Fixed income conundrum

[bjorn2bwild]

Quote:

Originally Posted by Running_Man At some point the comparison to 2008-2009 must include what is high grade now and what was high grade then and how the diferences in valuation will be effected in the future. Bond market confidence in BBB debt is unbelievable right now. The AA and A rating markets are disappearing and being replaced with BBB debt. With the difference in BBB debt being so slight, a diversified portfolio of A graded debt such as I shares Aaa is in my view far better than total bond market at Vanguard and will offer far greater downside support https://www.ishares.com/us/products/...orate-bond-etf

That is my thinking too.
I have been using QLTA for intermediate term (7yrs duration), and Vanguard BSV (13.4% Baa, 2.6yrs Duration) or VGSH (1.9yrs duration) for short term.
QLTA is thinly traded, so it's best to use limit orders.

[2177V]

Quote:

Originally Posted by pb4uski What are your 15 tickers and target percentages?

My current 15 tickers are with Vanguard.....

5 bond funds

VFISX Short Term Government Bond
VMBSX Intermediate Government Bond
VFSTX Short Term Corporate Bond
VICSX Intermediate Corporate Bond
VMFXX Money Market

10 stock funds

VFIAX SP500 Large Cap
VMNDX Large Cap Value
VCVLX Mid Cap Value
VEVFX Small Cap Value
VHGEX Globel Equity
VGENX Energy Sector
VCHCX Medical Sector
VGSLX Real Estate Sector
VWELX Balanced Fund
VWINX Balanced Fund

Notes: My two balanced funds are my oldest funds which are being drawn down. Medical Sector is down due to the "Medicare for All" but I expect this nonsense to die after 2020 so I am increasing my exposure. I prefer Value since I am retired and Value tends to (excuse my pun) hold its value during a down turn compared to Growth funds. I am retired so I am no longer in the growth phase. I do not like long term bonds because the risk/reward ratio is not to my liking. I also do not like total market funds because it co-mingle different assets classes.

This is simply my personal preferance and I know other people will disagree with this portfolio structure but I do not care. I made enough money during my growth phase and i am in the defensive phase. The purpose of having this many funds is to allow me to exchange money from one fund near its 52 week high with another fund near its 52 week low. My target percentages are dynamic and not fixed because they vary a lot.

With this many funds, I can pick and chose which fund to liquidate during my retirement. Naturally, I pick the fund that is closest to it's 52 week high to liquidate during my retirement. If there is a crash or a bear market, I have sufficient money in VMFXX, VFISX and VFSTX to hold me over for about 8 years of retirement income. After 8 years I can then turn to my other funds to select which fund has recovered the best compared to the others. If there is no bear market, my stock funds will make me money.

[bmcgonig]

Quote:

Originally Posted by bjorn2bwild That is my thinking too. I have been using QLTA for intermediate term (7yrs duration), and Vanguard BSV (13.4% Baa, 2.6yrs Duration) or VGSH (1.9yrs duration) for short term. QLTA is thinly traded, so it's best to use limit orders.

Not sure why QLTA would be safer than BND in a crisis situation. BND is 60% Government and 40% investment grade, half of which is Baa. Wouldn't the 60% Government hold it up better?

[bjorn2bwild]

Quote:

Originally Posted by bmcgonig Not sure why QLTA would be safer than BND in a crisis situation. BND is 60% Government and 40% investment grade, half of which is Baa. Wouldn't the 60% Government hold it up better?

Oops,
I was agreeing with the first part of Running_Man's post where I think there is too much Baa risk in most corporate bond funds. I meant to back out the part about being far better than BND.
At 64% government and 17% Baa, BND should do better in a crisis situation. OTOH, with something short of panic, QLTA might hold it's own just fine - 3.14%/30day SEC yield vs 2.87% for BND and 7 vs 6yrs duration.
It is not a large holding for me.

