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

[Texas Proud]

Why are you replying so harshly to my opinion? I don't understand this.

Was not trying to be harsh... having a bad time...



But my point was you were making a decision based on just one year return... now for stocks I can understand if you have concentration in one or two areas, but bonds? They are pretty plain vanilla.. just buy and hold.. change the duration if you want but in a small way they are just a commodity... AAA priced around X... B priced around X+some factor...

 

[PatrickA5]

This should probably be a new thread, but for those of you that play this as a hobby to get the best (and/or) safest returns, do you give any thought to leaving behind a complicated mess to your loved ones should you pass early?

My FIL recently passed away leaving multiple brokerages, individual bonds, Ibonds, various different mutual funds, etc. If I hadn't been around to figure everything out, I'm pretty sure DW, SIL and his 2nd wife would have been severely overwhelmed to the point of camping out at Eddie Jones for help.

I've tried to greatly simplify our finances, but likes others here, am tempted to play the game to eek out more gains. I can handle it fine while I'm around and have my all of my marbles, but also don't want our finances to end up being a burden. Some of the portfolios presented in this thread are pretty complex - at least for people that don't know much about finances.

Thoughts?

 

[COcheesehead]

This should probably be a new thread, but for those of you that play this as a hobby to get the best (and/or) safest returns, do you give any thought to leaving behind a complicated mess to your loved ones should you pass early?

My FIL recently passed away leaving multiple brokerages, individual bonds, Ibonds, various different mutual funds, etc. If I hadn't been around to figure everything out, I'm pretty sure DW, SIL and his 2nd wife would have been severely overwhelmed to the point of camping out at Eddie Jones for help.

I've tried to greatly simplify our finances, but likes others here, am tempted to play the game to eek out more gains. I can handle it fine while I'm around and have my all of my marbles, but also don't want our finances to end up being a burden. Some of the portfolios presented in this thread are pretty complex - at least for people that don't know much about finances.

Thoughts?

Not complicated for us. I hold 200+ bonds in a single brokerage. Worst case the interest funnels into the core cash settlement account and maturing bonds do the same. Equities can stay as is. We’ll likely never touch them.

 

[pb4uski]

At present, I'm more focused on simplifying what accounts we have rather than what is in each account. By early next year, all of our Treasury Direct accounts should be gone other than $10k in each of our accounts in gift boxes that will be delivered and redeemed on 1/1/2025, at which point we'll be done with Treasury Direct.

Aside from Treasury Direct, his and her HSAs at Fidelity, his and her Roth IRAs at Schwab, my tIRA at Schwab, a joint taxable brokerage account at Schwab and a Discover Bank online savings account... so down to 7 accounts in total at 3 different providers.

My tIRA has 15 CUSIPs and my Roth has 11 CUSIPs, so that doesn't seem too bad to me.

 

[tulak]

Simple for me too. I closed the high yield savings accounts and have consolidated to two brokerages. They both have high yielding mm funds and access to treasuries, cds, or any investment I’d be interested in.

It was worse when mm fund yields were low, since you had to chase yield elsewhere. Now you can setup an account with any of the major three with access to good investments.

 

[youbet]

Not yet in the US anyway, but prolonged bears have been seen elsewhere, suggesting that it is a possibility.

Hyperinflation has also been seen elsewhere quickly destroying fixed portfolios, suggesting that it is a possibility.

 

[COcheesehead]

Hyperinflation has also been seen elsewhere quickly destroying fixed portfolios, suggesting that it is a possibility.

Or creating even better fixed income opportunities. Brazilian bonds anyone? Ladder always.

 

[youbet]

Or creating even better fixed income opportunities. Brazilian bonds anyone? Ladder always.

I don’t think your recommendation is very sound cheesy, but keep us posted on how you make out. The Brazilians don’t seem happy with the situation and I’m staying away.

 

[COcheesehead]

I don’t think your recommendation is very sound cheesy, but keep us posted on how you make out. The Brazilians don’t seem happy with the situation.

Not a recommendation or an action on my part, but another example where everything that looks bad, usually may actually be an opportunity.

 

[youbet]

Not a recommendation or an action on my part, but another example where everything that looks bad, usually may actually be an opportunity.

Like a sharp drop in equities actually being a buying opportunity……………. Yeah, I suppose so.

 

[pb4uski]

Like a sharp drop in equities actually being a buying opportunity……………. Yeah, I suppose so.

A sharp drop in equities might right-size valuations.

 

[jazz4cash]

Money markets now produce the same yield. With a reasonable amount of risk you can get much more return in non callables - 6%+.

What is this ~6%+ non callable?
I am pushing back on all comparisons between MM funds and CDs. Yeah MM fund rates are fantastic right now but that is an anomaly. We saw how quickly those rate rose from ~zero. They have zero call protection.

