Anyone Else still holding Bond Funds?

[Cheesehead]

THIS REPLY IS TO KOOK THE OP:

You still here Kook? I'm in the same boat as you, I rode VG Investment Grade Bond Fund and VG TIPs down, it is against my nature, in my DNA not to sell when it's in the red but I think that's more of an equities philosophy with me and one month ago I was considering selling.

I signed up for a webinar with the VP of bond investing at a large corp (think Schwab, Fidelity, Vanguard) I don't want to mention which one, and it was too complex for me, it seemed more for bond traders. The VP mentioned he was coming to my city and I privately messaged him to his email begging for 30 minutes of his time when he comes to town. He graciously agreed.

I went to their offices with my spread sheet (mainly invested with his company) and laid out my FI portion which is about 50% of my $1.4 mil nest egg, some of the bond portions are from my Wellesley holding. I use the Bucket Strategy and the FI is in Bucket #2. We have 5 years of cash in Bucket #1 so we don't need to sell anything for income unless there's a Zombie Apocalypse. Naturally, as a bond man, he came right out and said he hates bond funds. OK, I get that but should I sell at a loss? It's against my grain. He said he could not offer me advice but basically said at the losses we are now, it will take about 4 or 5 years for these two positions to get back into the black. He had a scary caveat: IF we were to get into a real war, I assumed he meant NATO vs Russia, then everyone would flee the stock market and bonds will rise. I didn't want to contemplate that.

I then re-phrased my question so he could give me a straight answer: "Sir, what would you do if you were me, meaning I don't want to buy individual bonds?" I had tried bond ladders in the past and sometimes blue chip names go south, like Boeing, Morgan Stanley, the cruise lines and casinos during Covid, etc. No more bond ladders for me. He said I should sell these two bond funds at their loss and do a CD and Treasuries ladder but not go out more than 18 months because of the rate increases we will see (this was a couple of weeks before the .75% increase.) We did buy several CDs but I still hold these two red positions, want to pitch them but don't know where this 50% of the nest egg should go.

So...I am now looking for a financial advisor who will make me a portfolio with about $1.3ish mil to throw off $35-$40 a year, that's all we need after our pension and SS, because we are in such unchartered waters I don't know what to do with FI, I need income. I was very good over all these years making the equities portion grow but any drunken monkey could until lately. This needing steady income, $3500ish a month, that's a different bird and now I see the need for a pro that comes highly recommended from close, rich friends. We are doing interviews now, I don't mind paying 1% as long as we can get this income in a low risk manner.

This reply was for Kook, pls private message me. The VP of bonds of a monster size financial firm told me to sell in the red and that's what I'm gonna do. Good luck to everyone.

[slowsaver]

I'm hanging onto my Intermediate Term Tax Exempt (VWIUX) bond fund. It still gives me $1k/month of tax free income -- every month, regardless of the share price.

Besides, stocks have been going down more, so I have to put my cash in stocks to maintain my aa.

[yakers]

Quote:

Originally Posted by slowsaver I'm hanging onto my Intermediate Term Tax Exempt (VWIUX) bond fund. It still gives me $1k/month of tax free income -- every month, regardless of the share price. Besides, stocks have been going down more, so I have to put my cash in stocks to maintain my aa.

Sounds pretty reasonable. If you have all dividends, interest and cap gains (from any sales) going to cash then spend what you need and reinvest back to balance the portfolio AA. But I don't think AA has to be rebalanced too frequently, can float a liter, and you can withdraw needed funds from necessary aprt of portfolio to keep AA as well.
Best we can do when most things are down.

[lem1955]

I sold enough to buy a CD for expenses in 2024 at the beginning of May. I already had a CD for 2023 expenses. Otherwise, I am holding steady with about 34% in Bond Funds, 59% in Equity Funds and 7% in MM, CD's and iBonds.

[VanWinkle]

If my 7 year bond paying 1% should now be sold for 15% less than face value, why not wait for it to mature and get 100% back? I don't need the money until year 7. I can buy more 3% bonds now to make up the difference. Oh wait, I'm in a bond fund and that's what they are doing.

[daylatedollarshort]

Kiplinger's has a good article on what to do now for fixed income - https://www.kiplinger.com/investing/...that-can-help: Bonds Are Having a Rough Year. Here Are 3 Actions That Can Help - 1. Individual bonds instead of funds now, short dated bonds that will mature in a few years. 2. Consider a bond ladder 3. Tax loss harvest - "As investors begin the process of selling bond funds, there is one benefit. Most bond funds purchased in the last five years have likely declined in value. Investors holding them in a taxable account, the investor can use the loss from the sale to offset part of their tax bill. This is called tax-loss harvesting."

