Bond Exposure

GIM contains foreign bonds - personally I want to have both US and foreign bonds so both GIM and the US fund seems the right thing should one want global bond exposure. Cheers!
 
I was snooping around on the Vanguard website. Anyone like VFIIX, Vanguard GNMA Fund? They look a little less volitile than the Vanguard Total Bond and yield a little higher.
Click to expand...


Berkshire Bull,
I've owned GNMA fund for about 15 years, sometimes lots of it. After all that time, however, I still am not sure I understand why it pays a premium to treasuries, but it does.-- generally about a half percent a year.

These are not bonds that can be prepaid, like mortgage backs. THese are bonds that GNMA itself issues to raise capital to buy mortgages., and are supposed to have the normal agency guarantee, which may not be all its cracked up to be (which could explain the .5% - answering my own question post Fannie Mae era).

TH, 25% default rate on VWEHX sounds high, but I can't find stats anywhere. I've asked the question at Vanguard and will post what I learn. My understanding has always been that they picked only the 'best junk' which kept their default rate low, but also kept yield low - now at 6.75%. Still it hasn't been a great year for junk.

I'm with you on praying for John and his GMAC bonds -- i wince every time I read another story about GM. But hey, he's a big guy and he knows what he's doing. My guess is JG will be laughing hearty long after I'm dead or broke.
 
On GM/GMAC:

GM appears to have a gaping hole in its business and nobody seems to be able to see the bottom. OTOH, GMAC has a large, healthy business that includes a very sizable mortgage banking operation. If you look at companies like Westcorp (independent auto lender) and Countrywide (big mortgage bank), GMAC could be sold for maybe 1.5 to 2X book.

Bond pricing:

If a 5% coupon bond is priced to yield 9%, the price you pay is less than par.
 
I think some big corp. would snap up GMAC in a heartbeat.
It would be a bitter pill for GM though. Things would
have to get a bit more chewy before they seriously consider selling it IMHO.

JG
 
Thanks for the replies everyone. What I did this morning is buy 500 shares of the GIM for $4500 of my $10,000, and I'll put the other $6,000 into the Vanguard GNMA fund for now since the total bond index fund has a fee if I don't have $10,000 in it. Sound like a good plan?
 
This seems too conservative to me.
Click to expand...

Bernstein evaluated this in "the four pillars". My recollection from reading this a year ago isnt superb, but he had lots of charts and graphs that showed that you were getting only a very modest increase in return by going to intermediate bonds while taking on significantly higher interest rate risk and that there was absolutely no benefit over the long haul to buying long term bonds.

ESRBob...that 25% rate is something I saw someone post on another site...the only reason why I repeated it at all with that "extensive" background on the source is that the guy who said it invests heavily in bonds and has been a reliable source of info before. But it did seem pretty dang high to me as well.

I own a tiny, tiny bit of GNMA. As I understand it the major risk of buying/owning at a time like today is that if rates escalate a lot of the current refi craze will dissipate, leaving only new mortgage business to consolidate and sell gnma bonds against. I believe that means your fund yields would rise more slowly than a short bond fund would, perhaps leaving you a little behind for the short term. That having been said, there isnt a lot of default risk in them, and they do pay better than treasuries...I think you're well compensated for that marginal risk.
 
Well Bull, you made your move so good luck. I still
think (along with Swedroe, Bernstein, etc.) that
unexciting, non-volatile fixed income investments
are better in the early years to offset the volatility
of the stock market and to give you a fall-back
cushion to cover emergencies like getting laid off,
new house, etc. when you are young and restless.

Cheers,

Charlie
 
I was snooping around on the Vanguard website. Anyone like VFIIX, Vanguard GNMA Fund? They look a little less volitile than the Vanguard Total Bond and yield a little higher.
Click to expand...

I bought VFIIX a few months ago. NAV is nearly flat and those monthly divvys keep rolling in :D
 
Hi all,

The new I-bond rate is 4.8% for the next 6 months .... up from
3.67%. The real component is 1.2% up from 1.0%.

The new fixed rate for EE bonds is 3.5% .... surprising low in my
estimation. Looks like the feds are discouraging EE's to me.

TH, are you paying attention?

Cheers,

Charlie
 
Charlie, how long do you have to hold I bonds before cashing without penalty? I can't remember. We have some wait around and see what to do with it money we need to find a home for.
 
Martha, you have to hold 5 years to cash without penalty.  You
can cash after 1 year with a 3 month penalty.

Cheers,

Charlie
 
charlie said:
Hi all,

The new I-bond rate is 4.8% for the next 6 months .... up from
3.67%. The real component is 1.2% up from 1.0%.

The new fixed rate for EE bonds is 3.5% .... surprising low in my
estimation. Looks like the feds are discouraging EE's to me.

