Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Should we be in bonds, or something else?
Old 03-07-2015, 12:29 AM   #1
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Should we be in bonds, or something else?

With the US 10 year Treasury rate being a good historical indicator of the next decade's bond returns and with it being 2.24% are bonds a good place for the fixed income portion of a retirement portfolio in the decumulation phase? If not what are the alternatives?
__________________

__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun 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 03-07-2015, 12:46 AM   #2
Thinks s/he gets paid by the post
 
Join Date: Jul 2003
Location: Pasadena CA
Posts: 2,695
What are your alternatives?I have a stable value type fund(TSP G Fund) which holds most of my fixed income.We have some ibonds, which is sort of like cash, we have cash in the credit union and DW's IRA is in VG Wellesley fund, so VG can manage some of our bond holdings. The only clear place I can think of for folks in higher tax brackets than I is muni funds.

Good luck, nothing looks so good going forward.
__________________

__________________
T.S. Eliot:
Old men ought to be explorers
yakers is offline   Reply With Quote
Old 03-07-2015, 08:37 AM   #3
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Quote:
Originally Posted by yakers View Post
What are your alternatives?I have a stable value type fund(TSP G Fund) which holds most of my fixed income.We have some ibonds, which is sort of like cash, we have cash in the credit union and DW's IRA is in VG Wellesley fund, so VG can manage some of our bond holdings. The only clear place I can think of for folks in higher tax brackets than I is muni funds.

Good luck, nothing looks so good going forward.
Well the SV funds won't do any better than 10 year US treasury, Wellesley isn't the same at all. I suppose I'm fishing for some out of the box thinking that could replace bonds and provide stable income in retirement. Are SPIAs an alternative?
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 03-07-2015, 09:05 AM   #4
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,330
You can buy short term annuities that work like bonds. They are "guaranteed" by your state's insurance fund. You get paid a rate slightly higher than CDs and you get your principal back at the end of the term. I don't buy these.

I use laddered CDs. They pay a higher interest rate than the equivalent US bond/note. They pay a slightly higher interest rate than Vanguard's Total Bond Fund if you buy CDs with the same average maturity (~7 years). The Total Bond Fund has a lot of US bonds in it which explains why CDs have a better interest rate.

My CD ladder has an average maturity of between 2 and 3 years. I'm starting to extend this out by buying 5 yr CDs and then 7 yr CDs probably in 2016.
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Old 03-07-2015, 09:10 AM   #5
Full time employment: Posting here.
 
Join Date: Mar 2010
Location: Chicago
Posts: 867
I think a lot of us were able to get in the Pen Fed 5 year CD at 3.04%.
__________________
ripper1 is offline   Reply With Quote
Old 03-07-2015, 09:12 AM   #6
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Quote:
Originally Posted by 2B View Post
You can buy short term annuities that work like bonds. They are "guaranteed" by your state's insurance fund. You get paid a rate slightly higher than CDs and you get your principal back at the end of the term. I don't buy these.

I use laddered CDs. They pay a higher interest rate than the equivalent US bond/note. They pay a slightly higher interest rate than Vanguard's Total Bond Fund if you buy CDs with the same average maturity (~7 years). The Total Bond Fund has a lot of US bonds in it which explains why CDs have a better interest rate.

My CD ladder has an average maturity of between 2 and 3 years. I'm starting to extend this out by buying 5 yr CDs and then 7 yr CDs probably in 2016.
I like that idea, but I think lifetime SPIAs should also be considered in this low interest environment as mortality credits.....assuming you live at least an average lifespan.....get you a bit more return. They are not for everyone, but should at least be seriously considered as part of your fixed income allocation, particularly if you are single or don't mind the chance of leaving a little bit less to your heirs.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 03-07-2015, 09:35 AM   #7
Thinks s/he gets paid by the post
 