[jdiaz]

Quote:

Originally Posted by slowsaver I'm hanging onto my Intermediate Term Tax Exempt (VWIUX) bond fund. It still gives me $1k/month of tax free income -- every month, regardless of the share price. Besides, stocks have been going down more, so I have to put my cash in stocks to maintain my aa.

Yep, we love VWIUX and that monthly payout!

[MrEd]

I own FFRHX. Seven Figures. Junk bonds of short duration.

True the principle goes down as rates go up. However, the interest earned monthly rises as rates go up offsetting, somewhat, the drop in principle.

So last year I was earning 3k monthly. Recently as rates rose I have been earning 4k monthly.

I reinvest the dividends and when the Federal Reserve starts to cut rates the principle will once again rise as the income starts to fall.

Works for me.

[Graybeard]

Quote:

Originally Posted by Bergamo Not necessarily. The markets are well aware that Powell is going to raise rates in July, August, September etc. The Fed has said where they expect the FFR to be at the end of 2022. So the market may have priced those increases in already. Now if there were unexpected rate increases that would be a different matter.

I don't think this is a matter of pricing in what is known, this is bond math. Even very very low duration bond funds will be hit hard with another 2-3% FFR increase, forget intermediate term bond funds.

[mikes425]

Quote:

Originally Posted by MrEd I own FFRHX. Seven Figures. Junk bonds of short duration. ..... However, the interest earned monthly rises as rates go up offsetting, somewhat, the drop in principle. I reinvest the dividends and when the Federal Reserve starts to cut rates the principle will once again rise as the income starts to fall. Works for me.

Same sentiment here with no shift in bond funds in a 50/50 AA - I can’t time the market now any more than people said i shouldnt have tried in 2009 - Mainly ST duration treasury and TIPs funds..+ some floating rate... Down abt. 12% YTD - could be worse but my bonds dont look look the broad Agg index -

At this stage what would the value be in exiting bond funds. Projected annual dividend from total PF is about 60k, with roughly 2.1m assets - At a young age of 64 and basically semi- retired with no debt, not much choice but to “play the long game” from here right?

[Graybeard]

Quote:

Originally Posted by jdiaz Yep, we love VWIUX and that monthly payout!

I did too... until I started to look closely at how much the nav has dropped!

I bought into it in 9/2020 and have reinvested the dividend each month because I don't need the income, I just wanted somewhere to get a better interest rate than Ally CDs.

So 1 year and 10 months later, every single purchase of the fund is a capital loss. In 2021 I made a little over $2,000 in tax free interest. Nice. Oh wait, I have lost $6,000+ in principal. Not nice. Remember, I don't need income.

I can't wait to dump this fund and buy T bills but I need to wait the 30 days after 5/31 to sell and TLH against my income over the next few years. I stopped reinvesting the dividends around June 10 so this month the dividend is going into my settlement fund.

When I bought this fund I didn't understand TLH or how raising interest rates effected a bond fund but I was aware of what duration meant. I just ignored the constant decreasing nav cuz buy and hold has been burned into my brain over decades. I finally realized this fund is not making me money, I'd have been better off putting it all into my checking account at my local bank that pays a 5 bp interest rate! I still would have lost money to inflation but my principal would still exist.

[Graybeard]

cheesehead, you have $1.4M and need $35,000 in income. What about a 50/50 allocation to equities/1 year T bills. The coupon today is 2.9% and that would be $20,300 for the year. Could you make up the $15k from equities or sell some equities to generate that? Just a thought.

[Al in Ohio]

Over a half mil still in my portfolio, why?

You think I’d do something stupid and lock in and loss with a knee jerk reaction to sell?

Amateur.

[COcheesehead]

Quote:

