Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
using high yield in a port.
Old 05-09-2005, 07:12 AM   #1
Recycles dryer sheets
 
Join Date: Jan 2004
Posts: 147
using high yield in a port.

Hello, all!

I had a thought I wanted to run by you all for a portfolio with a relatively low equity allocation, but still might grow over the long term.* Has anyone ever toyed with the idea of using HY bonds in place of a large amount of equity?

For example instead of having a 50stk/50debt ratio, using a 35stk/30HY/35debt mix?* Does it sound insane to have 30% HY?* Would 15-20% be more reasonable?

I've read Swedroe & Bernstein and realize the risk should be taken with the equity portion & use short bonds for the rest... but I'm not comfortable with a large equity slice even though I'm a few decades from RE.* This HY strategy isn't something I'm serious about implementing at this point, but the thought of it doesn't seem all that bad.

Any thoughts?

-Jay
__________________

__________________
Enjoy your own life without comparing it with that of another. ~ Marquis de Condorcet
fire5soon 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!

Re: using high yield in a port.
Old 05-09-2005, 07:20 AM   #2
Thinks s/he gets paid by the post
 
Join Date: Dec 2002
Posts: 3,875
Re: using high yield in a port.

I have over 30% in HY. Then again, my sanity gets questioned all the time

JG
__________________

__________________
MRGALT2U is offline   Reply With Quote
Re: using high yield in a port.
Old 05-09-2005, 09:45 AM   #3
Recycles dryer sheets
 
Join Date: Apr 2005
Posts: 97
Re: using high yield in a port.

I currently have 13% in High Yield @Vanguard.

13% High Yield Bonds
30% International Equity
48% Domestic Equity
* 9% GNMA and Cash

Dave
__________________
Born with nothing, still have most of it left!
Need to be on the road more!
ex_CFO_now_RVer is offline   Reply With Quote
Re: using high yield in a port.
Old 05-09-2005, 10:55 AM   #4
Thinks s/he gets paid by the post
 
Join Date: Dec 2002
Posts: 3,875
Re: using high yield in a port.

Quote:
Originally Posted by ex_CFO_now_RVer
I currently have 13% in High Yield @Vanguard.

13% High Yield Bonds
30% International Equity
48% Domestic Equity
* 9% GNMA and Cash

Dave
Okay, mine has shifted slightly. Here is the latest direct from
the "fringe" of ER investing theory:

Cash/liquid (net) 5%
Personal prop. 5%
Real estate 45%
Junk/HY bonds 32%
Gov, issue bonds 13%

And, that's everything but the dryer sheets

JG
__________________
MRGALT2U is offline   Reply With Quote
Re: using high yield in a port.
Old 05-09-2005, 11:58 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: using high yield in a port.

I have 5% in High Yield
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: using high yield in a port.
Old 05-09-2005, 12:01 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: using high yield in a port.

And there are days I think that might be a little too much.

There havent been a lot of defaults in high yield recently, according to some info from vanguard that esrbob got. But thats because we've had a pretty friendly monetary policy. Thats changing.

Also, according to bernstein you want to get 6% over treasuries in exchange for taking a high yield risk; current yield benefits are less than half of that for a broad selection of HY bonds.

Also the money you get out of it is taxed in the current year as a dividend, equity gains are taxed when sold and are at long term capital gains rates...one strategy may or may not be better for you.

As with anything, balance is key. Have some of each.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: using high yield in a port.
Old 05-09-2005, 12:25 PM   #7
Recycles dryer sheets
 
Join Date: Jan 2004
Posts: 147
Re: using high yield in a port.

Thanks for the replies so far. Looking back over the last 20 years or so Vanguard's HY fund has only had one year losses in the mid single digits which isn't too bad. I would also be holding this in a tax deferred account. In a taxable account I would use Vanguards tax free HY until retirement when I'd be in a lower tax bracket.

__________________
Enjoy your own life without comparing it with that of another. ~ Marquis de Condorcet
fire5soon is offline   Reply With Quote
Re: using high yield in a port.
Old 05-09-2005, 12:32 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: using high yield in a port.

