Help deciding Bond Allocation

[SoReady]

Hi,

I am 57 and retired recently. I have left my 401(k) with my old employer but now feel it is time to make some adjustments. I want to start with a rollover of my bond allocation which is in LT Bond Fund and ST Bond Fund. For my 401(k) that is all I have available to invest in for bonds, plus TIPS.

So I was thinking of moving all the bond funds to other investments, but struggle with the best choice. This will be 35% of my holdings. I'm currently thinking of spreading it to:

VBIRX VG Short Term Bond IDX (5%)
VSCSX VG Short Term Corp Bond IDX (5%)

VFITX VG Intermediate term treasury(5%)
VFIDX VG Intermediate-Term Investment grade fund(5%)

VWEHX VG High Yield Corporate Fund(5%)

Possibly:
BERIX Berwyn Income Fund (10%)

I am no expert when it comes to bond funds other than I see some loss when the rates go higher. So I am hoping by spreading this around more than what I have in my 401(k) I can reap a bit better return.

Please let me know if my selections are out of wack, or if should I be taking a different direction.

Thanks - Bob

 

[nun]

If you have a stable value fund in your 401k you might want to hold tight and use that for the next few years.

If you are going to rollover into Vanguard bond funds I suppose the usual advice would be to keep durations short. I'm not much for slicing and dicing so I would not buy as many bond funds.

 

[SoReady]

Thanks Nun. There is no stable fund in my 401(k).

 

[RobLJ]

Hi,
r. So I am hoping by spreading this around more than what I have in my 401(k) I can reap a bit better return.

Please let me know if my selections are out of wack, or if should I be taking a different direction.

Thanks - Bob

Bob (from Rob):

Aye--there's the rub (the hope to squeeze a better return out of yield).
I'm afraid that the only way to do so is to increase risk and that most have preceded you by at least a year or two. Many have flocked into shorter duration (to hedge against interest risk) or floating rate, including myself although I started the former more than two years ago and the floating rate two years ago (floating rate like high yield is more of a stock-like investment involving taking on stock-like risk.)

For myself (your mileage and situation will vary), I started buying closed-end muni funds since I think the market has overreacted twice in the last few years (starting with Ms. Whitney's press releases and after Detroit last year). After selling intermediate and long-term treasuries several years ago (and TIP funds last year when the yield went almost -1% negative), I may begin later this year to monthly cost average and establish a small beginning chunk position in Treasury funds, as a hedge against a market correction and in anticipation of the next market correction or Recession. On treasury funds, I plan to largely dollar-cost average and do so very cautiously. Last year, I started dollar cost averaging into a REIT income fund as well, particularly after REITs took a shot to the head. I'm about 8% overinvested now in LargeCaps, so I'll probably draw down some of those every few months into cash, Treasuries, or REIT income (the munis are in a taxable account so I'll wait until we increase that account from savings later in the year, although I have about 5k in cash if munis gap down again).

If you answer your question, let me know, since I think everyone else interested in income wants to do the same. An all-bond index with smaller positions in other areas you like, given risk/return over the next 2-3 years, would be the simplest way to proceed.

 

[nun]

Thanks Nun. There is no stable fund in my 401(k).

That's a pity. My approach to fixed income is to use the Stable Value I have in my 457, TIAA-Traditional, which is currently paying me 4.413% and the intermediate bonds in Wellesley and Vanguard Intermediate Investment grade.

 

[clifp]

I am no bond expert either I think your allocation to short and intermediate funds makes sense, and I like putting more in corporate than treasury.

Brewer who is professionally knowledgeable about these things suggests avoiding high yield. That said Vanguard high yield historically has been much more selective than most high yields, and generally avoids the most dangerous ones.

I think one thing to seriously consider is to instead of putting 5% in high yield and 10% in BERIX (which is more like Wellesley than bond fund) look at opening an IRA with Penfed 5 year and take advantage of the 3% CD.

 

[nun]

I think one thing to seriously consider is to instead of putting 5% in high yield and 10% in BERIX (which is more like Wellesley than bond fund) look at opening an IRA with Penfed 5 year and take advantage of the 3% CD.

I agree, a 3% CD is a good thing to consider.

 

[SoReady]

Thanks everyone, I love the feedback.

I am considering Penfed (in place of BERIX), but a little leery of the things I have been reading on the amount/difficulty of paperwork, and/or lag time between dollars committed and when they show up at PenFed. But I am considering it. I probably will start with calling them this week and maybe at least get an account going.

 

[REWahoo]

I am considering Penfed, but a little leery of the things I have been reading on the amount/difficulty of paperwork, and/or lag time between dollars committed and when they show up at PenFed.

While there have been delays and a few glitches, I've neither experienced nor heard anything that would lead me to be concerned about doing business with PenFed. When there were issues with delayed funding, PenFed honored the transfer date to insure the CD owner was made whole.

 

[clifp]

Thanks everyone, I love the feedback.

I am considering Penfed, but a little leery of the things I have been reading on the amount/difficulty of paperwork, and/or lag time between dollars committed and when they show up at PenFed. But I am considering it. I probably will start with calling them this week and maybe at least get an account going.

