Where are you putting your fixed income/ bond investments?

[Don46]

Last year I switched over from a managed account to a DIY three fund index approach.

I have a taxable account with about $1.6 mil.
I have tax deferred (traditional IRA and some 403b plans) that combined come to about $1.8 mil.

My risk tolerance and situation is such that I want to aim for about 50/50. I know I'm supposed to put 10 pct in international, but I don't like that idea right now.

I used my main IRA to invest in Vanguard Short Term Bond Fund, VBISX. It earns slightly over 1 pct in dividends. I was/am worried about rising interest rates undermining bond values.

What are some of you doing for fixed income investing these days?
What investments are you making?
At my level, would I be better off using my taxable fund for tax free muni bonds? I will be in the 28% bracket going forward and live in SC.


Advice and comments welcome.

 

[2B]

I have laddered CDs. I had been overly conservative with keeping maturities at 2 yrs. I've decided to take my ladder out to 6 years despite the low interest rates. When I get it set up, I'll be making new investments at around 3%. I know that I'll get all my principle back at maturity so I'll always be reinvesting at the then current interest rates.

I personally wouldn't buy any bond funds since they will permanently lose value when interest rates go up as opposed to the eventual full redemption of a bond or CD. I distrust muni funds even more since funds may chase yields by buying less secure bonds. I consider my fixed income primarily a "safety" investment. I am more interested in the return of my principle than the return on my principle. Hence, FDIC insured CDs.

Even with your significant portfolio, I wouldn't recommend buying individual munis. You would have trouble getting adequate diversification. You also can not predict which ones will have problems 5 or 10 years from now.

 

[phil1ben]

I am 55 but still working. Have been FI since my early 40s. Hope to retire in 2016. Thought it would be 2015 but it is not to be. I have 50% of my investable assets in individual muni-bonds which I select myself. I diversify across states, credit ratings and maturity dates. Yes, this takes about 20 minutes per day but over the past 10 years it has been well worth it. I have set-up a muni bond ladder with about 100 different bonds. I currently use the Schwab platform but candidly Fidelity is better. Fortunately my home state has a relatively low flat income tax rate of 3.1% so I buy bonds from all states. I am in the 39.7 bracket so the benefits are somewhat greater for me. Admittedly this is the DIY alternative but I enjoy the flexibility it provides. A little like a custom made suit. Good Luck.

 

[prototype]

I would take a look at VWIUX (or some sort/combo of Muni Funds) for a portion of you after tax bond allocation given that you are in the 28% Fed Tax bracket.

I currently have a significant (~20%) of my after tax portfolio in this fund because I am in the 25% Fed tax bracket. However as you mentioned, I will keeping a close eye on this one given the unkown with interest rates next year.

 

[audreyh1]

Why not invest that 10% in international now that it is beaten down?

 

[Willers]

I use a combination of funds, individual munis, and CDs. I built a muni ladder when rates rose back in 2013 and have explored a few short- term ones lately that are from organizations that I know well.

I've also been looking at a CD ladder for some excess cash since I'm about a year from RE and plan to keep about 5 years of non-discretionary expenses in CDs.

Lately I've been concerned about the effects of redemptions in bond funds of rates do start rising. In theory individual bonds and funds will end up in the same place down the road but I think redemptions could lead to a reduced ability for the managers to invest at higher rates and therefore locking in some losses. I guess we'll see how it turns out.

The key is your goals for FI. I am conservative in mine, choosing to take my risk on the equity side. That's worked well for me. YMMV.


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[nun]

Most is in a stable value fund and the bonds inside Wellesley......although I'll be buying into a COLA'ed pension plan soon and I'll treat that as fixed income and sell the stable value so my only fixed income (apart from the pension) will be in Wellesley.

 

[foxfirev5]

In the 401K 75% -Stable Value Fund - 25% VG Total Bond Market. Once I roll it over later in '15 I'll make a CD ladder out of the 75% since the SV fund won't be available.
Outside the 401k in other retirement funds all VG - ST Inv Grade, Intermediate Index, High Yield Corp, and whatever Wellington Fund holds.

 

[dallas27]

Why not invest that 10% in international now that it is beaten down?

I am running 35% int, 10% emerging. Down fair bit this year, and certainly hasn't kept pace with US since 2009.

I keep piling in to level the AA.


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[Willers]

Why not invest that 10% in international now that it is beaten down?

+1. Keeping my AA in Int'l hasn't been fun this year, but that's what discipline it all about I guess. I do see it as an opportunity to buy at a better price. Only time will tell if that's wisdom or folly.


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[Don46]

Why not invest that 10% in international now that it is beaten down?

That may be a good idea now. I'm revisiting some decisions I made one year ago when I was just wading into this DIY mode. Schwab has an ETF, SCHF, that tracks international pretty well.

 

[Cobra9777]

I was 50/50 a few years ago. I moved 15% from bonds to real estate (2 rental houses + REIT ETF). I hold the RE plus some municipal bonds in the taxable account. The RE yields 6.5% pretax cashflow with preferential tax treatment via depreciation.

In tax deferred, I still hold conventional bond index funds, which have performed surprisingly well this year. But I moved 20% into high-yield corporate about a year ago. This sector behaves a bit more like equities and has a relatively low duration for the very high yield. I also hold a small international bond position. For the rest, I've been waiting until rates actually start increasing to move into a stable-value fund available in DW's 457b offerings. It has a crappy ER (0.83%) and currently yields only 1.8%. But I'll let the "bond fund" money sit there while rates are increasing, and then I'll get back in when I see an appropriate price opportunity.

