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

[Spock]

There was a little discussion earlier about losing $ if buying bonds above par and the bonds are called.
What if:
Rates drop, increasing the value of a callable bond you own above par. One can only guess how much rates have to drop before a bond is called. I assume without any "make whole" clauses the bond/brokered CD would be called at par? Would it be better to "jump rather than be pushed" and sell the bond at the higher value vs. having it called away?

 

[stevelb]

Understand some of those people at the webinar are senior people who manage the teams that provide advisory services and manage their fixed income funds. You can see that they really aren't financial wizards but are just in the business of selling you their services. Would you trust your hard earned money under their management or take ownership and make your own informed decisions? Many in this forum have accumulated wealth over their lives and have joined a small minority of this population that have managed to retire early. To the so called financial professionals, you are nothing but a "mark" to sell products and services to enrich themselves. As you age, you are going to become a bigger and bigger mark. I see that happening with my parents and in-laws. Learn to make your own investment decisions. Focus on generating income and preserving capital.

Such excellent advise. Also thanks for the heads up on the Royal Bank of Canada note. I appreciate the time and effort you put into sharing your expertise with the members of this forum.

 

[daylatedollarshort]

I've chatted with 6 people at Fidelity so far. Only one has given me the impression that he/she knew what they were doing. With a quick Google search of their names, I can see that 5 of them appear to be freshly out of college and have had very brief time at Fidelity. So I find it hard to trust them for anything other than questions about features on their website. They can walk you through some stuff rather effectively, but I'm not detecting much wisdom from them

The college kid who did our pet sitting got a job at one of the big investment firms after graduation. They called us shortly after starting the job to ask to take over managing our money. Imagine handing your life savings over to someone with zero actual experience managing investments.

 

[Freedom56]

There was a little discussion earlier about losing $ if buying bonds above par and the bonds are called.
What if:
Rates drop, increasing the value of a callable bond you own above par. One can only guess how much rates have to drop before a bond is called. I assume without any "make whole" clauses the bond/brokered CD would be called at par? Would it be better to "jump rather than be pushed" and sell the bond at the higher value vs. having it called away?

Sometimes it is better to jump if you have other options. It really depends on how much higher above par it's trading. Even non-callable bonds can be called early due to events such as change of control or leverage ratios breach a debt covenant. Many bonds have protections built in to protect the investor. You should never buy a bond above par. If you do, you better understand the fine print. I few years ago I had a non callable bond that was trading above par in the range of $106-$107 and were rated BBB. They were purchased by a company with issuer rating of A1/A+. One would think that would be great except the bond had a clause that stipulated that in the event a change of control, the acquiring company could purchase the debt prior to maturity at $101.50 which they did.

 

[Freedom56]

The college kid who did our pet sitting got a job at one of the big investment firms after graduation. They called us shortly after starting the job to ask to take over managing our money. Imagine handing your life savings over to someone with zero actual experience managing investments.

The advisor assigned to my account at Fidelity has a background in art history. He gives me a headache every time he calls. Fortunately I can program our phones to send his calls directly to voicemail.

 

[COcheesehead]

There was a little discussion earlier about losing $ if buying bonds above par and the bonds are called.
What if:
Rates drop, increasing the value of a callable bond you own above par. One can only guess how much rates have to drop before a bond is called. I assume without any "make whole" clauses the bond/brokered CD would be called at par? Would it be better to "jump rather than be pushed" and sell the bond at the higher value vs. having it called away?

If you buy based on yield to worst YTW and it is not negative, you won’t lose money buying a callable bond above par.

 

[Freedom56]

If you buy based on yield to worst YTW and it is not negative, you won’t lose money buying a callable bond above par.

You have to be careful with corporate notes and preferred stocks. Even a positive YTW calculation can result in a loss especially in a change of control event forcing a call. Funds that regularly buy notes and preferred stocks above par suffer losses when an unexpected call occurs due to events not factored into the YTW calculation. The general rule is don't buy corporate notes and preferred stocks above par unless you fully understand the change of control and other covenants associated with the security. It's better to keep it simple and buy at or below par.

 

[COcheesehead]

You have to be careful with corporate notes and preferred stocks. Even a positive YTW calculation can result in a loss especially in a change of control event forcing a call. Funds that regularly buy notes and preferred stocks above par suffer losses when an unexpected call occurs due to events not factored into the YTW calculation. The general rule is don't buy corporate notes and preferred stocks above par unless you fully understand the change of control and other covenants associated with the security. It's better to keep it simple and buy at or below par.

I don’t buy preferreds, but good to know about corporates.

 

[Katoslake]

These are current positions in Fidelity Bond SMA. Forgive sophisticated
graphics. Comments encouraged.

This can't be worth the management fees being charged.

 

[COcheesehead]

These are current positions in Fidelity Bond SMA. Forgive sophisticated
graphics. Comments encouraged.

This can't be worth the management fees being charged.

