Fixed Income is hard..... do not know which way to go

[Montecfo]

I disagree, but I'm not getting into another individual bonds/bond funds debate.

Yes. Just my opinion with reasoning. Not much to argue.

But this is not about bonds and bond funds. It is about indexing and market timing.

 

[pb4uski]

Are we acting like Generals fighting the last war?

Phrygian makes an interesting point. I sold all of my long and medium term bond funds a few years back when interest rates were very low and some banks in Asia and Europe were charging negative interest rates on savings accounts. I figured that rates could not get much lower than zero here in the USA.

Now rates have returned to what was the “normal” range for most of my life. So, maybe we have topped out and buying some bond funds might be a good bet? I don’t know. But, as I age my time to recover from big mistakes gets smaller and smaller. So, I will probably stay mostly with Treasuries and CDs where the chance of losing principle is small. The one exception continues to be the bonds held in my Wellesley shares. They are my nod to being ready for the next war.

My 2¢. YMMV.

+1 Sold out of bond funds when rates were low and could hardly go lower because of interest rate risk concerns. Luckily, I was able to pick up some nice credit union CD specials at decent interest rates.

 

[rkser]

Coming to my 2 pools of the Money markets, & trying to figure out how to proceed in investing these now ? Putting in numbers involved now & some info of the assets, we have

1) Taxable MM at Fidelity about $715000 (yesterday's news, coming out of VWIUX the Muni Fund)

2) Tax Deferred MM at Schwab about $347000 (yesterday's new, coming out of BND, the Bond Index, yes a market timer) rest are in CDs in Ladders bought at several times.

Presently our AA is 70/30 of around a $7.5 million total portfolio, -
A) VTI + VXUS + above $715k MM amounting to $5.5 million in taxable
B) CDs (Hodge Podge of ) + Money Markets = $2 million in Tax Deferred

After living well ourselves, gifting $34k yearly to kids, some charity & donations, we are living behind a few million in total for the kids when we pass.

Due to my inability/not wanting to engage in managing the Fixed Income, now I am thinking about notching the risk up a bit & take the AA up to 80/20 from 70/30,

1) Let us first discuss the Money Markets in Taxable-

First this money was invested 5 yrs back in the muni fund solely to increase the bonds to keep AA down to 70/30 instead of following the rule of Equities in Taxable & Bonds in Tax Deferred, which would have made our AA roughly 80/20 back then.
We had no earned income by then & our IRAs were all BND.

It sounds crazy that our advancing age is bringing on an Equity Torpedo, but given the fact that Bonds do not grow as much as the stocks, it leads to a lopsided AA of naturally getting aggressive AA.

On top of that when I do Roth conversions, the BND goes into VTI when in Roth, again leading to owning more stocks. We converted $180k last year when the market was down & this year around $120k usually whenever the S&P goes down I try to convert some.
Also the talk of the interest rates going up in 2026, thinking about our present marginal rate of 24% going upto 28% encourages me to do the conversions while I can. Paying taxes from the taxable always.

A question of eating Ramen noodles often comes up, a repeated reminder to be ready for a 50% loss in stock funds.
But I think even if the market does go down by 50%, in our case I think (hope) we will still do fine just by the high stock % we have, yes we may not leave as much to kids but who cares about that once you are gone. They are not doing bad by themselves.

By artificially forcing a stepped down AA , I am going round & round in circles , rather than just accept the fact that increasing Stock % is what is going to happen just by the nature of the growth of money in stocks & me wanting to do Roth Conversions.

I hope I made a case for myself that investing $715k in VTI 70%/VXUS 30% would be a reasonable thing to do given the above facts.

Funny, it all started by finding ways to administer the $715k in fixed income in taxable accounts to radically changing to keeping all taxable & Roth in equities & keeping Fixed income, above mentioned $347000 in Tax Deferred (to be discussed another day.)

I know I may face flak for the changes I am making now like I did when I came out of Bond Funds, nothing new to me, to each his own.

I am no computer, but a human with all the emotions, inadequacies, feelings all rolled into one, but also a few successes in my life & I am going ahead with that.

I learn from & thank each of the posts & your valuable time & feedback in helping me.

Thanks

 

[pb4uski]

Tax efficiency should not be driving your asset allocation. Decide asset allocation first (70/30). Then if your 30% fixed income allocation exceeds what you have in tax-deferred then the excess goes into fixed income investments in tax-free accounts or taxable accounts. If they excess goes into taxable accounts then you can consider munis rather than taxable bonds.

