Bond fund dividends: spend or reinvest

[racy]

Bond fund dividends: spend or reinvest in this market

For retirement income, I've been automatically directing my IRA bond fund dividends to my money market account; then from there withdrawing a portion to our checking account for spending.

I've been thinking about making a change: reinvesting the bond fund dividends and withdraw our spending needs from the money market. So, I'd be "buying low" while the market is depressed.

I'm interested in other's thoughts about this. Thank you.

 

[COcheesehead]

My philosophy in order of spend is cash, bonds, equities.

 

[Morgan22]

We spend dividends and interest from taxable accounts. We set it up so that they automatically transfer to our checking account.

We also pull remainder of our needs from retirement accounts since div and int are not enough for our spending. (Which we also set up to automatically transfer on a monthly basis.)

 

[pb4uski]

I would stay with what you have... not reinvesting bond fund dividends. With the Fed very likely increasing rates in the near term IMO the NAV of bond funds will continue to decling until long term interest rates normalize so you'll likely have near term unrealized losses on those reinvested shares.

In fact, many of us here are out of bond funds altogether, at least for now, for the same reasons.

 

[aja8888]

I would stay with what you have... not reinvesting bond fund dividends. With the Fed very likely increasing rates in the near term IMO the NAV of bond funds will continue to decling until long term interest rates normalize so you'll likely have near term unrealized losses on those reinvested shares.

In fact, many of us here are out of bond funds altogether, at least for now, for the same reasons.

I'm at the point of saying "what's a bond fund"?

 

[OldShooter]

Once you have received that money, it's not a bond fund dividend any more. It is just money, spendable or investable like any other money.

So if you want to invest some money in bond funds, figure out how much you want to invest and proceed. I don't know why the specific amount of money you're receiving in bond fund dividends is anything special except as a convenient number. If you believe you are buying low, why not invest more?

 

[Freedom56]

For retirement income, I've been automatically directing my IRA bond fund dividends to my money market account; then from there withdrawing a portion to our checking account for spending.

I've been thinking about making a change: reinvesting the bond fund dividends and withdraw our spending needs from the money market. So, I'd be "buying low" while the market is depressed.

I'm interested in other's thoughts about this. Thank you.

If the distribution yield of your bond fund is lower than CDs or treasuries or high grade corporate notes for the same duration, you should not put any money into the fund. You are much better off buying treasuries or CDs. The fund will continue to erode until distribution yields exceed risk free CDs or treasuries. The only scenario that will reverse this trend is if the Fed drops rates back to zero.

 

[TheWizard]

Once you have received that money, it's not a bond fund dividend any more. It is just money, spendable or investable like any other money.

So if you want to invest some money in bond funds, figure out how much you want to invest and proceed. I don't know why the specific amount of money you're receiving in bond fund dividends is anything special except as a convenient number. If you believe you are buying low, why not invest more?

I like this approach to thinking about money.
I do the same with all sources of retirement income, including RMDs.

And I don't own any bond funds, only some TIAA Traditional...

 

[OldShooter]

I like this approach to thinking about money. ...

Not original with me. Thinking this way is really based on what Richard Thaler calls "mental accounting." (https://www.investopedia.com/terms/m/mentalaccounting.asp) The idea is that we tend to classify fungible money various ways, some good and some not so good.

For example, budget categories are mental accounting; It's all identical fungible, spendable, money. But the mental accounting helps us organize our spending. Same-o on a bigger scale, separating day-to-day spending from long-term savings.

One of the behavioral economists' favorite example is "house money" which a gambler is much more willing to risk than he is willing to risk the stash he brought to the casino. Thaler: " ... the fact that some of your money has been made recently should not diminish the sense of loss if that money goes up in smoke."

So the point of my post is really from thinking through mental accounting for myself, keeping categorizations that are useful and eliminating them when they are not.