Do they provide a duration and yield? It appears low yield, high duration. It’s a mess to try and figure out.

 

[Freedom56]

These are current positions in Fidelity Bond SMA. Forgive sophisticated
graphics. Comments encouraged.

This can't be worth the management fees being charged.

No it certainly is not worth the management fees being charged. It's clear that the person selecting bonds is totally clueless buying long duration bonds at low coupons. No responsible bond advisor would do that. He/she probably copied a portfolio from one of Fidelity's loser bond funds. However I have never been impressed with any advisor from Fidelity. They hire a lot of mediocre people with limited knowledge to push products and services for fees. You should run the their fixed income analysis tool to compute the average duration, YTM, and average coupon.

 

[SecondAttempt]

He gives me a headache every time he calls.

I have made a policy of NOT answering calls like that even if I know the number. These days people should know that unplanned calls are simply faux pas.

I made an inquiry about LTC insurance earlier this week. I got a call which I ignored. Fortunately the saleswoman emailed me. I emailed back informing her that unplanned phone calls are rude but that my inquiry was genuine (which it was) and that if she was willing to provide information by email I would review it.

She did, and while the offerings were not enticing, she did respond to me knowledgeably and professionally. I told her my main interest was more in catastrophic coverage with long waiting period and so forth as has been discussed here recently in a different thread. Her response was very good in that she understood and said it was unfortunate that no one is currently offering such a product as far as she was aware of.

I just find phone calls very offensive these days. Friends and relatives, sure. Coworkers during working hours, of course. But asynchrounous methods like email or text are so much more respectful of my time and I hope companies learn that soon.

 

[lawman]

No it certainly is not worth the management fees being charged. It's clear that the person selecting bonds is totally clueless buying long duration bonds at low coupons. No responsible bond advisor would do that. He/she probably copied a portfolio from one of Fidelity's loser bond funds. However I have never been impressed with any advisor from Fidelity. They hire a lot of mediocre people with limited knowledge to push products and services for fees. You should run the their fixed income analysis tool to compute the average duration, YTM, and average coupon.

Please explain why one would not want long duration bonds with a low coupon? Wouldn't that depend on the price?

 

[COcheesehead]

Please explain why one would not want long duration bonds with a low coupon? Wouldn't that depend on the price?

If they were bought new at par, you have below, well below, market returns.
If bought on the secondary market, you will have below market cashflow for the majority of the duration and see most of your return backend loaded.
I buy bonds for income - I want good coupons.

 

[lawman]

If bought on the secondary market, you will have below market cashflow for the majority of the duration and see most of your return backend loaded.
I buy bonds for income - I want good coupons.

But you will spend less money up front...Sorta like frontend loaded..

 

[Freedom56]

I have made a policy of NOT answering calls like that even if I know the number. These days people should know that unplanned calls are simply faux pas.

.

The most effective way of blocking these unwanted calls is setting up our phone system send all calls not on our contact list to voicemail. Robocalls and unknown callers were getting through despite the blocking filters. This was necessary to block the IRS scammers, timeshare sales people, fake solar panel companies, real estate agents, insurance companies trying to sell annuities, and other lowlifes and grifters that are after our money.

Fidelity likes to sell products and services that generate fees. The bigger your account balance, the more they try to push. However with the market downturn this year, they have been relatively silent.

The TDA fixed income people always call when I have a maturity or a call and give me some options. At least TDA has specialist that understand the bond market and they routinely advise timing purchases or selecting the shortest durations instead of going all in when yields were low.

We have a relatively small balance at Schwab (just under $500K) so nobody bothers us from Schwab.

 

[Freedom56]

Please explain why one would not want long duration bonds with a low coupon? Wouldn't that depend on the price?

Yes it would depend on the price paid. A 2.5% coupon security with a 30 year government backed security only makes sense if you buy it at 50 cents on the dollar on the secondary market with a current yield of 5% and a YTM of 6.185%. You are effectively earning 5% and getting double your capital back at maturity in 30 years. However if you bought those securities above or at par, you will be earning 2.5% for the next 30 years and sitting on an enormous loss waiting 30 years to recover.

 

[Katoslake]

Do they provide a duration and yield? It appears low yield, high duration. It’s a mess to try and figure out.

Here is the summary of average maturity, estimated yield and coupon rate.

 

[COcheesehead]

Here is the summary of average maturity, estimated yield and coupon rate.

That is actually not too bad.

 

[COcheesehead]

But you will spend less money up front...Sorta like frontend loaded..

It’s all based on YTW or YTM. So you either pay less or get more income. Just depends what you want. Bonds for me are my retirement paycheck. I want lots of income.

 

[Freedom56]

Here is the summary of average maturity, estimated yield and coupon rate.

