Why would Individuals buy Treasuries or Treasury Funds?

[imokurok]

Synchrony Bank 2.3% for 5 yr, 1.4% for 1 yr.

[RobLJ]

Actually I reduced cash to buy BTTRX (American Century Zero Coupon Fund 2025) in early 2017, as a hedge against a stock correction. Would have bought more a month or two ago but the upward performance has been. . . a bit too enthusiastic.
It returns money to investors in 2025, so it's a bit like the bullet funds, so to some degree is "like" buying an 8 year bond (well, not really, but I'll not go into the differences.) This is not a recommendation, just a comment/response to the OP question.

If it goes down in the next 6 months, I'll buy more. It's a stock market hedge, however imperfect, in my main account in which I cannot buy options or stocks (or ETFs), just to forestall some comments. I expected it to go down after I bought it, and instead it went up (the portfolio was very low on "long" bonds.)

[OldShooter]

Quote:

Originally Posted by RobLJ ... BTTRX (American Century Zero Coupon Fund 2025) ...

Sorry, I have to ask: Why would you pay 56bps to have someone make completely brainless and risk free bond purchases for you?

You could just give their list of holdings to the FIDO, Vanguard, or Schwab bond desk and say "I'll have some of what they are having."

https://www.youtube.com/watch?v=F-bsf2x-aeE

Instant savings: 56bps.

[RenoJay]

I agree with the original poster. CDs strike me as safer, and yield at least as much as government debt. Another thing to consider is CD longevity. Back in 2011, I locked into several CDs. One of them had a nice (at the time) yield of 3% on a ten year CD vs. about 2.2% on the five year CDs I was looking at. I looked at the penalty for early withdrawl, and realized that after some reasonable period of time (maybe 2 years?) I'd do better on the 10 year CD, even if I took all the funds out early. So be sure to do this equation...sometimes you can do better on long terms without reducing liquidity by much.

Someone had mentioned that govt. debt can do better "assuming that interest rates do ______." If you're willing to make bets on the direction of interest rates, you might as well seek higher yield through some form of peer to peer lending, because guessing interest rate direction involves a much deeper level of analysis, and risk, than simply buying a fixed income instrument for the coupon.

[gcgang]

Quote:

Originally Posted by RobLJ Actually I reduced cash to buy BTTRX (American Century Zero Coupon Fund 2025) in early 2017, as a hedge against a stock correction. Would have bought more a month or two ago but the upward performance has been. . . a bit too enthusiastic. It returns money to investors in 2025, so it's a bit like the bullet funds, so to some degree is "like" buying an 8 year bond (well, not really, but I'll not go into the differences.) This is not a recommendation, just a comment/response to the OP question. If it goes down in the next 6 months, I'll buy more. It's a stock market hedge, however imperfect, in my main account in which I cannot buy options or stocks (or ETFs), just to forestall some comments. I expected it to go down after I bought it, and instead it went up (the portfolio was very low on "long" bonds.)

You need some EDV if you want to juice up your "long" bonds. I bought small amount last November just to track long rates. Thought it would crater as rates went up. But it's gone up 5% in value. I agree with your premise that it's a hedge, however imperfect, against a precipitous stock decline. I just can't make myself reposition a meaningful amount to a 25 year zero at 2.75%. I haven't dug out my HP-12C to see how much of a decline in rates you'd need to make 25%, but I'm guessing you might get there around 2.0%? Anyone up for negative rates?

[RobLJ]

Quote:

Originally Posted by OldShooter Sorry, I have to ask: Why would you pay 56bps to have someone make completely brainless and risk free bond purchases for you? You could just give their list of holdings to the FIDO, Vanguard, or Schwab bond desk and say "I'll have some of what they are having." https://www.youtube.com/watch?v=F-bsf2x-aeE Instant savings: 56bps.

Since you asked in a completely condescending manner, I'll condescend to answer you. Most of my assets are in a 403b which does not allow any investment other than mutual funds.
Does that clear it up for you or should I go into more detail?
I understand the question--believe me I have looked to cut costs--but the assumptions made by some posters are frankly annoying, although it's fine if it prevents someone else from paying unnecessary costs. I'll be the sacrificial victim.

