Bonds/Cash ???

[kenepp1]

I retired at the first of the year. I have my bond/cash allocated to V/G:
Total Bond Mkt - 13%
High Yield Corp - 6%
6 month CD's - 11%
Prime MM - 14%

The MM seems to be paying the most right now,if you consider gains + yields, but I notice they charge 0.3% E/R. Anyone have any better ideas?

 

[brewer12345]

Seems like an awful lot of cash/bonds to me, but its hard to comment with no info.

The mix seems reasonable. I would suggest that you are missing a significant part of the bond market: foreign bonds.

As for what you have, junk and the index should offer the opportunity for cap gains in addition to yield, but it won't always work out that way (like recently). Assuming you are also holding some stocks, the bond funds are probably a good diversifier.

 

[azanon]

I retired at the first of the year.  I have my bond/cash allocated to V/G:
Total Bond Mkt - 13%
High Yield Corp - 6%
6 month CD's - 11%
Prime MM - 14%

The MM seems to be paying the most right now,if you consider gains + yields, but I notice they charge 0.3% E/R.  Anyone have any better ideas?

Debt instruments aren't really my thing, but I think your total bond/cash holding is pretty standard for a retiree, assuming the rest of your portfolio is in equities.  I imagine when i actually retire myself, i'm not going to venture too far beyond 50% equities.

Except for emergency cash you need on hand, i'd also be for using almost exclusively bonds instead of cash for your safe portion of the portfolio, due to what brewer said... more potential gain and more historical growth potential over the long term.  Yeah, MM and cd's will be paying more as interest rates continue to rise, but unless you're a market timer, i'd just buy and hold bonds and over the long term, i think you'll get better performance.

I also agree with adding an International Bond component.

So i'd eliminate the CD/MM, add 15% more to standard bonds (intermediate term domestic) and 10% International bond, is what i'd do. Leave the junk as is.

 

[lazyday]

you can buy individual treasuries for free at Fidelity or Vanguard (with big enough acct at VG) or at Treasurydirect.gov

no expense ratio, but if you sell early, there's a fee.

at today's rates i prefer bills or 5 year tips, in general, 2-5year treasuries and tips.

Swensen's book Unconventional Success makes good arguments for sticking to treasuries, instead of using corporate, asset backed, foreign, or other types of FI.

 

[Gone4Good]

Swensen's book Unconventional Success makes good arguments for sticking to treasuries, instead of using corporate, asset backed, foreign, or other types of FI.

Haven't read Swensen's book, but this seems to go against the whole idea of diversification.

Sometimes treasuries outperform spread products, but lots of times they don't. Wouldn't you want exposure to all of them?

 

[MasterBlaster]

I haven't read Swenson's book...

However I believe he makes a case that the risk premium for corporate bonds is not enough to compensate for the risk of lending corporations your money.

Swensen, I suspect, makes the case that corporate bonds are overvalued.

 

[kenepp1]

A little more info. I have a 60/40% equity/bond split. Similar to The coffehouse Investor portfolio, but with some slight changes. Also better track record over the last 10 years.

Total Mkt Idx - 10%
LC Value Idx - 10%
Mid Cap Idx - 10%
SC Idx - 5%
SC Value Idx -5%
Foreign funds - 13%
Other - 7% (Reit Idx; Engery; Precious Metals)

We also have half of our annual needs in pensions and SS.

What foreign bonds? These are hard to come by with low E/Rs.

Vanguard TIPS are down the tubes this year.

 

[kenepp1]

If you go to the VG sites and look at their funds by asset class, you will see Treasurey notes; tips, etc have not done that well so far this year. The MM at least pay 4.32% currently and rise a few tenths each month.

Also, this is my 401 rollover account. I have enough in my brokerage account to last for 4 more years (I hope).

 

[HFWR]

TIP has been sinking (duh...), so the ones I bought three yeears ago for $105 and change are down a bit... 7.5%... But finished buying recently 100 more shares at $101.54. Done now!

But I gotten three years worth of divvies, tax-deferred, since they're in my 401k. Currently about 20% of the port.

So, 20% bonds, around 12% REITs, balanced by microcap, SCV, SCB, LCB, INTL, EM, GLD, PCL... Between 5-10% for each, and a dose of cash - maybe 10% - for  some bargain shopping opps...

5-10 yrs from full R...  

 

[mb]

I view tips as inflation insurance with a modest interest yield included and like most insurance I hope that I never fully use it so getting a mediocre return on them is fine with me.

MB

 

[cute fuzzy bunny]

I believe that vanguard prime MM accounts .3% is accounted for in the reported yield on the vanguard web site. What is it...about 4.3% right now? Thats AFTER the expenses.

And lets not forget that TIPS are CPI insurance, not necessarily inflation insurance. Depends on how your personal rate of inflation relates to CPI. CPI is well below my personal rate of inflation. Hence TIPS produce a negative rate of return for me.

 

[lazyday]

Haven't read Swensen's book, but this seems to go against the whole idea of diversification.

Sometimes treasuries outperform spread products, but lots of times they don't. Wouldn't you want exposure to all of them?

It's true one would give up some diversification by avoiding non treasury FI.

But IMO one doesn't need to buy every asset class to be well diversified. I like the idea of being well diversified in the high return, high risk asset classes, and for low risk, low return classes, just going for safety. (of course, there's still interest rate risk and reinvestment-interest-rate risks, but at least one avoids credit risks with treasuries.)

Swensen makes the points MasterBlaster states, and others, including alignment of interests between small investor and whoever's offering the investment.

Not all gurus agree on this, by any means.

IMO probably any asset class could be appropriate, at the right price. I'm no expert, but at today's prices, corporate bond funds (including high-yield, and total bond index which includes corp and asset backed) don't make any sense to me.
If one were to choose a static Strategic Asset Allocation, I think it could make sense to avoid asset classes which are seldom priced to be sensible investments for the individual investor. Swensen includes corp FI in things to leave out. (And W.Bernstein, long term bonds, I believe.)

 

[brewer12345]

What foreign bonds?  These are hard to come by with low E/Rs.

There don't seem to be a lot of offerings in the foreign bond space. The fund I use and think is the best choice is GIM, a closed end fund. Long, solid track record, expense ratio I can swallow, and a good mix of mostly developed economy sovereigns with a dash of more exciting stuff. Pimco also offers a foreign bond fund but it isn't as good, IMO.