Where to invest fixed income?

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RetiredCSProf
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Where to invest fixed income?

Post by RetiredCSProf »

I am 72, retired, and have about $250K invested in bond funds in rollover-IRAs, split between Fido and TRowe. The market dip a few months ago revealed that the bond funds in my Fido portfolio (recommended by a Fido advisor three years ago) need re-positioning. The funds dipped deeper than I expected and are making a slow recovery.

I am trying to get clarification on the BH recommendation for relative weighting of corporate, mortgage-backed assets, and gov bonds. The market index for bonds is 23% Corporate, 42% mortgage-backed securities, 35% Gov, with TIPS a small portion of Gov.

Using Fido's online tools, I generated five hypothetical bond portfolios, which yielded the following overall weightings:
1) Corp 11%, MBS 34%, Gov 49%, Cash or Other 6%
2) Corp 18%, MBS 28%, Gov 40%, Cash or Other 14%
3) Corp 21%, MBS 44%, Gov 26%, Cash or Other 9%
4) Corp 27%, MBS 27%, Gov 41%, Cash or Other 5%
5) Corp 26%, MBS 27%, Gov 46%, Cash or Other 1%

What is the overall BH recommendation for bond portfolio composition, with respect to weighting Corp, MBS, and Gov?

The hypothetical bond fund portfolios that I generated vary a bit by credit quality, average duration, and net expense ratio. I am trying to get a handle on the composition with respect to credit risk, interest rate sensitivity, and yield. My goal is to preserve capital, generate a little income, and provide ballast when equities tank. I withdraw only RMDs/QCDs from my tax-advantaged accounts.

One fund I see frequently recommended on the BH forum is Vanguard Total Bond fund (VBTLX or BND) -- as follows:
Corp 30%, MBS 20%, Gov 49%, Cash or Other 1%

When it comes to equities, the BH philosophy seems to be "buy the whole pie," but with bond funds, it's all over the place:
"Bogel's opinion was to hold more corporate bonds than gov bonds"
"Corp bonds will tank along with equities"
"Gov bonds offer less in return than corporate bonds"
"Int'l bond funds add little to no benefit" or "put 25% in international bond index fund"
"Put 100% in Total Bond Fund (VBTLX or BND)"
"Put 50% in Total Bond Fund and 50% in TIPS" -- which far exceeds the market weight in TIPS
"Put 100% in VBILX or BIV because it holds no MBS"
Pegasus_RPG
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Re: Where to invest fixed income?

Post by Pegasus_RPG »

I'm with the BH philosophy of buying the whole haystack when it comes to bonds too. Get Total Bond Market and Total International Bond Market. The typical split between them is 70/30 US:Int'l (as that's what the LifeStrategy funds-of-funds do,) but there's a Vanguard paper from 2012 I think (search this forum for links,) that recommends anywhere from 50-90% international bonds for best return and volatility protection. Also, since bonds are for safety, you want international funds that are mostly hedged to the US dollar to reduce volatility. Source.
7eight9
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Re: Where to invest fixed income?

Post by 7eight9 »

You might want to consider other fixed income products in addition to your bonds.

Multi-Year Guarantee Annuities (MYGAs) are also called fixed-rate annuities and are a specific annuity product type that functions similarly to a CD (Certificate of Deposit).
https://www.stantheannuityman.com/myga-rates

For example, looking at Nevada 5 year rates we see the following possibilities (highest rate in each respective rating category):
3.45% Upstream Life Insurance Company B++
2.90% Sagicor Life Insurance Company A-
2.50% Athene Annuity & Life Assurance Company A
2.50% Midland National Life Insurance Company A+
1.40% Massachusetts Mutual Life Insurance Company A++
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unbiased
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Re: Where to invest fixed income?

Post by unbiased »

In this environment, you'll need to prioritize: ballast vs. income vs. interest rate risk, etc.

