Bond vs Bond Fund

[gayl]

I've decided that maybe I should put about 50k into bonds. But I don't know how to do this. I know the mechanics of buying but how do I decide if it's a good one?? It would be in my IRA if that matters. What do I need to read up on to figure this out? About a decade ago Schwab advised me to buy PWZ as it is taxfree. But I don't need taxfree in a tax deferred account.

As to risk tolerance: I've traded stocks for decades, used to trade up to 300× year, level 2 options trader, a little embarrassed that I know very little about bonds so I've just been accumulating cash. We all know how little that earns. I've really REALLY slimmed down investments to just SCHB (86%), SCHD & individual stocks (4%), PWZ (6%), straight cash (4%). Plus EF in a different account ... comfortable with that being just cash. Tired of trading -- started to feel like work

 

[jazz4cash]

This will be interesting. I presume you’re following the “golden period” thread?

 

[Dash man]

You can always call Schwab and talk to the bond desk. They’re happy to walk you through it.

I’d avoid any bond fund though.

 

[aja8888]

Bonds are simply I.O.U.'s with a defined set of payback criteria.

 

[gayl]

This will be interesting. I presume you’re following the “golden period” thread?

Actually, no. But I will now. Where is that thread

 

[jebmke]

for this amount I'd be inclined to just stick it in a short term treasury index fund and find something more fun to do than worry about individual bonds.

 

[foxfirev5]

What's to worry about? I'm pretty simple minded but find no challenge setting up a ladder of CD's, T Bills or whatever. If you don't want to deal with it select auto roll. It all probably takes less time than I spent reading and responding to this post. However, in all honesty, it really doesn't matter. Short term mutual funds may wash out in the end. ��

 

[gayl]

What's to worry about?

if you're asking me, I keep thinking about opportunity cost. If bonds ^ 3%, inflation ^ 9%, historically stocks ^ 8% then I'd lose 6% YOY in the long run. But I keep telling myself it's only 4% of portfolio and better than interest on cash

 

[foxfirev5]

if you're asking me, I keep thinking about opportunity cost. If bonds ^ 3%, inflation ^ 9%, historically stocks ^ 8% then I'd lose 6% YOY in the long run. But I keep telling myself it's only 4% of portfolio and better than interest on cash

Now you're asking about the future which neither I nor anyone else can predict. At 4% of the portfolio the point is moot. IMHO

 

[jazz4cash]

Actually, no. But I will now. Where is that thread

We are entering a "Golden Period" for fixed income investing
https://www.early-retirement.org/forums/showthread.php?t=114400

 

[OldShooter]

There's bonds and there's bonds. Govvies, TIPS, Corporate Investment Grade, Corporate US, International, Junk.

Our personal portfolio is 95% in TIPS. DW and I are on the investment committee of a nonprofit with about $3M in corporate investment grade bonds. No funds except MM and ultrashort for occasional parking. Most of our corporates are limited to $10K positions, so we have several hundred different issues carefully diversified across business sectors; consumer durables, aerospace, etc. Our FA has a guy who is expert at this and he spends a lot of time on the diversification as well as studying the issues. Almost all are BBB and this has caused us no trouble.

DW and I have quite a bit more than $50K on our fixed income side, but we would not consider corporates because we don't have enough $$ to afford a well diversified portfolio and we don't want to expend the necessary effort. We also don't like bond funds for reasons hashed and rehashed here many times. YMMV however.

 

[jazz4cash]

Here’s another good one that is very informative

Muni Bond (and Muni Bond Fund) Discussion
https://www.early-retirement.org/forums/showthread.php?t=104000

 

[RetMD21]

I've decided that maybe I should put about 50k into bonds. But I don't know how to do this. I know the mechanics of buying but how do I decide if it's a good one?? It would be in my IRA if that matters. What do I need to read up on to figure this out? About a decade ago Schwab advised me to buy PWZ as it is taxfree. But I don't need taxfree in a tax deferred account.

Its awfully easy to buy treasuries. No research needed. Pick a maturity and click a button. I favor TIPS but anything is better than cash at Schwab. If you go with nominals I would keep the maturity to 5 years of less.

 

[aja8888]

Its awfully easy to buy treasuries. No research needed. Pick a maturity and click a button. I favor TIPS but anything is better than cash at Schwab. If you go with nominals I would keep the maturity to 5 years of less.

Even Schwab's MM fund, SWVXX is paying 1.4% right now.