And EDV is another great idea--BUT I CANNOT BUY INDIVIDUAL BONDS OR ETFS in this account. When DW can withdraw from her accounts, I'll switch assets and employ some of these ideas. And, to prevent more comments, I'm in the 403b since I'm younger than 59 and can withdraw from it. (Also, it is protected from lawsuits.)

[gcgang]

Couldn't find my 12c. Found a website. If rates on 25 year zeros drop from 2.75% to 1.75%, you'd make a little more than 25%. If rates go up....

[RobLJ]

Quote:

Originally Posted by gcgang Couldn't find my 12c. Found a website. If rates on 25 year zeros drop from 2.75% to 1.75%, you'd make a little more than 25%. If rates go up....

True that--note that this is a hedge/diversification on stocks and the economy as part of the bond allocation, with small expectations of a big payoff. I've been surprised by the gains in the last 3 months. Currently I hold almost no long bonds, which maybe I did or did not post in the original post. I'd add that this is term limited fund (somewhat like a Bullet fund that expires in 2025) which limits both rate increases losses (and gains; when you dance with the devil. . . )

As a historical note, I loaded up on an intermediate Treasury fund (Fidelity) in '06 when I rebalanced from 90-10 to 65-35 allocation, and it was, shockingly, the only holding that paid off big in '08 and early '09.

On the other hand, maybe the rebalancing strategy should be to sell your losers and load up on your stock winners.

[OldShooter]

Quote:

Originally Posted by RobLJ ... Does that clear it up for you or should I go into more detail? ...

Completely clear. No intention to offend, it just seemed like a great opportunity to link to one of my favorite movie scenes! Sorry.

As you say, I too think it is important to make your constraint clear. I discovered this site a few months ago and have enjoyed and learned from many discussions, but it does bother me that many people seem to be paying bond fund manager fees, sometimes hefty ones, when they could easily be buying individual bonds. This is particularly true with govvies and agencies where diversification is not an issue.

BTTRX fees are 25% higher than the Morningstar Long Government category average. Using that fund seems like a breach of fiduciary duty by your trustee, but that's not my fight.

[RobLJ]

Since the fund closes out in 2025 and thereby takes some of the interest rate risk off the table, it seemed worth the extra fees, but YMMV in my 403b. I also own Vanguard Intermediate in DW's IRA; if the allocation nears 100k, then I'll probably do a bond ladder for her.

Quote:

Originally Posted by OldShooter BTTRX fees are 25% higher than the Morningstar Long Government category average. Using that fund seems like a breach of fiduciary duty by your trustee, but that's not my fight.

[audreyh1]

Quote:

Originally Posted by OldShooter but it does bother me that many people seem to be paying bond fund manager fees, sometimes hefty ones, when they could easily be buying individual bonds. This is particularly true with govvies and agencies where diversification is not an issue.

Too much trouble, and I always have a large amount invested, so I look for low-cost bond funds instead.

Sure, I know how to buy treasuries directly if I care to. I do occasionally buy iBonds.

[gerntz]

I prefer muni bonds to either.

[RobLJ]

Quote:

Originally Posted by gerntz I prefer muni bonds to either.

I have munis in the brokerage account.

[brucethebroker]

Why govt. bonds? Increased safety maybe? Interesting take in a diary by a depression survivor mentions how many people wished they had govt. bonds and not stocks during depression.

A great read BTW: The diary was published by the son: "Benjamin Roth, was a 35-year-old lawyer in Youngstown, Ohio, when the stock market crashed in October 1929. At first, he paid little attention to the crash because he had never invested in the market. However, by June 1931 he realized that the country was facing a major financial crisis, and he began writing a financial diary of what became known as the Great Depression."
The Great Depression, a diary.

[jazz4cash]

Quote:

Originally Posted by RobLJ I have munis in the brokerage account.

I bought my first muni this year from a local broker that cold called me. I had requested info on muni bonds from them so maybe not really a cold call. Anyway I am happy with the bond but not too happy with continuing calls from the broker. The bond I bought did not show up using the Fido search tool but it does come up if I put in the CUSIP. I'm thinking of moving this holding to Fido but I'm concerned that I might not be able to find the bonds I want at Fido. I've checked some other sites like FSM and Zion but it's maybe more effort than can maintain. I prefer individual bonds but this is making me reconsider a fund. Treasury Direct rates are not attractive to me right now.