[audreyh1]

Quote:

Originally Posted by Running_Man At some point the comparison to 2008-2009 must include what is high grade now and what was high grade then and how the diferences in valuation will be effected in the future. Bond market confidence in BBB debt is unbelievable right now. The AA and A rating markets are disappearing and being replaced with BBB debt. With the difference in BBB debt being so slight, a diversified portfolio of A graded debt such as I shares Aaa is in my view far better than total bond market at Vanguard and will offer far greater downside support https://www.ishares.com/us/products/...orate-bond-etf

Highest quality debt = US government backed debt, particularly treasuries. Does not include corporate debt.

[pb4uski]

I changed tacks on fixed income recently and am pretty happy with the results.

I jumped on a few recent credit union CD specials... all 5-year... two at 3.5% and one at 3.0%. I also have a portfolio of 20 high quality (BBB- or better) preferred stocks.... mostly insurance, banking, utility preferreds that are yielding 5.62% that I consider part of my fixed income portfolio.

The above, along with a small, old whole life policy which is yielding about 3.3%, have aweighted average yield of about 4%..... overall good credit quality and limited interest rate risk.

In addition, I have some Vanguard Total International Bond Fund that I am on the fence on.... the yield is pathetic.. less than 0.5%... but the toal returns for 1,3 and 5 year periods have been good... 7.8%, 3.4% and 4.3%, respectively. I'll probably keep it for now but without enthusiasm. I'm currently below my equity allocation target by about 8% so if we have a dip this money might be my dry powder to use to buy equities.

If I blend in the VTABX the weighted average yield is about 3.5%.

So overall I'm finally pretty happy with the fixed income side of things.

[Dtail]

My weighted average Fixed Income yield is at 3.27%. Would like to get it to 3.5%, but not easy in this environment, as don't wish to analyze/monitor individual bonds currently.

[VanWinkle]

Quote:

Originally Posted by pb4uski I changed tacks on fixed income recently and am pretty happy with the results. I jumped on a few recent credit union CD specials... all 5-year... two at 3.5% and one at 3.0%. I also have a portfolio of 20 high quality (BBB- or better) preferred stocks.... mostly insurance, banking, utility preferreds that are yielding 5.62% that I consider part of my fixed income portfolio. The above, along with a small, old whole life policy which is yielding about 3.3%, have aweighted average yield of about 4%..... overall good credit quality and limited interest rate risk. In addition, I have some Vanguard Total International Bond Fund that I am on the fence on.... the yield is pathetic.. less than 0.5%... but the toal returns for 1,3 and 5 year periods have been good... 7.8%, 3.4% and 4.3%, respectively. I'll probably keep it for now but without enthusiasm. I'm currently below my equity allocation target by about 8% so if we have a dip this money might be my dry powder to use to buy equities. If I blend in the VTABX the weighted average yield is about 3.5%. So overall I'm finally pretty happy with the fixed income side of things.

Do preferred stocks act as a ballast for equities in a bear market?
I always thought they would react like stocks and also lose capital
in a correction/bear. I am not very familiar with them so I apologize
for my question if it is an obvious answer.

[COcheesehead]

Quote:

Originally Posted by Dtail My weighted average Fixed Income yield is at 3.27%. Would like to get it to 3.5%, but not easy in this environment, as don't wish to analyze/monitor individual bonds currently.

Have you looked at closed end funds?

[Dtail]

Quote:

Originally Posted by COcheesehead Have you looked at closed end funds?

Not really, but probably worthwhile.
I remember you giving me individual bond advice, especially using the Fidelity site, but have instead (for now) spent the time on the CD side.

[Winemaker]

The horse may have already gotten out of the barn with preferred stocks this year. They act like "mini" bonds for the most part, paying a fixed rate of dividends based on the par value of the issue, usually $25. Since interest rates have fallen this year, most quality issues are well above $25.75 and some are around $27+, since Christmas. Yes, we are expecting another rate cut, but is it already baked into the cake? IIRC, some bond funds are up over 10% since July !st, even.

