Struggling to Increase the Fixed income Portion of Portfolio

[Oz investor]

I may be the lone ranger here but I believe the Fed totally screwed up the bond market with the interest manipulation in the past 10 years. I got totally out of bonds about 8 years ago. Replaced bond allocation with high dividend blue chips that all paid a minimum of 3%+. Of course running into the best bull market in history did not hurt. Bonds no longer go up when stocks go down and vice versa, in my opinion. I don't feel I can trust them anymore. I have gone in another direction, google JL Collins, simple philosophy and strikes me as well thought out and logical.

then i must be Tonto ,

the US Fed is less important to me due to where i live but the falling quality of interest bearing securities IS ( very important )

i let my allocation in that area , mature ( since all were bought at discounts to face value )

the problem has been finding suitable replacements ( aka , solid divs and asset security against capital loss )

stocks look so easy when there is a strong tailwind blowing ( but what if a storm ruins the fun )

 

[l2ridehd]

I also have little faith in the bond market. I still hold total bond and total international bond index funds at Vanguard. However for the past 7 years as I re-balanced out of total stock index funds to fixed income, I utilized high quality blue chip dividend stocks. Worked great because of the bull market except now I own way to much AT&T stock. But still, with a PE around 7 and a dividend of 6.2% not all bad.

I have now shifted to moving from those dividend stocks (very slowly) to bond index funds, but not all that happy with it even though I know it's the right move. I am retired, 72, and still hold close to 60/40 AA, counting those dividend stocks in the fixed income portion.

The fundamental principle of a stock/bond index AA holding is still sound for the long term. Bonds still belong in your portfolio even though yields suck.

 

[Circles]

then i must be Tonto ,

the US Fed is less important to me due to where i live but the falling quality of interest bearing securities IS ( very important )

i let my allocation in that area , mature ( since all were bought at discounts to face value )

the problem has been finding suitable replacements ( aka , solid divs and asset security against capital loss )

stocks look so easy when there is a strong tailwind blowing ( but what if a storm ruins the fun )

As I said in my earlier post that was what I did 8 years ago when I first stopped trusting the bond market. I did that for about 4/5 years. A few years ago I went to an investing strategy I read or heard about from JL Collins. I have 3 years worth of cash in a mm account and about 88% of my investments 100% in Vanguard etf VTI (total stock market). You can't get more diversified then the total stock market. I could go into the long explanation of why, but it would be easier for you to google JL Collins. You can back test his philosophy for any ten year period you want and it is solid. and simple.
I have been through a half dozen of the storms in the past 40 years as most have and the only times it cost me was when I got nervous and bailed at exactly the wrong time. I finally learned to just ride them out and not panic. The market has always historically bounced back and gone higher. Every single time the talking heads said this time was different, it never was. I have a solid pension with a small cost of living increase built in every year plus SS so they are my bond fund.

 

[Oz investor]

I also have little faith in the bond market. I still hold total bond and total international bond index funds at Vanguard. However for the past 7 years as I re-balanced out of total stock index funds to fixed income, I utilized high quality blue chip dividend stocks. Worked great because of the bull market except now I own way to much AT&T stock. But still, with a PE around 7 and a dividend of 6.2% not all bad.

I have now shifted to moving from those dividend stocks (very slowly) to bond index funds, but not all that happy with it even though I know it's the right move. I am retired, 72, and still hold close to 60/40 AA, counting those dividend stocks in the fixed income portion.

The fundamental principle of a stock/bond index AA holding is still sound for the long term. Bonds still belong in your portfolio even though yields suck.

sorry but i avoid bond ( and debt ) focused ETFs i call them sausage debt and treat them with the same disdain as CDOs ( for the same reason , boring and high risk mashed together in an unholy alliance )

fancy letting the salesman pick out your investment portfolio , and here is you without a product disclosure booklet on every single debt instrument in the portfolio .

that i call VERY BRAVE

i bit the bullet and went more towards selected REITs ( but not completely so the replace the bond allocation )

i am looking forward to rate rises and offerings being forced into offering real security again to get buyers

 

[VanWinkle]

I may be the lone ranger here but I believe the Fed totally screwed up the bond market with the interest manipulation in the past 10 years. I got totally out of bonds about 8 years ago. Replaced bond allocation with high dividend blue chips that all paid a minimum of 3%+. Of course running into the best bull market in history did not hurt. Bonds no longer go up when stocks go down and vice versa, in my opinion. I don't feel I can trust them anymore. I have gone in another direction, google JL Collins, simple philosophy and strikes me as well thought out and logical.

