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03-05-2015, 08:27 PM
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#41
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Thinks s/he gets paid by the post
Join Date: Mar 2012
Posts: 1,555
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I'm holding a great deal of cash in an SV account which is earmarked for bond funds; the returns are about the same as the yield on the 10 Treasuries. When the time is right the money will go to bond funds. Not getting rid of any existing shares of bond funds, thought. They serve their purpose.
Sent from my iPad using Early Retirement Forum
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"Growing old is no excuse for growing up."
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03-05-2015, 10:20 PM
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#42
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 37,931
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If I had access to a stable value fund paying north of 2% I'd keep a large chunk there too.
__________________
Retired since summer 1999.
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03-06-2015, 04:41 AM
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#43
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Full time employment: Posting here.
Join Date: Jan 2013
Posts: 681
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Quote:
Originally Posted by photoguy
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The last time lawman was active in er.org, he started a thread in which I quoted from this very same article. In my case it was from peeve #2 concerning the overuse of the word "bubble". There must be something about lawman that brings out the Cliff Asness in all of us.
For the record, I agree 100% with Asness in the bond funds vs. individual bond debate, but generally don't engage in debate on this issue. As Asness says, this is not something that is likely to cost investors a significant amount of money either way.
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03-06-2015, 07:30 AM
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#44
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Thinks s/he gets paid by the post
Join Date: Jul 2008
Location: Weatherford, Texas
Posts: 1,213
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Quote:
Originally Posted by haha
I can't find anything wrong with this analysis. Still, some people will, and their preference for ladders will continue.
Ha
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Had not seen that before but Asness is able to explain what I believe but cannot articulate..A little confirmation is nice!
__________________
Life is good. Then you die.
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03-06-2015, 07:32 AM
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#45
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 37,931
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I'm glad folks brought up the Asness article because I missed it the prior times.
__________________
Retired since summer 1999.
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03-06-2015, 08:07 AM
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#46
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Thinks s/he gets paid by the post
Join Date: Jun 2014
Posts: 1,069
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Quote:
Originally Posted by fanmail
Is it neutral to selling/buying or does it cost you to hold?
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everyone fee's are different, and of course drag on return. I'm speaking in general open market pricing terms.
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03-06-2015, 08:18 AM
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#47
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Thinks s/he gets paid by the post
Join Date: Jun 2010
Posts: 2,301
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I hesitated to post the Asness article because I probably saw it first on bogleheads and I know a lot of forum members also view that site. But I thought the argument of interchangeability was so simple yet so clear.
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03-06-2015, 08:24 AM
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#48
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Recycles dryer sheets
Join Date: Sep 2012
Posts: 58
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Quote:
Originally Posted by dallas27
everyone fee's are different, and of course drag on return. I'm speaking in general open market pricing terms.
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I am talking about in general as well. Would you come out even (ignoring fees) or would holding somehow lose money?
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03-06-2015, 08:38 AM
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#49
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Thinks s/he gets paid by the post
Join Date: Jun 2014
Posts: 1,069
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Quote:
Originally Posted by fanmail
I am talking about in general as well. Would you come out even (ignoring fees) or would holding somehow lose money?
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(highly liquid) bonds are priced by the market, no different than a stock, it's value is relative to all other bonds at current rates. As long as you are getting a fair market value (that is, your broker isn't screwing you), you neither gain nor lose whether you sell or hold. There is no magic.
Realize the bond market is something like double or triple the size of the stock markets. It knows how to price a thing.
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03-06-2015, 09:29 AM
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#50
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Recycles dryer sheets
Join Date: Sep 2012
Posts: 58
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Quote:
Originally Posted by dallas27
(highly liquid) bonds are priced by the market, no different than a stock, it's value is relative to all other bonds at current rates. As long as you are getting a fair market value (that is, your broker isn't screwing you), you neither gain nor lose whether you sell or hold. There is no magic.
Realize the bond market is something like double or triple the size of the stock markets. It knows how to price a thing.
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I understand the mark to market aspect. So if you think a fund that only bought bonds and held to maturity would do no worse than a fund that sells lower rate and buys higher rate than I think there is a market for a buy only bond fund.
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03-06-2015, 10:21 AM
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#51
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Thinks s/he gets paid by the post
Join Date: Jun 2014
Posts: 1,069
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Quote:
Originally Posted by fanmail
I think there is a market for a buy only bond fund.
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There's a market for anything; snakeoil, yellow-cake uranium, and financial advice. It doesn't mean it is in any way beneficial.
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03-06-2015, 10:41 AM
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#52
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Recycles dryer sheets
Join Date: Sep 2012
Posts: 58
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If it wouldn't do worse than an active bond fund, then it is beneficial.
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03-07-2015, 08:14 AM
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#53
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Thinks s/he gets paid by the post
Join Date: Apr 2013
Location: Ormond Beach
Posts: 1,407
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Quote:
Originally Posted by audreyh1
If I had access to a stable value fund paying north of 2% I'd keep a large chunk there too.
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Same here, the one I have in my Fidelity-managed 401k is next to useless. It's been paying less than 2% for a couple of years now.
