Total Bond Index IRA vs CD IRA

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Rajsx
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Total Bond Index IRA vs CD IRA

Post by Rajsx » Sun Oct 01, 2017 9:07 pm

I am tempted to transfer monies out Of Vanguard Total Bond Index ADM & other short Term Bond Funds in my IRA to CD IRA .

I have been a long term Vanguard Investor but seeing the present & projected Bond Fund returns , the CDs IRA now appear favourable.

What do you think ?? Has anybody else noticed the difference in returns. What is the downside of doing so ?

Thanks
We do not stop laughing because we grow old, we grow old because we stop laughing !!

mhalley
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Re: Total Bond Index IRA vs CD IRA

Post by mhalley » Sun Oct 01, 2017 9:11 pm

The downside is missing out on potentially higher returns should the fed not raise interest rates. The upside is no chance of loss should the feds raise interest rates. Note that this is short term. In the long term, having the money in bond funds could result in higher returns. I use both bond funds and cds in my aa.
Mike piper discussed this recently:
http://obliviousinvestor.com/what-chang ... portfolio/

frankmorris
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Re: Total Bond Index IRA vs CD IRA

Post by frankmorris » Mon Oct 02, 2017 8:09 am

Equivalent rates but less risk is a better thing. Probably not a bad idea to sub out any bond funds yielding at or around CD rates until bond rates improve. Unlike equities, the risk of "missing out on a rally" really isn't there, but then again the risk of losing tons of value on a bond fund probably isn't that great either.

nbseer
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Re: Total Bond Index IRA vs CD IRA

Post by nbseer » Mon Oct 02, 2017 8:24 am

I've shifted all of my IRA bond funds into mostly short-term one-year CDs that pay 1.5%. That's a bit less than the short-term Vanguard bond fund I was in, but I figure a year from now interest rates will be higher than they are now resulting in a loss of capital in the bond fund. When the one-year CDs come due, will probably just buy new ones at the higher rate.. at this point, with stocks at record highs, more concerned with return of principal rather than return ON principal.

dbr
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Re: Total Bond Index IRA vs CD IRA

Post by dbr » Mon Oct 02, 2017 8:46 am

Using CDs instead of bonds has been posted many times over the last several years. It is a rational evaluation that CDs are as good or better choice than short term bonds at this time.

Whether or not it is a good idea to mess around with fixed income trying to chase small differences in yield or prospects for return is debatable. I personally am very happy to sit on intermediate term bond funds for the long run and not mess with it.

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welderwannabe
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Re: Total Bond Index IRA vs CD IRA

Post by welderwannabe » Mon Oct 02, 2017 8:49 am

In my solo 401k (non megacorp) plan I have about half of my 'treasury' allocation in 2 year CDs. I kept the other half in a treasury fund for rebalancing fodder.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

Rajsx
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Re: Total Bond Index IRA vs CD IRA

Post by Rajsx » Mon Oct 02, 2017 1:49 pm

Thanks everybody for chiming in, Mike Piper's write up on Bonds vs CDs was informative, please let the suggestions coming.

Hi Frank, in your post you wrote -
" Unlike equities, the risk of "missing out on a rally" really isn't there, but then again the risk of losing tons of value on a bond fund probably isn't that great either."
Please help me understand " Risk of losing tons of Value on a Bond Fund probably is not that great either "
What value in a Bond fund is being referred to ?

Thanks again
We do not stop laughing because we grow old, we grow old because we stop laughing !!

Rajsx
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Re: Total Bond Index IRA vs CD IRA

Post by Rajsx » Tue Oct 03, 2017 6:10 pm

I got it
When interest rates rise, the value of Bonds goes down
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Dandy
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Re: Total Bond Index IRA vs CD IRA

Post by Dandy » Wed Oct 04, 2017 8:22 am

I like CDs but I also like some diversity in fixed income. I wouldn't put 100% of my fixed income in any one type of fixed income -- even the Total Bond Fund.

The threat of rising interest rates from the FED has been with us for it seems like a decade. They have been very careful not to raise rates quickly. Bond funds adjust to slowly rising rate without much drama. Also, bonds don't plunge when rates move up a notch or 2. That is why people usually have a decent allocation to bonds -- for stability/less risk than equities.

I have about 57% allocation to fixed income. A bit less than 1/3 in "no loss of principal" e.g. CDs, Money Markets, On line Savings account, etc., about 1/3 in short term bond funds, a bit more than 1/3 in intermediate bond funds e.g. the fixed income portion of Wellesley and Balanced Index funds, the TIPS fund, Intermediate Tax Exempt fund.

Is it more "complex" than having all in one fund or CD ladder? Yes. But really not that much of an issue if you aren't overly focused on rebalancing sub accounts and focus on the overall equity vs fixed income allocation or in my specific case making sure my "no loss of principal products and short term bond funds have enough assets to fund my retirement to age 90.

Rajsx
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Re: Total Bond Index IRA vs CD IRA

Post by Rajsx » Wed Oct 04, 2017 10:27 am

Thanks Dandy, I too want to have a diversified Fixed income portfolio, & am trying to move some Bond Funds to the CDs
I have a 50/50 asset allocation of our Total Portfolio although due to the rise of late in the stocks, it has drifted to 53 S/47 B.

Thanks
We do not stop laughing because we grow old, we grow old because we stop laughing !!

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