Bond Funds

[DebER]

Hi, I am looking for an income investment (stream) with at least a modest amount of growth. I have approx. $150K to invest. I do not want to reinvest the dividends, but use the cash to supplement my income.
I have some mutual funds in a retirement account that I am currently contributing to w/a value of about $65K and a private reit (retirement account) w/a value of about $53K along w/some other individual stocks with a value of about $25K as well as emergency cash.
I will not be retiring for about 12 more years and my only debt is my home.
I am the main bread winner in the home and the income stream will help will bills and afford us the opportunity to breathe a little easier.
I've looked at these 3 funds. I'd like to realize at least a 5% return. I know a lot of you like Vanguard funds, but the return isn't what I'd like to receive. Any thoughts on the below? Thanks so much.
TGLMX, TGBAX, THOPX

 

[prototype]

I;m still early in early retirement and have of alot of investment knowledge to gain. anyway I put $25K in USATX (USAA) back in June or so with monthly dividend coming back to me (about $80/month or ~4%) the fund value has stayed fairly stable. It's primarily municipal bonds so theres some tax breaks which I really won't have a handle on until I do my 2011 taxes.

Anyway I'd love to hear from people with significant bond knowledge/experience also.

 

[brewer12345]

How much risk are you willing to take? The 10 year treasiury is only generating a yield a shade over 2% so if you want 5% you are going to have to accept some risk.

 

[DebER]

I know I will need to take some risk, but I can't stomach a lot. It would need to be moderate.

 

[brewer12345]

Describe "moderate." 10% loss? 20% loss? 2% loss?

 

[harley]

Yeah, me too. I want 5% or better with little or no risk. Let me know when y'all have it figured out. I'd prefer 8%, btw.

 

[clifp]

Yeah, me too. I want 5% or better with little or no risk. Let me know when y'all have it figured out. I'd prefer 8%, btw.

Penfed 5% 10 year CDs were available this year. Good deals are available you just have to keep your eyes and ears open.

Alternatively get a time machine, although I think buying options on Apple stock back in Fall of 2008, would make more sense then CDs.

 

[DebER]

@Brewer12345, 5-10% as I believe the dividends will offset the drop in NAV to help keep even.

 

[brewer12345]

@Brewer12345, 5-10% as I believe the dividends will offset the drop in NAV to help keep even.

Unless you are buying junk, that yield will be tough to achieve now. Junk can drop a lot more than 10 percent.

A way to suss out a possible investment might be to look at funds with a long track record. Look at their worst performance in any year of the last ten and compare that to the current yield. I would also have more than one fund.

I run a constrained risk portfolio for my FIL. I have a mix of convertibles,junk, high grade credit and merger arbitrage funds with a smidge of commodities in both open and closed end funds. No idea if it meets your stated downside limit, but it isn't hard to roll up a port like this.

There is also the Wellesley fund.

 

[scrabbler1]

DebER, don't expect bond funds to have any serious growth potential. I have been in various bond funds for 21 years and have found they tend to have a ceiling on their NAVs.

As to specific bond funds, I have been in a particular one for about 3 years to generate the monthly dividends needed to pay my expenses. I bought into it in late 2008 when its NAV was greatly depressed so I was able to buy about 25% more shares than I anticipated beforehand. The NAV has risen since then which is good but because I am more interested in the income stream it continues to be the number of shares I own along with the monthly dividends per share which matter the most.

The bond fund has some risk in it because the bonds in it are at the low end of the investment grade category (BBB) or just below investment grade (BB, mostly, nothing below B). Whether you want to call it a "junk bond" fund is up to you. Regardless of how you characterize it, can you tolerate the risk?

The fund pays about 4.5 cents in dividends per share per month and has a NAV of about $9. That comes out to about 6% per year in dividends, or $750 per month on an investment of $150k.

 

[Alan]

psst - Wellesley

 

[MichaelB]

psst - Wellesley

+1

 

[DebER]

I've looked at these TGLMX, TGBAX, THOPX as from what I read, it's best to stay in Short and Intermediate funds right now as interest rates are bound to rise soon.
Any Opinion on the above?
Thanks so much for your comments/suggestions. I has been a help to me.