Quote:
Originally Posted by photoguy
I hesitated to post the Asness article because I probably saw it first on bogleheads and I know a lot of forum members also view that site. But I thought the argument of interchangeability was so simple yet so clear.
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Appreciate the post of the CFA article, that helps my understanding of why holding bond funds is really a non-issue especially when you're in it for the long term anyway.
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03-07-2015, 08:49 AM
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#54
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Quote:
Originally Posted by Animorph
You can avoid the primary interest rate effect on a bond fund if you never sell it until all be bonds in it have matured and interest rates are stable or falling. Pretty much the same as individual bonds, but maybe harder to ladder like individual bonds.
I think if you are holding the bond fund long-term and will not be selling, a bond fund and an individual bond will not be too different. If you need to sell while rates are rising you'd probably do better if you could sell a maturing individual bond.
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That was my logic as well going into ER at 53 with a 60/40 AA holding intermediate bond funds. The maths and US treasury rates made me think that I just had to accept 2% or 3% returns for the next 10 years for my fixed income. I wasn't really worried as my withdrawals were also 2% to 3% and I figured equities would take care of most of that. But then I got a chance to buy into an ex-employers pension plan with the following numbers.
7% starting payout
3% COLA
Internal interest rate for various ages ie how much annual gains I'd need on my lump sum to generate the same income stream as the pension.
Age Interest Rate
66 0% (I lived long enough to get my money back)
68 1.7% (getting close to 10 year US Treasuries)
70 3.6% (I'm feeling better about this)
74 6.0% (this is looking good)
80 7.7% (opening the champagne)
84 8.3% (my expected demise)
As a replacement for intermediate bonds this looks like a good deal. My numbers are significantly better than commercial ones, but some aspects are still compelling in a low interest rate environment.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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03-07-2015, 10:20 AM
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#55
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Thinks s/he gets paid by the post
Join Date: Jul 2008
Location: Weatherford, Texas
Posts: 1,213
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Quote:
Originally Posted by nun
That was my logic as well going into ER at 53 with a 60/40 AA holding intermediate bond funds. The maths and US treasury rates made me think that I just had to accept 2% or 3% returns for the next 10 years for my fixed income. I wasn't really worried as my withdrawals were also 2% to 3% and I figured equities would take care of most of that. But then I got a chance to buy into an ex-employers pension plan with the following numbers.
7% starting payout
3% COLA
Internal interest rate for various ages ie how much annual gains I'd need on my lump sum to generate the same income stream as the pension.
Age Interest Rate
66 0% (I lived long enough to get my money back)
68 1.7% (getting close to 10 year US Treasuries)
70 3.6% (I'm feeling better about this)
74 6.0% (this is looking good)
80 7.7% (opening the champagne)
84 8.3% (my expected demise)
As a replacement for intermediate bonds this looks like a good deal. My numbers are significantly better than commercial ones, but some aspects are still compelling in a low interest rate environment.
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Interesting...Not that I'm sure I would take it but I wish I had that option..
__________________
Life is good. Then you die.
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03-07-2015, 11:03 AM
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#56
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Quote:
Originally Posted by lawman
Interesting...Not that I'm sure I would take it but I wish I had that option..
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If I had put numbers in for a commercially available SPIA I'm sure you would not have taken the option.....I definitely would not. But after some though the offer I was given seems like a slam dunk replacement for fixed income in my portfolio given the projections for the bond market in the next 10 years and that I don't have children.
Would you take the pension if I put it like this.....I get a "withdrawal" of 7%, I have an 81% change of living to age 74 and if I live that long I'm guaranteed 6% annual return ....and I have a 50% chance of living to 84 and getting 8.3% on what is similar to fixed income.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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03-07-2015, 11:12 AM
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#57
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Thinks s/he gets paid by the post
Join Date: Jul 2008
Location: Weatherford, Texas
Posts: 1,213
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Quote:
Originally Posted by nun
If I had put numbers in for a commercially available SPIA I'm sure you would not have taken the option.....I definitely would not. But after some though the offer I was given seems like a slam dunk replacement for fixed income in my portfolio given the projections for the bond market in the next 10 years and that I don't have children.
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I can see how it could work out very well for you..I was ridiculed many many years when I was buying I-Bonds..Turns out I wish I would invested every penny I had...
__________________
Life is good. Then you die.
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03-07-2015, 11:25 AM
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#58
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Thinks s/he gets paid by the post
Join Date: Sep 2012
Posts: 1,568
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Bonds are necessary to get out of jail. For wealth building, not so good.
But if slow wealth erosion gets you to your finish line, bonds can help get the job done.
Sent from my iPhone using Early Retirement Forum
__________________
You know that suit they burying you in? Thar ain’t no pockets in that suit, boy.
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03-07-2015, 11:49 AM
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#59
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 37,931
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Quote:
Originally Posted by gcgang
Bonds are necessary to get out of jail. For wealth building, not so good.
But if slow wealth erosion gets you to your finish line, bonds can help get the job done.
Sent from my iPhone using Early Retirement Forum
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This might have some meaning for the accumulation phase. But when you are spending down the wealth and not trying to preserve it for heirs - not so much.
__________________
Retired since summer 1999.
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