I like my bonds these days

[audreyh1]

That's helpful, and comparable to what I plan. It seemed that the small incremental benefit of stretching some of your bond holdings to intermediate or longer just isn't worth the increase in volatility.

From what I had studied, for rebalancing purposes short-term bonds were a better diversifier with stocks than long-term. In other words - you got less volatility for virtually the same long-term performance if you stuck with shorter-term bonds. For that reason I don't bother with longer duration bonds.

Audrey

 

[Spanky]

Spanky, I laid it all out for you guys.. just sell whatever you've got and dive right in!

Thanks for the advice. I cannot afford the capital gain tax.

 

[ladelfina]

yeh, me neither. so that's why I am just gritting my teeth and hanging on thru the ups&downs.
P.S. that 9.7% is annualized, not absolute.. where things will be if they keep up the same pace. (I use the IRR fn in Quicken; that's pretty much all I keep an eye on.) So maybe it is more in line with those reporting 5-6% if they calculate it differently. In fact, my ROI figure is 5.6% so maybe that's what I should have listed. Sorry if I inadvertently introduced any confusion or consternation.

 

[mathjak107]

short term bonds 1-3 years have performed like cash..roughly a 3-1/2% return historically over the long term ...longer term bonds have exceeded 5% historically long term..thats a 40% difference

 

[Rich_by_the_Bay]

I'd like to keep about 7 yrs of expenses in nothing longer than short term bonds, too. Maybe 2 years in MMF or the like. If you FIRECalc it out using 5 yr treasuries, this works out well. Glad to hear it works for you in the real world (I'm still in fantasy/working land for a few more years).

Jeez Rich, so you're a belt and suspenders and staple gun to the legs kind of guy then?

Maybe.

I guess I'm thinking more like 2 years of cash, 4-5 yrs in short-term fed bond type fund (there's my 6-7 year bucket). Not convinced longer bonds offer me much in return for their greater volatility -- just as soon throw a few more percent at stocks if I have pocket change.

Belts, suspenders, but probably no staples, huh?

 

[brewer12345]

Maybe. 

I guess I'm thinking more like 2 years of cash, 4-5 yrs in short-term fed bond type fund (there's my 6-7 year bucket). Not convinced longer bonds offer me much in return for their greater volatility -- just as soon throw a few more percent at stocks if I have pocket change.

Belts, suspenders, but probably no staples, huh?

Rich, given your conservative inclinations, perhaps 2 years in cash/money market and the next 4 or 5 years in a treasury note or CD ladder would make sense. You could even do a ladder of treasury zeros for the 4 to 5 year stuff.

 

[Rich_by_the_Bay]

Rich, given your conservative inclinations, perhaps 2 years in cash/money market and the next 4 or 5 years in a treasury note or CD ladder would make sense. You could even do a ladder of treasury zeros for the 4 to 5 year stuff.

I'm open to that.

Would t-notes and CDs offer significantly better yields than short-term federal funds, historically? Looked like just a tiny difference to me and I like the convenience of a mutual fund (as well as the potential to react to changes in interest rates, unlike a CD), but I guess for that much money the details matter.

 

[brewer12345]

I'm open to that.

Would t-notes and CDs offer significantly better yields than short-term federal funds, historically? Looked like just a tiny difference to me and I like the convenience of a mutual fund (as well as the potential to react to changes in interest rates, unlike a CD), but I guess for that much money the details matter.

Depending on facts and circumstances, you might get better yield. More importantly, with a CD or a treasory zero, you know exactly how much cash you will be getting and when you will be getting it. That's worth something, if you are planning on using the money to live on.

 

[Rich_by_the_Bay]

Depending on facts and circumstances, you might get better yield. More importantly, with a CD or a treasory zero, you know exactly how much cash you will be getting and when you will be getting it. That's worth something, if you are planning on using the money to live on.

Gotcha.

Maybe it's just the timing, but I've found almost no meaningful volatility in the Vg STF fund for years. Are you pointing out that this may not always be the case down the road given the right circumstances?

That right there would lead me to take your advice and stick with t-notes or CDs for this "sure thing" money.

 

[brewer12345]

Gotcha.

Maybe it's just the timing, but I've found almost no meaningful volatility in the Vg STF fund for years. Are you pointing out that this may not always be the case down the road given the right circumstances?

That right there would lead me to take your advice and stick with t-notes or CDs for this "sure thing" money.

Its not volatility, per se that I would worry about. Its more a question of "if I put $X dollars in today, how many dollars will I have in the future at a specific date?" With a ST bond fund, you will have no idea because rates and (to a lesser extent) NAV will flop around a good bit. With a Zero of a CD you know with absolute certainty how many dollars you will have at a specific date in the future, so you don't have to care about volatility or rate fluctuations.

Now what those dollars will actually be worth in the future...

 

[wabmester]

Now what those dollars will actually be worth in the future...

You'll know if you buy TIPS.

OK, given that nominals should have better returns than TIPS some of the time, how about this for a one-size-fits-all bond allocation?

50% nominals + 50% TIPS.

Nobody should ignore TIPS, IMHO.

 

[cute fuzzy bunny]

Providing you dont have to sell the things before they hit maturity.

I guess i'm 'nobody'. Wouldnt touch them with an 11' pole unless they're paying at least 3-3.5%.

 

[brewer12345]

Providing you dont have to sell the things before they hit maturity.

I guess i'm 'nobody'.  Wouldnt touch them with an 11' pole unless they're paying at least 3-3.5%.

You must hate fixed bonds then. 5% coupon less 4+% CPI = under 1% real yield. A lot worse than TIPS...

 

[wabmester]

You must hate fixed bonds then.  5% coupon less 4+% CPI = under 1% real yield.  A lot worse than TIPS...

Brewer, you don't understand. This is one of CFB's hairballs.

 

[Rich_by_the_Bay]

You'll know if you buy TIPS.

OK, given that nominals should have better returns than TIPS some of the time, how about this for a one-size-fits-all bond allocation?

50% nominals + 50% TIPS.

Nobody should ignore TIPS, IMHO.

These are after-tax funds.

 

[wabmester]

These are after-tax funds.

Thanks for the setup.

Since a TIPS fund pays out the inflation adjustment, the tax consequences are no different than any other bond fund.

And if you reinvest dividends, then TIPS held directly are no different from a tax-standpoint than any other type of bond.

 

[cute fuzzy bunny]

You must hate fixed bonds then. 5% coupon less 4+% CPI = under 1% real yield. A lot worse than TIPS...

If I owned any of those, yep, i'd be pissed.

The only ones I own right now are paying just shy of 8%. And i'm thinking of dumping them at the next downturn in the equity markets.

Wasnt it Peter Lynch who said "bonds are for wimps!"?

 

[cute fuzzy bunny]

Brewer, you don't understand. This is one of CFB's hairballs.

Yes, avoiding low returning or negative returning asset classes at the wrong time to own them is definitely one of my hairballs.

These things have just a few purposes: lower portfolio volatility, produce income, and reduce the impact of high inflation.

A total return of 2% in 15 months with a high principal loss sounds like they're not doing the trick...