7 Years' Living Expenses Largely in Short-Term Bond ETF: Thoughts?

[Texas Proud]

That is defintiely true, Texas. The trouble is for me anyways in the sandbox I'm playing in, the companies that have 6% plus preferreds are issuing their senior debt at 3-4%. Right or wrong I made decision to buy lower capital structure "debt" from higher rated companies, than senior debt from lower rated companies.
Audrey, thanks for sharing your reasons.


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Yes... a preferred from a higher rated company is better than a bond from a low rated one...

Is the premium really 2 to 3% That seems a bit high to me.... but I do not know... just a gut feeling..

 

[Mulligan]

Yes... a preferred from a higher rated company is better than a bond from a low rated one...

Is the premium really 2 to 3% That seems a bit high to me.... but I do not know... just a gut feeling..

One example I own is Ameren (AEE). They recently issued 2 debt offerrings. A 2025 maturity paying 3.25% and another due 2044 at 4.3%. I recently purchased some of their cummulative preferred paying 6.4% (AILLL). The preferred was Baa3 rated, so obviously the notes were higher rated than the preferreds. Like I mentioned, I read the the "spread" between bonds and treasuries are unusually high in relation to preferreds. Not a defimitive reason to justify purchases, but a good sign none the less.


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[Sunset]

I actually wasn't responding to you, I know you know what you are holding. I was responding to the OP's choices of using VCSH a to hold 6 years of cash, and to Sunset.

I totally admit I bought VCSH simply because it was not stock.

My stock allocation is pretty high, I justify this in my mind by counting rentals as bond equivalents.

Now that I'm selling a rental I wanted to get more bonds in case stocks plunge again, I'll have something I can sell over a few years.

Any suggestions , and where to read on them ?
Should I directly buy bonds to guarantee capital preservation (like 2-4 yr bonds if they are available ? ) from Cities/States/Feds ?

 

[audreyh1]

I totally admit I bought VCSH simply because it was not stock.

My stock allocation is pretty high, I justify this in my mind by counting rentals as bond equivalents.

Now that I'm selling a rental I wanted to get more bonds in case stocks plunge again, I'll have something I can sell over a few years.

Any suggestions , and where to read on them ?
Should I directly buy bonds to guarantee capital preservation (like 2-4 yr bonds if they are available ? ) from Cities/States/Feds ?

If you are looking to balance against your large stock position, you probably don't want to hold only corporate bonds, as like stocks they are vulnerable to economic downturns. You might consider a more broadly diversified bond ETF like BSV. Or don't worry about staying short-term, if it's not a cash substitute, and pick something intermediate duration like BIV or BND if you plan on holding the position for the long term anyway. You can always hold both some short and some intermediate.

I don't know anything about capital preservation other than cash or treasuries/IBonds.

 

[Sunset]

These two vanguard intermediate bond investments look pretty close,
VBILX (which is also available as etf BIV)


BND (an etf)




I can't really see to prefer one over the other, but maybe someone else has a reason I should pick one vs the other ?


https://personal.vanguard.com/us/funds/snapshot?FundId=5314&FundIntExt=INT
vs
https://personal.vanguard.com/us/funds/snapshot?FundId=0928&FundIntExt=INT



I think there are two questions here

etf comparison BIV vs BND

and Why pick a fund over etf for bonds when supposedly the same content ?

 

[audreyh1]

These two vanguard intermediate bond investments look pretty close,
VBILX (which is also available as etf BIV)


BND (an etf)




I can't really see to prefer one over the other, but maybe someone else has a reason I should pick one vs the other ?


https://personal.vanguard.com/us/funds/snapshot?FundId=5314&FundIntExt=INT
vs
https://personal.vanguard.com/us/funds/snapshot?FundId=0928&FundIntExt=INT



I think there are two questions here

etf comparison BIV vs BND

and Why pick a fund over etf for bonds when supposedly the same content ?

It's probably worth spending some time reviewing the options. Here is just one article among many you can find with a search on good core bond ETFs or funds : Best ETFs: Medium-Term Bond Funds - Forbes

ETFs tend to be lower in expense. Depending on where you own them, trading may be commision free as well. AGG is a bond index that's often used as the benchmark for diversified intermediate bond funds. It's also low-cost.

The core intermediate bond funds I own are in the 4 or 5 year duration rather than the 6 years of the Vanguard ETFs, but that probably doesn't matter that much for the long run - i.e. for a long term holding period. If you care about having some money available in 1, 2, 3, 4, 5 years, etc. you can accommodate this with a mix of cash, short-term and then intermediate term bonds.

I have a large position in DODIX - that's an example of a core intermediate fund. It's not an index, and it's not as inexpensive as the Vanguard offerings or ETFs. MWTRX is another core bond fund that generally gets good marks. These are just examples.

 

[mathjak107]

etf bond funds may be not a great choice . etf's can trade at a premuim or discount to assets. on equity funds that difference is so small it is not even worth thinking about. but bond funds are another story. the premiums and discounts can range quite a bit ,especially where high yield is involved.

if you buy at a premium and sell at a discount you can see poorer results than a conventional open ended fund.

in a down market etf bond funds tend to get hit harder than the assets it holds and are more volatile since you can short sell them.

http://www.forbes.com/sites/investor/2013/03/07/five-reasons-bond-funds-are-better-than-etfs/