Fidelity Core Bond Strategy

My Fido advisor also recommended the Core Bond Strategy. Looking at the fact sheet, returns for the Core Bond Strategy as of 7/31/2020 are 7% and 9% for YTD and 1 Yr. Does the group think a bond ladder is still a better option for an investor retiring in the next few years?

YTD and 1 yr returns on Aggregate Bond Index are 7.7 and 10%, why not invest here?
 
shallow said:
My Fido advisor also recommended the Core Bond Strategy. Looking at the fact sheet, returns for the Core Bond Strategy as of 7/31/2020 are 7% and 9% for YTD and 1 Yr. Does the group think a bond ladder is still a better option for an investor retiring in the next few years?

YTD and 1 yr returns on Aggregate Bond Index are 7.7 and 10%, why not invest here?
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Are you expecting that kind of return to continue? Do you understand why bond fund prices rise? (Hint: look at interest rates as a major factor)

btw I hold some Vanguard Core Bond Fund, so I'm on your side, more or less. I'm thinking about whether I should still be holding that right now. It's only a small part of my portfolio, ~3%, so I'm not too worried.
 
Retireby45ish said:
Wjere do you get that?I see only 0.1% for 1 year and maybe 0.5% for 5 yr CD.
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That post is from March 2018. Poster is referencing a bond ladder purchased over unspecified time period. Not comparable to CDs rates today that I presume you quoted.
 
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Retireby45ish said:
Wjere do you get that?I see only 0.1% for 1 year and maybe 0.5% for 5 yr CD.
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LOL, that was my 2 year old post, but to clarify:
I own muni bonds, not CD’s. At the time of the post I owned bonds bought over a 15 year time frame, though many within a 5 year window.
Since then I added more, great yields, during the panic sell off in March. There was about a 3 day window where muni bonds were at some of the best prices I have seen in years.
My yield is still over 4%, but my duration has expanded. I have a bunch out to 2027, but I also have some outliers into the 2030’s.
 
Anyone buying a bond fund right now needs to understand the dynamics of interest rates. You will see erosion in the value of your investment if rates rise. Interest payments may remain equal or increase, but your initial investment will likely decrease, at least in the near term.
If you buy a bond, you have par, the value a bond will return to, short of default, which is usually $1000, while still getting the same interest payout.

Right now for the most part bonds suck, but if you feel the need to buy, I would buy individual issues because you are highly likely to get at least par, plus interest. With a fund? Not so much.
 
COcheesehead said:
Anyone buying a bond fund right now needs to understand the dynamics of interest rates. You will see erosion in the value of your investment if rates rise. Interest payments may remain equal or increase, but your initial investment will likely decrease, at least in the near term.
If you buy a bond, you have par, the value a bond will return to, short of default, which is usually $1000, while still getting the same interest payout.

Right now for the most part bonds suck, but if you feel the need to buy, I would buy individual issues because you are highly likely to get at least par, plus interest. With a fund? Not so much.
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But if I buy a bond fund, it's composed of a number of different bond issues, many of which are at a higher rate than today, correct? So I'm getting a better yield than you are. As interest rates rise, the fund price will drop, but the fund will be buying new bonds at the rising rates as the old bonds mature, or have been sold.

Yes, it's totally true that you can hold a bond to maturity and get your $1000 back. But if interest rates take off, your stuck with this very low yield until maturity. I've heard people say they like bonds because they know everything: the rate they get, and that they'll get their money back. What they don't know is what a loaf of bread or a car will cost. The math is just as bad for a bond as for a bond fund. The only difference is the expense drag on the bond fund. I'll trade that for the easy liquidity of a bond fund. Maybe a bond is just as easy to liquidate?

Correct me where I'm wrong on this.
 
RunningBum said:
But if I buy a bond fund, it's composed of a number of different bond issues, many of which are at a higher rate than today, correct? So I'm getting a better yield than you are. As interest rates rise, the fund price will drop, but the fund will be buying new bonds at the rising rates as the old bonds mature, or have been sold.

Yes, it's totally true that you can hold a bond to maturity and get your $1000 back. But if interest rates take off, your stuck with this very low yield until maturity. I've heard people say they like bonds because they know everything: the rate they get, and that they'll get their money back. What they don't know is what a loaf of bread or a car will cost. The math is just as bad for a bond as for a bond fund. The only difference is the expense drag on the bond fund. I'll trade that for the easy liquidity of a bond fund. Maybe a bond is just as easy to liquidate?

Correct me where I'm wrong on this.
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Where to start...
First I can sell a bond at the drop of a hat. So liquidity is not an issue.
I own a ladder, so I can buy, like funds do, as bonds mature, only unlike funds, I can also NOT buy. I don’t have a charter. Right now, not purchasing much, if anything.
I also own long duration bonds, some paying 5% or more. So yield depends and inflation is the enemy of any investment.
Lastly, the big difference is par...there is no par for a fund. I know what I will get, when I will get it. With a fund, no way, Jose’.