[COcheesehead]

Quote:

Originally Posted by Dtail Not really, but probably worthwhile. I remember you giving me individual bond advice, especially using the Fidelity site, but have instead (for now) spent the time on the CD side.

Individual bonds are a tight market now. A couple years ago, there were a lot of great buys when everyone thought rates were going up. Now its a crowded trade.

There are some nice yields in closed end funds, but that comes at the cost of taking on more risk. They still can make sense for a portion of one's fixed income. I have money in a couple closed end muni's funds and I have been happy with the cash flow, but I also know what I am getting into.

[COcheesehead]

Quote:

Originally Posted by Winemaker The horse may have already gotten out of the barn with preferred stocks this year. They act like "mini" bonds for the most part, paying a fixed rate of dividends based on the par value of the issue, usually $25. Since interest rates have fallen this year, most quality issues are well above $25.75 and some are around $27+, since Christmas. Yes, we are expecting another rate cut, but is it already baked into the cake? IIRC, some bond funds are up over 10% since July !st, even.

If you put money into bonds last year or even earlier this year, you made out, maybe even better than equities.
Its one of those lessons of where sometimes you just have to hold your nose and keep putting money to work.

[pb4uski]

Quote:

Originally Posted by VanWinkle Do preferred stocks act as a ballast for equities in a bear market? I always thought they would react like stocks and also lose capital in a correction/bear. I am not very familiar with them so I apologize for my question if it is an obvious answer.

They are not as ballastly as bonds.... but not as volatile as stocks.

[pb4uski]

Quote:

Originally Posted by Winemaker The horse may have already gotten out of the barn with preferred stocks this year. They act like "mini" bonds for the most part, paying a fixed rate of dividends based on the par value of the issue, usually $25. Since interest rates have fallen this year, most quality issues are well above $25.75 and some are around $27+, since Christmas. Yes, we are expecting another rate cut, but is it already baked into the cake? IIRC, some bond funds are up over 10% since July !st, even.

+1 Most of mine were bought in the first quarter of 2019... my overall cost is about 1.0% less than par... current market values are about 3.6% more than par.... while it is nice that prices have gone up it is becoming harder and harder to find attractive yields for me.

[bolt]

Quote:

Originally Posted by thepalmersinking 54 yrs old $2.0 million. 99% equities. I am totally confused on bonds, bond mutual funds and bond ETFs. I would like to retire in 3 years and want to get to a 70/30 mix. Even if I sold to raise the 30% I would not know what to put it in. Thoughts/Suggestions?

Thoughts/ Suggestions you say?

I posted this in another thread here from my files.
I've met & lunched with the well known individual that recorded this data from the 1980s.
He put the vast majority (close to 100%) of his retirement investments in it back then.

Below are two columns:
U.S. inflation and Vanguard Total Bond Market from 1986:

YEAR..INFLATION....RETURN
1986-------1.1%--------15.2%
1987-------4.4-----------2.8
1988-------4.4-----------7.9
1989-------4.6----------14.5
1990-------6.1-----------8.9 (Inflation increased 5.0% -- TBM average return 9.86%)

1991-------3.1----------16.0
1992-------2.9-----------7.4
1993-------2.7-----------9.7
1994-------2.7---------(-2.7)
1995-------2.5----------18.5
1996-------3.3-----------3.6

1997-------1.7-----------9.7
1998-------1.6-----------8.7
1999-------2.7---------(-0.8)
2000-------3.4----------11.6 (Inflation increased 1.7% --TBM average return 7.3%)

2001-------1.6-----------8.4
2002-------2.4----------10.3
2003-------1.9-----------4.1
2004-------3.3-----------4.3
2005-------3.4-----------2.4 (Inflation increased 1.8% -- TBM average return 5.9%)

2006-------2.5-----------4.3
2007-------4.1-----------7.0

2008-------0.1-----------5.2
2009-------2.7-----------5.9
2010-------1.5-----------6.5
2011-------3.0-----------7.7 (Inflation increased 2.9% -- TBM average return 6.3%)

2012-------1.7-----------4.3
2013-------1.5---------(-2.0)
2014-------0.8-----------6.0
2015-------0.7-----------0.5
2016-------2.1-----------2.5

* During ALL four periods of rising inflation since 1986, Total Bond Market enjoyed positive returns.

