We are entering a "Golden Period" for fixed income investing

[Montecfo]

Yes it certainly is!

 

[Free bird]

It’s a different world now in fixed income. Some like Vanguard are forecasting future equity returns in the 4%-5% range. You can get that and more now, locked in, with little risk to capital.

Story on cnbc said millennials & Gen z are raiding their 401ks

 

[Free bird]

Debt

Trouble ahead
Trouble behind
And you know that notion
Just crossed my mind

 

[Chuckanut]

We are entering a "Golden Period" for fixed income investing

It’s a different world now in fixed income. Some like Vanguard are forecasting future equity returns in the 4%-5% range. You can get that and more now, locked in, with little risk to capital.

As a low cost place to invest Vanguard is very good. But predictions? I don’t know.

 

[Echard]

With my assets primarily in taxable accounts I will not be doing a bond tent given the tax costs.

Instead, I chose the "never-refilled" cash bucket strategy mentioned here:

Cash bucket

"...we only withdraw from that cash cushion if the investment portfolio goes more than 20% underwater.

Once the cash cushion is exhausted we tap the investment portfolio and we never replenish the cash account again.

So, think of the cash cushion strictly as an insurance policy against Sequence Risk for the first few years after retirement."

Wow, this is a really interesting idea. I've inheritantly been doing this but hadn't mathmatically proven out why. I'd just done some back of the envelope calculations that indicated avoiding draws after a deep decline is a very good idea.

 

[Echard]

As a low cost place to invest Vanguard is very good. But predictions? I don’t know.

I pulled capital market assumptions from about 7 different brokers. The rough U.S. average of all of those, throwing out the top one and bottom one (Blackstone and Vanguard if I recall correctly), it came out to 7% for US stocks for the next 10 years. That's a lot lower than the 11% seen in previous years, but better than the 4.4-6.4% Vanguard estimates. I hope it's not that bad for the long-term, because it's tough for the ~4% rule to work if equity returns are down in the 4-5% range.

As a result of the above, I decided to weight my retirement portfolio more in the 45-60% stocks and 40-55% bonds range, rather than a 60-70% stocks and 30-40% bonds range. As conditions change every year, I will re-evaluate. I noticed that Vanguard's 10 year assumptions change significantly as the market moves up and down each quarter.

 

[COcheesehead]

As a low cost place to invest Vanguard is very good. But predictions? I don’t know.

My point being that if I can get 5%-6% with low risk and that more than makes my plan work, why put more into equities that right now are pretty high historically according to many measures, CAPE being one.

 

[COcheesehead]

Wow, this is a really interesting idea. I've inheritantly been doing this but hadn't mathmatically proven out why. I'd just done some back of the envelope calculations that indicated avoiding draws after a deep decline is a very good idea.

It’s a bucket system of sorts.
https://www.theretirementmanifesto.com/how-to-build-a-retirement-paycheck/

 

[Echard]

It’s a bucket system of sorts.
https://www.theretirementmanifesto.com/how-to-build-a-retirement-paycheck/

Yes it is, and I've set up my portfolio as a bucket strategy as well. The aha moment for me on the above description related to two things I hadn't expressively understood: a) a ~10% increase in funds covers the sequence of returns risk and acts as insurance, as opposed to the the Bucket Strategy describing the cash need as covering 1-3 years of living expenses; same concept but described slightly differently; and b) no need to replenish the bucket once used. The Bucket Strategy talks about 1-3 years, 7-10 years, and 10+ years, but I didn't think about those timelines in terms of a "one-time" set for a 10 year period. I always struggled with the concept of replenishing the bucket. If you don't have to replenish the bucket because SoRR hits, then it really solidifies the strategy. I always intuitively felt this but EarlyRetirementNow provides the math.

All of this to say that setting up a Bond ladder over a 10 year period is a pretty good strategy.

 

[COcheesehead]

Yes it is, and I've set up my portfolio as a bucket strategy as well. The aha moment for me on the above description related to two things I hadn't expressively understood: a) a ~10% increase in funds covers the sequence of returns risk and acts as insurance, as opposed to the the Bucket Strategy describing the cash need as covering 1-3 years of living expenses; same concept but described slightly differently; and b) no need to replenish the bucket once used. The Bucket Strategy talks about 1-3 years, 7-10 years, and 10+ years, but I didn't think about those timelines in terms of a "one-time" set for a 10 year period. I always struggled with the concept of replenishing the bucket. If you don't have to replenish the bucket because SoRR hits, then it really solidifies the strategy. I always intuitively felt this but EarlyRetirementNow provides the math.

All of this to say that setting up a Bond ladder over a 10 year period is a pretty good strategy.

Yep.

 

[Free bird]

Yep.

So far the S&P 500 is 2 years into going nowhere. All the rock stars are big cap tech. Elon Musk is the front man for the band. His hit songs are Battery Boogie & Space is the Place. The bulls are starting to show up on CNBC after a one day rally. Is Powell going to bring some pain he promised? I know invest to your risk tolerance. My risk tolerance changes quite a bit.

