Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Fixed income
Old 10-29-2018, 05:17 PM   #1
Thinks s/he gets paid by the post
 
Join Date: Jun 2004
Location: Diablo Valley (SF Bay Area)
Posts: 1,571
Fixed income

I'm relatively new to the concept of fixed income so I'm asking a dumb question. I have only 1 CA tax free one now.

Question: if I have 45k to stick into fixed income within an IRA, what should I look at?
__________________

gayl is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-29-2018, 05:27 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 3,065
What are your goals?
Do you need liquidity?
How safe do you want it to be?
Do you need the income?
__________________

COcheesehead is offline   Reply With Quote
Old 10-29-2018, 05:35 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Jun 2004
Location: Diablo Valley (SF Bay Area)
Posts: 1,571
Goals: capital preservation?
Liquidity: not necessary
Safety: yeah, I'm slowly (underline that) moving from 90/10 equity to 70/30 mix
Income: I'll eventually need to take RMD as required by IRS but current pension meets expenses, will also get SSA as I'm not under WEP/WPO
gayl is offline   Reply With Quote
Old 10-29-2018, 06:16 PM   #4
Recycles dryer sheets
 
Join Date: May 2014
Posts: 412
Are you accumulating or retired? Makes a difference, I believe. And if accumulating, how close to retiring?

Fixed income while accumulating is mostly about sleeping well at night since equities historically have done much better than bonds as far as creating wealth.

Fixed income once retired is more about wealth preservation and possibly income.

If all you want is pure wealth preservation, US Treasuries, either in a bond fund, or just bonds, cannot be beat for safety. In order to avoid inflation risk, I recommend shorter maturity bonds or funds, like 5-years or less (I go for 2-3 years).

If you want income, high quality munis or corporates are going to be better than US Treasuries. But I would still keep the maturity low.

If what you want to do is just sleep better at night, get a good total bond market fund like AGG or BND.
TwoByFour is offline   Reply With Quote
Old 10-29-2018, 06:50 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 3,065
I would personally take that 45k and make a sweet little 4 year bond ladder. No NAV erosion in a rising rate environment. That might be overly complicated though, so look at a good multi sector bond fund like PTIAX. Currently yields just below 5%.
COcheesehead is offline   Reply With Quote
Old 10-30-2018, 09:35 AM   #6
Full time employment: Posting here.
 
Join Date: Jul 2013
Posts: 737
Quote:
Originally Posted by gayl View Post
I'm relatively new to the concept of fixed income so I'm asking a dumb question. I have only 1 CA tax free one now.

Question: if I have 45k to stick into fixed income within an IRA, what should I look at?
Total bond fund.
mrfeh is offline   Reply With Quote
Old 10-30-2018, 12:26 PM   #7
Full time employment: Posting here.
 
Join Date: Dec 2006
Posts: 588
Currently, Fed, is raising interest rates. Avoid bond funds. Principle drops as rates rise.
I avoid individual bonds. For me, difficult to purchase. Not sure of "real" price.

Cd's are simple, Insured, and not affected by rising interest rates. Can be purchased within an IRA.

RMD. You mentioned this. Most CD's, allow you to take out some principle for RMD
with no early withdrawal penalty.

If you purchase individual bonds, and need RMD, you may have to sell the
bond. Gain/Loss. Interest rate "loss" if high paying bond.
wolf is offline   Reply With Quote
Old 10-30-2018, 12:45 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Mar 2009
Posts: 2,029
Quote:
Originally Posted by wolf View Post
Currently, Fed, is raising interest rates. Avoid bond funds. Principle drops as rates rise.
I avoid individual bonds. For me, difficult to purchase. Not sure of "real" price.

Cd's are simple, Insured, and not affected by rising interest rates. Can be purchased within an IRA.

RMD. You mentioned this. Most CD's, allow you to take out some principle for RMD
with no early withdrawal penalty.

If you purchase individual bonds, and need RMD, you may have to sell the
bond. Gain/Loss. Interest rate "loss" if high paying bond.
Agreed. Furthermore if you properly ladder your CD's you can account for RMD's as well. IMHO CD's are the best fixed income option for individual investors at this time. Higher yields than treasuries from 2 years out. And the spread between high quality corporates and CD's is not much.
__________________
Just plodding along on Dividends/Interest, SS and a small pension.
foxfirev5 is offline   Reply With Quote
Old 10-30-2018, 12:50 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 3,065
Quote:
Originally Posted by wolf View Post
Currently, Fed, is raising interest rates. Avoid bond funds. Principle drops as rates rise.
I avoid individual bonds. For me, difficult to purchase. Not sure of "real" price.

Cd's are simple, Insured, and not affected by rising interest rates. Can be purchased within an IRA.

RMD. You mentioned this. Most CD's, allow you to take out some principle for RMD
with no early withdrawal penalty.

If you purchase individual bonds, and need RMD, you may have to sell the
bond. Gain/Loss. Interest rate "loss" if high paying bond.
If you are a Fidelity customer they have some super easy to use tools to purchase individual bonds. You pick a yield, a quality level and a duration and you buy it.
COcheesehead is offline   Reply With Quote
Old 10-30-2018, 12:52 PM   #10
Full time employment: Posting here.
 
