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Fixed Income Portfolio Help
Old 01-11-2004, 05:56 AM   #1
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Fixed Income Portfolio Help

I just received my pension lump and will be investing most of it ($943K) in fixed income instruments. I have already addressed the equity side by rolling over my 401K. I will not need to tap "hopefully" for another 5 yrs when I will be 59.5, however, if I don't get enough P/T work, it might be necessary to 72T in another 2 yrs. I was looking at doing something like this, but I'm struggling with allocating this to maximize returns now, but still have some flexibility to take advantage if/when rates move up in the next 12-18 months:

Collateralized Mortgage obligations: currently offering 5.5% with time frames before getting called of ~ 3-7 yrs, although if interest rates move up, I suspect you could get locked into the 5.5% for longer periods. I was going to put $300K here.

Multi-step 10 yr note: pays 4.25% for 3 yrs, 5% for 2 yrs, 6% for 2 yrs, 7% for 2 yrs, and 8% for 1 yr. I was going to put $200K here.

CD/Bond Ladder:
1 yr BBB corp bond @ 2.7% $100K
2 yr Jumbo CD @ 2.75% $100K
3 yr Jumbo CD @ 3.49% $100K
alternatively, could put some or all of the ladder money in an Eaton Vance 1 yr class C that pays 4.25%, with a 1% early withdrawal penalty, however the share price has some risk if rates go up.

Preferred Stock paying ~ 7-7.5% $50K

TIPS $50K

and then the last $43K either over to equity side or maybe a high yield fund.


I think most of these instruments have very low risk, except for the preferred stock, high yield fund and the Eaton Vance note.

I would appreciate any suggestions on how to allocate the $s or if anyone has alternative suggestions to achieve optimum yield/flexibility in a rising rate market.

Thanks,

Doug
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Re: Fixed Income Portfolio Help
Old 01-11-2004, 10:14 AM   #2
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Re: Fixed Income Portfolio Help

Congrats on your pension distribution and your decision to move quickly into prudent investments.

A lot of my money is in short-term cash equivalents, so I'll just comment on a couple of yours.

I wouldn't bother with the BBB corp bond. You can get the same yield and the same credit risk without the 1-yr lockup by using something like a Ford money market account (www.fordcredit.com). Or, consider a short-term corp bond fund. You should get a slightly higher yield to offset the risk to principal, but it's probably a wash in the end (unless your BBB defaults, of course).

And check out the CD rates here:

http://www.penfed.org/rates/certrates.asp

Finally, even though I am a super chicken when it comes to the stock market, I've got a 10-15% equity exposure just to mitigate my envy over the wonderful returns everybody else experiences.

And given the rapidly falling dollar, you might consider a little hedge. I took a small position in gold as my doomsday money -- just enough to buy guns, food, and a ticket out of here
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Re: Fixed Income Portfolio Help
Old 01-12-2004, 04:00 AM   #3
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Re: Fixed Income Portfolio Help

Wabmester, Thanks for the info, those PenFed rates are excellent!!! Since I'm a vet, should be able to qualify, I will call them today.

Thx,

Doug
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Re: Fixed Income Portfolio Help
Old 01-12-2004, 02:59 PM   #4
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Re: Fixed Income Portfolio Help

penfed rates are too high, what is up? How can they offer such rates?

Wayne
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Re: Fixed Income Portfolio Help
Old 01-12-2004, 03:53 PM   #5
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Re: Fixed Income Portfolio Help

Their rates are always very competitive, but they do change them monthly, and this is the highest I've seen them in a while.

I don't know much about credit unions, but I assume they can only loan out as much as they take in, so if their loan demand is high (and profitable), then they'd need to attract more deposits.

I have both a HELOC and CD's there, and currently they pay me more than I pay them, so it is a bit scary, but the deposits are insured....
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