Having trouble deciding what to do with my fixed income allocation

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
avoidingdumbmistakes
Posts: 101
Joined: Thu Mar 29, 2018 11:38 am

Having trouble deciding what to do with my fixed income allocation

Post by avoidingdumbmistakes » Tue May 15, 2018 5:35 pm

I've been very busy lately reallocating an inherited ira, rebalancing a taxable account, and rolling over tIRAs to Schwab. The inherited IRA was managed by Schwab Private Client and literally had over 40 positions in it with 65% bonds/fixed income. My target allocation is 70/30 so it's been a bit of work getting things balanced. My last step is consolidating the remaining bond funds.

I want to keep my entire portfolio allocation of bonds/fixed income in the inherited ira so my tIRAs can grow agressively and my taxable account remains as tax efficient as possible. The bond/allocation will be in the mid six figures.

There are currently over 15 bond/fixed income positions in the inherited ira so I have a lot of consolidating to do. A number of them have ERs that I believe are excessive so I'm not interested in keeping or adding to many of the existing postions except maybe 2. I would like some advice as I've used target date funds in the past for my bonds and don't have a lot of experience with picking bond funds.

One of the positions I'm interested in keeping is vanguard BND etf and the other is a Pimco institutional high yield fund called PIMIX. It's closed to new retail investors and it's yielded over 5% annual since inception but it also comes with an ER of .53. It's tempting to keep or even add to the fund becuase of the yield but it's also not an index fund so it doesn't follow boglehead strategy. Is the risk/reward of PIMIX worth holding or adding to?

I've read the Little Book of Common Sense Investing and All About Asset Allocation and I have my equity postions set up just how I want them but I'm struggling with bond related decisions. I keep leaning towards blending my bond holdings with a mix of treasury funds, index funds, and high yield funds. Is this flawed thinking? Should I just put the entire amount in a single index fund like SWAGX and call it a day or are there better options on the fixed income side?

I don't mind a little extra risk with bonds. I've been 80/20 for many years prior to the inheritence. I recently changed my IPS to 70/30 because I don't need to be as aggressive anymore. I'm not risk averse though.

livesoft
Posts: 62709
Joined: Thu Mar 01, 2007 8:00 pm

Re: Having trouble deciding what to do with my fixed income allocation

Post by livesoft » Tue May 15, 2018 5:50 pm

Nobody can predict the future, so your quest to tune up the bond side with "better options" is something that you cannot really fulfill. Once you realize that it won't really matter, then you can do anything you want to.

About the only thing you can do is use low-expense-ratio, passively-managed index bond funds of which there are many to choose from. No one will care if you use PIMIX, too. So BND, SWAGX,and PIMIX are fine. It is probably too late to go to shorter duration like BIL. Indeed, I am selling BIL and buying total bond market index this week.
Wiki This signature message sponsored by sscritic: Learn to fish.

avoidingdumbmistakes
Posts: 101
Joined: Thu Mar 29, 2018 11:38 am

Re: Having trouble deciding what to do with my fixed income allocation

Post by avoidingdumbmistakes » Tue May 15, 2018 6:53 pm

livesoft wrote:
Tue May 15, 2018 5:50 pm
Nobody can predict the future, so your quest to tune up the bond side with "better options" is something that you cannot really fulfill. Once you realize that it won't really matter, then you can do anything you want to.

About the only thing you can do is use low-expense-ratio, passively-managed index bond funds of which there are many to choose from. No one will care if you use PIMIX, too. So BND, SWAGX,and PIMIX are fine. It is probably too late to go to shorter duration like BIL. Indeed, I am selling BIL and buying total bond market index this week.
Thank you, livesoft. I've been accusing myself of thinking too much about this already.

I'm going to consolidate most of the current bond holdings and go with a low cost index over the next couple weeks. Bonds in general are poised to start delivering better returns over the coming years so in the grand scheme it probably doesn't matter as much as I think it does. I'll leave the PIMIX and BND positions in place for a while and keep an eye on them.

Post Reply