 

[lordjust]

https://www.cnbc.com/2023/05/15/fed...uts-this-year-even-if-theres-a-recession.html

https://www.cnbc.com/2023/05/18/dal...ta-doesnt-justify-pausing-rate-hikes-yet.html

here you go Freedom56 ... im sure you already read these but in case anyone missed them.. guess that means we may see better FI rates

 

[Montecfo]

^^^ this is part of ongoing noise from the Fed. I wish they would stop muddying the water.

JPow said they will pause. I bet they pause.

 

[Freedom56]

https://www.cnbc.com/2023/05/15/fed...uts-this-year-even-if-theres-a-recession.html

https://www.cnbc.com/2023/05/18/dal...ta-doesnt-justify-pausing-rate-hikes-yet.html

here you go Freedom56 ... im sure you already read these but in case anyone missed them.. guess that means we may see better FI rates

Only the dumb Wall Street bond traders are betting on rate cuts this year. The irony is that they are setting up their bond funds for more horrific losses when long rates start to rise. We are well over a year into rate cuts and cash now yields 2 to 3 times more than most passive bond funds. This is the "golden period" for fixed income investing. We are not going back to the days of easy money anytime soon.

 

[COcheesehead]

Bought some of this as a flyer. 8.4% yield.
49326EEG4

 

[copyright1997reloaded]

Bought some of this as a flyer. 8.4% yield.
49326EEG4

Interesting play. On the other side, seems like there is some supply as someone thinks Keybank is going down, they sold 5 million worth @ 82.316

 

[COcheesehead]

Interesting play. On the other side, seems like there is some supply as someone thinks Keybank is going down, they sold 5 million worth @ 82.316

Yea, it’s pretty active. I bought 30 which is a tiny part of my ladder. I had some Huntington shares earlier this Spring. I think I held them for less than a few weeks and flipped them for a profit. This is a speculative play for me.

 

[Born2Fish]

^^^ this is part of ongoing noise from the Fed. I wish they would stop muddying the water.

JPow said they will pause. I bet they pause.

Yes, he reinforced it today.

https://finance.yahoo.com/news/powell-signals-june-pause-says-154924317.html

Federal Reserve Chair Jerome Powell gave a clear signal he is inclined to pausing interest-rate increases next month and said that tighter credit conditions could mean the policy peak will be lower.

 

[Car-Guy]

^^^^^
It's probably just "transitory".

 

[Free bird]

Only the dumb Wall Street bond traders are betting on rate cuts this year. The irony is that they are setting up their bond funds for more horrific losses when long rates start to rise. We are well over a year into rate cuts and cash now yields 2 to 3 times more than most passive bond funds. This is the "golden period" for fixed income investing. We are not going back to the days of easy money anytime soon.

Hello Freedom. I haven’t loaded the boat on any FI holdings out past 24 months. I know some folks think long rates have put in their highs & the ship has sailed to buy 48-60 month CDs with yields north of 5%. What is your opinion on getting 5+ rates on CDs in say the next 12 months? Thanks I should say CDs without call protection.

 

[Montecfo]

Yes, he reinforced it today.



https://finance.yahoo.com/news/powell-signals-june-pause-says-154924317.html



Federal Reserve Chair Jerome Powell gave a clear signal he is inclined to pausing interest-rate increases next month and said that tighter credit conditions could mean the policy peak will be lower.

If we all think back, it was hard for the Fed to shift its narrative from "low rates for an extended period" to a real inflationary environment. I think the fact that JPow had stated interest rates would stay near zero through 2023 and possibly longer created a credibility hurdle.

They like to jawbone a long view, which honestly is not compatible with doing their job as effectively as they could.

But the last thing they want to do is signal something in the short term and then do something different.

 

[Free bird]

If we all think back, it was hard for the Fed to shift its narrative from "low rates for an extended period" to a real inflationary environment. I think the fact that JPow had stated interest rates would stay near zero through 2023 and possibly longer created a credibility hurdle.

They like to jawbone a long view, which honestly is not compatible with doing their job as effectively as they could.

But the last thing they want to do is signal something in the short term and then do something different.

What do you think Monte will long rates creep up after the great pause? You think inflation is going to drop like a stone? Should I load the boat on 48-60 month no call mid 4% CDs now rather than wait for something above 5%?

 

[youbet]

Should I load the boat on 48-60 month no call mid 4% CDs now rather than wait for something above 5%?

I'm having trouble finding those. Where are they?

 

[lordjust]

I'm having trouble finding those. Where are they?

you dont see them on the CD ladders at schwab and fidelity?

example:

CIBC Bank USA IL 4.5% CD 05/25/2028
12547CBN7

 

[Montecfo]

What do you think Monte will long rates creep up after the great pause? You think inflation is going to drop like a stone? Should I load the boat on 48-60 month no call mid 4% CDs now rather than wait for something above 5%?

What does the rest of your allocation look like?