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Bonds portion of AA: how much corporate vs. treasuries?
Old 12-03-2019, 09:11 PM   #1
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Bonds portion of AA: how much corporate vs. treasuries?

Spending some time fine-tuning my portfolio (AA: 50/40/10) and right now Iím focusing on the bond portion.

The 10% cash is for our next 5-6 years (until my SS starts), so I wonít need to access the bond funds for awhile.

Iím only interested in mutual funds or ETFs, and this portion of my portfolio is with Fido. What % of the bond portion of my portfolio do you suggest should be corporate and what % government?

Iíve read that corporate bonds tend to move with stocks, so donít provide the counterbalance traditionally associated with the bond portion of a portfolio.

And guidance will be appreciated!
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Old 12-03-2019, 09:21 PM   #2
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One school of thought is that bonds are your ballast and should have minimal volatility and any return is a bonus... so a heavy tilt to treasurites or TIPs... I myself prefer high yielding credit union CDs for ballast... though I do have a small portfolio of conservative preferred stocks that are part of my fixed income allocation that do move around a bit but provide good income.
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Old 12-03-2019, 09:49 PM   #3
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Originally Posted by PointBreeze View Post
Spending some time fine-tuning my portfolio (AA: 50/40/10) and right now I’m focusing on the bond portion.

The 10% cash is for our next 5-6 years (until my SS starts), so I won’t need to access the bond funds for awhile.

I’m only interested in mutual funds or ETFs, and this portion of my portfolio is with Fido. What % of the bond portion of my portfolio do you suggest should be corporate and what % government?

I’ve read that corporate bonds tend to move with stocks, so don’t provide the counterbalance traditionally associated with the bond portion of a portfolio.

And guidance will be appreciated!
I use the regular low-cost bond index funds as they hold about 50/50 of very highly rated US corporate bonds and US Government paper. As a result they hold high quality credit and behave well when the stock market tanks, so they provide a good diversification against equities. These index funds track the AGG (Bloomberg Barclays U.S. Aggregate Bond Index) - or something very close to it. This index has decades of history.

Fidelity: US Bond Index fund (intermediate) and Short-Term Bond Index Fund

Vanguard: Total Bond Market Index fund (intermediate) and Short-term Bond Index Fund.
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Old 12-03-2019, 10:27 PM   #4
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I moved a years expenses to an intermediate treasuries fund FUAMX and will move another years at the end of the month when a ring of the bond ladder matures. Along with all the govvies in the general bond fund, this should cover everything short of the Great Depression. I think another years worth on top of that for bargain fishing will be a good idea too. Toys like a Packard Caribbean or a Desoto Adventurer fell faster than the stock market in 08. Be good to have some play money at times like that.
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Old 12-04-2019, 06:03 AM   #5
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Most of my non-equities is in individual corporate bonds. The price can move a little with the fortunes of the company, but far, far less than the stock. The bond yield is much better than a Treasury.
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Old 12-04-2019, 07:27 AM   #6
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I have almost all of my bond allocation in Fidelity Total Bond (FTBFX). It has consistently beaten Bond Index (FXNAX) because of it's corporate bond portion. FXNAX has much lower fees so maybe they will be close in the long run. I used to have reasonably large positions in junk (FAGIX) and high income paper; liquidated those as I approached retirement.

If all you are interested in is Treasuries you can buy those directly; I like to have a large corporate (and other government) portfolio for additional yield; I just stay away from junk,

Marc
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Old 12-04-2019, 08:13 AM   #7
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I have almost all of my bond allocation in Fidelity Total Bond (FTBFX). It has consistently beaten Bond Index (FXNAX) because of it's corporate bond portion. FXNAX has much lower fees so maybe they will be close in the long run. I used to have reasonably large positions in junk (FAGIX) and high income paper; liquidated those as I approached retirement.

