Continue to invest in Fid total bond (FTBFX) or 3 month CDs

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investordoc
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Continue to invest in Fid total bond (FTBFX) or 3 month CDs

Post by investordoc » Tue Feb 13, 2018 4:02 pm

I opened a large position in Fidelity Total Bond Fund (FTBFX) in March of 2017 in my protected account. Along with dividend reinvest I have added 6 more purchases throughout the last year. Despite dividend reinvestment and continuing to add to the fund I am currently with a loss in this position. I am currently in the process of readjusting my AA per my investing statement (increasing bond %) not related to current market events. I have about 6-7 years until I will begin to withdraw funds from my accounts. It is time to make another purchase of the fund but I wonder if it might be a smart idea to instead of buying more FTBFX to go with a short term CD say 3 month duration. 3 month CDs are paying about 1.55% currently.

I don't know what interest rates will do in the next three months but I do know that the nav has gone from $10.60 to $10.43 in the last month. Thoughts and suggestions are welcome. DO the CD. add more to current bond fund or get a different fund?

Thank you
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Tyler Aspect
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Re: Continue to invest in Fid total bond (FTBFX) or 3 month CDs

Post by Tyler Aspect » Tue Feb 13, 2018 4:59 pm

investordoc wrote:
Tue Feb 13, 2018 4:02 pm
I opened a large position in Fidelity Total Bond Fund (FTBFX) in March of 2017 in my protected account. Along with dividend reinvest I have added 6 more purchases throughout the last year. Despite dividend reinvestment and continuing to add to the fund I am currently with a loss in this position. I am currently in the process of readjusting my AA per my investing statement (increasing bond %) not related to current market events. I have about 6-7 years until I will begin to withdraw funds from my accounts. It is time to make another purchase of the fund but I wonder if it might be a smart idea to instead of buying more FTBFX to go with a short term CD say 3 month duration. 3 month CDs are paying about 1.55% currently.

I don't know what interest rates will do in the next three months but I do know that the nav has gone from $10.60 to $10.43 in the last month. Thoughts and suggestions are welcome. DO the CD. add more to current bond fund or get a different fund?

Thank you
You bought the wrong bond fund. Fidelity names their bond fund to confuse people such as you. The correct bond fund is Fidelity US Bond Index Fund Premium Class (FSITX). The Fidelity Total Bond Fund is an actively managed fund. However, I do not believe you lost any money if at all there. Maybe you did not include dividends in your return calculation.

I think your question depends on the amount of withdrawals in 7 years. If the withdrawal is very gradual in small amounts, then you can continue investing in a bond fund such as Fidelity US Bond Index. If the withdrawal is for a big lump sum purchase then you should be in Fidelity Short-Term Bond Index Fund.

A CD paying 1.55% is unlikely to beat inflation. Maybe you need to pick a longer maturity CD.
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mega317
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Re: Continue to invest in Fid total bond (FTBFX) or 3 month CDs

Post by mega317 » Wed Feb 14, 2018 7:40 am

I notice you didn't post "stocks dropped 10% should I sell?" How is this different?

Also 3 month treasuries will probably come out ahead of CDs if you pay any state income tax.

investordoc
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Re: Continue to invest in Fid total bond (FTBFX) or 3 month CDs

Post by investordoc » Wed Feb 14, 2018 10:10 am

Thank you Tyler and Mega for the responses. There is no confusion as to which fund I am in. I would prefer not to get into the index/active debate as I have most of my other investments in index funds. If you look at Portfolio Visualizer you will see that FTBFX has out performed FSITX since its inception on June 2011. I understand that in the future it may not.

I don't believe that this is a market timing "should I sell" question. I never mentioned sell. My thinking is that since CPI is rising and inflation may be as well that it might be best to "park" money that I would put into the bond fund into a short term CD and see where we are in a couple of months. Instead of leaving it in cash at least make something off the money. The other argument could be dollar cost average my bond fund and stay with my current plan. That's why I posted my original question.
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oldcomputerguy
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Re: Continue to invest in Fid total bond (FTBFX) or 3 month CDs

Post by oldcomputerguy » Wed Feb 14, 2018 10:28 am

investordoc wrote:
Wed Feb 14, 2018 10:10 am
Thank you Tyler and Mega for the responses. There is no confusion as to which fund I am in. I would prefer not to get into the index/active debate as I have most of my other investments in index funds. If you look at Portfolio Visualizer you will see that FTBFX has out performed FSITX since its inception on June 2011. I understand that in the future it may not.
Yes, it has had higher return than FSITX. But it also is riskier. FTBFX has half again as much in corporate bonds than does FSITX, and so is more correlated with the stock market and thus an inferior diversifier. FTBFX also has overall lower quality bond holdings (i.e. more junk bonds) than does FSITX; FTBFX has around 14% below BBB, while FSITX holds less than 1% below BBB.

It all goes to why you want to hold bonds in the first place. If it's for return, then that's okay as as long as you understand that you may be taking more risk on the bond side than necessary. If it's for safety, FTBFX may not be the best choice. I used to hold FTBFX as my sole bond holding, then gave it a closer look, now it's all in FSITX. But it's certainly your choice.
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FrankLUSMC
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Re: Continue to invest in Fid total bond (FTBFX) or 3 month CDs

Post by FrankLUSMC » Wed Feb 14, 2018 10:55 am

Since this is in your protected account, I would think a CD ladder would work well for you as interest rates are pretty sure to be rising.
I have put into place a 2yr. ladder using 6mo., 1yr., 18mo. and 2yr. CDs. Then roll over every mature cd into 2 yr. A CD will mature every 6 mo. so you can then decide to continue the ladder or find another place for it. No lost principle as a bond FUND.
You can do a bond ladder as well with less risk of principle than a fund (maybe, depending on class of bonds).
As always YMMV.

mega317
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Re: Continue to invest in Fid total bond (FTBFX) or 3 month CDs

Post by mega317 » Wed Feb 14, 2018 11:32 am

You are deviating from your prior plan due to current conditions and plan to see where we are in a couple of months. This plan isn't going to bankrupt you but call it what it is.

Approached slightly differently, if short term CDs are a better buy then your bond fund, why aren't you selling the whole position today?

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