So in your case 30% of $7,500k would be a total of $2,250k in fixed income. So your entire $2,000k of tax deferred would be in fixed income and $250k of your taxable would be fixed income (perhaps a muni bond ladder using iBond or Bulletshare target maturity ETFs of even a muni bond fund considering the amount is modest).

The all remaining $5,250k would be in equities in tax-free and taxable accounts.

 

[Dtail]

Bogleheads misses the point when it comes to bonds. Indexing may be great for equities but blindly owning the entire bond market is not a great strategy.

The largest capitalization equities tend to be very successful companies. In contrast companies that issue a lot of debt are not necessarily signalling financial strength.

And increasingly bond indexes will own a large swath of treasuries which have meaningfully different characteristics than corporates. Instead of shopping for the groceries we want, would you buy a "grocery index" containing a ratable share of each item in the store by relative sales volume? Most folks would not find that attractive, but think of the time saved! But why buy food or bonds you don't want?

Just because indexing may be right for equities does not mean it is right for bonds.

Calling bond investors "market timers" also misses the point. We had a huge, unmistakable, well telegraphed inflection point which was signalled throughout 2021: the end of Fed easy money. People who ignored those signals, perhaps because they are not "market timers" suffered large losses.

You can time the debt markets at these big inflection points because we have a Federal Reserve Bank, which seeks to make its moves transparent. This is not so much market timing as wise investing or simply avoiding a buzz saw.

But like most worthwhile things, some investment of time is required to determine what groceries to buy at what prices. It is the same to find which investments suit your needs.

Agree with this whole post.

 

[Dtail]

+1 Sold out of bond funds when rates were low and could hardly go lower because of interest rate risk concerns. Luckily, I was able to pick up some nice credit union CD specials at decent interest rates.

Same

 

[mz44]

I will disagree with you on this (I think I hardly do)...


The CD will not lose value.... I know of no CD that you can get less money than you put in... even if you cash it in early you just lose some interest... the principal is always coming back (well, if insured deposit)...

You have not seen my CD. Occasionally in the red. Schwab told me it was marked to market. I was planning on holding to maturity anyway. 2 yr 5.1 percent

 

[Healthy Lifestyle]

Thank you rkser for presenting your detailed thoughts and the many posts that offered opinions on this topic.

Reading through these many comments is part of my learning curve as I move into the fixed income side of investing in retirement.

 

[Texas Proud]

You have not seen my CD. Occasionally in the red. Schwab told me it was marked to market. I was planning on holding to maturity anyway. 2 yr 5.1 percent

People seem to be getting hooked on what I am saying about a CD... vs a brokered CD , vs a bond... which is why I said that a brokered CD is more like a bond than a CD at a regular bank branch...


You buy a bond and brokered CD through your broker... not a 'bank' CD..


Your bond is marked to market by your broker... not a bank CD...


You can lose value (or gain) on your bond or brokered CD... mostly not with a bank CD.. (seems some banks have a bad ERP)...



You can sell your bond or brokered CD to anybody else... not your bank CD...


OH... another one... you can mover your bond or brokered CD to someone else (another broker)... not your bank CD..


So I will repeat... a brokered CD is more like a bond than a bank CD and should be looked at more like a bond than a bank CD..



As always, YMMV....


Just curious.... does a brokered CD only pay at the end of the term or at different times when you own... like semi-annual or quarterly?

 

[COcheesehead]

People seem to be getting hooked on what I am saying about a CD... vs a brokered CD , vs a bond... which is why I said that a brokered CD is more like a bond than a CD at a regular bank branch...


You buy a bond and brokered CD through your broker... not a 'bank' CD..


Your bond is marked to market by your broker... not a bank CD...


You can lose value (or gain) on your bond or brokered CD... mostly not with a bank CD.. (seems some banks have a bad ERP)...



You can sell your bond or brokered CD to anybody else... not your bank CD...


OH... another one... you can mover your bond or brokered CD to someone else (another broker)... not your bank CD..


So I will repeat... a brokered CD is more like a bond than a bank CD and should be looked at more like a bond than a bank CD..



As always, YMMV....


Just curious.... does a brokered CD only pay at the end of the term or at different times when you own... like semi-annual or quarterly?

Brokered CDs usually pay monthly or at maturity.

 

[Texas Proud]

Brokered CDs usually pay monthly or at maturity.

So, just went in to see about them and get info on a ladder...


Except for the first rung all others paid either monthly or semi-annual... the first year paid monthly or at maturity...


Did a 10 year and it was interesting that only one bank was an option for years 6 to 10...