 

[COcheesehead]

What is this ~6%+ non callable?
I am pushing back on all comparisons between MM funds and CDs. Yeah MM fund rates are fantastic right now but that is an anomaly. We saw how quickly those rate rose from ~zero. They have zero call protection.

Do a bond screen. Put in 6%+ yield, non callable, investment grade. I just did it with an open ended duration and it gave 2009 different bonds. If you shorten the duration, it will shrink, but there are a ton of great bonds out there right now.

 

[Spock]

This should probably be a new thread, but for those of you that play this as a hobby to get the best (and/or) safest returns, do you give any thought to leaving behind a complicated mess to your loved ones should you pass early?

My FIL recently passed away leaving multiple brokerages, individual bonds, Ibonds, various different mutual funds, etc. If I hadn't been around to figure everything out, I'm pretty sure DW, SIL and his 2nd wife would have been severely overwhelmed to the point of camping out at Eddie Jones for help.

I've tried to greatly simplify our finances, but likes others here, am tempted to play the game to eek out more gains. I can handle it fine while I'm around and have my all of my marbles, but also don't want our finances to end up being a burden. Some of the portfolios presented in this thread are pretty complex - at least for people that don't know much about finances.

Thoughts?

Depends on your definition of complexity.
A boat load of bonds in one account is much different than accounts scattered across a dozen different institutions.
For me it doesn't matter. Anything more than a simple checking account at a local brick-and-mortar bank is too complex for my wife to handle. She'll have to hire somebody to manage it anyway.

 

[PatrickA5]

Depends on your definition of complexity.
A boat load of bonds in one account is much different than accounts scattered across a dozen different institutions.
For me it doesn't matter. Anything more than a simple checking account at a local brick-and-mortar bank is too complex for my wife to handle. She'll have to hire somebody to manage it anyway.

One of the reasons we left VG and moved to Fidelity was so DW would have someone to sit down and talk with after I'm gone. We've consolidated everything to two places - Fidelity and Chase.

All of our IRA's are in the same target date index mutual fund that matches our asset allocation. All of our brokerage money is in money market funds at the moment paying around 5.25%. I know that won't last. That's why I read these posts for ideas.

 

[jazz4cash]

Do a bond screen. Put in 6%+ yield, non callable, investment grade. I just did it with an open ended duration and it gave 2009 different bonds. If you shorten the duration, it will shrink, but there are a ton of great bonds out there right now.

Ok thanks. Now I see them. Somehow I was maybe missing these.

 

[Texas Proud]

One of the reasons we left VG and moved to Fidelity was so DW would have someone to sit down and talk with after I'm gone. We've consolidated everything to two places - Fidelity and Chase.

All of our IRA's are in the same target date index mutual fund that matches our asset allocation. All of our brokerage money is in money market funds at the moment paying around 5.25%. I know that won't last. That's why I read these posts for ideas.

What does Chase pay on cash sitting the the account? They are so cheap on their interest bearing account I do not even open one.

 

[PatrickA5]

What does Chase pay on cash sitting the the account? They are so cheap on their interest bearing account I do not even open one.

They don't pay interest (as far as I know) on regular checking, so I keep the least amount I can in the actual checking account. I used to just move money over from Fidelity monthly, but decided to open a Chase (JP Morgan) brokerage account where I keep a decent amount of money invested in the Vanguard Prime money market until I need to replenish the checking. Transfers are instant, but (like Schwab) you do have to sell the money market first - so it takes a day to get that done. Overall, I'm pretty pleased with Chase. My checking, brokerage and credit cards all show up on one page.

 

[Texas Proud]

They don't pay interest (as far as I know) on regular checking, so I keep the least amount I can in the actual checking account. I used to just move money over from Fidelity monthly, but decided to open a Chase (JP Morgan) brokerage account where I keep a decent amount of money invested in the Vanguard Prime money market until I need to replenish the checking. Transfers are instant, but (like Schwab) you do have to sell the money market first - so it takes a day to get that done. Overall, I'm pretty pleased with Chase. My checking, brokerage and credit cards all show up on one page.

Thanks for the info... so sounds like Schwab which I already have so no need to duplicate something... They do have an interest checking account but pays a whopping .01%... not for me...

 

[Echard]

I was trying to develop a simple rule of thumb for a target portfolio return vs withdrawal rate for a given inflation level. Using a pretty aggressive inflation rate of 4%, a typical 60/40 or variant of that (more asset classes), combined with a lower withdrawal rate of just under 3%, you would need to achieve a 6.5%+ portfolio rate of return to have a 94%+ probability of not running out of money.

The reason I did this exercise is because right now the Buffett Indicator on stocks is pretty high. If you have spare cash to invest, do you up your fixed allocation until stocks are more attractive, or do you just dump into equities anyway? The problem with dumping more into fixed is that the quality A rated corporate bonds are at about ~5-5.7%. So you need the equity to counterbalance the fixed returns in order to hit the 6.5%+, because right now many of the brokerages are forecasting 7% returns or less over the next decade in stocks. Such a dilemma.