If ballast, only long-term treasuries (15+ years) offer any meaningful equity hedge, at least historically. Unfortunately, you're giving up a LOT of income and taking a high interest rate risk. Look at EDV. Lower duration treasuries like IEF provide some protection against interest rate risk, but also don't zig as much when stocks zag--but paltry yields! Good thing is that usually a 20% portfolio allocation is all you need for protection. However, it's an unknown whether they would react as strongly in another near-term crash while interest rates are so low. I would recommend at least a nominal allocation. Long term TIPS provide similar protection, offer inflation protection, but still suffer interest rate risk.

If income only, the Fed is backstopping the BB high yield credit market, represented by ETFs like FALN and ANGL. I suspect this will be a temporary situation, but "temporary" could be at least another couple years. The credit risk is exceptionally low right now for this level but avoid funds with quality below BB.

If you are willing to take some credit risk, but avoid interest rate risk, look at a floating rate preferred stock ETF like VRP. Yield is well over 4% right now, although this will likely decline in coming months as rates reset to Libor +. You could balance it with another fixed rate preferred stock ETF like PFFD, but this will get smoked when rates rise.

I wouldn't rule out looking at some select emerging market bonds as well. I would tilt corporate due to the low interest rates, but this is historically a volatile sector. Honestly, it's one of the few areas where I prefer active management given its illiquid nature, but this will cut into your yield.

Again, the choices are tough but at least the risks are pretty well known right now, unlike the equity market which I think offers more terrifying unknown risks.
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BolderBoy
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Re: Where to invest fixed income?

Post by BolderBoy »

You may be overthinking this.

Vanguard's VBTLX is showing YTD total return of 7% as of 8/31/2020.

Wouldn't that be good enough? It's where I have most of my bond exposure.
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dbr
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Re: Where to invest fixed income?

Post by dbr »

The BH philosophy on this kind of thing is to massively overanalyze bonds and then split in twenty different directions regarding what optimum may or may not exist or whether some immediate alarming action needs to be taken. You can probably decide, or more likely fail to decide, for yourself after a few hours reading of all the discussion this generates on the forum.

I am in a camp that says it doesn't make much difference except at the extremes of duration and credit risk. That would be the range from Treasury Bills and FDIC insured CDs to long term junk bonds. There is a theory here that the characteristics of bonds that matter are the two factors of duration and credit quality just mentioned.

People also have all sorts of agendas regarding what they are trying to accomplish from "where do I park $10" (by keeping it in your coffee tin and not spending it) to how can I get maximum diversification efficiency from my large high risk portfolio (by combining lots of stocks and some long Treasuries).

Current discussion is driven by a lot of consternation regarding historically low interest rates and a somewhat flat yield curve, a problem for investors that does not have a solution except HTHU. There is also some alarm over upsets in the extraordinary events of this year. People invested in middle of the road durations and credit quality for longer time lines may well not even look and not worry about it. I don't know if someone concentrated in certain muni portfolios might not take a closer look.
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RetiredCSProf
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Re: Where to invest fixed income?

Post by RetiredCSProf »

The AA of my rollover IRAs is quickly becoming more bond-heavy as I convert equities to Roth. In a few years, I am likely to be at 40 / 60 in my tax-deferred space -- so I am paying more attention to the bond funds.

Vanguard's Total Bond ETF (BND) seeks results that correspond to the Bloomberg Barclay US Aggregate Bond Index. This Index is tracked by two hypothetical portfolios on my list:
#4 -- 100% in iShares Core Aggregate Bond ETF (AGG)
#5 -- 100% in Fidelity US Bond Index Fund (FXNAX)

Comparing the underlying composition of BND, AGG, and FXNAX shows that BND tilts more toward Corp and Gov, and away from MBS. This implies that there is a lot of "wiggle room" in tracking the Aggregate Bond index, much more so than in choosing an S&P 500 index fund.

Nearly four years ago, I moved into Fido from a managed account where I was invested in BND, AGG, EMB (EM bonds), FLTB (Short-term bonds), BNDX (int'l bonds), PHB (hi yield corp), PFIG (corp bond), and IGIB (corp bond). I sold these bond ETFs and invested in MFs recommended by Fido.

