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Old 12-03-2007, 08:00 AM   #21
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Originally Posted by mathjak107 View Post
since having to sell equities in a down market can be the death of your nest egg i would like to always have 10-14 years of relatively safe money based on yearly withdrawls in bonds,cash,non traded reits and annuties. the rest stay as aggressivly invested as if i was 20
Exactly, except my stash doesn't have annuities, unless you count pensions. The main reason I'm in the market at all at my age (64) is to stay ahead of inflation. Allocation, if done correctly, will allow you to sleep soundly, despite financial doom and gloom.
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Old 12-03-2007, 10:04 AM   #22
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Bond funds, not bond issues are the way to go. I want someone to MANAGE the portfolio in volatile interest rate times, and I DON'T want that SOMEONE to be ME..............
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Old 12-03-2007, 03:09 PM   #23
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glinka, figuring out how much you should have in bonds begs the questions of what your risk tolerance is, other sources of income might be, and what your overall portfolio allocation should be.

Risk tolerances is moderately aggressive. In the first two years of retirement We live totally off company pension. Hope not to touch 401k or any Roths until I'm 60, in three years. 401k is 20% Contra fund, 10% foreign fund, 20% index, 10% mid cap, 5% REIT and 35% in three different bond funds.
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Old 12-03-2007, 03:30 PM   #24
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Risk tolerances is moderately aggressive. In the first two years of retirement We live totally off company pension. Hope not to touch 401k or any Roths until I'm 60, in three years. 401k is 20% Contra fund, 10% foreign fund, 20% index, 10% mid cap, 5% REIT and 35% in three different bond funds.
This is a very off-hand response, so take it for what it is, but sounds OK to me. If you want a more thorough assessment, I would suggest a separate thread.
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Old 12-03-2007, 03:55 PM   #25
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I think it depends on what type of bonds you are talking about.

I agree for the corporate bonds, or GNMAs that a bond fund is the way to go. I think for government bonds including TIPs, and insured Municipal bonds that bond individual issues is a slightly better approach.

The problem with bonds funds is that both your income and the value of the fund varies. With an individual bond, the income is fixed (or rising in the case of TIPs) and while the value of the bond does flucate you do get your principal back at date certain.

Since most government bonds can be bought with zero or low commission, you avoid the expense ratio incurred with bond funds.
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Old 12-03-2007, 06:54 PM   #26
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With a bond fund you also have continuing expenses every year with individual bonds you do not. You also need to read a bond funds prospect's. The SEC allows bond funds to have up to 20% of it's assets in cash or even junk bonds. So you could have a treasury fund you think is safe but 20% of it is invested in junk bonds to increase it's looks (yield). When you purchase a bond directly you will get 100% of your investment back at maturity. If you cash in your money in a bond fund you may get more or less of your principal back depending on the value of the fund at that time. Bond funds in a taxable account can also present problems for management of taxes. You have no control over when they buy and sell. So if they sell a bonds at a profit to look good on paper which in many cases is done in December you will than have to include an unexpected capital gains on your taxes.

I will agree that GNMAs and Junk bonds are best bought in a bond fund. As far as call provisions in bonds one of the first questions you should ask is the bond callable. In many cases bonds with call dates will have a higher interest rate on them so don't go after the rate unless you know if it is callable. I will buy callable bonds but only at a discount.
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Old 12-04-2007, 10:03 AM   #27
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I think it depends on what type of bonds you are talking about.

I agree for the corporate bonds, or GNMAs that a bond fund is the way to go. I think for government bonds including TIPs, and insured Municipal bonds that bond individual issues is a slightly better approach.

The problem with bonds funds is that both your income and the value of the fund varies. With an individual bond, the income is fixed (or rising in the case of TIPs) and while the value of the bond does flucate you do get your principal back at date certain.

Since most government bonds can be bought with zero or low commission, you avoid the expense ratio incurred with bond funds.
clif more or less summarized Vanguard's Taxable Bond Investing: Bond funds or individual bonds
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Old 12-09-2007, 05:59 AM   #28
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Yes but the Vanguard paper sounds so much more sophisticated.

