lawman
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Small fluctuations would be okay but come year end performance I want at least 2%
Bond fund question
- Thread starter lawman
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Small fluctuations would be okay but come year end performance I want at least 2%
Why 2%?
lawman
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This is low risk money
I still don't think that answers my question, so I give up.
The fixed income market is what it is. There aren't any good options today.
Montecfo
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To get 2 percent plus will require risk. To get that here means sacrificing credit quality-a fair tradeoff in a growing economy IMHO.
But duration is a killer so I look at variable rate credits, which substantially reduces rate risk.
I take credit risk over rate risk right now.
But duration is a killer so I look at variable rate credits, which substantially reduces rate risk.
I take credit risk over rate risk right now.
Sunset
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The only good deal in bonds I know is:
The I-bond at 7.12% for 6 months, then I guess at 3% , have to hold for 1 yr, and a 3 month interest penalty if cashed in 5 yrs, limited to 10K pp/yr.
The I-bond at 7.12% for 6 months, then I guess at 3% , have to hold for 1 yr, and a 3 month interest penalty if cashed in 5 yrs, limited to 10K pp/yr.
lawman
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What do you think of VTIP?
Sunset
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I own some, but not a lot and only because at the time, I couldn't think of anything else to buy....
Because it's short term, and designed to keep up with inflation, one would think it will be better than a simple 2% per year
I think it will do better in the short term 1->3 yrs than BND, which I also own. I do feel I have too much BND.
I have a lot more BND than VTIP.
Winemaker
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Get some Phillip Morris MO or Omega Healthcare OHI. Both yield pretty good, and I think will have less risk than any bond fund. Just my humble opinion. I just sold all of my bond fund VBTIX and went to Black Rocks Tips fund BPRIX. Not a market timer, but a astute investor.
lawman
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I have a scheduled call with a bond specialist tomorrow..I'll see what she says.
VanWinkle
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Stable value fund in a 401K
MYGA (annuity) as explained by other posters
The real question I would ask is "When do I need this money".
If doing a bond fund, the answer should be the same or longer than
the duration for the bond fund.
Example: Need money in 2-3 years- use a short term bond fund(high quality)
If you need the money in 6-7 years when you start RMDs, use an
Intermediate total bond fund(high quality)
Do not give up safety for yield..... It would be better to just increase
your allocation to equities by a minor amount than to add "junk" bonds.
My 2 cents worth.
VW
lawman
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I agree. I'm in two bond funds and the way I see it is that as long as I'm not planning to sell shares before the duration length of the fund I can count on realizing the yield..
Montecfo
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Realizing the yield, yes. Positive total return? not necessarily.
COcheesehead
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I buy individual muni bonds and I can get you 2% plus - tax free - right now in a heartbeat.
disneysteve
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How do you choose your bonds? I’ve bought a couple of individual corporate bonds but was never 100% sure I actually knew what I was doing.
COcheesehead
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I use Fidelity and they have a number of really good screening tools. If you don’t understand bonds, they have a bond desk that will build a ladder for you at no additional charge if you give them your investment perimeters.
Regarding corporate bonds. Their failure rate even at the highest quality levels is greater than the failure rate of muni’s across all quality levels - junk to AAA.
Also a couple bonds isn’t going to give you the diversity you likely want. Laddering is a great strategy in a rising interest rate environment because you will always have fresh cash to use, invest elsewhere or buy more bonds at the higher rate.
Mr._Graybeard
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Yep, and amid this general selloff, my munis have remained pretty stable, most down just a few basis points.
lawman
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Any suggestions for a good muni bond mutual fund or ETF?
COcheesehead
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I don’t buy funds. They are too susceptible to NAV erosion and thus may not give you the total return you desire.
If I hold a bond to maturity, I get all my money back, plus the interest gained over time. I like that precision.
Dog
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disneysteve
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What criteria do you generally use, if you don't mind sharing the secret formula?
lawman
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Please share what you learn
She just basically went over all the pertinent info. regarding the two funds I own. She made no recommendations which really surprised me..She thought my two funds should continue to serve me well and that she thought the current share prices probably already reflects a couple of rate hikes later this year..
Mr._Graybeard
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I'll throw in a couple. I look for bonds with an early call date, since they hardly ever AREN'T called early. That's a good place to park cash for the relatively short term.
A lot of municipalities have refinanced debt in recent years, so I tend to shy away from bonds with less than a 3% coupon. If interest rates go up and you have a 2% coupon bond that matures in 2040, you may be stuck with it until the maturity date, even if it has an early-call option.