 

[rkser]

My post on Bogleheads requesting a Portfolio Review, the numbers have changed slightly on the total invested assets & added IBonds at TD, & so on -

Request a portfolio review, along with your opinions about how to invest $1,072,000 presently in money market,

I want to thank you for your time & willingness to provide feedback to a fellow investor on the forum, I will learn from & appreciate your comments.

I am 67, a retired physician, DW is 62 a Home maker
in 24% marginal Tax Bracket, MFJ,
2 kids doing well, are on their own,
We live in Florida, in a paid off, down sized house of $600k
DW has claimed SS, I will claim at age 70.
Yearly spend around $175k to $200k, no debt

Total invested asset are $7,720,027, present AA is around 70/30

Taxable Accounts are in VTI Total Market Index + VXUS Total International Market Index + $715000 in money market = about $5.5 million

Tax Deferred IRAs - $ 814000 in CDs + $357000 in money market = $ 1,171000

Tax Free Roth is all VTI = $ 914,027

IBonds via Treasury Direct = $ 135000

Questions - How to invest the Money Markets ?,
$715000 in Taxable + $357000 in Tax deferred = $1,072,000

Do not want to invest in Bond Funds & do not want to talk to a Financial Planner, as we think they may not provide enough value, we have local free Fidelity & Schwab Reps to bounce investing ideas

Thinking about investing the taxable money market of $715000 in VTI + VXUS, that will increase our AA to 80/20
Our reasoning is we are presently investing the money for the kids who are 39 & 31 & charity as we cannot possibly spend our total net worth on ourselves in our life times, yes a good problem to have, but still we have to decide & move on.

A major simple reason being it is simplicity, something which has made sense to us & yes yr 2000, yr 2008, yr 2022 have come & gone & each time it has reached higher heights, suits a lazy investor like me. Also if major losses occur ("RISKY" ), it may not effect us too much in our life times & the kids may inherit less.

Once we do that, we also need to invest $357000 of Tax Deferred, in what ??, certainly not in a Bond Mutual Fund,
We can add to the CDs on auto roll or do something else, not sure what ??
Something which does not need our involvement too much but rather be on its own, MYGAs is one we are leaning towards,
new issue Treasuries on auto roll is something I have to learn, as I have not done this before, yes saw videos on You Tube.

The money markets are doing well at almost 5% at present , but I suspect not for too long

As our portfolio evolved while during working years & now in retirement, our AA has grown more aggressive, as the equity returns have far outpaced the bond fund returns & also due to Roth conversions from bonds in IRAs to stocks in Roth accounts.
Our Roth conversions will continue at least for another 2 1/2 yrs, but may be more

Again, thanks for taking a look at our portfolio & giving your advice

 

[rayvt]

People seem to be getting hooked on what I am saying about a CD... vs a brokered CD , vs a bond... which is why I said that a brokered CD is more like a bond than a CD at a regular bank branch...

You forgot one:
With a bank CD they automatically roll it over into a new CD at maturity. Unless you tell them otherwise within 7-10 days.
A brokered CD, at maturity they put the cash into your account.

Just curious.... does a brokered CD only pay at the end of the term or at different times when you own... like semi-annual or quarterly?

They are all different. Usually, but not always, shorter term (up to 1 year) they pay at maturity. Longer terms they generally pay quarterly or monthly.

I have one (Ergo Bk Markesan Wi CUSIP 29483ABL5) a 6-month brokered CD that pays monthly.

 

[pb4uski]

...Questions - How to invest the Money Markets ?,
$715000 in Taxable + $357000 in Tax deferred = $1,072,000...

Again, thanks for taking a look at our portfolio & giving your advice

Here is what I would suggest.

Your current AA is 74/26, which is close to in-between the 70/30 and 80/20 AA targets that you often mention. There is no need to have tax efficient placement hijack your AA.

In taxable, invest $715,000 in municipal bond ladder using $715,000 money market funds. You can have your brokerage create a municipal bond ladder for you or use target maturity municipal bond funds. A 10-year Bulletshare ladder would yield 3.96% or a 5.21% tax-equivalent yield for someone in the 24% tax bracket.

In tax-deferred, enlargen CD ladder by $357,000 redeeming money market funds.

With money market funds yielding 5% there is no need to rush.

Then go and enjoy life, reinvest maturing CDs or municipal bonds at the end of the ladders as needed, monitor the AA and leave things be as long as AA is between 70/30 and 80/20.