Quote:

For most taxable bond investors, bond mutual funds have a number
of advantages over individual bond portfolios in terms of diversification,
cash-flow treatment and portfolio characteristics, liquidity, and costs.
Individual bonds do provide certain benefits compared with bond mutual
funds, and these advantages revolve primarily around a preference for
control over security-specific decisions in the portfolio. The cost of this
advantage can be thought of as a “control premium” that is reflected
in generally higher (or additional) transaction costs, lower liquidity, more
limited return opportunities, and higher bond portfolio risk. The cost of
the control premium is more pronounced for buyers of corporate bonds
and mortgage-backed securities than for buyers of U.S. Treasuries.


Plus I don't know/remember how you construct really cool formulas like the Vanguard paper has.

I actually have a quibble with report, it states that there is no economic benefit for getting your principal (i.e. with an individual bond) at maturity, if you intend to reinvest the money. Now economically this true but pyschologically it isn't. I distinctly remember knowing that I'd get my money back in a couple years turning a period wheni nterest rate shot up, was a big relief, while I wondered if my bond fund would ever recover.
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Old 12-09-2007, 10:57 AM   #29
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I read the Vanguard paper and there is a lot of smoke and mirrors. Remember they sale bond funds so may not be giving you the whole truth and nothing but the truth. As far as taxable funds. One thing they did not mention is capital gains. With a bond fund you do not have control over capital gains and when the fund takes them and passes them along to you at the end of the year.

In short I would not use a paper written by or for any fund manager as a guide for making a decision on bond vs bond fund. That is an individual decision. But I will say most people would probably be better using a bond fund. I don't but that is me.
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Old 12-09-2007, 11:28 AM   #30
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And FWIW, every bond portfolio should have some mortgage backed securities. Particularly Fannies, Freddies and Ginnies, as they have zero credit risk while still offering yields well over treasuries.
Fannie Mae securities carry no government guarantee of being repaid. This is explicitly stated in the law that authorizes GSEs, on the securities themselves, and in many public communications issued by Fannie Mae. Despite this, there is a wide perception that these notes carry an implied government guarantee, and the vast majority of investors believe that the government would prevent them from defaulting on their debt. Whether the federal government would bail out Fannie Mae in the event of insolvency is a hypothesis that has never been tested.

Neither the certificates nor payments of principal and interest on the certificates are guaranteed by the United States government.
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Old 12-09-2007, 06:49 PM   #31
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I read the Vanguard paper and there is a lot of smoke and mirrors. Remember they sale bond funds so may not be giving you the whole truth and nothing but the truth. As far as taxable funds. One thing they did not mention is capital gains. With a bond fund you do not have control over capital gains and when the fund takes them and passes them along to you at the end of the year.

In short I would not use a paper written by or for any fund manager as a guide for making a decision on bond vs bond fund. That is an individual decision. But I will say most people would probably be better using a bond fund. I don't but that is me.
Then go read "The Bond Book" by Annette Thau. Most of what is in the Vanguard paper agrees with what she says, for example, if you're going to buy corporates, GNMAs, or int bonds, go with a fund. Although, Thau seems to be more in favor of individual investors buying intermediate term individual treasury notes and mixing those with stock index funds.

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Old 12-09-2007, 07:06 PM   #32
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There is not much risk in treasuries and the average person does not need to pay a fee to have a bond fund manage a no risk investment. You should also read Bonds The Unbeaten Path to Secure Investment Growth by H & S Richelson to get a different look at bond investing. Educating your self in using bonds for investing requires that one look at all points of view not one that just confirms what you think is true. I am still struggling with the book stated above as they say an all bond portfolio is a good method to obtain FI. I have always been told equities is the best method to use to obtain FI than switch to bonds for income and to protect what you have made in equities. As I am FI now I have been using bonds a lot more for income. My portfolio is now about 50/50.
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Old 12-10-2007, 10:33 PM   #33
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In my 401k I can't get into Vanguard.
My bond funds are Pimco Core Plus Bond, Pimco Real Return and Fidelity Capital and Income.
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