If all you are interested in is Treasuries you can buy those directly; I like to have a large corporate (and other government) portfolio for additional yield; I just stay away from junk,

Marc
Fidelity Total Bond Fund, which is not an index fund, but rather an actively managed fund and thus has higher expenses. It takes more credit risk than FXNAX, therefore it outperforms when equities are happy, however it doesn’t do as well when equities go south. FXNAX does have a corporate position, it’s just overall higher quality corporate bonds than FTBFX holds, and a somewhat smaller position.
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Old 12-04-2019, 08:24 AM   #8
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I use the regular low-cost bond index funds as they hold about 50/50 of very highly rated US corporate bonds and US Government paper.
Correction - the intermediate index funds hold around 50% government paper, 25% corporate and 25% mortgage-backed securities.
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Old 12-04-2019, 08:35 AM   #9
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I know this does not go over here... but some of my bond allocation (not all) are in bond CEFs. A bit more volatile with better return.
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Old 12-04-2019, 09:17 AM   #10
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Vanguard: Total Bond Market Index fund (intermediate) and Short-term Bond Index Fund.
+1 Served us well in the downturns. Plus Late 90's I Bonds (not much help now) and CDs if you catch them when they're hot. We were happy with 3%. Have some old EE's, ready to expire.
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Old 12-04-2019, 09:20 AM   #11
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I use the regular low-cost bond index funds
+1

Just use FXNAX.
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Old 12-04-2019, 09:37 AM   #12
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Our bonds are all purchased TIPS. We view them as low-priced inflation insurance. As we age we will need less and less of that, so will probably move towards t-notes or agencies. Maybe even CDs. We don't need risk in the 25% of our AA that is in fixed income.
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Old 12-04-2019, 11:36 AM   #13
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I choose corporate when I can. DH's 401k has only one bond fund choice that's about 60/40 Treasuries/corporate. Comparatively, there's about a 1% lower yield over a pure corporate bond fund.
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Old 12-04-2019, 01:46 PM   #14
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I'd go with treasuries or CDs right now.
There are only TWO corporates that are AAA rated.
After the last snafu of the ratings agencies with no remedies added since, I don't trust their BBB ratings (bottom of investment grade) and BBB makes up over 50% of all bonds (as of October).
There was also an article on how bond ETFs that blindly index on Bloomberg Barclays Global Aggregate (6% weighting to China’s $13trln domestic bond market) were risking stranding $ in Chinese bonds because the issue got added to the index, but nobody bothered to notice that capital controls could prevent the redemption of those investments from leaving China.
I don't have time (ok... I don't have the skills) to do that level of homework on what a bond fund holds.
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Thank you
Old 12-07-2019, 02:22 PM   #15
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Thank you

Thanks, all, for the advice and info. I've decided to make sure that 50% - 65% of my bonds are government/municipal and the rest are corporate/mortgages.

My current thinking for bond funds/ETFs are:
  • 11% evenly divided between IBDN, IBDO, IBDP and IBDQ (the iShares fixed length corporate bond ETFs)
  • 21% in FLTMX (Fidelity Inter. Municipals)
  • 7% in SPIP (SPDR TIPS ETF)
  • 60% in FXNAX (Fidelity US Total Bond Index)
That comes out to 58.5% corporate govt/municipals, 25% corporate, and 16.5% mortgages.
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Old 12-08-2019, 08:26 PM   #16
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Can't say what's right, but here's how I've got my fixed income allocated (adds to 60%) ...

25% investment grade corporates
10% high yield corporates
8% US treasury bills, notes, bonds
7% TIPS
5% Agencies
2% Cash
2% Emerging Markets
1% Foreign Sovereign

I use funds for the foreign stuff but enjoy (the incredibly time consuming effort of) maintaining rolling ladders with individual issues for the bulk of the rest. Treasuries boring, agencies frustrating and junk just plain amusing. Some day I'll go to a single fund approach and do better, I'm sure.
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Old 12-08-2019, 10:30 PM   #17
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And you rebalance all that?
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Old 12-08-2019, 11:06 PM   #18
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And you rebalance all that?
Pretty much constantly when not traveling. The cash allocation percentage bounces quite a bit, but I usually keep the other categories (totaling 22 including stocks) quite close by selectively choosing what to liquidate for withdrawal and where to reinvest equity dividends, bond interest and maturing/called bonds. I occasionally have to sell stuff for reinvestment, but prefer not to.

I monitor my overly complicated strategic asset allocation with an equally unwieldy Excel file that makes heavy use of the "sumif" code tied to assigned asset class codes. Neither is optimal, yet I still toil away.
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Old 12-09-2019, 03:32 AM   #19
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Wow, sounds like a lot of work, LOL!
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Old 12-10-2019, 07:20 PM   #20
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Sounds like fun to me
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