* During the 2008 bear market when the Vanguard S&P 500 index fund plunged -37%, Vanguard Total Bond Market gained +5%. Investors were very pleased to hold Total Bond Market Index Fund or its or benchmark.

If you're looking to maintain your purchasing power consider these facts above.
Granted the dates are cherry picked but they're factual.

Many custodians TBM ETFs are available commission free.
Research it. It might be helpful.

Good luck & Best wishes!
___________
Past performance not an indication of future returns dogma and all ........

[pb4uski]

By in "it" do you mean Vanguard Total Bond? FWIW, Vanguard's most recent economic outlook thinks that a 100% bond portfolio will have nominal returns between 2.7% and 4.1% for the next 10 years (25th and 75th percentiles) with a median of 3.4% (presumably a 1.4% real rate of return).

https://pressroom.vanguard.com/nonin...019-120618.pdf

[VanWinkle]

Quote:

Originally Posted by pb4uski By in "it" do you mean Vanguard Total Bond? FWIW, Vanguard's most recent economic outlook thinks that a 100% bond portfolio will have nominal returns between 2.7% and 4.1% for the next 10 years (25th and 75th percentiles) with a median of 3.4% (presumably a 1.4% real rate of return). https://pressroom.vanguard.com/nonin...019-120618.pdf

They may have it wrong as this year it has returned over 8%......

Taylor may just know what he is talking about.

VW

[2177V]

Update to my comment 62 which I had originally had 15 funds.

I decided to reallocated to 50% VFIUX (intermediate treasuries) and 50% VFIRX (short term treasuries) about 6 weeks ago just before the Fed cut interest rates.

I decided to make my portfolio "recession proof" so I adopted an asset preservation strategy. This means preventing loss is my primary objective and making money is secondary. Most economists are predicting a recession within 12 to 24 months and I believe them. Treasuries are the few asset classes that rises during a recession.

On my secondary objective....Yield and value goes in opposite direction and treasuries yield is trending downward. I am also in a position to take an advantage of a possible flight to quality if a recession do occur. Naturally, I will go back to stock when the reward/risk ratio for stocks becomes higher than bonds. This usually happens after a deep decline in stocks. Currently there is no much uncertainty in the stock market for my comfort level.

[GravitySucks]

I'm also moving to Treasuries as preservation tools. When my bond ladder wrungs mature they are replaced with Treasuries and FUAMX intermediate T fund.
Glad to see I'm not alone. Fixed income is the most puzzling part for me.

Quote:

Originally Posted by vchan2177 Update to my comment 62 which I had originally had 15 funds. I decided to reallocated to 50% VFIUX (intermediate treasuries) and 50% VFIRX (short term treasuries) about 6 weeks ago just before the Fed cut interest rates. I decided to make my portfolio "recession proof" so I adopted an asset preservation strategy. This means preventing loss is my primary objective and making money is secondary. Most economists are predicting a recession within 12 to 24 months and I believe them. Treasuries are the few asset classes that rises during a recession. On my secondary objective....Yield and value goes in opposite direction and treasuries yield is trending downward. I am also in a position to take an advantage of a possible flight to quality if a recession do occur. Naturally, I will go back to stock when the reward/risk ratio for stocks becomes higher than bonds. This usually happens after a deep decline in stocks. Currently there is no much uncertainty in the stock market for my comfort level.