 

[FIREd]

I've looked at these TGLMX, TGBAX, THOPX as from what I read, it's best to stay in Short and Intermediate funds right now as interest rates are bound to rise soon.
Any Opinion on the above?
Thanks so much for your comments/suggestions. I has been a help to me.

TGLMX: junk bonds, risky. You shouldn't put all your money in something like this, but a small helping could help boost your portfolio yield.

TGBAX: global bond fund. Is it hedged for currency?

THOPX: short investment grade fund. I think you have the right idea here, but this is an expensive fund and its credit quality is at the lower end of the investment grade spectrum. You could probably find a better alternative.

 

[brewer12345]

TGLMX: junk bonds, risky. You shouldn't put all your money in something like this, but a small helping could help boost your portfolio yield.

TGBAX: global bond fund. Is it hedged for currency?

THOPX: short investment grade fund. I think you have the right idea here, but this is an expensive fund and its credit quality is at the lower end of the investment grade spectrum. You could probably find a better alternative.

Agree with your comments. I also think it is worth noting that we are in a really low interest rate environment and if the economy starts looking stronger and rates rise you could be in for a lot of pain.

 

[nun]

+1

me too +1. Wellesley is my go to for income and a little bit of growth.

 

[DebER]

Agree with your comments. I also think it is worth noting that we are in a really low interest rate environment and if the economy starts looking stronger and rates rise you could be in for a lot of pain.

It almost seems that no matter what I do, I'm going to lose unless I'm in fixed income instruments, such as CD's. Unfortunately, that's no way to make any money. Bummer

 

[brewer12345]

It almost seems that no matter what I do, I'm going to lose unless I'm in fixed income instruments, such as CD's. Unfortunately, that's no way to make any money. Bummer

The answer for me is to live with some volatility and diversify. YMMV.

 

[REWahoo]

It almost seems that no matter what I do, I'm going to lose unless I'm in fixed income instruments, such as CD's. Unfortunately, that's no way to make any money. Bummer

No risk, no reward is a condition most of us mere mortals must learn to deal with.

 

[Dawg52]

Penfed 5% 10 year CDs were available this year. Good deals are available you just have to keep your eyes and ears open.

I wish they would run another special soon. I have some 6% cd's maturing with PF around the first of the year.

 

[brewer12345]

I wish they would run another special soon. I have some 6% cd's maturing with PF around the first of the year.

Even if they ran a special with an above market rate, with 5 year CD yields at less than 2.5% a bonus rate woudl probably not be anywhere close to what you had.

 

[Dawg52]

Even if they ran a special with an above market rate, with 5 year CD yields at less than 2.5% a bonus rate woudl probably not be anywhere close to what you had.

I'm not expecting that. Would be nice to get better than 2.5% though.

 

[brewer12345]

I'm not expecting that. Would be nice to get better than 2.5% though.

I don't have any imminent maturities, but have been holding an excessive amount in a savings account while we did our move and temporarily owned two houses. Now that it is wound up, I have been looking for safe places for the cash at a higher rate. Bought some I bonds and will be on the hunt for more low hanging fruit. If PF screws up and does the 5% 10 year CD thing again I will be all over it once more.

 

[jimnjana]

Consider PDT or FFC both are closed end funds, invest in preferred stocks and use leverage to some degree. I would put a small amount into one or the other. Yes, the expense ratio is higher than vanguard but the yield is over 7% for PDT 9% of FFC, moderate volatility in share price, and nearly annual increases in dividend. PDT is currently selling at a discount to NAV, FFC is at a premium. I'd at least look at the Vanguard High Yield fund for a portion of your funds.

 

[nun]

Consider PDT or FFC both are closed end funds, invest in preferred stocks and use leverage to some degree. I would put a small amount into one or the other. Yes, the expense ratio is higher than vanguard but the yield is over 7% for PDT 9% of FFC, moderate volatility in share price, and nearly annual increases in dividend. PDT is currently selling at a discount to NAV, FFC is at a premium. I'd at least look at the Vanguard High Yield fund for a portion of your funds.

Don't invest in closed end funds unless you fully understand the risks and how they generate returns, watch out for leverage and return of capital.....and of course the expense ratios.