TH, are you paying attention?

Cheers,

Charlie
Click to expand...
Thanks for the info Charlie. I have been buying a $1000 a month this year. The only new investment I have made. Maybe it's time to double that.
 
charlie said:
The new I-bond rate is 4.8% for the next 6 months .... up from
3.67%. The real component is 1.2% up from 1.0%.
Click to expand...

This looks like a no-brainer to me. I don't understand why TH isn't excited. The I-Bond rate matches the best 5 year CD rates available, beats the rates of high quality intermediate bond funds, is safe, has relatively painless liquidity after one year (can't lose money), is exempt from state taxes, interest is accrued tax free until the bond is cashed, and they are exempt from all taxes when used for education. I know is tough to get excited about bonds, but these seem like a great deal. I may go to a brick bank and buy some more.
 
I dont get any current income, I get a full sized tax whallop when I sell them. I'm also not really interested in putting money in at these rates when I know rates will be rising.

Sure, you can cash them in and take a penalty. Seems like a pain in the butt to me for an extra percent over six to twelve months.
 
ESRBob said:
TH, 25% default rate on VWEHX sounds high, but I can't find stats anywhere. I've asked the question at Vanguard and will post what I learn. My understanding has always been that they picked only the 'best junk' which kept their default rate low, but also kept yield low - now at 6.75%. Still it hasn't been a great year for junk.
Click to expand...

Just got this personal note back from my query to Vanguard - - looks like VWEHX has had better default rate than any of us anticipated. In fact the whole high yield sector looks like the growing economy and low interest rates have been kind...

>
The Vanguard High-Yield Corporate Portfolio had zero defaults in 2004. As
a result, the loss from default was 0.0%. Within the entire high yield
corporate market, 33 companies defaulted on high yield corporate loans with
a 12 month rolling par default rate of 1.27%.
>
 
TH, I think you have been changing too many diapers to smell the
roses ..... 4.8% on I-bonds is a good deal, IMHO.   :D

Yeah, no current income could be a show stopper for some.  
I like (need) current income from my FI  probably more than you,
but even I am thinking hard about taking a bite for the longer
term.  

As for rates rising the real component of 1.2% may or may not
change but you can count on the variable to track CPI.  If you
don't like the rates you can always cash in after 1 year with
only a 3 mo penalty.  At 4.8% that is about 1.2% of yield .....
leaving 3.6% ..... which is better than most 1 yr CD's.  

Say, didn't we have a similar discussion about 1-2 months ago?

Cheers,

Charlie
 
Its deja vu all over again :)

I can get 3.5% on CA intermediate munis, they pay out monthly, and they're 100% tax free!

Buy 'em today, sell 'em tomorrow, no hassles, no penalties, no taxes. NAVs arent bad either.

Not saying these ibond rates are bad, if you had a lump of cash you positively dont want to lose money on, want decent liquidity and dont mind a lump o' federal taxes at the end, they're good.

I was going to come up with some spin on "green eggs and ham" but I couldnt work 'ibonds' or anything with the word 'inflation' in it. The four hours of sleep isnt helping either.

ESRBob...thanks for getting the right info. I think I just made people feel even less certain that everything they read on the internet is true ;)
 
Th,

Both my daughters have some of their college accounts sitting in Prime MM. My oldest daughter draws on hers every 3 months and the youngest won't need to use hers for at least another year.

Even though we would not get the CA state credit, are these bonds a good choice for a college account?

Thanks,
LovesLife
 
I probably wouldnt use them for that. Your time horizon is too short and muni bonds have a little more potential volatility that you'd want for immediate term college money.

For the one a year+ away, ibonds arent a bad idea as the gains are tax free if used for education purposes. You cant get high 4% rates anywhere, risk and tax free.

What I *would* do is move the money from the prime money market fund to one of the tax free MM funds (I presume you're at vanguard?).

If you live in CA NJ NY PA or OH, you can get the same rates free of both federal and state taxes as you're getting with the prime MM fund; any other state and you can use the generic tax exempt MM fund and only have to pay state taxes on the interest.

Theres another thread going on this, same sub-forum. I'm a little curious as to why vanguards offering such great rates on their tax exempt mm's...makes putting your liquid cash into anything else irrelevant...maybe their prime MM rates are about to surge...?
 
Thanks, TH. Yes, we are at VG, so I will check out the tax-free MM.

Regards,
LovesLife
 
JG - You *do* know you're supposed to send in a tax return every year, even if they dont ask you to? ;)
 
Loveslife,

If you buy I-bonds for your child's education, make sure the bonds
are NOT in the child's name, otherwise the interest will not be
tax free.

Cheers,

Charlie
 
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