 

[mrfeh]

I've decided that maybe I should put about 50k into bonds. But I don't know how to do this. I know the mechanics of buying but how do I decide if it's a good one?? It would be in my IRA if that matters. What do I need to read up on to figure this out? About a decade ago Schwab advised me to buy PWZ as it is taxfree. But I don't need taxfree in a tax deferred account.

As to risk tolerance: I've traded stocks for decades, used to trade up to 300× year, level 2 options trader, a little embarrassed that I know very little about bonds so I've just been accumulating cash. We all know how little that earns. I've really REALLY slimmed down investments to just SCHB (86%), SCHD & individual stocks (4%), PWZ (6%), straight cash (4%). Plus EF in a different account ... comfortable with that being just cash. Tired of trading -- started to feel like work

If this is a long term investment (>5 years), just put it in a total bond fund (ie. VBTLX, FXNAX, etc).

https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

 

[pb4uski]

^^^ Sounds like a sure-fire way to lose money in the near term.

 

[mrfeh]

^^^ Sounds like a sure-fire way to lose money in the near term.

A) you don't know that
B) I said if it's a long term investment

 

[pb4uski]

Yup... and I said near term. Let's check back in 6 months and see what happened.

 

[mrfeh]

Yup... and I said near term. Let's check back in 6 months and see what happened.

If the investment is being held for years, who cares about 6 months? It's irrelevant.

 

[pb4uski]

I guess my point is that given the high likelihood that the Fed will be increasing rates over the next few months this is a bad time to invest in a bond index fund with a 6-7 year duration... a 1% increase in interest rates will create a hole that will take 6-7 years to recover from... so en if held 5 years it will not have recovered.

IMO it is bad advice.

 

[mrfeh]

I guess my point is that given the high likelihood that the Fed will be increasing rates over the next few months...

And the market knows this, and has priced bonds accordingly.

https://www.marketwatch.com/story/m...agers-try-anyway-and-usually-fail-11647990545

 

[pb4uski]

I don't see it in the data. Since the beginning of the year, the Fed has increased the Fed funds rate by 1.5%... from .25% at the beginning of the year to 1.75% currently. The 5-year Traesury has increased 1.77% since the beginning of the year (3.14% vs 1.37%) and the 10-year Treasury has increased 1.38% (3.01% vs 1.63%)... so the increases in 5 and 10 year Treasury yields have only reflected what the Fed did so far.

 

[daylatedollarshort]

I don't see it in the data. Since the beginning of the year, the Fed has increased the Fed funds rate by 1.5%... from .25% at the beginning of the year to 1.75% currently. The 5-year Traesury has increased 1.77% since the beginning of the year (3.14% vs 1.37%) and the 10-year Treasury has increased 1.38% (3.01% vs 1.63%)... so the increases in 5 and 10 year Treasury yields have only reflected what the Fed did so far.

Freedom56 has pointed out the math before, but I'll update his previous comment here with current yields.

Fidelity Total Bond fund dividend yield as of today was 2.63%, with not much upside NAV potential unless The Fed suddenly drops rates to 0%, but the potential for additional large NAV losses if the Fed raises rates more than the market expects, which seems like a distinct possibility given the last inflation report. One year Treasuries are at 3.15%, with government guarantees and no loss of principal as they can be redeemed at par value in 1 year.

I don't really see any reason for going with the bond fund, but if anyone can show me the math on why the bond funds would be a better choice, I would be interested in seeing that math laid out. I don't see how holding the bond funds would come our ahead even in a 6 - 7 year time frame. I could switch to a bond fund in 1 year and will likely still be ahead in 6 - 7 years.

 

[wallygator69]

Ultra shor bond fund VUSB

Hi,


I am considering
VUSB Ultra-Short Bond ETF

after the fed raises rates the end of this month.


duration is less than 2 years


Thoughts?


Money not needed for 4 years...


Thx

 

[Markola]

Fidelity Total Bond fund dividend yield as of today was 2.63%, with not much upside NAV potential unless The Fed suddenly drops rates to 0%, but the potential for additional large NAV losses if the Fed raises rates more than the market expects, which seems like a distinct possibility given the last inflation report. One year Treasuries are at 3.15%, with government guarantees and no loss of principal as they can be redeemed at par value in 1 year.

As a reference, the Vanguard Total Bond Index Fund SEC yield is currently 3.37%.