Stocks are not bonds and they don't act like bonds. If you got out of bonds 8 years ago, you missed some pretty good bond years. If you want to go 100% stocks like JL Collins, go for it. But please don't confuse others by comparing dividend stocks to bonds. And bonds do go up when stocks go down(high quality government/corporate bonds) as long as you aren't also reaching for yield with junk bonds. I just read JL Collins book and agree with much of his philosophy for investing. Allocation is still important even if the bull market has made it seem unnecessary.

VW

 

[audreyh1]

Stocks are not bonds and they don't act like bonds. If you got out of bonds 8 years ago, you missed some pretty good bond years. If you want to go 100% stocks like JL Collins, go for it. But please don't confuse others by comparing dividend stocks to bonds. And bonds do go up when stocks go down(high quality government/corporate bonds) as long as you aren't also reaching for yield with junk bonds. I just read JL Collins book and agree with much of his philosophy for investing. Allocation is still important even if the bull market has made it seem unnecessary.

VW

Agreed - several good years for bonds in the past 8 years. I have been happily rebalancing.

 

[Oz investor]

Stocks are not bonds and they don't act like bonds. If you got out of bonds 8 years ago, you missed some pretty good bond years. If you want to go 100% stocks like JL Collins, go for it. But please don't confuse others by comparing dividend stocks to bonds. And bonds do go up when stocks go down(high quality government/corporate bonds) as long as you aren't also reaching for yield with junk bonds. I just read JL Collins book and agree with much of his philosophy for investing. Allocation is still important even if the bull market has made it seem unnecessary.

VW

i was going well in interest-bearing securities until 2015 when most matured or redeemed early , unfortunately i haven't found suitable replacements although some REITs are doing a passable job as a substitute .

sadly in Australia some bonds are junk dressed up as quality ( low yield high risk and a fancy name to gift wrap it )

 

[COcheesehead]

i was going well in interest-bearing securities until 2015 when most matured or redeemed early , unfortunately i haven't found suitable replacements although some REITs are doing a passable job as a substitute .

sadly in Australia some bonds are junk dressed up as quality ( low yield high risk and a fancy name to gift wrap it )

You should be able to look under the hood and see the quality of the bonds an ETF or fund holds. That should just be part of standard due diligence. Don't ever let what something is called get in the way of what it really holds.

 

[Circles]

Stocks are not bonds and they don't act like bonds. If you got out of bonds 8 years ago, you missed some pretty good bond years. If you want to go 100% stocks like JL Collins, go for it. But please don't confuse others by comparing dividend stocks to bonds. And bonds do go up when stocks go down(high quality government/corporate bonds) as long as you aren't also reaching for yield with junk bonds. I just read JL Collins book and agree with much of his philosophy for investing. Allocation is still important even if the bull market has made it seem unnecessary.

VW

were you confused? I'm sorry. I don't recall telling or saying anywhere that dividend stocks are bonds. Feel free to correct me but I think most investors expect lower yields from bonds when compared to stocks. Don't most investors buy bonds to even out the ups and downs of equities and consequently take an average lower return overall to avoid the gut wrenching ups and downs of the stock market? I am not recommending that anyone do what I do including you. I welcome all opinions, I do my own research and make my own decisions. Nothing I read on this board or any other is going to "confuse" me. The money I took out of bond funds and put 100% into stocks also did very well during those 8 years. To each their own.

 

[COcheesehead]

were you confused? I'm sorry. I don't recall telling or saying anywhere that dividend stocks are bonds.