Join Date: Feb 2014
Posts: 1,049
Period certain SPIAs might be useful. Say you need to get to 70 to get SS. So I am 50 yo and would get a 20 year period certain annuity. If I die the income flow continues to the beneficiary. Also the taxable interest is a fraction of the entire payment over the life of the contract. These are like a mortgage in reverse. The current rates seem too low for this to make sense right now.
__________________
jim584672 is offline   Reply With Quote
Old 03-07-2015, 10:06 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,410
I like target maturity bond funds as a CD substitute. The yields are a hair better but there is some credit risk, however, I can buy them in my Vanguard IRA rather than having a number of IRA accounts with different banks. The ones I currently own mature in 2017 to 2020. I "think" interest rates may normalize by then and if they do then I'll probably just buy a conventional bond fund with the maturity proceeds and hopefully be ahead than if I just held a conventional bond fund long term.

I could have got the same effect buying brokered CDs, but decided to do these instead.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 03-07-2015, 10:07 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Chuckanut's Avatar
 
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 6,322
I have a certain amount in an index bond fund, but most of my bonds are in PSSSST.....Wellesly. So far the management of the fund has earned my trust.
__________________
The worst decisions are usually made in times of anger and impatience.
Chuckanut is online now   Reply With Quote
Old 03-07-2015, 10:09 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,457
I have a broad range of bond funds - most of them intermediate. They are not Treasuries - they are much more broadly diversified and so usually yield quite a bit more for the same duration. I have held most of these bond funds for 15 years now and plan to for decades more. I don't feel compelled to sell them and buy something else.

I have picked up things like 3% 5-year CDs when they seemed attractive - but usually for my cash position!

My bonds are there for the diversification, and so I can sell them to buy stocks after bad market years. I don't see how you do that with an annuity.

I am a total return investor. I don't get look at the projected returns of my underlying assets or whatever dividends they may throw off any given year. When I withdraw, I sell whatever I need to at the time. Some years it's stocks, some years it's bonds, some years it's cash.

FWIW - I don't expect interest rates to "normalize" for another 10 years. Global growth is too slow, and deflationary pressures to high.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 03-07-2015, 10:15 AM   #11
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Quote:
Originally Posted by jim584672 View Post
Period certain SPIAs might be useful. Say you need to get to 70 to get SS. So I am 50 yo and would get a 20 year period certain annuity. If I die the income flow continues to the beneficiary. Also the taxable interest is a fraction of the entire payment over the life of the contract. These are like a mortgage in reverse. The current rates seem too low for this to make sense right now.
Mortality credits are important in a low interest rate environment. It's true that commercial life time annuities will only produce 2% returns, but they should be more in the mix as you reach ages over 75.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 03-07-2015, 10:21 AM   #12
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Quote:
Originally Posted by audreyh1 View Post
I have a broad range of bond funds - most of them intermediate. They are not Treasuries - they are much more broadly diversified and so usually yield quite a bit more for the same duration. I have held most of these bond funds for 15 years now and plan to for decades more. I don't feel compelled to sell them and buy something else.

I have picked up things like 3% 5-year CDs when they seemed attractive - but usually for my cash position!

My bonds are there for the diversification, and so I can sell them to buy stocks after bad market years. I don't see how you do that with an annuity.

I am a total return investor. I don't get look at the projected returns of my underlying assets or whatever dividends they may throw off any given year. When I withdraw, I sell whatever I need to at the time. Some years it's stocks, some years it's bonds, some years it's cash.

FWIW - I don't expect interest rates to "normalize" for another 10 years. Global growth is too slow, and deflationary pressures to high.
My pension buy is for diversity as well. I'll still be rebalancing my remaining 75/25 AA....and reinvesting dividends and capital gains.

The numbers on SPIAs for young people are not good right now, but they get interesting as you get older.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 03-07-2015, 10:23 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,457
Quote:
Originally Posted by nun View Post
My pension buy is for diversity as well. I'll still be rebalancing my remaining 75/25 AA....and reinvesting dividends and capital gains.

The numbers on SPIAs for young people are not good right now, but they get interesting as you get older.
Like how much older?

Never mind - I see you said 75 above.