When you shop for bonds at Fidelity or Schwab, you'll find that those long, low-coupon bonds are selling for less than face value. The older bonds with 4%-5% coupons sell for a premium. Watch for the EFFECTIVE yield, as you may do just as well or better buy buying the higher-yielding bond at a premium than the lower-yielding bond that's on sale.
There are a lot of zero-coupon bonds out there that don't deliver payment until the bond is redeemed. They tend to be more volatile than the bonds that make semiannual payment; if you don't need the cash flow, these could be a buy. I suspect they'll be under proportionally more pressure as interest rates rise.
Finally, I like municipal bonds because their volatility is relatively low, but also because I'm investing in public improvements that generally benefit society.
Freedom56
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Just be patient and hold cash in a money market account. Here is my take on interest rates. We are forming a short term bottom on yields and they will tick up over the course of 2022 to deflate the bubble that has been forming in equity markets, commodities, and crypto currencies. The risk off trade is in effect. The rise in interest rates will then pause in 2023 and then slowly head back down. The bond market will discount this by the end of 2022. So much money has flowed into equity markets over the past 18 months that we have completely worthless companies like Gamestop, AMC, and other meme stocks are still trading at ridiculous valuations. This is no different than 1999 but with significantly more capital flowing into the markets. Like all bubbles, this one will pop too,
As a bond investor, I am not changing my strategy and I will buy short/medium term corporate bonds/notes of stable and profitable technology, e-commerce, pharma, biotechnology, and telecom companies with coupons over 4% when they drop below par. I will avoid retail, energy, and industrial sectors. Don't worry about bond ratings but focus on company profits and free cash flow and credit default swap rates. "BB" rated bonds in many cases are safer than many "A" rated investment grade bonds. Boeing is a good example of how to get burned by buying an A rated corporate bond at a premium only to see it's rating to fall to BBB- and soon below investment grade. Using this buy low and hold to maturity/sell high strategy will result in a long term 7-8% return for bonds. When the market drops everything drops and there is a lot of irrational selling by funds that are forced to liquidate their holdings as they are hit with redemptions. That is the best time to buy individual bonds. If you don't want to buy individual bonds, buy a CEF rather than an ETF. CEFs are actively managed and can take advantage of irrational market selling. Many muni bond CEFs are hitting 52 week lows every day and are trading at discounts to their asset value. Keep an eye on them and buy non leveraged muni bond CEFs when they start yielding 5% (they are just over 3% now) and over 6.5% for leveraged muni bond CEFs (they are 4.8% now). The chart patterns on those CEFs are screaming that a buying opportunity is about to emerge very soon.
As a bond investor, I am not changing my strategy and I will buy short/medium term corporate bonds/notes of stable and profitable technology, e-commerce, pharma, biotechnology, and telecom companies with coupons over 4% when they drop below par. I will avoid retail, energy, and industrial sectors. Don't worry about bond ratings but focus on company profits and free cash flow and credit default swap rates. "BB" rated bonds in many cases are safer than many "A" rated investment grade bonds. Boeing is a good example of how to get burned by buying an A rated corporate bond at a premium only to see it's rating to fall to BBB- and soon below investment grade. Using this buy low and hold to maturity/sell high strategy will result in a long term 7-8% return for bonds. When the market drops everything drops and there is a lot of irrational selling by funds that are forced to liquidate their holdings as they are hit with redemptions. That is the best time to buy individual bonds. If you don't want to buy individual bonds, buy a CEF rather than an ETF. CEFs are actively managed and can take advantage of irrational market selling. Many muni bond CEFs are hitting 52 week lows every day and are trading at discounts to their asset value. Keep an eye on them and buy non leveraged muni bond CEFs when they start yielding 5% (they are just over 3% now) and over 6.5% for leveraged muni bond CEFs (they are 4.8% now). The chart patterns on those CEFs are screaming that a buying opportunity is about to emerge very soon.
disneysteve
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Great info. Out of curiosity, I did a quick search at Schwab for munis maturing within the next 24 months with a minimum coupon of 3%. That turned up over 25 issues with a YTM of at least 2%.
Considering our money market account is paying 0.5%, that sounds pretty sweet.
How do you go about narrowing it down from there? Assuming you will hold the bonds until maturity and you won't need the cash until then, what would be the potential downside of parking some of your cash there instead of the money market? Default risk, of course, but anything else?
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