Bond Mutual Funds

[dallas27]

I think there is a market for a buy only bond fund.

There's a market for anything; snakeoil, yellow-cake uranium, and financial advice. It doesn't mean it is in any way beneficial.

 

[fanmail]

If it wouldn't do worse than an active bond fund, then it is beneficial.

 

[GTFan]

If I had access to a stable value fund paying north of 2% I'd keep a large chunk there too.

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.

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.

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.

 

[nun]

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.

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.

 

[lawman]

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.

Interesting...Not that I'm sure I would take it but I wish I had that option..

 

[nun]

Interesting...Not that I'm sure I would take it but I wish I had that option..

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.

 

[lawman]

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.

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...

 

[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

 

[audreyh1]

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

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.