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Re: Bond Exposure
Old 04-28-2005, 06:35 PM   #21
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Re: Bond Exposure

Hi Bull,

IMHO you should stay with the safe stuff like I-Bonds
and CD's while you are building up your FI account.
You can always branch out into High Yield and GIM
later on.

At your age you never know when you will want the
down payment for a house, etc. You can always
count on getting your money out of I-bonds and
CD's when you need it. The volatility of High Yield
and GIM might cause you some heartburn if you
wanted to sell them at the wrong time.

Cheers,

Charlie
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Re: Bond Exposure
Old 04-28-2005, 07:29 PM   #22
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Re: Bond Exposure

Sorry if I gave the impression that I liked vanguards high yield. In fact, you arent getting paid well enough to take on the risk of most high yield right now. I cant see a single high dividend paying bond thats worth the capital risk.

Johnny...not one captive finance company that i'm aware of has survived the demise of its corporate sponsor. I'm still praying for ya.
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Re: Bond Exposure
Old 04-28-2005, 07:46 PM   #23
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Re: Bond Exposure

Thanks for the responses. It seems like we're between Vanguard Total Bond VBMFX and Global Income GIM. What would be best for me? I am really torn between the two. I see advantages and disadvantages to both.
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Re: Bond Exposure
Old 04-28-2005, 07:59 PM   #24
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Re: Bond Exposure

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.
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Re: Bond Exposure
Old 04-28-2005, 08:14 PM   #25
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Re: Bond Exposure

Quote:
Several pundits suggest that the only bonds you ever need to own is something akin to vanguards short term investment grade fund.
This seems too conservative to me.
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Re: Bond Exposure
Old 04-28-2005, 08:52 PM   #26
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Re: 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!
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Re: Bond Exposure
Old 04-28-2005, 08:56 PM   #27
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Re: Bond Exposure

Quote:
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.

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.
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Re: Bond Exposure
Old 04-29-2005, 06:11 AM   #28
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Re: Bond Exposure

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.
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Re: Bond Exposure
Old 04-29-2005, 06:30 AM   #29
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Re: Bond Exposure

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
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Re: Bond Exposure
Old 04-29-2005, 09:15 AM   #30
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Re: Bond Exposure

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?
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Re: Bond Exposure
Old 04-29-2005, 09:43 AM   #31
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Re: Bond Exposure

Quote:

This seems too conservative to me.
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.
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Re: Bond Exposure
Old 04-29-2005, 09:49 AM   #32
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Re: Bond Exposure

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
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Re: Bond Exposure
Old 04-29-2005, 05:56 PM   #33
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Re: Bond Exposure

Quote:
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.
I bought VFIIX a few months ago. NAV is nearly flat and those monthly divvys keep rolling in
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Re: Bond Exposure
Old 05-02-2005, 10:30 AM   #34
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Re: Bond Exposure

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
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Re: Bond Exposure
Old 05-02-2005, 10:39 AM   #35
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Re: Bond Exposure

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.
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Re: Bond Exposure
Old 05-02-2005, 10:46 AM   #36
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Re: Bond Exposure

Martha, you have to hold 5 years to cash without penalty.* You
can cash after 1 year with a 3 month penalty.

Cheers,

Charlie
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Re: Bond Exposure
Old 05-02-2005, 10:58 AM   #37
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Re: Bond Exposure

Quote:
Originally Posted by charlie
TH, are you paying attention?
I'm trying Charlie...I just cant get excited about them still...maybe at 2% "sort-of-real" I'd bite on some.
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Re: Bond Exposure
Old 05-02-2005, 01:18 PM   #38
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Re: Bond Exposure

Quote:
Originally Posted by charlie
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
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.
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Re: Bond Exposure
Old 05-02-2005, 01:38 PM   #39
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Re: Bond Exposure

Quote:
Originally Posted by charlie
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%.
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.
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Re: Bond Exposure
Old 05-02-2005, 01:47 PM   #40
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Re: Bond Exposure

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.
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