I’ve owned funds, still do for things I cannot mange like high yield. I prefer individual bonds.
 
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RunningBum said:
But if I buy a bond fund, it's composed of a number of different bond issues, many of which are at a higher rate than today, correct? So I'm getting a better yield than you are. ... .
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If you buy a bond fund, your yield for that purchase lot will be the market yield of the underlying bond portfolio at the time you purchase less the expense ratio assuming no changes in interest rates... this is because the fund is marked to market daily when NAVs are determined.
 
shallow said:
YTD and 1 yr returns on Aggregate Bond Index are 7.7 and 10%, why not invest here?
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Because you shouldn't believe returns from the last 8/12 months have anything to do with future performance.
 
COcheesehead said:
First I can sell a bond at the drop of a hat. So liquidity is not an issue.
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It seems like you'd be taking rungs out of your ladder if you do this.
Lastly, the big difference is par...there is no par for a fund. I know what I will get, when I will get it. With a fund, no way, Jose’.
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I know this is a true statement, but I don't get why it's so important. I don't know what that money will be worth when I get it back years later.
 
Is it a volatility issue? Bonds reduce the volatility that stocks have on your portfolio. Bond funds fluctuate in value with interest rate changes so they don't do as well to reduce volatility? Individual bonds actually fluctuate in value too, but less so as you get closer to maturity, when you get your money back. Is that it?
 
Do not lose sight of using bonds as ballast in your portfolio when equities go into the tank. Trying to treat them with market timing in mind, where you are asking yourself will I make money on this over the short term, may be the wrong way to view bonds. From my perspective, they should be treated as part of your portfolios allocation, so choose something that aligns with your risk tolerance and rebalance periodically as the market changes. If you're worried about rising rates, look at shorter duration funds or maybe inflation protected bonds.
 
RunningBum said:
It seems like you'd be taking rungs out of your ladder if you do this.

I know this is a true statement, but I don't get why it's so important. I don't know what that money will be worth when I get it back years later.
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You brought up liquidity, I just addressed it.

If you don’t know why par is important, then invest in a bond fund. If rates rise, your value will decrease. Not so with a par bond which returns to its original value at maturity. There is no maturity to a fund.
 
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RunningBum said:
I'm making statements, challenging others, declaring my position, and asking questions to try to learn more.
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Questions are good, but when you challenge without having a clear understanding of what you are challenging...it comes across differently.
 
pb4uski said:
Actually while they are fairly rare, there are target maturity bond ETFs available, which are in between individual bonds and bond funds/ETFs.
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I wonder if they have a par value though. A maturity date without par means they can float around like a typical bond fund.
 
Of course they have a par value... the par value is the aggregate par value of all the bonds that the ETF holds.

See this link for the Invesco 2021 Corporate Bond ETF.... par is $1.987 billion.

https://www.invesco.com/us/financial-products/etfs/holdings?audienceType=Investor&ticker=BSCL

What they will do in 2021 is to reinvest par received and bonds mature into short-term bonds and then in Dec of 2021 they'll make a terminal distribution to shareholders for all of their cash.... and that will be the end of that series.
 
pb4uski said:
Of course they have a par value... the par value is the aggregate par value of all the bonds that the ETF holds.

See this link for the Invesco 2021 Corporate Bond ETF.... par is $1.987 billion.

https://www.invesco.com/us/financial-products/etfs/holdings?audienceType=Investor&ticker=BSCL

What they will do in 2021 is to reinvest par received and bonds mature into short-term bonds and then in Dec of 2021 they'll make a terminal distribution to shareholders for all of their cash.... and that will be the end of that series.
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Do you get back to the original issue NAV? If so, that would be attractive.
 
Yes, I believe so. Here is a chart for BSCJ... I think the inital offering was at $20/share... in addition to the monthly income distributions the final distribution was $21.09... I suspect that the difference was because not all income was distributed to shareholder over the term of the ETF.

Basically, what they do is raise money and buy bonds that mature in a target year... distribute some income and in the final year get the par values (assuming no defaults) and in December wind down the fund. So the fund evenutally received par since all bonds mature in the specified year (subject to credit defaults). It is like owning a share of a portfolio of bonds that mature in a specific year so from an interest rate risk perspective it is the same as owning individual bonds.

https://www.barchart.com/etfs-funds/quotes/BSCJ/interactive-chart
https://www.invesco.com/us-rest/con...2ad01a2610VgnVCM1000006e36b50aRCRD&dnsName=us
 
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