I am considering trading again into a more "BH"-type of bond allocation -- if I can figure out what that is!
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Kevin M
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Re: Where to invest fixed income?

Post by Kevin M »

BolderBoy wrote: Thu Sep 10, 2020 8:54 pm You may be overthinking this.

Vanguard's VBTLX is showing YTD total return of 7% as of 8/31/2020.

Wouldn't that be good enough? It's where I have most of my bond exposure.
If past return is how you determine "good enough", then would the end of 2013, with a return of -2.15%, or the end of 2018 with a return of -0.03%, been not good enough?

The SEC yield of 1.16% is more meaningful in terms of expected return over the next 5-10 years, but even that is just somewhere in the middle of a range of possible returns, which based on history, could very well be anywhere from 0% to 2%--almost certainly nowhere near 7%, with an initial yield close to 1%.

I'm not saying not to use this fund--just don't confuse past return with expected return.

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sycamore
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Re: Where to invest fixed income?

Post by sycamore »

RetiredCSProf wrote: Fri Sep 11, 2020 5:23 pm The AA of my rollover IRAs is quickly becoming more bond-heavy as I convert equities to Roth. In a few years, I am likely to be at 40 / 60 in my tax-deferred space -- so I am paying more attention to the bond funds.

Vanguard's Total Bond ETF (BND) seeks results that correspond to the Bloomberg Barclay US Aggregate Bond Index. This Index is tracked by two hypothetical portfolios on my list:
#4 -- 100% in iShares Core Aggregate Bond ETF (AGG)
#5 -- 100% in Fidelity US Bond Index Fund (FXNAX)

Comparing the underlying composition of BND, AGG, and FXNAX shows that BND tilts more toward Corp and Gov, and away from MBS. This implies that there is a lot of "wiggle room" in tracking the Aggregate Bond index, much more so than in choosing an S&P 500 index fund.

Nearly four years ago, I moved into Fido from a managed account where I was invested in BND, AGG, EMB (EM bonds), FLTB (Short-term bonds), BNDX (int'l bonds), PHB (hi yield corp), PFIG (corp bond), and IGIB (corp bond). I sold these bond ETFs and invested in MFs recommended by Fido.

I am considering trading again into a more "BH"-type of bond allocation -- if I can figure out what that is!
A BH-type of bond allocation is really about what fits your reason for holding bonds, your risk tolerance, and keeping expenses low. Any of BND, AGG, or FXNAX are good choices for a wide range of risk tolerances and reasons for holding bonds. All of those funds are low cost.

Regarding the difference in composition for BND, AGG, and FXNAX:
1) When doing a comparison, make sure you're using the same "data as of" date. For example, at morningstar.com right now, the portfolio tab for AGG says data as of Sep 9 but FXNAX as of Jul 31.

2) BND tracks a slightly different index: Bloomberg Barclays U.S. Aggregate Float Adjusted Bond Index. This might account for some of the composition differences.

3) Each fund's investment policy may allow for non-trivial wiggle room you're seeing. For example the BND investment policy (click on the "strategy and policy" link) says:
- The fund will invest at least 80% of its assets in bonds held in its target index. Up to 20% of each fund’s assets may be used to purchase nonpublic, investment-grade securities, generally referred to as 144A securities, as well as smaller public issues or medium-term notes not included in the index because of the small size of the issue.

- Subject to the same 20% limit, the fund may also purchase other investments that are outside of their target indexes or may hold bonds that, when acquired, were included in the index but subsequently were removed.
Basically don't count on the fund name telling you exactly what it invests in.

I think the differences of a few % are minor enough to ignore. I'd pick from AGG, BND, or FXNAX based on expense ratio and whether I wanted ETF or mutual fund.
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Re: Where to invest fixed income?

Post by Always passive »

7eight9 wrote: Thu Sep 10, 2020 8:19 pm You might want to consider other fixed income products in addition to your bonds.

