Tranquility Base
Recycles dryer sheets
- Joined
- Nov 18, 2017
- Messages
- 104
I have been gradually reducing a large position in a bond fund (American Funds Bond Fund of Amer A (ABNDX)) that is held in a traditional IRA. I am struggling with what to invest the proceeds in and where it is best to hold fixed income.
I am currently around 69/31 for equity and fixed income. I have been at 70/30 for quite some time although that seems a bit hot for me at times (I am in my late 60s) and I don't want to go higher than 70% equities.
For some reason I decided to move some of the fixed income from the T-IRA to my taxable account. If I sold fixed income in the T-IRA and sold an equity in the taxable account, I would reinvest the proceeds in the taxable account in fixed income and reinvest the proceeds in the T-IRA in equities. So I was keeping the same approximate asset allocation but changing the asset location.
I am still trying to understand the details of asset location. I generally get the big picture, but life, day to day, consists of the details. I have been keeping a spreadsheet with columns for different types of investments and columns for the taxable account and various IRA accounts so I can put a check mark in the account columns where it is appropriate to hold that type of investment. It is a work in progress and still has gaps.
Part of the problem is that I am not comfortable with bond funds. I don't fully understand them and have decided to get rid of my remaining bond fund positions. Frankly, it is less stressful for me to read about the current state of national politics or the global wars than it is to read articles about the pros and cons of bond funds and how they work. So I have stopped spending any more of my free time trying to educate myself about bond funds.
I know that the Bogleheads are big on their three-fund portfolio and for the most part I like the simplicity of that idea. My portfolio is too complex right now and I am working to simplify it. But I am not going to use a bond fund for the fixed income component of my portfolio just because that is the Bogleheads way. I like the concept of simplicity but I am not blindly drinking their Kool-Aid. The downside of that, however, is that I have ended up with a long list of individual bonds (US Treasuries). Fortunately the Schwab website allows you to open or close the equities and fixed income windows. Otherwise, it would take much longer to scroll down the webpage.
I am comfortable buying individual bonds so that I, and not a fund manager, control whether the bond is sold before maturity, or most likely for me, held to maturity. I understand that the value of the bond will decrease as interest rates increase. I am comfortable signing on for a bond to pay me a set rate of interest for a set period of time, although I am not venturing out beyond 5 years at this point. With a bond fund, I don't know what kind of trip I am signing up for when I invest in the fund. I am not trying to reopen that debate. I am just explaining where my head is.
I don't have a lot of experience with corporate bonds and thus I am not very comfortable with them. Yet. So that limits me to US Treasuries and municipals which it makes no sense to hold in an IRA, especially a Roth IRA. And currently, at least in my state, the interest rates means that US Treasuries are a better deal than municipals.
I am still not sure what my questions are, just my frustrations. So I will just start firing off questions I guess.
Is it appropriate to hold bonds (bonds other than municipals or US Treasuries) in an IRA?
Where should fixed income investments be held? I tend to lean towards holding bonds in a taxable account because I think of them as providing the income I might periodically need to withdraw for expenses. Nonetheless, equities can still be sold because a withdrawal is a withdrawal. I haven't actually had to withdraw much more than 1.0 to 1.5%. Nonetheless, I want to preserve some semblance of periodic income (even if it just gets reinvested) and keep some assets that are relatively liquid.
I can't redo everything in one fell swoop. As I sell off more bond funds in the T-IRA, given my low comfort and experience levels with corporate bonds, would it make just as much sense to invest some of the proceeds in Certificates of Deposit, at least as long as these nice interest rates prevail?
I am currently around 69/31 for equity and fixed income. I have been at 70/30 for quite some time although that seems a bit hot for me at times (I am in my late 60s) and I don't want to go higher than 70% equities.
For some reason I decided to move some of the fixed income from the T-IRA to my taxable account. If I sold fixed income in the T-IRA and sold an equity in the taxable account, I would reinvest the proceeds in the taxable account in fixed income and reinvest the proceeds in the T-IRA in equities. So I was keeping the same approximate asset allocation but changing the asset location.
I am still trying to understand the details of asset location. I generally get the big picture, but life, day to day, consists of the details. I have been keeping a spreadsheet with columns for different types of investments and columns for the taxable account and various IRA accounts so I can put a check mark in the account columns where it is appropriate to hold that type of investment. It is a work in progress and still has gaps.
Part of the problem is that I am not comfortable with bond funds. I don't fully understand them and have decided to get rid of my remaining bond fund positions. Frankly, it is less stressful for me to read about the current state of national politics or the global wars than it is to read articles about the pros and cons of bond funds and how they work. So I have stopped spending any more of my free time trying to educate myself about bond funds.
I know that the Bogleheads are big on their three-fund portfolio and for the most part I like the simplicity of that idea. My portfolio is too complex right now and I am working to simplify it. But I am not going to use a bond fund for the fixed income component of my portfolio just because that is the Bogleheads way. I like the concept of simplicity but I am not blindly drinking their Kool-Aid. The downside of that, however, is that I have ended up with a long list of individual bonds (US Treasuries). Fortunately the Schwab website allows you to open or close the equities and fixed income windows. Otherwise, it would take much longer to scroll down the webpage.
I am comfortable buying individual bonds so that I, and not a fund manager, control whether the bond is sold before maturity, or most likely for me, held to maturity. I understand that the value of the bond will decrease as interest rates increase. I am comfortable signing on for a bond to pay me a set rate of interest for a set period of time, although I am not venturing out beyond 5 years at this point. With a bond fund, I don't know what kind of trip I am signing up for when I invest in the fund. I am not trying to reopen that debate. I am just explaining where my head is.
I don't have a lot of experience with corporate bonds and thus I am not very comfortable with them. Yet. So that limits me to US Treasuries and municipals which it makes no sense to hold in an IRA, especially a Roth IRA. And currently, at least in my state, the interest rates means that US Treasuries are a better deal than municipals.
I am still not sure what my questions are, just my frustrations. So I will just start firing off questions I guess.
Is it appropriate to hold bonds (bonds other than municipals or US Treasuries) in an IRA?
Where should fixed income investments be held? I tend to lean towards holding bonds in a taxable account because I think of them as providing the income I might periodically need to withdraw for expenses. Nonetheless, equities can still be sold because a withdrawal is a withdrawal. I haven't actually had to withdraw much more than 1.0 to 1.5%. Nonetheless, I want to preserve some semblance of periodic income (even if it just gets reinvested) and keep some assets that are relatively liquid.
I can't redo everything in one fell swoop. As I sell off more bond funds in the T-IRA, given my low comfort and experience levels with corporate bonds, would it make just as much sense to invest some of the proceeds in Certificates of Deposit, at least as long as these nice interest rates prevail?