Bond Fund Diversification

[smileydog]

With the financial landscape changes and the threat of inflation I am curious what others are doing to diversify their bond allocation. I keep a check on my Financial Engines account which I usually agree with but it is still suggesting heavy weight in Treasuries (makes me wonder about their formulas).

My initial thoughts were to have 15% TIPS, 20 % US Corp Bond Funds, and 15% International Bond Funds - or just going heavier in Wellesly. Any suggestions or thoughts on the right mix? I'm about 50% bonds @55 with 4% SWR.

My fido rep suggests a combination of PIMCO Total Return, Fidelity Total Bond Fund, and Fidelity Short-Term Bond Fund.

Is there a low cost managed bond fund that fills your needs?

 

[FIREd]

The "right mix" is hard to define. There are entire books devoted to finding the right mix of fixed income assets. I like Swedroe's book "the only guide to a winning bond strategy you'll ever need".

My (rough) guidelines to buy bonds:
1) only buy bonds with the highest credit rating available: AAA and AA: stay away from junk.
2) stick with short to intermediate maturities: stay away from long term maturities unless you depend on the dividends to pay the bills and/or the yield curve justifies lengthening maturities.
3) If you have to take currency risk, do it with your equities (so no international bond funds for me).
4) hedge for unexpected inflation with TIPS.

Or you can invest your money in PIMCO Total return (I own it) and trust Bill Gross to make the right decision for you.

 

[smileydog]

Thanks Firedreamer,
I have owned Pimco in the past but strayed away a couple of years ago. I will head to the library to see if I can pickup Swendroe's guide.

The federal intermediate bonds have done their job but I am afraid the time for TIPS is not far off. Some of the corporate bond funds look tempting but if I buy in that's usually a sure sign that the bottoms about to drop out

 

[rsingh6675]

Question:
Has anyone put a significant amount like $100K in Vanguard High Income fund (VWEHX)and just collected monthly dividend without paying much attention to price fluctuation of the fund? One can do this by putting money in ROTH IRA and collect the Dividend every month? If the answer is yes, then are there any other similar or better funds? I have not done this yet, but I am considering it. VWEHX pays about 8.9% dividend which means $8,900/ per year income. Of course, the divividend amount varies every year but it has stayed in the range of 8-9%.
My question & curiosity is---
1. Is it a good idea?
2. Are there any better that pay high monthly or quarterly dividend?
Your ideas will be appreciated.

 

[Red_y]

I am semi-retired at age 52, no pension coming, expecting long retirement in view of my general good health and family history. My AA is 40% stocks / 60% cash and bonds. My current fixed income holdings are:

cash 17%
VWEAX 13%
VAIPX 14%
FNMIX 10%
LSGLX 5%

My thinking: the ultra-safe and uber-risky US bond funds will fluctuate at different frequencies. The offshore bond funds may provide better returns because other countries' financial systems may be in better shape than ours, plus they are more reluctant to wildly embrace deficit spending.

These particular foreign bond funds are generally NOT hedged against the US dollar, thus providing an additional opportunity for appreciation if the dollar tanks, as many expect it will. I'm retired outside of the US, so I'll take any currency hedging (of my own US$ holdings) I can get.

I'm currently living off my cash stake, but I have considered the "live off the VG High Yield and/or TIPS dividends; d*mn the principal fluctuations" strategy, but I think I'll never have the nerve to try it. My $100k stake in VWEAX went to $73k in a matter of months in 2008. As another poster said, junk bonds act more like stocks than bonds.

On a brighter note, VWEAX has staged a mighty rally YTD...a harbinger of better days to come?