The yield on the tax exempt high yield is a LOT lower than the standard high yield, with a longer duration...unless you're in a VERY high tax bracket (40%+) and arent afraid of interest rate risk, I wouldnt recommend it.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: using high yield in a port.
Old 05-09-2005, 04:06 PM   #9
Thinks s/he gets paid by the post
BUM's Avatar
 
Join Date: Feb 2004
Location: Mid Hudson Valley
Posts: 1,778
Re: using high yield in a port.

I have a bit less than 10% in VG H-Y. Owned it for less than a year. Love the divvies but every dang day it leaks a penny

BUM
__________________
In a panamax down by the river.
BUM is offline   Reply With Quote
Re: using high yield in a port.
Old 05-09-2005, 05:29 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,408
Re: using high yield in a port.

Vg Hi Yield - 10% of SO's, 2% of combined household - bought back when it was yielding 8% or so as an income booster - she's low tax bracket. May keep it forever.

Or may roll up his and her 'stuff' into Vanguard Target Series by the end of the year - to simplify - not because I don't like it.
__________________
unclemick is offline   Reply With Quote
Re: using high yield in a port.
Old 05-10-2005, 11:37 AM   #11
Recycles dryer sheets
 
Join Date: Jan 2004
Posts: 147
Re: using high yield in a port.

I'm still on the fence...* I like the idea of using them to boost returns instead of a high equity allocation.* I need to noodle this out a little more...* *
__________________
Enjoy your own life without comparing it with that of another. ~ Marquis de Condorcet
fire5soon is offline   Reply With Quote
Re: using high yield in a port.
Old 05-10-2005, 11:49 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: using high yield in a port.

If you need high current income more than long term, dont care about paying the taxes as you go, and dont mind the increasing prospects of default risk, then they're not a bad bet in small volumes. If you want long term growth of capital, deferral of taxation and dont mind the valuation levels, equities would be a better bet.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: using high yield in a port.
Old 05-10-2005, 11:54 AM   #13
Recycles dryer sheets
 
Join Date: Jan 2004
Posts: 147
Re: using high yield in a port.

Quote:
Originally Posted by th
If you need high current income more than long term, dont care about paying the taxes as you go, and dont mind the increasing prospects of default risk, then they're not a bad bet in small volumes.* If you want long term growth of capital, deferral of taxation and dont mind the valuation levels, equities would be a better bet.
I'm a few decades from FIRE & I would hold them in an IRA. Perhaps whatever HY I have should be a small side bet if anything at all.

Thanks for your thoughts.

__________________
Enjoy your own life without comparing it with that of another. ~ Marquis de Condorcet
fire5soon is offline   Reply With Quote
Re: using high yield in a port.
Old 05-10-2005, 12:23 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: using high yield in a port.

In that case, 3-6% wouldnt hurt at all. I'd be heavier in equities, particularly good dividend bearing ones because thats where I think you'll be seeing the larger piece of appreciation over the next 10 years. Twenty years is a good long time.

My 20+ years money (In my IRA) is:

Healthcare
Reit
Emerging Markets
Small Cap Value
International Explorer

All reinvest their own gains/dividends except the REIT feeds the small cap value fund.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: using high yield in a port.
Old 05-10-2005, 08:11 PM   #15
Thinks s/he gets paid by the post
 
Join Date: Mar 2004
Posts: 1,318
Re: using high yield in a port.

Fire5Soon;
I also have a small (3.5%) High Yield allocation in Vanguard's High Yield Corporate fund-- it was higher a year ago - closer to 5%.

It is worth noting that this fund VWEHX, is generally invested in the "Cream of High Yield", and as a result takes on less risk and offers less return than the index. So if you go with this fund, it may not be so risky to be in this asset class as you imagined.
__________________

__________________
ER for 10 years; living off 4.3% of savings (and a few book royalties ;-)
ESRBob 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
Thinking of a high MER fund accountingsucks FIRE and Money 4 02-26-2007 09:25 PM
VG High Yield treypar FIRE and Money 13 02-07-2007 09:49 PM
High Yield Bond Market ats5g FIRE and Money 23 11-11-2006 04:24 PM
TIPS yield 2.5% ?! lazyday FIRE and Money 19 12-29-2005 05:54 AM
The Scoop on High Yield Bonds Ted FIRE and Money 9 12-04-2003 01:03 PM

 

 
All times are GMT -6. The time now is 12:54 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.