Maybe not in those exact words, but sort a close


" Replaced bond allocation with high dividend blue chips"

 

[Dtail]

were you confused? I'm sorry. I don't recall telling or saying anywhere that dividend stocks are bonds. Feel free to correct me but I think most investors expect lower yields from bonds when compared to stocks. Don't most investors buy bonds to even out the ups and downs of equities and consequently take an average lower return overall to avoid the gut wrenching ups and downs of the stock market? I am not recommending that anyone do what I do including you. I welcome all opinions, I do my own research and make my own decisions. Nothing I read on this board or any other is going to "confuse" me. The money I took out of bond funds and put 100% into stocks also did very well during those 8 years. To each their own.

How about CD's in a TIRA for a portion of a bond allocation?

 

[jazz4cash]

I was confused by this statement made by another poster (I2ridehd):
" I am retired, 72, and still hold close to 60/40 AA, counting those dividend stocks in the fixed income portion. "

 

[Oz investor]

'look under the hood ' is one thing , testing the engine in the workshop another

say the ETF holds ten bonds in it will you know when each matures ( or is swapped out for an equivalent )

in 2015 had i rolled over my securities blindly my yields would have roughly halved , but the quality would have gone down the drain , some had no priority , no surety and if a skipped payment .. well that is just sad ( no catch-up provisions ) ( but i got to read each prospectus and make an informed decision , first )

now in an ETF will you know if that rubbish infiltrates the portfolio say 3 years down the track .

 

[COcheesehead]

'look under the hood ' is one thing , testing the engine in the workshop another

say the ETF holds ten bonds in it will you know when each matures ( or is swapped out for an equivalent )

in 2015 had i rolled my securities blindly my yields would have roughly halved , but the quality would have gone down the drain , some had no priority , no surety and if a skipped payment .. well that is just sad ( no catch-up provisions )

now in an ETF will you know if that rubbish infiltrates the portfolio say 3 years down the track .

You should be able to see the average duration of a fund/ETF. That will give an indication of how interest rate sensitive that asset will be. So along with duration and credit quality, you should be able to have the foundation to make an informed decision.

 

[dcoy]

Forget the bonds and meager returns of CD's, as you state you have a high risk tolerance. I suggest holding a much larger cash position (2 years expenses) so you can ride it through the downturns without having to sell low.

 

[Oz investor]

i put my bonds ( and ETFs ) under the microscope

at least a week research on every ETF that attracts my attention PLUS extra thinking time ( can i make it work for me , which may differ from the market it is aimed at )

the index ETFs are used as insurance against my contrarian selections ( going badly ) for example .. so far the picks are beating the market but they will not always be the case , there will be times the index funds will beat me ( and last quarter might be very
, very close )

 

[Oz investor]

dcoy ,

hopefully i have enough income ( and low debts ) that i will not be a forced seller

i am also hoping to use the reserve cash to buy at the bottom

however the plans have to currently stay a bit flexible ,( can i participate in the market that week )

 

[VanWinkle]

were you confused? I'm sorry. I don't recall telling or saying anywhere that dividend stocks are bonds. Feel free to correct me but I think most investors expect lower yields from bonds when compared to stocks. Don't most investors buy bonds to even out the ups and downs of equities and consequently take an average lower return overall to avoid the gut wrenching ups and downs of the stock market? I am not recommending that anyone do what I do including you. I welcome all opinions, I do my own research and make my own decisions. Nothing I read on this board or any other is going to "confuse" me. The money I took out of bond funds and put 100% into stocks also did very well during those 8 years. To each their own.

I agree to each his own, and I was not confused per other's posts.

VW

 

[Circles]

Maybe not in those exact words, but sort a close


" Replaced bond allocation with high dividend blue chips"

After re-reading my post I can see that the statement "Replaced bond allocation with high dividend blue chips" could be misinterpreted.
I should have said I sold my bonds and bought high dividend blue chips that all paid a minimum of 3%+Dividend with the proceeds of the sale.