If you want to restore your AA to a more conservative 70/30, then just sell $309,000 of equities in taxable account and increase muni ladder.

https://www.invesco.com/bulletshares/tools/bond-ladder

	Floating AA				Rebalance to 70/30 AA
	Current	Changes	Rebalanced		Current	Changes	Rebalanced
Taxable:
Money market	715,000	-715,000	0		715,000	-715,000	0
Muni bond ladder		715,000	715,000			1,024,000	1,024,000
Equity ETFs	4,785,000		4,785,000		4,785,000	-309,000	4,476,000
	5,500,000		5,500,000		5,500,000		5,500,000
I-Bonds	135,000		135,000		135,000		135,000
Tax-Deferred:
Money market	357,000	-357,000	0		814,000	-814,000	0
CDs	815,000	357,000	1,172,000		357,000	814,000	1,171,000
	1,172,000		1,172,000		1,171,000		1,171,000
Tax-Free:
Equity ETFs	914,027		914,027		914,027		914,027
Total	7,721,027	0	7,721,027		7,720,027	0	7,720,027
Equities	74%		74%		74%		70%
Fixed Income	26%		26%		26%		30%
Total	100%		100%		100%		100%

 

[rkser]

First I want to Thankyou pb4 for your interest & willingness to help a fellow investor, I will go over what you suggest in detail.
The depth of what you know in finance baffles me, I learn from your every post on this thread & other threads.
Thankyou sir

 

[Qs Laptop]

Thank you rkser for presenting your detailed thoughts and the many posts that offered opinions on this topic.

Reading through these many comments is part of my learning curve as I move into the fixed income side of investing in retirement.

I would like to add my thanks to rkser and the others in this thread for their comments and suggestions. I, too, am getting ready to move more into the fixed side of investing. I also understand that with the current interest rate situation it is a pretty good time to do it.

 

[COcheesehead]

You forgot one:

A brokered CD, at maturity they put the cash into your account.

Not really. Fidelity has an auto roll feature for CDs and Treasuries. Brokered CDs can also be purchased as fractional shares in increments of $100.

 

[Exchme]

If you are interested in TIPS, there is a cool website called tipsladder.com that can give you amounts and CUSIP #s to build out your ladder.

 

[rkser]

I forgot to add the $175k we have in HYSA at Discover Bank,
We spend DW’s SS of $1209 + Dividends + from Discover Bank prn.
We replenish the Discover Bank on a prn basis.

 

[target2019]

rkser, we share similar challenges. So I am following this thread and also your BHeads thread.

Picking MMF funds at 5% plus was an easy choice. Now what?

1) tax-advantaged accounts - a combination of Wellesley Income and Total Bond for us. But that is still a maybe...

2) taxable accounts - will identify a tax-free muni ETF or fund. That is because I need to make choices that will be hands-off.

The major differences between us are the total invested, and state we live in. So I understand where you want to go.

I've been working the plan with my spouse. We read the same books, understand the DIY desire, and are realistic about the future.

I think it may be significant where the accounts are held, and what assistance is available when one of us departs.

I don't have a perfect plan, and appreciate your questions on this topic.

 

[Texas Proud]

First I want to Thankyou pb4 for your interest & willingness to help a fellow investor, I will go over what you suggest in detail.
The depth of what you know in finance baffles me, I learn from your every post on this thread & other threads.
Thankyou sir

Yea, pb4 is good...

 

[rkser]

rkser, we share similar challenges. So I am following this thread and also your BHeads thread.

Picking MMF funds at 5% plus was an easy choice. Now what?

1) tax-advantaged accounts - a combination of Wellesley Income and Total Bond for us. But that is still a maybe...

2) taxable accounts - will identify a tax-free muni ETF or fund. That is because I need to make choices that will be hands-off.

The major differences between us are the total invested, and state we live in. So I understand where you want to go.

I've been working the plan with my spouse. We read the same books, understand the DIY desire, and are realistic about the future.

I think it may be significant where the accounts are held, and what assistance is available when one of us departs.

I don't have a perfect plan, and appreciate your questions on this topic.

Thankyou Target,

The problem is I am the only one managing a fairly large pool of investments & want to consolidate & make it easier upon myself.

Getting a Financial Planner to help(DW's extent of helping in this regard) is knowing a few things by myself I will be watching like a hawk on the planner's transactions. They usually spread the investments in a gazillion investments (from a friend's investments) which add complexity but not necessarily any more gain.

Picking up any new way of investing gets overwhelming, I mustered enough courage to get out of the Bond Funds & have now to put these funds into some other vehicles. That will be a relief.

Another brain wave of mine is separating Taxable & Tax Advantaged to 2 different brokers Fidelity & Schwab respectively, 2 different websites with 2 Reps. Leaving Vanguard for these new ones was another event by itself.
Now, I am thinking of getting everything under one roof - Fidelity.

