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Bond Funds in Retirement
Old 09-11-2015, 09:11 AM   #1
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Bond Funds in Retirement

Our CFPs have NPFFX in our fund proposal. When we looked it up on morningstar we do not see how this fund can provide value and profit for us with its yield and expenses. Can anyone explain how we can make money with a bond fund with a .51% or .71% yield and expenses of .82%? We would also pay a 1% annual fee to the financial planners. Thanks for your help and suggestions of other retirement forums that might be of help to us as we do our due diligence for the rest of the funds on our proposal.
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Old 09-11-2015, 09:33 AM   #2
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Not sure I can help, but I see people in bond funds for two reasons.
1. As an asset that is uncorrelated to the stock portion of a portfolio in the long run and, perhaps, for something that is anti-correlated in the short run
2. As a source of dividends.


This particular fund is highly rated by Morningstar. However, it isn't a bond fund. It's a stock fund, according to Morningstar. Large Cap Growth.
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Old 09-11-2015, 09:43 AM   #3
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To avoid high expense ratios, check out Vanguard or Fidelity index bond funds. You can easily find expense rations less than .25.

Some suggestions - check out the Morningstar discussion forum and the Bogleheads forum.


Also, check out some books authored by John Bogle, Larry Swedroe, and Rick Ferri. They all have easy to read books on mutual funds and asset allocations.

Then, decide if you really need a CFP and the 1% fee.

You'll save some coin.

Good Luck.
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Old 09-11-2015, 09:43 AM   #4
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As an investor that follows Bogle's concepts of keeping costs lows, I wouldn't touch any fund with 0.82% expenses. Guess I wouldn't pay someone 1% of my portfolio each year to manage it either. Instead, I'd consider the advise I was given and look for a Vanguard fund or mix of funds that did something somewhat similar and then invest the money myself....assuming I liked the advise.

Edit - BTW - can go to something like Yahoo.com and plot NPFFX vrs something like the S&P 500 over time. Looks like the 500 performed better than NPFFX over the last 5 yrs at least. And one can buy a extremely low cost 500 fund at Vanguard (VFINX, 0.17% expense ratio)
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Old 09-11-2015, 09:44 AM   #5
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I'm not sure if we're looking at the same fund, but I'm seeing NPFFX listed as a world stock fund, not a bond fund. It also has a five star rating from Morningstar, so it must be doing something right.
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Old 09-11-2015, 09:54 AM   #6
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Originally Posted by big-papa View Post
Not sure I can help, but I see people in bond funds for two reasons.
1. As an asset that is uncorrelated to the stock portion of a portfolio in the long run and, perhaps, for something that is anti-correlated in the short run
2. As a source of dividends.


This particular fund is highly rated by Morningstar. However, it isn't a bond fund. It's a stock fund, according to Morningstar. Large Cap Growth.
And to add to my comments, if your CFP is promoting this as a bond fund, then something is terribly wrong.
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Old 09-11-2015, 10:58 AM   #7
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Thanks for the correction about the fund and taking time to reply. Much appreciated.
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Old 09-11-2015, 11:02 AM   #8
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I made a mistake about what kind of fund it was. Thanks to all who corrected me!!!
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Old 09-11-2015, 11:09 AM   #9
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I made a mistake about what kind of fund it was. Thanks to all who corrected me!!!
You're welcome. But I'm still a little confused. Is your CFP recommending this fund as a stock fund for you? Are the original questions about yield and expense ratio still something you're wondering about?

If it is, you're going to get a myriad of opinions on this one.
There will be "total return" advocates vs. "dividend return" advocates
There will be "index funds always" vs. "managed funds & index funds mix" advocates
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Old 09-11-2015, 11:18 AM   #10
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Some other posts have pointed out that you should be really worried by the 1% the CFP is charging you. Have a Google for "bogleheads" and "couch potato portfolio". You'll save lots of money on fees and probably do better than most investment managers.
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Old 09-11-2015, 11:23 AM   #11
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Some other posts have pointed out that you should be really worried by the 1% the CFP is charging you. Have a Google for "bogleheads" and "couch potato portfolio". You'll save lots of money on fees and probably do better than most investment managers.
+1
Plus some good reads out there to help you out including two below. Easy reads and often available at used book bookstores such as Half Price Books (where I got mine)

The Intelligent Asset Allocator. How to Build Your Portfolio to Maximize Returns and Minimize Risk. McGraw-Hill, New York, 2000, ISBN 0-07-136236-3.
The Four Pillars of Investing. Lessons for Building a Winning Portfolio. McGraw-Hill, New York, 2002, ISBN 0-07-138529-0.
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Old 09-11-2015, 11:41 AM   #12
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Some other posts have pointed out that you should be really worried by the 1% the CFP is charging you. Have a Google for "bogleheads" and "couch potato portfolio". You'll save lots of money on fees and probably do better than most investment managers.
"The needs of the many outweigh the needs of the few, or the one." - Spock
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Old 09-11-2015, 11:43 AM   #13
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Originally Posted by Goldenmom View Post
Our CFPs have NPFFX in our fund proposal. When we looked it up on morningstar we do not see how this fund can provide value and profit for us with its yield and expenses. Can anyone explain how we can make money with a bond fund with a .51% or .71% yield and expenses of .82%? We would also pay a 1% annual fee to the financial planners. Thanks for your help and suggestions of other retirement forums that might be of help to us as we do our due diligence for the rest of the funds on our proposal.
Just to bring this back on topic, I would agree with the others that I avoid the funds with high fees.
I personally would consider a CFP if and only if they were one time fee (unless I asked them to rebalance portfolio for me and paid them accordingly), and they didn't suggest high yield and high expense funds. But that's JMHO.
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Old 09-11-2015, 12:11 PM   #14
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To me, the 1% you are paying the CFP is a far bigger and avoidable drain on your rate of return than the fund's actual fees. You can far better advice and at no charge by reading the advice in this forum and in Bogleheads.
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Old 09-11-2015, 12:32 PM   #15
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Originally Posted by big-papa View Post
You're welcome. But I'm still a little confused. Is your CFP recommending this fund as a stock fund for you? Are the original questions about yield and expense ratio still something you're wondering about?