 

[Don46]

I am 55 but still working. Have been FI since my early 40s. Hope to retire in 2016. Thought it would be 2015 but it is not to be. I have 50% of my investable assets in individual muni-bonds which I select myself. I diversify across states, credit ratings and maturity dates. Yes, this takes about 20 minutes per day but over the past 10 years it has been well worth it. I have set-up a muni badder ladder with about 100 different bonds. I currently use the Schwab platform but candidly Fidelity is better. Fortunately my home state has a relatively low flat income tax rate of 3.1% so I buy bonds from all states. I am in the 39.7 bracket so the benefits are somewhat greater for me. Admittedly this is the DIY alternative but I enjoy the flexibility it provides. A little like a custom made suit. Good Luck.

I bet you do well with that. I'm older, 68, and well off but not so rich. While I enjoy some investment research, I think I want to get this on automatic pilot, enjoy travel and hobbies, and set up a program that my wife can continue if I die first.

 

[calmloki]

Barclays bank is now paying 1% on it's online saving account and 2.25% for a 60 month CD. We shuffle money around a lot, so it is nice to have it making a bit when it is just sitting. (Actually we prefer TIAA direct, which pays a tad less but is much easier to work with.)

 

[rodi]

I have a combination of older CDs that are paying over 3% (but about to expire, darn it) and a stable value fund. I also have 2 bond funds - one tips, one not.

The only reason I'm keeping my old 401k is the stable value fund. When interest rates rise I'll roll it out and ladder some CDs.

 

[Henry Lili]

I have a combination of older CDs that are paying over 3% (but about to expire, darn it) and a stable value fund. I also have 2 bond funds - one tips, one not.

The only reason I'm keeping my old 401k is the stable value fund. When interest rates rise I'll roll it out and ladder some CDs.

Same here. No good alternative to stable value outside of a 401k. Too bad a similar product isn't available outside of 401k's. If it were limited to individuals only, had limits on investment size and number of transactions per year you would think it would be a profitable enterprise for the big families (e.g. Fidelity) to offer.

 

[Lsbcal]

...
I used my main IRA to invest in Vanguard Short Term Bond Fund, VBISX. It earns slightly over 1 pct in dividends. I was/am worried about rising interest rates undermining bond values.

What are some of you doing for fixed income investing these days?
What investments are you making?
...

At least for tax sheltered FI, I like the variable maturity strategy that I outlined here: http://www.early-retirement.org/forums/f28/a-long-term-strategy-for-bonds-74873.html#post1529712

Can sound complicated but it is really very simple to implement. Anyway that is what I'm doing with DODIX/VFSUX as intermediate/short term funds.

 

[pb4uski]

In the 401K 75% -Stable Value Fund - 25% VG Total Bond Market. Once I roll it over later in '15 I'll make a CD ladder out of the 75% since the SV fund won't be available......

Why not forget rollover and just stay in 401k/SV funds until interest rates normalize?

 

[pb4uski]

I jumped on the Penfed 3% 5 years CDs a year ago and am glad I did. I wish I had done more. Also have Guggenheim and iBond target maturity corporate bond funds, mostly 2020 and some Merger Fund. Also 14% of fixed income in Guggenheim High Yield Bulletshares from 2017 to 2019.

As of mid-November my weighted average yield was about 2.45% and weighted average duration was 2.35.

 

[mathjak107]

until rates and inflation kick up the bond money is in bonds.

at some point that segment will move to TIPS, REIT INCOME , FLOATING RATE AND COMMODITY FUNDS . but for now bonds are just fine

 

[audreyh1]

The bulk of our 47% allocation to fixed income is in intermediate-term diversified "core" type bond funds. 5% is in cash and cash equivalents. 5% in a short-term very high quality bond fund. I avoid high yield bond funds, although the core bond funds probably hold some when they think it is attractive.

 

[RetireBy90]

I have my fixed in couple different funds and laddered CDs. I use Fidelity Floating rate high income (FFRHX) as I have been expecting rates to rise for 5 years now. Could have done much better had I just followed the herd and stuck with lower duration bonds. I also have a stable value fund in the 401K.

 

[eytonxav]

I'm pretty diversified bond fund wise: diversified core, multi-sector, foreign, short-int corp, short term high yield, stable value, and floating rate.

 

[audreyh1]

I have my fixed in couple different funds and laddered CDs. I use Fidelity Floating rate high income (FFRHX) as I have been expecting rates to rise for 5 years now. Could have done much better had I just followed the herd and stuck with lower duration bonds. I also have a stable value fund in the 401K.

Ouch on FFRHX. Sometimes it can suddenly bite you. It is actually a pretty risky fund.

 

[Options]

...

I personally wouldn't buy any bond funds since they will permanently lose value when interest rates go up as opposed to the eventual full redemption of a bond or CD.

...

With all due respect, this is rather dangerous advice. Vanguard came out with a recent paper pointing to the pitfalls of this kind of thinking. Truth is, thinking on proper placement of proper fixed income placement is all over the map, with debates on total bond vs. Short term bond versus tips versus no tips versus I bonds versus international bonds versus no international bonds. In the end, and I forget who to attribute this to, but "nobody know nothin'." These debates are just that, simply debates. The enemy to tying to find the perfect investment or portfolio is the search for the perfect one. Attesting to this is Fidelity's very recent study demonstrating the most successful PF's with their institution were inactive as they belonged to people who were deceased. The key is to pick an allocation you're comfortable with staying with.