Multi-Year Guarantee Annuities (MYGAs) are also called fixed-rate annuities and are a specific annuity product type that functions similarly to a CD (Certificate of Deposit).
https://www.stantheannuityman.com/myga-rates

For example, looking at Nevada 5 year rates we see the following possibilities (highest rate in each respective rating category):
3.45% Upstream Life Insurance Company B++
2.90% Sagicor Life Insurance Company A-
2.50% Athene Annuity & Life Assurance Company A
2.50% Midland National Life Insurance Company A+
1.40% Massachusetts Mutual Life Insurance Company A++
Can you buy them in your IRA? Also can you get them through Fidelity? I noticed that there are 3 year MYGAs yielding 2+%, meaning you get at least your inflation. I do not know if there is any investment grade bond doing that.
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Re: Where to invest fixed income?

Post by Stinky »

Always passive wrote: Sat Sep 12, 2020 1:57 am
7eight9 wrote: Thu Sep 10, 2020 8:19 pm You might want to consider other fixed income products in addition to your bonds.

Multi-Year Guarantee Annuities (MYGAs) are also called fixed-rate annuities and are a specific annuity product type that functions similarly to a CD (Certificate of Deposit).
https://www.stantheannuityman.com/myga-rates

For example, looking at Nevada 5 year rates we see the following possibilities (highest rate in each respective rating category):
3.45% Upstream Life Insurance Company B++
2.90% Sagicor Life Insurance Company A-
2.50% Athene Annuity & Life Assurance Company A
2.50% Midland National Life Insurance Company A+
1.40% Massachusetts Mutual Life Insurance Company A++
Can you buy them in your IRA? Also can you get them through Fidelity? I noticed that there are 3 year MYGAs yielding 2+%, meaning you get at least your inflation. I do not know if there is any investment grade bond doing that.
Yes, you can buy them in your IRA. I believe that you can also get them through Fidelity; however, I don't believe that Fidelity doesn't offer products from lower-rated insurers, and doesn't capture all of the higher rates listed above.

I've purchased MYGAs in my IRA to set up a "MYGA ladder", similar in concept to a CD ladder.

Two important things to be aware of with a MYGA:
---- There are punishing surrender charges for withdrawals prior to the expiration of the full MYGA term. So buy a MYGA only if you are highly confident that you won't need the principal prior to the expiration of the full term. (Many MYGAs allow smaller withdrawals prior to the expiration date without penalty.)
---- There is no FDIC insurance, but there is coverage by your state life and health guaranty fund.
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Re: Where to invest fixed income?

Post by ruralavalon »

I don't believe there is a consensus Boglehead recommendation.

We have all of our fixed income allocation in Vanguard Intermediate-term Bond Index Fund (VBILX), it is 50% government bonds, 50% corporate bonds, and 00% Mortgage Backed Securities (MBS). The current SEC Yield = 1.03%, effective duration = 6.49 years, credit rating = A.. This is held in my rollover IRA.
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Re: Where to invest fixed income?

Post by Always passive »

ruralavalon wrote: Sat Sep 12, 2020 11:39 am I don't believe there is a consensus Boglehead recommendation.

We have all of our fixed income allocation in Vanguard Intermediate-term Bond Index Fund (VBILX), it is 50% government bonds, 50% corporate bonds, and 00% Mortgage Backed Securities (MBS). The current SEC Yield = 1.03%, effective duration = 6.49 years, credit rating = A.. This is held in my rollover IRA.
Given the current yield, why keep a bond with such long duration. What about a Vanguard short term bond fund?
unbiased
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Re: Where to invest fixed income?

Post by unbiased »

Hey CSProf, did you ever say what you wanted to prioritize for this allocation (i.e. income, total return, etc.)? I think you need to structure your bond allocation based on that. It doesn't have to be complex. You can just do a total bond market index, a dash of international and EM, and then allocate a certain amount to high yield or something more volatile if you want income.

I personally invest in discrete corners of the bond market to take advantage of different risk/reward in certain areas, but I am a tinkerer.
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Re: Where to invest fixed income?

Post by Robot Monster »

You may be interested in the section "What investors should consider now" in this article written by Chief Fixed Income Strategist at Schwab. The whole article is worth a look.
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Re: Where to invest fixed income?

