Fidelity Managed individual bonds- Advice please

[Katoslake]

Hello,

We have a 37% allocation in individual bonds which are actively managed by Fidelity. Have a meeting tomorrow with advisor to discuss potential changes. They charge a management fee of .45.
Any thoughts would be greatly appreciated !

Thanks

 

[njhowie]

How has that allocation performed relative to the bond market YTD? Has it outperformed the bond index which it would most closely mimic? If it did not beat the index by an amount at least as much as their management fee, then ask why you should leave it with them rather than having it in a plain vanilla bond index fund?

The easiest comparison would be to Fidelity's own 0.025% fee US bond index fund, FXNAX.

 

[audreyh1]

FWIW 0.45% seems like an OK management fee. It’s not onerous.

I prefer using the bond index funds with .025% fees and generally avoid active management or holding individual issues myself with a few exceptions (US Treasuries, IBonds, CDs).

 

[COcheesehead]

I use a ladder of individual bonds. They are not that hard to manage. I have about 150 individual issues. I certainly wouldn’t pay someone .45% for something I can easily do on my own.
I do agree that you should be in individual issues and not a fund. Too much capital erosion in a fund. A fund has expense drag, redemption drag and a requirement for redemptions to be at mark to market pricing. An individual bond returns to par at maturity.

 

[Another Reader]

Hello,

We have a 37% allocation in individual bonds which are actively managed by Fidelity. Have a meeting tomorrow with advisor to discuss potential changes. They charge a management fee of .45.
Any thoughts would be greatly appreciated !

Thanks

I think RobbieB has a managed portfolio of individual bonds at Fidelity. Maybe he can provide some details of his experience.

 

[Katoslake]

Thanks for all the comments and advice! I was also wondering about divesting in some of the bonds and moving to CDs or MYGA’s for a short term ladder ? I’ve seen other comments on other threads that indicate that might be a way to go until the FED is done. Thanks again

 

[DawgMan]

I use a ladder of individual bonds. They are not that hard to manage. I have about 150 individual issues. I certainly wouldn’t pay someone .45% for something I can easily do on my own.
I do agree that you should be in individual issues and not a fund. Too much capital erosion in a fund. A fund has expense drag, redemption drag and a requirement for redemptions to be at mark to market pricing. An individual bond returns to par at maturity.

So here is a question I have yet to get an answer to. When laddering bonds you plan to hold to maturity, aside from making sure a specific $ value of funds matures by a certain date, how diversified do you really need/want to be assuming you are holding some combination of A+ rated bonds and Treasuries? Eg: If you are building a 5 year bond ladder, do you really need diversification beyond 5 different bond/Treasury types if they are of higher quality? I get the current strategy of buying some blend of short term bonds/treasuries today due to the rising interest rate climate in hopes that when they mature it may be a better time to lock down say 3+ yr term maturities, but I am trying to determine how diversified one really needs to get if the goal is primarily securing these funds to be potentially used after each year of their ladder followed by some level of reasonable yield. Thoughts?

 

[pb4uski]

You can be as diversified as you want to be. There is a school of thought that since fixed income is your portfolio ballast... to provide steadiness... that you could have all your fixed income in USTs or CDs. Those would have no credit risk... so you could have a ladder composed only of USTs and CDs.

I'm actually doing that with one of my Mom's accounts... equal rungs of 3, 6, 9, 12, 15, 18 and 24 month USTs and CDs... and as each one matures I'll decide whether to extend the ladder beyond 24 months. So for example, let's say that the 9 monther matures in March 2023 and it look like rates are leveling off and the yield curve is steepening, then I might reinvest that rung longer than 24 months and eventually end up with a 7 year ladder.