Originally Posted by Cheesehead THIS REPLY IS TO KOOK THE OP: You still here Kook? I'm in the same boat as you, I rode VG Investment Grade Bond Fund and VG TIPs down, it is against my nature, in my DNA not to sell when it's in the red but I think that's more of an equities philosophy with me and one month ago I was considering selling. I signed up for a webinar with the VP of bond investing at a large corp (think Schwab, Fidelity, Vanguard) I don't want to mention which one, and it was too complex for me, it seemed more for bond traders. The VP mentioned he was coming to my city and I privately messaged him to his email begging for 30 minutes of his time when he comes to town. He graciously agreed. I went to their offices with my spread sheet (mainly invested with his company) and laid out my FI portion which is about 50% of my $1.4 mil nest egg, some of the bond portions are from my Wellesley holding. I use the Bucket Strategy and the FI is in Bucket #2. We have 5 years of cash in Bucket #1 so we don't need to sell anything for income unless there's a Zombie Apocalypse. Naturally, as a bond man, he came right out and said he hates bond funds. OK, I get that but should I sell at a loss? It's against my grain. He said he could not offer me advice but basically said at the losses we are now, it will take about 4 or 5 years for these two positions to get back into the black. He had a scary caveat: IF we were to get into a real war, I assumed he meant NATO vs Russia, then everyone would flee the stock market and bonds will rise. I didn't want to contemplate that. I then re-phrased my question so he could give me a straight answer: "Sir, what would you do if you were me, meaning I don't want to buy individual bonds?" I had tried bond ladders in the past and sometimes blue chip names go south, like Boeing, Morgan Stanley, the cruise lines and casinos during Covid, etc. No more bond ladders for me. He said I should sell these two bond funds at their loss and do a CD and Treasuries ladder but not go out more than 18 months because of the rate increases we will see (this was a couple of weeks before the .75% increase.) We did buy several CDs but I still hold these two red positions, want to pitch them but don't know where this 50% of the nest egg should go. So...I am now looking for a financial advisor who will make me a portfolio with about $1.3ish mil to throw off $35-$40 a year, that's all we need after our pension and SS, because we are in such unchartered waters I don't know what to do with FI, I need income. I was very good over all these years making the equities portion grow but any drunken monkey could until lately. This needing steady income, $3500ish a month, that's a different bird and now I see the need for a pro that comes highly recommended from close, rich friends. We are doing interviews now, I don't mind paying 1% as long as we can get this income in a low risk manner. This reply was for Kook, pls private message me. The VP of bonds of a monster size financial firm told me to sell in the red and that's what I'm gonna do. Good luck to everyone.

I can get you 3%+, likely 4%+ tax free all day long.

[daylatedollarshort]

Quote:

Originally Posted by Bergamo It would appear that some believe the announced increases are priced in and some do not. Do you have something definitive?

I did a bit more searching on this and I do see some articles saying the pricing on the longer term bonds may have already been priced in because there is a less direct relationship to the duration calculations than with shorter term funds, plus other market forces that come into play. So some articles say the hikes are priced in and others like I posted say there could be further significant declines yet to come.

But as Freedom56 has pointed out, Treasuries and CDs have higher yields than many of the bond funds and no NAV drop risk at all.

[mathjak107]

Quote:

Originally Posted by MrEd I own FFRHX. Seven Figures. Junk bonds of short duration. True the principle goes down as rates go up. However, the interest earned monthly rises as rates go up offsetting, somewhat, the drop in principle. So last year I was earning 3k monthly. Recently as rates rose I have been earning 4k monthly. I reinvest the dividends and when the Federal Reserve starts to cut rates the principle will once again rise as the income starts to fall. Works for me.

Normally the funds duration value guides you as to how long it will take to make back what you are down when rates rise .

The duration value gets you back to the original deal you had the day you bought in .

It is really not much different then waiting for the maturity of an individual bond or selling early and taking a loss .

However with high yield there is also credit risk effecting things so duration value does not work the same way ….it is kind of unknown how long

[jazz4cash]

Quote:

Originally Posted by COcheesehead I can get you 3%+, likely 4%+ tax free all day long.

Yep. I was mystified by cheesehead’s long post about needing to consult with the VP of a major brokerage for advice to generate a modest 3.2% return on a good size portfolio. I just figured I didn’t understand the whole picture. Maybe it’s a matter of comfort with risk.

[Murf2]

Quote:

Originally Posted by Al in Ohio Over a half mil still in my portfolio, why? You think I’d do something stupid and lock in and loss with a knee jerk reaction to sell? Amateur.

Quote:

Originally Posted by Al in Ohio Over a half mil still in my portfolio, why? You think I’d do something stupid and lock in and loss with a knee jerk reaction to sell? Amateur.

Well, I am an amateur. I have an amateur question about “locking in a loss”. If I were to sell a total bond fund & buy treasury bills, how has that locked in a loss anymore than staying the course?
Wouldn’t the loss in value of the fund be offset by the increase it rate fairly quickly?

Trying to understand.

Thanks
Murf

[daylatedollarshort]

Quote:

Originally Posted by jazz4cash Yep. I was mystified by cheesehead’s long post about needing to consult with the VP of a major brokerage for advice to generate a modest 3.2% return on a good size portfolio. I just figured I didn’t understand the whole picture. Maybe it’s a matter of comfort with risk.

I'm not sure if other investment sites have the same feature, but with Fidelity, when I go to trade fixed income they have a summary yield screen that has almost all the yields posted for all their different fixed income offerings in one chart. There's quite a bit at 3% or higher these days. The only thing I see not included are TIPS, but those are just a click away on their own screens, auction and secondary.

[GTFan]

Quote:

Originally Posted by mathjak107 I don’t believe in timing my bonds anymore then I do trying to time my stocks.

This. Annual/gated rebalancing, yes. Timing, no.