All Seasons Strategy

[phil1ben]

I am 54 and have been FI for many years and manage my own finances. I do not even own mutual funds and only own individual stocks and individual bonds which I analyze and buy. Approximately 30% of my investable assets are in muni bonds. Of them approximately 25% have 13-17 year durations. I do not go past 17 years but over the past 7 years my muni bonds have done well. And I always know that if I hold to maturity I get my full principal back (borrowing a rare default).

In this environment it has been hard rolling over maturing 5-6% tax free bonds to 2030 durations with a 3.5-3.8% tax free yield. However, I continue to do so. You do not need to follow anyone's advice to the letter, but nobody knows where interest rates are going. Virtually every pundit has gotten it wrong. For the past 5 years how many times have we heard "interest rates are about to rise......" I have no doubt that they will but the real question is when. To me it makes sense to obtain these yields (3.5-4.0% tax free) for a portion of my portfolio even if rates do rise. When they do I will rollover other maturing bonds. Just my opinion and sharing what I do.

 

[eta2020]

I am 54 and have been FI for many years and manage my own finances. I do not even own mutual funds and only own individual stocks and individual bonds which I analyze and buy. Approximately 30% of my investable assets are in muni bonds. Of them approximately 25% have 13-17 year durations. I do not go past 17 years but over the past 7 years my muni bonds have done well. And I always know that if I hold to maturity I get my full principal back (borrowing a rare default).

In this environment it has been hard rolling over maturing 5-6% tax free bonds to 2030 durations with a 3.5-3.8% tax free yield. However, I continue to do so. You do not need to follow anyone's advice to the letter, but nobody knows where interest rates are going. Virtually every pundit has gotten it wrong. For the past 5 years how many times have we heard "interest rates are about to rise......" I have no doubt that they will but the real question is when. To me it makes sense to obtain these yields (3.5-4.0% tax free) for a portion of my portfolio even if rates do rise. When they do I will rollover other maturing bonds. Just my opinion and sharing what I do.

That is interesting.

Where do you buy individual Municipal Bonds? Do you recommend any web site/book for people who want to learn more?

 

[phil1ben]

For many years I bought them using the Fidelity online bond trading platform. I recently switched to Schwab which also has a platform. I did so because of a dispute with Fidelity. However, Fidelity's platform is better and easier to use.

My job is in the finance industry so I am familiar with the concepts. I suspect that there are many books covering the trading of muni-bonds. Have been trading stocks and bonds for my own account for many years. With regard to bonds, I normally hold them until maturity and I create ladders like people do with CDs.

It is important that you diversify across maturities, issuing state and credit ratings. I happen to live in a state with relatively low state income taxes (4.1%) so I buy muni bonds from any state. They are not taxable on the federal level (unless they are expressly subject to the AMT) but are taxable on the state level if issued by a state other than where I reside. If issued by your home state no tax on the federal or state level (unless expressly subject to AMT). The higher tax bracket you are in, the greater the benefit of muni-bonds. Because state income tax is so high in NY and California, residents in those states normally buy munis from their home state which are tax-free on all levels. Not a big issue for me.

I own no Treasury Bonds because the yield on Munis has been so much greater. I am willing to take the greater risk which I perceive to be slight. Having said that I am still staying away from Puerto Rico bonds and student loan bonds (out of fear from what government might do to them).

My portfolio is more conservative than experts recommend but I am focused more on preservation than appreciation.

Good Luck.

 

[StJohnsWood]

Very interesting thread. I just finished the Tony Robbins book. The first thing I thought of when I saw the Ray Dalio All Season Strategy was "too many bonds and not enough stocks". This seems to be the consensus on this board.

A serious question for all the anti All Season Strategy folks: What is your education and experience? I mean that most respectfully. I am on the fence here. On one side I have my beliefs and on the other is a billionaire with 30 years of experience. My core beliefs are somewhat shaken. Is it the classic slow and steady wins the race while not losing money or go for the returns and get hammered when there is a down market.

 

[Richard4444]

That is interesting.

Where do you buy individual Municipal Bonds? Do you recommend any web site/book for people who want to learn more?

Vanguard has an entire page, including obviously the duration and ratings.

Rich

 

[CaliforniaMan]

Very interesting thread. I just finished the Tony Robbins book. The first thing I thought of when I saw the Ray Dalio All Season Strategy was "too many bonds and not enough stocks". This seems to be the consensus on this board.

A serious question for all the anti All Season Strategy folks: What is your education and experience? I mean that most respectfully. I am on the fence here. On one side I have my beliefs and on the other is a billionaire with 30 years of experience. My core beliefs are somewhat shaken. Is it the classic slow and steady wins the race while not losing money or go for the returns and get hammered when there is a down market.

"My advice to the trustee couldn't be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers."

Another billionaire's advice. This one from Warren Buffett. Now this was his advice to his charities, rather than to individuals, but from what I understand he was never too enthralled with bonds, and with today's low rates, how much more of a bond bull market can there be? Not giving any advice, just some food for thought.

 

[mathjak107]

I am 54 and have been FI for many years and manage my own finances. I do not even own mutual funds and only own individual stocks and individual bonds which I analyze and buy. Approximately 30% of my investable assets are in muni bonds. Of them approximately 25% have 13-17 year durations. I do not go past 17 years but over the past 7 years my muni bonds have done well. And I always know that if I hold to maturity I get my full principal back (borrowing a rare default).

In this environment it has been hard rolling over maturing 5-6% tax free bonds to 2030 durations with a 3.5-3.8% tax free yield. However, I continue to do so. You do not need to follow anyone's advice to the letter, but nobody knows where interest rates are going. Virtually every pundit has gotten it wrong. For the past 5 years how many times have we heard "interest rates are about to rise......" I have no doubt that they will but the real question is when. To me it makes sense to obtain these yields (3.5-4.0% tax free) for a portion of my portfolio even if rates do rise. When they do I will rollover other maturing bonds. Just my opinion and sharing what I do.

since we have been in a bull market for bonds for almost 40 years one factor about muni bonds is coming to light.

most muni bonds are callable. so a 25-30 year muni is actually priced and has a yield that is more like a conventional 10 year bond.

however if rates rise they would no longer be called and as such get repriced as 30 year bonds.

you can get killed if you have to sell or own a muni fund when rates rise since you bought them based on being called and that no longer may be in the cards.