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Target date bond ETFs?
Old 10-30-2019, 04:03 PM   #1
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Target date bond ETFs?

My 84-yr-old dad (an avid student of investing for 50 years with somewhat unorthodox ideas at times) recently suggested I look into target date bond ETFs. I was asking him questions about buying individual bonds to set up a bond ladder. Iím not confident at all in my understanding of how to select bonds, and thatís when he suggested these ETFs. For example, see https://www.invesco.com/bond-ladder/.

Iím interested in any sage advice about this approach to investing in bonds. Our Target asset allocation is 50% equities, 40% bonds, 10% cash/money market.

I transitioned to full retirement earlier this year at age 60; dear partner is 75 and has been retired for 6 years. Our accounts total north of $1.5 million (12% not taxable, 25% taxable, 63% tax deferred).
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Old 10-30-2019, 05:11 PM   #2
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I like them. Reduces default risk while retaining date needed specifics regular bond funds dont. I set up an 8 year ladder using target date funds. When I did mine year one was better served with CDs than the bond fund though.
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Old 10-30-2019, 05:21 PM   #3
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Buying individual bonds is a lot of work all around, purchasing, selling, and at tax time. They're not always easy to sell either. I have some I've been trying to sell for the past couple of days, with no luck. Funds and ETFs are easier by far, all around.
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Old 10-30-2019, 10:21 PM   #4
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I use the iShares series (IBDL out to whatever alphabet number they have going on now, IBDQ?). .10% expense ratio, reasonable amount of issuer diversification. My only beef with these things is that they have a lot of BBB-rated exposure. That is a little junky for a core bond holding, so I do not go out too far on the maturity curve in order to limit credit risk. Since you don't get paid much for the risk at the moment, don't take too much. Definitely compare the SEC yields to what you can get in CDs.
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Old 10-30-2019, 11:10 PM   #5
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Quote:
Originally Posted by GravitySucks View Post
I like them. Reduces default risk while retaining date needed specifics regular bond funds dont. I set up an 8 year ladder using target date funds. When I did mine year one was better served with CDs than the bond fund though.
Thank you. Yes, as I understand it, the final year the funds are transitioned through 3-month T-bills and then into cash, so using the 1-year fund in the ladder may not make a lot of sense.
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