 

[COcheesehead]

So here is a question I have yet to get an answer to. When laddering bonds you plan to hold to maturity, aside from making sure a specific $ value of funds matures by a certain date, how diversified do you really need/want to be assuming you are holding some combination of A+ rated bonds and Treasuries? Eg: If you are building a 5 year bond ladder, do you really need diversification beyond 5 different bond/Treasury types if they are of higher quality? I get the current strategy of buying some blend of short term bonds/treasuries today due to the rising interest rate climate in hopes that when they mature it may be a better time to lock down say 3+ yr term maturities, but I am trying to determine how diversified one really needs to get if the goal is primarily securing these funds to be potentially used after each year of their ladder followed by some level of reasonable yield. Thoughts?

My ladder is 100% investment grade muni’s going out to 2032. So little diversification there, but I am spread out across 150 issues both revenue and GO bonds so pretty diverse there. Defaults on munis are almost non existent - second in safety to treasuries. I feel good. Knock on wood, I have never had a default.
With treasuries I wouldn’t worry about diversification, they are as safe as it gets.

 

[DawgMan]

You can be as diversified as you want to be. There is a school of thought that since fixed income is your portfolio ballast... to provide steadiness... that you could have all your fixed income in USTs or CDs. Those would have no credit risk... so you could have a ladder composed only of USTs and CDs.

I'm actually doing that with one of my Mom's accounts... equal rungs of 3, 6, 9, 12, 15, 18 and 24 month USTs and CDs... and as each one matures I'll decide whether to extend the ladder beyond 24 months. So for example, let's say that the 9 monther matures in March 2023 and it look like rates are leveling off and the yield curve is steepening, then I might reinvest that rung longer than 24 months and eventually end up with a 7 year ladder.

This is effectively where my head is at as my July - Jan Treasuries mature. Only thought was to start considering sprinkling some A+ rated bonds if/when they make some sense in addition to munis. While I am in the safety first camp with my bond ladder (effectively my 5 - 10 yr bucket), I am still trying to determine what the reasonable risk/rewards are by reaching for a little more yield with say A+ rated bonds. I've seen some of the historic default risk percentages relative to ratings, but still trying to determine what that risk really is as a practical matter.

 

[COcheesehead]

This is effectively where my head is at as my July - Jan Treasuries mature. Only thought was to start considering sprinkling some A+ rated bonds if/when they make some sense in addition to munis. While I am in the safety first camp with my bond ladder (effectively my 5 - 10 yr bucket), I am still trying to determine what the reasonable risk/rewards are by reaching for a little more yield with say A+ rated bonds. I've seen some of the historic default risk percentages relative to ratings, but still trying to determine what that risk really is as a practical matter.

Trying to predict the future is hard, but if historically something has a higher default rate - a corporate A+ vs a muni A+ for example, you increase your risk. Right now, tax adjusted - they pay almost the same, but the corporate carries more risk.

 

[Katoslake]

Thanks again for the comments and insights.

I’ll share what I learned on this thread and see what Fidelity reps think. I’ll post their guidance

 

[GravitySucks]

Thanks again for the comments and insights.



I’ll share what I learned on this thread and see what Fidelity reps think. I’ll post their guidance

I was also considering the Fido bond management service.
How has the performance been?

 

[Katoslake]

My Fidelity managed bond performance is circled in red. Advice from Fidelity rep today was stay short term in fixed and perhaps take bond income and buy the dips in stock index funds between now and mid-terms.

 

[sengsational]

I'm actually doing that with one of my Mom's accounts... equal rungs of 3, 6, 9, 12, 15, 18 and 24 month USTs and CDs...

My ladder is 100% investment grade muni’s going out to 2032. .

Based on reading here and my meager knowledge, I've also set-up a ladder for my mom.

I was tempted to use Fidelity's CD ladder tool because you can turn on "auto roll" and I'd have less work to do. As it is, I'll need to log in periodically and soak up the cash from matured bonds with more issues. But instead, I went with taxable munis...she doesn't make enough to pay much or any taxes.

 

[GravitySucks]

My Fidelity managed bond performance is circled in red. Advice from Fidelity rep today was stay short term in fixed and perhaps take bond income and buy the dips in stock index funds between now and mid-terms.

Thank you!