 

[pb4uski]

I'm not sure that the 6.5% return/4.0% inflation would result in a 3% WR.

That is a 2.5% real rate of return. The PV of $30,000 annually for 40 years discounted at 2.5% is $753,000 and $30,000 compared to $753,000 is about 4%.

Similarly, if I take FIRECalc and input $30,000 a year of spending and then on the Portfolio tab "A portfolio with consistent growth of 6.5%, and an inflation rate of 4.0%" and then use the Investigate tab to solve for the starting portfolio level it returns $839,825, which is 3.6% WR.

It looks to me like 1% real... 5% earnings less 4% inflation... results in a 3% WR over 40 years. This would be all fixed... no equities. Given TIPS are currently 2% or so that looks doable.

Another way to look at it is that today you could buy a TIPS ladder that would pay you $30,000 annually adjusted for inflation from 2024 to 2053 for $679,695 and that would cover the first 29 years.

https://www.tipsladder.com/build?in...hinYear=BestYield&excludePreLadderInterest=on

 

[Echard]

I'm not sure that the 6.5% return/4.0% inflation would result in a 3% WR.

That is a 2.5% real rate of return. The PV of $30,000 annually for 40 years discounted at 2.5% is $753,000 and $30,000 compared to $753,000 is about 4%.

Similarly, if I take FIRECalc and input $30,000 a year of spending and then on the Portfolio tab "A portfolio with consistent growth of 6.5%, and an inflation rate of 4.0%" and then use the Investigate tab to solve for the starting portfolio level it returns $839,825, which is 3.6% WR.

It looks to me like 1% real... 5% earnings less 4% inflation... results in a 3% WR over 40 years. This would be all fixed... no equities. Given TIPS are currently 2% or so that looks doable.

Another way to look at it is that today you could buy a TIPS ladder that would pay you $30,000 annually adjusted for inflation from 2024 to 2053 for $679,695 and that would cover the first 29 years.

https://www.tipsladder.com/build?in...hinYear=BestYield&excludePreLadderInterest=on

Yes, you are correct. It wouldn't. The withdrawal rate could be higher. But I was running a Monte Carlo analysis where I wanted a 94% probability or better of not running out of money. So, I set the withdrawal rate, inflation, and returns and solved for probability of success, not withdrawal rate. Why?

I have to shoot for a higher return, ie ~6.5% or better, to make sure the variability of potential future performance, simulated by the Monte Carlo analysis, doesn't cause you to run out of money too often. If you perform right at 6.5% over 30 years, then you will have quite a bit more money than you started with because you weren't withdrawing as much as you could have. But if the actual performance is way worse (like <4% in the 10th percentile as shown by the Monte Carlo Analysis), then you would get close to running out of money.

Now of course, if you had 100% fixed income, then the variability drops really really low, and you don't need 6.5%. BUT, you give up the upside. I'm not willing to drop equity down so low because I want the potential long-term upside of stocks too, and prefer that to TIPS.

 

[COcheesehead]

Yes, you are correct. It wouldn't. The withdrawal rate could be higher. But I was running a Monte Carlo analysis where I wanted a 94% probability or better of not running out of money. So, I set the withdrawal rate, inflation, and returns and solved for probability of success, not withdrawal rate. Why?

I have to shoot for a higher return, ie ~6.5% or better, to make sure the variability of potential future performance, simulated by the Monte Carlo analysis, doesn't cause you to run out of money too often. If you perform right at 6.5% over 30 years, then you will have quite a bit more money than you started with because you weren't withdrawing as much as you could have. But if the actual performance is way worse (like <4% in the 10th percentile as shown by the Monte Carlo Analysis), then you would get close to running out of money.

Now of course, if you had 100% fixed income, then the variability drops really really low, and you don't need 6.5%. BUT, you give up the upside. I'm not willing to drop equity down so low because I want the potential long-term upside of stocks too, and prefer that to TIPS.

Sounds like you are back dooring your way into a SORR strategy - managing volatility. For that I direct you to lots of info on the inter webs including some good stuff from Kitces.

 

[tulak]

Sounds like you are back dooring your way into a SORR strategy - managing volatility. For that I direct you to lots of info on the inter webs including some good stuff from Kitces.

+1 for Kitces. And I’d use TIPS for the bond tent. I’m pretty sure this approach allows you a smaller tent and more equities, which is what I’m going for. Of course, I could be wrong.

 

[unclemick]

ER'd at 50. Played around with close to everything - Rental RE, div stocks, mutual - psst Wellesley, etc. But the big dog was 60/40 index rebalanced periodically.

Threw in the towel age 62 - went full auto via Vanguard Target Retirement. Main retirement is still there at age 80. Did the 4% rule plus or minus till RMD.

Heh heh heh - HOWEVER! Being cheap and not traveling as much during past Covid - still putz with mad money - mostly stocks. So I too may leave a mess for DW.