Thanks for your post, if not for people like pb4 & other helpful people who are giving of themselves, I will be lost

 

[rkser]

Here is what I would suggest.

Your current AA is 74/26, which is close to in-between the 70/30 and 80/20 AA targets that you often mention. There is no need to have tax efficient placement hijack your AA.

In taxable, invest $715,000 in municipal bond ladder using $715,000 money market funds. You can have your brokerage create a municipal bond ladder for you or use target maturity municipal bond funds. A 10-year Bulletshare ladder would yield 3.96% or a 5.21% tax-equivalent yield for someone in the 24% tax bracket.

In tax-deferred, enlargen CD ladder by $357,000 redeeming money market funds.

With money market funds yielding 5% there is no need to rush.

Then go and enjoy life, reinvest maturing CDs or municipal bonds at the end of the ladders as needed, monitor the AA and leave things be as long as AA is between 70/30 and 80/20.

If you want to restore your AA to a more conservative 70/30, then just sell $309,000 of equities in taxable account and increase muni ladder.

https://www.invesco.com/bulletshares/tools/bond-ladder

	Floating AA				Rebalance to 70/30 AA
	Current	Changes	Rebalanced		Current	Changes	Rebalanced
Taxable:
Money market	715,000	-715,000	0		715,000	-715,000	0
Muni bond ladder		715,000	715,000			1,024,000	1,024,000
Equity ETFs	4,785,000		4,785,000		4,785,000	-309,000	4,476,000
	5,500,000		5,500,000		5,500,000		5,500,000
I-Bonds	135,000		135,000		135,000		135,000
Tax-Deferred:
Money market	357,000	-357,000	0		814,000	-814,000	0
CDs	815,000	357,000	1,172,000		357,000	814,000	1,171,000
	1,172,000		1,172,000		1,171,000		1,171,000
Tax-Free:
Equity ETFs	914,027		914,027		914,027		914,027
Total	7,721,027	0	7,721,027		7,720,027	0	7,720,027
Equities	74%		74%		74%		70%
Fixed Income	26%		26%		26%		30%
Total	100%		100%		100%		100%

QUESTIONS ??

In Tax Deferred often I do Roth Conversions,
Now that BND is gone, I may have to keep some money market available for that purpose,
I realize liquidating a CD will have penalties, so does liquidating a MYGA has even a higher penalty, which attracts me for its invest & forget type functionality.


In Taxable -
Do Invesco Bullet Shares Municipal Bond ETFs have a 800 help line prn ??, One help number I called was open just between 9-5

How is their customer service ? how was your experience pb4 ?
Are the total expense ratio & the management fee are each 0.18%, or is it all inclusive 0.18%, I do not know but are they usually similar at other brokers?


Which website is the above table from ?

Thanks for your help

 

[Mulligan]

People seem to be getting hooked on what I am saying about a CD... vs a brokered CD , vs a bond... which is why I said that a brokered CD is more like a bond than a CD at a regular bank branch...


You buy a bond and brokered CD through your broker... not a 'bank' CD..


Your bond is marked to market by your broker... not a bank CD...


You can lose value (or gain) on your bond or brokered CD... mostly not with a bank CD.. (seems some banks have a bad ERP)...



You can sell your bond or brokered CD to anybody else... not your bank CD...


OH... another one... you can mover your bond or brokered CD to someone else (another broker)... not your bank CD..


So I will repeat... a brokered CD is more like a bond than a bank CD and should be looked at more like a bond than a bank CD..



As always, YMMV....


Just curious.... does a brokered CD only pay at the end of the term or at different times when you own... like semi-annual or quarterly?

Tex, Damn near every CD I own (except for the 5 year noncallables) is mark to market underwater. And I am glad, especially for the ones maturing next year. As I already have exceeded this years returns goals, and will need all the help I can get next year to hit my goal since I am bloated with CDs and Tbills now.

 

[Texas Proud]

Tex, Damn near every CD I own (except for the 5 year noncallables) is mark to market underwater. And I am glad, especially for the ones maturing next year. As I already have exceeded this years returns goals, and will need all the help I can get next year to hit my goal since I am bloated with CDs and Tbills now.

Mulligan, I thought you were more into preferred than CDs... but it does make sense as rates are going up which means prices are going down..


As long as you do not have to cash them out you will get what you put in like you say...


I like the rates as they are now so I have bought a bunch of long dated bonds or preferred.... almost 90% of my holdings mature starting in 2040 and beyond... I do have reinvestment risk but I am willing to take that risk...


I still need to work on my spreadsheet to get my weighted avg rating and add YTM... for some reason I am not doing the formula correctly but am lazy enough not to put much time in now..