Yep - I'll probably look at things again when we reach 70 (knock on wood!!!!)
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 03-07-2015, 10:38 AM   #14
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,840
Quote:
Originally Posted by nun View Post
With the US 10 year Treasury rate being a good historical indicator of the next decade's bond returns and with it being 2.24% are bonds a good place for the fixed income portion of a retirement portfolio in the decumulation phase? If not what are the alternatives?
I am staying with my same asset allocation as always, that I determined and wrote down when creating my financial plan. But then, I do have a little wiggle room, especially now that I have SS, and I am not trying to milk the last dollar out of my nestegg. My investing goals in retirement include maintaining a steady, moderate income along with the benefits of portfolio diversification and lower volatility that bond funds can provide. So far, so good.

My bonds are invested in the TSP "G Fund", VBTLX (Vanguard Total Bond Index), and VWIAX (Vanguard Wellesley). And there they will stay for the foreseeable future.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Old 03-07-2015, 11:10 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,676
Quote:
Originally Posted by nun View Post
Well the SV funds won't do any better than 10 year US treasury, Wellesley isn't the same at all. I suppose I'm fishing for some out of the box thinking that could replace bonds and provide stable income in retirement. Are SPIAs an alternative?
In a thread awhile back, I outlined a bond strategy that backtests quite well for the rising rate environments in the past decades. Right now it says to stick with intermediate bonds. See this link: A long term strategy for bonds

One should be wary of basing a fixed income multi-year strategy on just the current rates.
__________________
Lsbcal is offline   Reply With Quote
Old 03-07-2015, 01:31 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,369
Quote:
Originally Posted by Lsbcal View Post
In a thread awhile back, I outlined a bond strategy that backtests quite well for the rising rate environments in the past decades. Right now it says to stick with intermediate bonds. See this link: A long term strategy for bonds

One should be wary of basing a fixed income multi-year strategy on just the current rates.

I certainly don't disagree with your thoughts, Lsb. I have no use or probably need for bonds, but I did want to invest for yield. This led me to preferred stocks and while researching I thought these will just get crushed when rates rise. But I back checked the ones I have bought (utility preferred investment grade variety) and was surprised at the relative lack of volatility in price. One issue I have that was issued with a 6.625% coupon at $25 par in the 1990s.
In 2004 the 10 year was 4.15% and 20 year was 5.21% (no 30 yr issues) and it was sitting right around par. Now today both the 10 and 30 are in the 2's, and it sits just a dollar above par still yielding about 6.4%. You never know, so I just take my chances and buy more if opportunity presents itself.
Everything has its risks and drawbacks I know.


Sent from my iPad using Tapatalk
__________________
Mulligan is offline   Reply With Quote
Old 03-07-2015, 01:35 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,457
Quote:
Originally Posted by Lsbcal View Post
In a thread awhile back, I outlined a bond strategy that backtests quite well for the rising rate environments in the past decades. Right now it says to stick with intermediate bonds. See this link: A long term strategy for bonds

One should be wary of basing a fixed income multi-year strategy on just the current rates.
That was a really interesting presentation you made. I'm curious how it plays out for you over the next few years, so I hope you keep updating that thread.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 03-07-2015, 01:57 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,676
Quote:
Originally Posted by audreyh1 View Post
That was a really interesting presentation you made. I'm curious how it plays out for you over the next few years, so I hope you keep updating that thread.
I'll try to updated it. it will take 5 to 10 years to get a real idea of whether it's working.
__________________

__________________
Lsbcal 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
Oxford Club: Scam or Something Else education Other topics 13 05-25-2011 07:54 AM
Something else to think about! dex Life after FIRE 0 11-06-2005 08:17 PM
ER'd from something or to something? RockMiner Life after FIRE 21 07-27-2005 08:37 PM
To Retire or do Something Else? Rich Life after FIRE 9 01-10-2005 06:02 PM
DirecTV, Dish, or something else? Nords Other topics 22 07-30-2004 08:23 AM

 

 
All times are GMT -6. The time now is 03:57 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.