There have been more report recently with PenFed than there use to be.
However, in the last 6 years since learning about Penfed via this forum. I have opened 10 CDs, a car loan, a home equity loan (and closed it), and a credit card. I have zero problems and they have always been fast and efficient.

 

[Spanky]

That's a pity. My approach to fixed income is to use the Stable Value I have in my 457, TIAA-Traditional, which is currently paying me 4.413%

This is probably one of the highest return among all stable value funds.

 

[nun]

This is probably one of the highest return among all stable value funds.

My stable value is returning 2.6%, TIAA-Traditional is a deferred annuity currently paying me 4.413%.

 

[Spanky]

My stable value is returning 2.6%, TIAA-Traditional is a deferred annuity currently paying me 4.413%.

Thanks for the clarification. 2.6% is still pretty good.

 

[Hermit]

Thanks everyone, I love the feedback.

I am considering Penfed (in place of BERIX), but a little leery of the things I have been reading on the amount/difficulty of paperwork, and/or lag time between dollars committed and when they show up at PenFed. But I am considering it. I probably will start with calling them this week and maybe at least get an account going.

I opened a PenFed account on the 10th and e-mailed the paper work to open a traditional IRA on the 14th. I called last week and the representative told me the paper work had made it to the right place and that the 3% CDs would remain through January. Still waiting on an IRA account number. My 401k will send me a check with the account number on it which I have to send on to PenFed. I am fast running out of time for this transaction to happen.

 

[SoReady]

I'll probably call Penfed this week, but isn't there a way to make the money transfer without physically taking the monies and then sending to them? Can't there just be an electronic transfer?

 

[REWahoo]

I'll probably call Penfed this week, but isn't there a way to make the money transfer without physically taking the monies and then sending to them? Can't there just be an electronic transfer?

Yes. I opened and IRA at PenFed and sent them paperwork to transfer funds from Vanguard, which was done electronically.

 

[GalaxyBoy]

... the Stable Value I have in my 457, TIAA-Traditional, which is currently paying me 4.413%...

I am so jealous of folks who have such a SV fund available. My only choice has a 1-year return of 1.28% with a gross expense ratio of 0.31%.

 

[Ready]

Yes. I opened and IRA at PenFed and sent them paperwork to transfer funds from Vanguard, which was done electronically.

I requested electronic funds transfer as well. It's been about a week, but I haven't seen the money move. However, I've called them at least three times, and each time I bring up the subject, they assure me that even if the funds are not received by January 31st, they will back date the deposit to ensure I get the 3% rate. They said they just need to receive the request by January 31st, so if you are still thinking about doing this, I would suggest you don't delay any longer.

It beats any bond fund out there from where I see things. I've already moved half of my fixed income portfolio into CDs, so that the only major bond holdings I have left will be CA municipal bonds. The rate is not great, but with being federal and state tax free, it's not too bad.

 

[Spanky]

For those who have opened an IRA certificate account at Penfed, are you planning to keep it there indefinitely, until maturity, until the need of emergency cash, or until interest rate increases? If so, which rate (e.g., short-term, long-term) and what rate (e.g., 4%, 5%, etc)?

 

[Hermit]

I'll probably call Penfed this week, but isn't there a way to make the money transfer without physically taking the monies and then sending to them? Can't there just be an electronic transfer?

Depends on where your money is. In the case of my 401k, no. They will only send the check to me. Check it out with where you have your money.

 

[tulak]

Yes. I opened and IRA at PenFed and sent them paperwork to transfer funds from Vanguard, which was done electronically.

I'm doing this today. Talk about waiting until the last moment. I called both Vanguard and PenFed for more info. I'm transferring funds from my Vanguard IRA to a newly opened IRA at PenFed.

Vanguard told me that they need a signed copy of the IRA transfer request. They won't accept a fax'd copy. I'm at the post office right now waiting in line to send them a copy. I'll pay extra for guaranteed two day deliver. Vanguard should have this Thursday.

I fax'd the paperwork to PenFed this morning. I asked if they will receive the funds from Vanguard electronically and they said no. They said that funds transferred between IRAs cannot be done electronically. I don't know if that's true, but that is what they told me.

I figure that Vanguard should send a check to PenFed on Friday and PenFed should have it by Tuesday/Wednesday of next week. Assuming everything goes smoothly.

 

[REWahoo]

I fax'd the paperwork to PenFed this morning. I asked if they will receive the funds from Vanguard electronically and they said no. They said that funds transferred between IRAs cannot be done electronically. I don't know if that's true, but that is what they told me.

That may be accurate but the time between the date Vanguard sent my funds to PenFed and the effective date of my CD was only one business day. My earlier assertion that Vanguard transferred my IRA funds to PenFed electronically was based on the fact my funds left Vanguard on Friday, 12/20 and the effective date of the PenFed CD was Monday, 12/23.

Or since the CD didn't show up online in my PenFed account until Friday 12/27, maybe it wasn't received on the 23rd but simply backdated to that date?