Join Date: Jul 2013
Posts: 737
Quote:
Originally Posted by wolf View Post
Currently, Fed, is raising interest rates.
The market knows this. It is priced in.

Assuming an efficient market, bond fund NAVs are just as likely to increase as decrease.
mrfeh is offline   Reply With Quote
Old 10-30-2018, 01:16 PM   #11
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 3,065
Quote:
Originally Posted by mrfeh View Post
The market knows this. It is priced in.

Assuming an efficient market, bond fund NAVs are just as likely to increase as decrease.
How do you explain the punch to the face with bond NAV's earlier this month? The yield spike caught everyone by surprise and was the start of this current correction.
COcheesehead is offline   Reply With Quote
Old 10-30-2018, 01:26 PM   #12
Full time employment: Posting here.
 
Join Date: Jul 2013
Posts: 737
Quote:
Originally Posted by COcheesehead View Post
How do you explain the punch to the face with bond NAV's earlier this month? The yield spike caught everyone by surprise and was the start of this current correction.
I didn't say NAVs don't change. I said they are as likely to increase as decrease, countering the fallacy that "bond fund NAVs are sure to decrease because the Fed is raising rates".
mrfeh is offline   Reply With Quote
Old 10-30-2018, 01:31 PM   #13
Recycles dryer sheets
 
Join Date: May 2014
Posts: 412
Quote:
Originally Posted by mrfeh View Post
The market knows this. It is priced in.

Assuming an efficient market, bond fund NAVs are just as likely to increase as decrease.
Bond prices are determined as much by demand as they are by changes in yield. The two are of course directly related - if demand for bonds decreases, the price falls and the yield rises. The Fed only directly affects the yield of the left most point on the yield curve. It takes a while for that to move up to say, 10-year yields.

The market knows where inflation is headed, and that is priced in. The market may not know where demand is headed. Since so many US Treasuries are owned by foreigners, demand gets wrapped up in strength of the dollar, trade imbalances, etc.
TwoByFour is offline   Reply With Quote
Old 10-30-2018, 01:35 PM   #14
Full time employment: Posting here.
 
Join Date: Jul 2013
Posts: 737
Quote:
Originally Posted by TwoByFour View Post
Bond prices are determined as much by demand as they are by changes in yield. The two are of course directly related - if demand for bonds decreases, the price falls and the yield rises. The Fed only directly affects the yield of the left most point on the yield curve. It takes a while for that to move up to say, 10-year yields.

The market knows where inflation is headed, and that is priced in. The market may not know where demand is headed. Since so many US Treasuries are owned by foreigners, demand gets wrapped up in strength of the dollar, trade imbalances, etc.
Of course, there are many factors. Again, if one believes in an efficient market, all factors have been taken into account.

If one is so positive that NAVs will be going down, then I suggest they short bond funds with everything they have. It should be easy money, right?
mrfeh is offline   Reply With Quote
Old 10-30-2018, 03:44 PM   #15
Thinks s/he gets paid by the post
 
Join Date: Jun 2004
Location: Diablo Valley (SF Bay Area)
Posts: 1,571
Ok. I don't need the RMD (pension w/ COLA) but IRS will want their cut. So I'm thinking of CD ladder as I might need more info before bonds? (Did I say I'm a newbie only holding 75k CDs + 50k PWZ) Does 12 month sound about right? According to Schwab online tool I really should be 40% fixed income but that sounds SO conservative to me
gayl is offline   Reply With Quote
Old 10-31-2018, 03:21 PM   #16
Recycles dryer sheets
 
Join Date: May 2014
Posts: 412
Quote:
Originally Posted by mrfeh View Post
If one is so positive that NAVs will be going down, then I suggest they short bond funds with everything they have. It should be easy money, right?
Who is positive about bond prices (or yield) going one way or another? In any event, I have no idea where yields are going, it does not affect my investment plan whatever they do.
TwoByFour is offline   Reply With Quote
Old 10-31-2018, 03:39 PM   #17
Thinks s/he gets paid by the post
 
Join Date: Jun 2004
Location: Diablo Valley (SF Bay Area)
Posts: 1,571
And now you know why I stuck to 90/10 perhaps too long .... and you guys understand fixed investing
gayl is offline   Reply With Quote
Old 10-31-2018, 03:50 PM   #18
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 3,065
I take what the market giveth. Today I snagged a high investment grade, 2 year muni, 5% coupon yielding just over 4%.
__________________

COcheesehead is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Retirement Income: fixed income, systematic withdrawals or annuities? BBQ-Nut FIRE and Money 29 03-01-2014 12:34 PM
Fixed Income Portfolio Help DFW_M5 FIRE and Money 4 01-12-2004 03:53 PM
Fixed Income Choices airstyle FIRE and Money 2 01-04-2004 11:23 AM
Building Higher Yield Fixed Income Portfolio DFW_M5 FIRE and Money 1 11-08-2003 01:01 PM
Starting fixed income ladders woolybully FIRE and Money 2 07-25-2003 03:46 AM

» Quick Links

 
All times are GMT -6. The time now is 07:33 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.
×