
PFUIX : PIMCO International Bond (Unhedged)Instl 4% of bond portfolio

I'd start with PFUIX, since at 4% it's too puny to move the needle anyway.

Next, I'd consider that the duration of the SPIA is probably longer term than any of your bond funds (you don't tell us your age) which means that VBILX would be the second fund I'd draw from. VFSUX would be the third.
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CWRadio
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Re: What bond fund to use to buy a SPIA

Post by CWRadio »

Thank you both vineviz and arcticpineapplecorp. for the additional information. I am 77 and wife is 74. You are right about PFUIX was a after thought and should off cashed it in a long time ago when it was up a few dollars. Paul
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