If it is, you're going to get a myriad of opinions on this one.
There will be "total return" advocates vs. "dividend return" advocates
There will be "index funds always" vs. "managed funds & index funds mix" advocates
Yes, this fund is in our investment proposal and I am still confused about the yield vs. expense. I welcome your opinion and thank you for taking your time.
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Old 09-11-2015, 12:34 PM   #16
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To me, the 1% you are paying the CFP is a far bigger and avoidable drain on your rate of return than the fund's actual fees. You can far better advice and at no charge by reading the advice in this forum and in Bogleheads.
Thanks for the sound advice. Sounds like you are living the dream. I am extremely impressed with you!
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Old 09-11-2015, 01:52 PM   #17
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Have you asked your CFP why they have chosen this fund when they could get a similar asset allocation from a couple of index funds with far lower expenses? Are you looking for capital growth or income or a bit of both? How does it fit in with the rest if their recommendations?
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Old 09-11-2015, 02:01 PM   #18
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Can anyone explain how we can make money with a bond fund with a .51% or .71% yield and expenses of .82%? We would also pay a 1% annual fee to the financial planners. .

Not sure we ever specifically answered your question above.
The cost of owning the fund is 0.82% + 1% = 1.82% per year
The value you are getting is 0.51% per year + any increase in value of the fund (assuming you sell it)

So to make money, the fund would need to increase in value at a rate of
1.82 - 0.51 = 1.31% per year to make money. That's a fairly small amount for a stock fund but one achievable through much lower cost index funds.

If I'm incorrect on above analysis, others please feel free to correct, thx.
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Old 09-11-2015, 02:18 PM   #19
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To the OP: A general rule of thumb is withdrawals from a well diversified portfolio of about 4% per year have historically been sustainable. If a person gives 1% to a CFP, then they will be cutting the amount of their annual spending money by 25%. It's very expensive--If my hard-earned savings will generate $50K per year for us to live on, I would think long and hard before giving $12,500 of it to a financial planner/adviser for something that takes only a little time.
There are many well researched sample portfolios that you can duplicate yourself and do very well. They use low-cost funds and they have historically done well in a variety of market conditions. This really doesn't need to take more than 12 hours per year of your time. There's good information in the FAQ files here, along with some good book recommendations.
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Old 09-11-2015, 03:27 PM   #20
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Not sure we ever specifically answered your question above.
The cost of owning the fund is 0.82% + 1% = 1.82% per year
The value you are getting is 0.51% per year + any increase in value of the fund (assuming you sell it)

So to make money, the fund would need to increase in value at a rate of
1.82 - 0.51 = 1.31% per year to make money. That's a fairly small amount for a stock fund but one achievable through much lower cost index funds.

If I'm incorrect on above analysis, others please feel free to correct, thx.
I might be mistaken, but I think this is a correct analysis if the plan is to live off of dividends. If, however, you take the total return approach (capital gains + dividends) and are willing to sell some of it over time, then you need to look at the total returns, including the sequence in which the individual returns occur.

For many people who have enough money invested, it's a perfectly reasonable idea to live only off of dividends. For others (myself included), it's doubtful I'll ever have enough saved to do that unless dividends really increase from where they are now. So, I take a total return approach which means selling a certain portion of my assets every year for living expenses. If the amount I choose to withdraw per year is a small enough percentage of my total portfolio, then I'm unlikely to run out of money before I croak.

Many people here advocate a pure index fund approach for both stock and bond funds. Others, like myself, have a mixed approach. I do own some managed funds, but I have several criteria I use in that selection. The fund must be old enough to have some history, the fund's investment approach has to be stable, the fund manager must have been there for a very long time, for example. I don't require that it beat an index every single year, but it should most years and by enough to make up for the years where it doesn't. This takes considerable time and effort vs. an index-only approach and you have to monitor more often since funds can change, managers can leave, etc.

Now NPFFX from a total return approach with a quick (not nearly exhaustive) look at data from Morningstar (M*)
- M* likes it. 5 star - gold
- 5 year returns of 11%, but 10 year returns of 7.47%. 2008 losses were pretty heavy compared to other funds I've looked at.
- M* is showing that it beats the MSCI index they've assigned to this fund for 1,3,5,10 and 15 year returns. But SP500 beats it at 3 and 5 years. Something to think about.
- A little confusing on the manager. The fund has been around since 2001, but M* shows a couple of managers being there before that time. Might need to dig deeper to see if the fund changed its name some point along the line.
- It's about 43.5% US Stock and 49% Non US Stock. You can get the same sort of mix with a combination of VTMGX and VFIAX with a much lower overall expense ratio and much much lower if you don't pay a CFP to do it. Would need to do some more analysis to see how the overall performance would stack up against this fund.

Finally, it's sort of tough to look at a single fund in isolation in a portfolio. You need to understand why he's chosen this fund in relation to other funds he'd like to see you use and then explain why this overall mix of funds would work for you. Even I, who use a mix of managed an index fund, would first have him explain why you wouldn't be better off with a pure index approach vs. his approach. If he can't answer that by at least using some historical data, then you might want to consider a different planner. Even then, as others here have already pointed out, it's not that tough to get yourself proficient enough to do all of this yourself and quickly save the CFP fee and, perhaps, more. Plenty of resources out there to get you started.

All the best
big-papa
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