Post by Always passive »

Robot Monster wrote: Sat Sep 12, 2020 2:00 pm You may be interested in the section "What investors should consider now" in this article written by Chief Fixed Income Strategist at Schwab. The whole article is worth a look.
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Re: Where to invest fixed income?

Post by ruralavalon »

Always passive wrote: Sat Sep 12, 2020 12:08 pm
ruralavalon wrote: Sat Sep 12, 2020 11:39 am I don't believe there is a consensus Boglehead recommendation.

We have all of our fixed income allocation in Vanguard Intermediate-term Bond Index Fund (VBILX), it is 50% government bonds, 50% corporate bonds, and 00% Mortgage Backed Securities (MBS). The current SEC Yield = 1.03%, effective duration = 6.49 years, credit rating = A.. This is held in my rollover IRA.
Given the current yield, why keep a bond with such long duration. What about a Vanguard short term bond fund?
I invest for the long-term, not based on current conditions.

A favorite quote from 2014 is "There are currently a lot of people that think rates are so low that there is nowhere to move but up. They have thought this for six years now."
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Re: Where to invest fixed income?

Post by Always passive »

ruralavalon wrote: Sat Sep 12, 2020 3:31 pm
Always passive wrote: Sat Sep 12, 2020 12:08 pm
ruralavalon wrote: Sat Sep 12, 2020 11:39 am I don't believe there is a consensus Boglehead recommendation.

We have all of our fixed income allocation in Vanguard Intermediate-term Bond Index Fund (VBILX), it is 50% government bonds, 50% corporate bonds, and 00% Mortgage Backed Securities (MBS). The current SEC Yield = 1.03%, effective duration = 6.49 years, credit rating = A.. This is held in my rollover IRA.
Given the current yield, why keep a bond with such long duration. What about a Vanguard short term bond fund?
I invest for the long-term, not based on current conditions.

A favorite quote from 2014 is "There are currently a lot of people that think rates are so low that there is nowhere to move but up. They have thought this for six years now."
I fully agree, I do look at the long term; but if you believe the Fed, which I highly respect, we are in for years of zero (not low!) interest rates.
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RetiredCSProf
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Re: Where to invest fixed income?

Post by RetiredCSProf »

In lieu of a concise BH philosophy on bond fund investing, I'm trying to apply basic BH concepts. My goals for fixed income are to preserve capital, earn some interest (keep pace with inflation), and provide some downside protection when equities slide (enough to cover annual RMDs). My current fixed income AA in Fido rollover is tilted toward corporate and overweight in "junk bonds." This gives me a nice yield but high credit risk. In March, I took a hit in my actively-managed ST Bond Fund because it was overweight in the debt of the airline industry.

One poster suggested LT Treas, another suggested ST bonds, and another suggested a single aggregate bond fund. Rather than trade all my bond fund holdings into a single aggregate bond fund, I am considering moving a substantial portion into Treasury bond index funds. This approach would reduce my credit risk, but also reduce my yield, and increase interest rate risk and inflation risk. It follows the BH concepts of "stay the course" and "keep costs low" but not "keep it simple."

One approach I am considering is to build a "reverse ladder" of Treas bond index funds. The funds with the longest duration provide the highest yield (currently 1.38%) but also the highest interest rate risk -- so I would want to sell these funds first if/when interest rates rise. The funds with the shortest duration are the least sensitive to interest rate risk. This does seem backwards -- sell LT Treas bond funds first and ultra-short term bond funds last. Another option is to buy a Treas bond fund that already has a "built-in" ladder.

