How to create a system to continuously invest interest and dividends in 100 pct fixed income portfolio

[JJpop]

Thanks. That is helpful.
I came up with the same conclusion about it being better to buy individual treasuries and am considering them for corp bonds mostly.
I might buy some of the TIP etf just for simplicity knowing I am giving up a small fraction of return.
Last question for you if you would be so kind.
Do you own any stocks?
Thanks again.

 

[ERhoosier]

Bond ETFs (inc TIPS ETFs) are NOT the same as buying & holding individual issues to maturity. Even so-called defined maturity bond ETFs. Those ETFs track an index of bonds maturing at their 'target date', rather than buying & holding bonds to that maturity. Their prospectuses generally give them the right to trade bonds and other instruments, which could incur trading losses or gains. Unlike holding a bond, there is no generally defined principle value at 'maturity'. For example the IBDU 2029 prospectus states "The Fund does not seek to return any predetermined amount at maturity...". I would note also that IBDU 2029 holds mostly A/BBB bonds, which introduces a bit of credit risk vs Treasuries or CDs.

Personally I have been buying individual Treasuries, Govt Agency bonds, and selected muni bonds for my fixed income asset allocation (I also hold significant equities). The few TIPS I hold are in my IRA (to avoid paying tax on the inflation-related changes in principle pre-maturity). I choose the bond/CD maturities and get better income for holding the same issues (no fund expenses). Also I can avoid bonds or brokerd CD's subject to calls (which most 'target date' ETFs do not). I keep a calendar of maturity dates for the bonds (& T-bills/Notes) to remind when to re-invest the funds as they mature. It's really not that difficult these days even with most discount brokers (Schwab, Fidelity, Vanguard, etc.).

 

[pb4uski]

Thanks. That is helpful.
I came up with the same conclusion about it being better to buy individual treasuries and am considering them for corp bonds mostly.
I might buy some of the TIP etf just for simplicity knowing I am giving up a small fraction of return.
Last question for you if you would be so kind.
Do you own any stocks?
Thanks again.

Yes. Currently about 4% common stocks, 22% preferred stocks and 74% bonds.

 

[pb4uski]

Bond ETFs (inc TIPS ETFs) are NOT the same as buying & holding individual issues to maturity. Even so-called defined maturity bond ETFs. Those ETFs track an index of bonds maturing at their 'target date', rather than buying & holding bonds to that maturity. Their prospectuses generally give them the right to trade bonds and other instruments, which could incur trading losses or gains. Unlike holding a bond, there is no generally defined principle value at 'maturity'. For example the IBDU 2029 prospectus states "The Fund does not seek to return any predetermined amount at maturity...". I would note also that IBDU 2029 holds mostly A/BBB bonds, which introduces a bit of credit risk vs Treasuries or CDs.

I disagree.

If you look at the detailed holdings of IBDV, iShares® iBonds® Dec 2030 Term Corporate ETF as an example, all of the fund's bond holdings mature in 2030 and the prospectus states " The iShares iBonds Dec 2030 Term Corporate ETF (the “Fund”) seeks to track the investment results of an index composed of U.S. dollar-denominated, investment-grade corporate bonds maturing in 2030." and "The Underlying Index is composed of U.S. dollar- denominated, taxable, investment-grade (as determined by Bloomberg Index Services Limited (the “Index Provider” or “Bloomberg”)) corporate bonds scheduled to mature between January 1, 2030 and December 15, 2030, inclusive."

While the prospectus give them the right to trade bonds and other instruments, which could incur trading losses or gains for flexibility, it doesn't meant that they do it or do it to an extent detrimental to the fund. Through Oct 31, 2023 the fund's total return is only 17 bps lower than the index, and 10 bps of the 17 bps is due to the expense ratio... so the ETF is reasonably close to the index, whihc is comprised of certain investment-grade, dollar-denominated corporate bonds maturing in 2030.

There would a defined principal value (not principle value) at maturity, being the aggregate par value of the portfolio, just like a portfolio of bonds. The par value is provided in the portfolio details.

https://www.blackrock.com/us/financial-professionals/products/314496/fund/1500962885783.ajax?fileType=csv&fileName=IBDV_holdings&dataType=fund

And it is not at all unrasonable that a corporate bond portfolio is going to have higher credit risk that Treasuries or CDs so I'm not sure what your last point is.

 

[JJpop]

Thanks for the replies.
My research has shown that the defined maturity ETFs have delivered on the expected returns.
I realize that is not guaranteed to happen in the future, but I feel confident that they will perform close to expectations.
Considering I own only 1% stocks, a little risk for higher return in the bond etf is reasonable to me.

I have been trying to come up with a plan for agency bonds. Higher yields than treasuries, sometimes significantly higher, but always callable short term.
I found a 20 year agency at 6% not callable until 4/26 the other day which I immediately bought.
I wonder how long these will yield over 5% because I have no problem buying them and buying another if called in 6 months or even less.

 

[target2019]

For the Blackrock defined maturity ETFs, I think the amount returned to you at final maturity will be disappointing. There is no estimate of that number.

 

[pb4uski]

For the Blackrock defined maturity ETFs, I think the amount returned to you at final maturity will be disappointing. There is no estimate of that number.

And what is the factual basis for this "thought"?

Using iShares iBonds Dec 2023 Term Corporate ETF (IBDO) as an example, it was issued in March 2015 for $25.00 and paid a terminal distribution of $25.33 on Dec 22, 2023 and paid dividends monthly on the first of the month all along the way.

IIRC the terminal distributions have typically been around $25.

 

[JJpop]

The etf’s have a history that you can check that show they actually have paid out what was expected.