The Fixed Income Portion?

[Mysto]

I just finished reading Larry Sedroe's Rational Investing. He makes a case for cash funds as opposed for longer bonds or bond funds as the fixed asset portion of a diversified portfolio.

In my travels through firecalc I discovered that in order to meet my goal I needed to increase from commerical paper to 5 year bonds ( I didn't want to increase my equity exposure). Now I realize that each of these are not quite the same goal but... What is the opinion of this learned group on the fixed income portion of a diversified portfolio?

There seems to be less information in this area. MM - CDs - short term bonds or bond funds - commerical bonds - junk - I Bonds - TIPS ?? What are good vehicles for an on retirement portfolio to both limit risk and increase value?

I would ideally have investments in both taxable and tax sheltered accounts.

 

[AltaRed]

There has been a lot of debate on the fixed income component of one's asset allocation. With today's flat yield curve, a 5 year CD ladder or a low cost short term bond fund is probably about the best that can be done based on high quality investments. This is the route I plan to take upon retirement.

Personally, I would not get into junk bonds...and if I was ever tempted, I'd go with a bond fund to take advantage of a manager's touch and diversification to reduce risk rather than buy individual bonds. Example: Would you be willing to buy a GMC bond at this time?

 

[Dawg52]

I agree with AltaRed. I have mostly 1-2 year cd's and some i-bonds as my fixed income portion. I do have a balanced fund that can have a chunk in bonds but I think it has mostly 60% stocks and the rest in cash and convertible securities at the moment. When I retire in 12 months I will sell my interest in the company I work for and put that mostly in 1-5 year cd's and i-bonds. Hopefully 5 year rates will be a little higher by then.

 

[WilliamG]

An allocation I like splits fixed income 50-50 between intermediate and short term. Since we are 50-50 between equity and non-equity it seems we should be able to take a little bit of risk with half of fixed income to get a little bit more yield. Fyi, we now have half in IBonds and a 5 year CD ladder in IRA, and half in Vanguard bond funds; High Yield Corp, TIPS and GNMA.

 

[brewer12345]

If you have a view on interest rates, you can invest accordingly. Other than that, the simplest ways to go are to shop for the highest yielding 5 year CDs you can find, or buy the Lehman Agg bond index via AGG or an equivalent Vanguard, etc. fund. The Lehmen Agg has a duration of something like 4 point something years and includes corporates, treasuries and mortgage backed paper - all high grade. You could include a small bit of junk in your portfolio (5% or so), but I wouldn't go overboarrd right now as the junk market seems priced for perfection.

 

[HardCharger]

Fixed Income:
Try Fidelity Strategic Income, Fidleity New Market Income, Loomis Sayles Global Bond, how about a high yield fund thrown in there, and them maybe a regular long term corp bond fund, mix it up. don't forget to add some real estate, both US and foreign, stocks, but behave somewhat like bonds, not necessarily in syn with US stock market.

Then, for stock diversification, Oil should be good, high profits, low P/E funds(14), same with many Int'l funds.