I have a small portion in Fid Intermediate Treas Bond Index Fund (FUAMX). I looked at the full range of Treas Bond Index funds offered as ETFs:
1. Vanguard Extended Duration Treasury Fund (EDV) and similar ETFs (ZROZ, TLT) with a duration of 20-30 years
2. Vanguard Long Term Treas (VGLT) and similar ETFs (SPTL, TLH) with a duration of 10+ years
3. iShares 7-10 year Treas Bond (IEF)
4. Vanguard Intermed Term Treas (VGIT) and similar ETFs (SPTI, SCHR) with a duration of 3-10 years -- similar to FUAMX
5. iShares 3-7 Year Treas (IEI)
6. iShares Trust Lehman 1-3 YR (SHY) and similar ETFs (VGSH, SCHO) with a duration of 1-3 years -- "Short Term Treas Bonds"
7. iShares Short Treas (SHV) and similar ETFs (GBIL, CLTL) with a duration of 0-12 months -- "Ultra Short Term Treas Bonds"
8. SPDR Bloomberg 1-3 month T-Bill (BIL) and similar ETFs (SGOV) with a duration of up to 3 months
9. iShares US Treas Bond (GOVT) with a duration of 1-30 years, market cap-weighted across years
10 Invesco 1-30 Laddered Treas (PLB) with a duration of 1-30 years, equal-weighted across years

A Treas Bond Fund ladder would follow the BH concepts to "diversify" and "moderate risk." It is not "timing the market" -- but I would be "timing" changes in interest rates and inflation rates when I sell. Also, the longer-term bond funds are pricey right now, but shorter term bond funds seem to be less costly.
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Re: Where to invest fixed income?

Post by sycamore »

RetiredCSProf wrote: Sun Sep 13, 2020 7:19 pm ...
My goals for fixed income are to preserve capital, earn some interest (keep pace with inflation), and provide some downside protection when equities slide (enough to cover annual RMDs). ...
Regarding your goals, does "preserve capital" mean you don't want any of your fixed income to ever lose principal like when interest rates go up? Or that even day-to-day fluctuations in a bond fund is not acceptable? If so, a bond fund is not right for you. A bond fund has a rolling maturity. There's no way with a fund to guarantee the net asset value won't ever drop below your purchase price. Use a ladder of CDs or individual bonds with a fixed maturity.

If you're okay with some day-to-day fluctuations then bond funds are okay. If you want to keep those fluctuations low, then use short-term funds. If you're okay with moderate fluctuations, then an intermediate-term fund is okay. If you have a long enough investing horizon that even large fluctuations won't matter, then long-term funds are okay.

Downside protection when equities slide means a good-sized portion of US Treasury holdings.

Keeping pace with inflation will be very hard in today's world of low interest rates. You'll need some some credit risk (corporate bonds) and/or longer duration (intermediate or longer). Consider I-Bonds, though there's a limit on how much you can purchase each year.


Here's one idea... many BHers like to "take risk on the equity side." What that often means is owning only US Treasuries for fixed income, as that will preserve capital and provide downside protection. If that doesn't keep up with inflation, you have to take on extra risk but instead of doing it with corporate or muni bonds you instead buy a few more equities. Say, go from 55/45 stocks/bonds to 60/40.

I'll voice my support for using a single aggregate bond index fund. I think it will fulfill most of your goals most of the time. And it's certainly a simple approach.
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Re: Where to invest fixed income?

Post by Kevin M »

Always passive wrote: Sat Sep 12, 2020 3:42 pm I fully agree, I do look at the long term; but if you believe the Fed, which I highly respect, we are in for years of zero (not low!) interest rates.
Bond funds do not invest at the federal funds rate, which is the target interest rate set by the FOMC at which commercial banks borrow and lend their excess reserves to each other overnight. Bond yields generally are not 0%, although Treasury yields are not much above that at shorter maturities.

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Re: Where to invest fixed income?

Post by Always passive »

Kevin M wrote: Mon Sep 14, 2020 1:45 pm
Always passive wrote: Sat Sep 12, 2020 3:42 pm I fully agree, I do look at the long term; but if you believe the Fed, which I highly respect, we are in for years of zero (not low!) interest rates.
Bond funds do not invest at the federal funds rate, which is the target interest rate set by the FOMC at which commercial banks borrow and lend their excess reserves to each other overnight. Bond yields generally are not 0%, although Treasury yields are not much above that at shorter maturities.