It all depends on what you paid for these bonds. The YTM only tells part of the story. It calculates YTM based on what the price of the bonds are today not when you purchased them. Your average coupon is too low which suggests that these bonds were purchased at much higher prices than they are today. It doesn't appear to be any different than the typical bond fund metrics that have lost 20% of their value this year other than a slightly higher YTM. The big difference is that over time, your principal will be returned if the person managing your portfolio doesn't start selling securities at a loss. The bond fund will realize actual losses as they have been in a forced selling mode. Then you have to consider their fees versus the income you generate from the coupon payments and the hidden trading fees (i.e. hidden in the bid/ask spread when they buy and sell securities).

 

[Katoslake]

What circumstances would cause a person to liquidate bond holdings and move to unmanaged CD’s, MYGA or individual bonds ?
As stated by others, I’m not sure there’s enough experience to justify management based on results and plans.

 

[Freedom56]

You may be taking too much of a loss if you liquidate. I don't know your cost basis. I would keep the current portfolio going since your are not in a forced selling mode like a bond fund. The first step is to fire the loser managing your portfolio and terminated the management agreement with Fidelity so you no longer pay any advisory fees. If they resist, notify them that you will file a complaint with FINRA and seek damages. I would do that anyway as you will be doing a service to the community so that others can avoid seeking the same services.

You already own corporate bonds from banks like Citigroup, so if a Citigroup 2.66% coupon 2031 note was okay for you, a 6.75% 2027 note is even better. I would avoid MYGAs. Just stick to high grade corporate notes, treasuries, and CDs. This is what is in your portfolio now and I assume your risk tolerance hasn't changed.

If you are not using the coupon payments as income to cover expenses, buy CDs and corporate bonds with the coupon payments. Also invest any maturities in CDs or high grade corporate notes. The yields are 2-4 times higher now than many of the bonds in your portfolio so you can slowly build up your portfolio returns and increase your average coupon and income. Don't buy any maturities longer than 5 years at this point.

I hope that helps.

 

[Katoslake]

You may be taking too much of a loss if you liquidate. I don't know your cost basis. I would keep the current portfolio going since your are not in a forced selling mode like a bond fund. The first step is to fire the loser managing your portfolio and terminated the management agreement with Fidelity so you no longer pay any advisory fees. If they resist, notify them that you will file a complaint with FINRA and seek damages. I would do that anyway as you will be doing a service to the community so that others can avoid seeking the same services.

You already own corporate bonds from banks like Citigroup, so if a Citigroup 2.66% coupon 2031 note was okay for you, a 6.75% 2027 note is even better. I would avoid MYGAs. Just stick to high grade corporate notes, treasuries, and CDs. This is what is in your portfolio now and I assume your risk tolerance hasn't changed.

If you are not using the coupon payments as income to cover expenses, buy CDs and corporate bonds with the coupon payments. Also invest any maturities in CDs or high grade corporate notes. The yields are 2-4 times higher now than many of the bonds in your portfolio so you can slowly build up your portfolio returns and increase your average coupon and income. Don't buy any maturities longer than 5 years at this point.

I hope that helps.

Thanks for your help.
Just to clarify, are you saying I should sell anything with a maturity beyond 5 years ? 29% of my bond SMA holdings have maturities beyond 9 years.

They keep telling me that I’m seeing how the sausage is made. I’m not sure I want to keep making sausage

 

[Freedom56]

Thanks for your help.
Just to clarify, are you saying I should sell anything with a maturity beyond 5 years ? 29% of my bond SMA holdings have maturities beyond 9 years.

They keep telling me that I’m seeing how the sausage is made. I’m not sure I want to keep making sausage ��

No what I'm saying is:

1- Fire the loser managing your portfolio and stop paying the SMA fee. If they resist, file notify Fidelity that you will file a complaint with FINRA seeking damages.

2- Start managing the laddered bond portfolio yourself. You don't need to sell anything as your are likely going to suffer a loss. Over 12% of your portfolio was invested in a treasury at 0.5% that matures in November 2023 which shows just how incompetent your Fidelity advisor was.

3- If you don't need the coupon payments now to cover expenses, use it to buy CDs or corporate notes. Your ladder already goes out over 30 years so there is no point in adding more long duration notes. Don't buy any CD or corporate note beyond 5 years at this point. You have 12% of your portfolio maturing in November 2023 and you should use the proceeds to buy high grade corporate notes or CDs whichever is better. The November 2023 treasury is approaching maturity and will slowly converge on par value. You have to weigh selling that treasury at a loss which is already reflected in your account and re-invest it at higher yields that are available today. Assuming your bought that treasury at par $100 and sold it at $96, you would have to earn in excess of 4.6875% on your new investment to break even. It's all simple arithmetic.

Making sausage and fixed income investing are two different things. Fixed income is all simple arithmetic. Bonds, CDs, Treasuries are the most predictable assets next to money market funds with a $1 NAV. Don't let Fidelity sucker you into MYGAs and start taking control over own destiny.

I hope that clears up what I was saying.

Also thanks for sharing with others how much damage Fidelity advisory services can do to your wealth and expose that those so called expert advisors are nothing short of incompetent buffoons.