Image

Kevin
You are right, but the Fed has insinuated that they may control the yield curve to keep yields low. They have done that before and they can do it again. They have the printing machine and can trade bonds of all maturities without much effort!
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RetiredCSProf
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Re: Where to invest fixed income?

Post by RetiredCSProf »

sycamore wrote: Sun Sep 13, 2020 7:42 pm Here's one idea... many BHers like to "take risk on the equity side." What that often means is owning only US Treasuries for fixed income, as that will preserve capital and provide downside protection. If that doesn't keep up with inflation, you have to take on extra risk but instead of doing it with corporate or muni bonds you instead buy a few more equities. Say, go from 55/45 stocks/bonds to 60/40.

I'll voice my support for using a single aggregate bond index fund. I think it will fulfill most of your goals most of the time. And it's certainly a simple approach.
I may consider more equities in my Fido rollover IRA. My tax-advantaged investments at Fido are currently 97% equity / 3% MM in Roth (55% of the portfolio) and 45/52/3 stocks / bonds / MM in the rollover IRA. This gives me 70% equities overall.

Going to 60/40 in the rollover IRA would give me 80/20 in my overall tax-advantaged portfolio at Fido.
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Re: Where to invest fixed income?

Post by bog007 »

vasix
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RetiredCSProf
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Re: Where to invest fixed income?

Post by RetiredCSProf »

bog007 wrote: Mon Sep 14, 2020 4:27 pmvasix
I don't know anything about "vasix"

I searched for it on my Fido account -- it says I would need to pay a $75 transaction fee to purchase it.
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Re: Where to invest fixed income?

Post by ruralavalon »

RetiredCSProf wrote: Mon Sep 14, 2020 6:36 pm
bog007 wrote: Mon Sep 14, 2020 4:27 pmvasix
I don't know anything about "vasix"

I searched for it on my Fido account -- it says I would need to pay a $75 transaction fee to purchase it.
Vanguard LifeStrategy Income Fund (VASIX) ER 0.11%, the asset allocation is 20% stocks and 80% bonds.

Fidelity's fund line-up is weak in balanced funds like this.

At Fidelity if you want a low expense balanced fund then you might consider iShares Core Allocation ETFs (AOK), (AOM), (AOR), (AOA), ER 0.25%
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Re: Where to invest fixed income?

Post by RetiredCSProf »

unbiased wrote: Sat Sep 12, 2020 12:51 pm Hey CSProf, did you ever say what you wanted to prioritize for this allocation (i.e. income, total return, etc.)? I think you need to structure your bond allocation based on that. It doesn't have to be complex. You can just do a total bond market index, a dash of international and EM, and then allocate a certain amount to high yield or something more volatile if you want income.

I personally invest in discrete corners of the bond market to take advantage of different risk/reward in certain areas, but I am a tinkerer.
I doubt that there is a single fixed-income instrument that can meet all my needs in one place, so I think I will need to commit to diversification:

1. US Treas bond index funds are low cost and offer the best buffer against volatility in a downmarket when I need to withdraw funds for annual RMDs and QCDs -- these withdrawals are relatively small now (under 4%) but at some point will be over 10% annually of my tax-deferred portfolio. The biggest risk with the US Treas bond funds is interest rate changes and inflation. Looking at asset allocation funds, it seems that it is reasonable to devote 2.3% of my tax-deferred portfolio to long-term US Treas bond funds.

2. Intermediate core bond funds (such as BND, AGG, and FXNAX) are low cost and have low credit risk, not as much downside protection as US Treas bond funds, but offer higher yield. BND, AGG, and FXNAX invest in US only; however, Fid Investment Grade Bond Fund (FBNDX) is an actively managed core bond that incorporates up to 25% in foreign fixed income

3. Core-plus fixed-income bond funds, such as ETFs IUSB and FBND, include high yield, bank loans, and foreign currency, which increases the credit risk but (based on past returns) gives a higher long-term return -- helps with preserving capital.

4. The "extras" (high yield, bank loan, and foreign currency) can also be purchased separately to supplement core bond funds.

I do not think I want an asset allocation fund, such as VASIX, which has low turnover and varies between 15-35% in equities.
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