I don't own any bonds

[qwerty3656]

Let's say I wanted to invest [500k] into bonds over the next [6 months]. I would rather own individual bonds. Is there any rules of thumb or guides on putting something like that together?

 

[VanWinkle]

Let's say I wanted to invest [500k] into bonds over the next [6 months]. I would rather own individual bonds. Is there any rules of thumb or guides on putting something like that together?

It might be time to reconsider as most of the increases in interest are already baked into the bond market and the funds that hold them. If you are unsure of the interest rates, I would use a high yield money market or savings account paying 4% at the moment.

VW

 

[qwerty3656]

It might be time to reconsider as most of the increases in interest are already baked into the bond market and the funds that hold them. If you are unsure of the interest rates, I would use a high yield money market or savings account paying 4% at the moment.

VW

I'm not sure what you mean? As interest rates rise, bonds go down in value (so they are cheaper now than say a year ago)? If interest rates go back down (which is reasonable to assume over the next few years), then the value of the bonds will increase

 

[audreyh1]

If you plan to hold to maturity that price appreciation won’t make any difference to you.

I think perhaps you are trying to lock in some higher rates now before they go back down?

 

[qwerty3656]

If you plan to hold to maturity that price appreciation won’t make any difference to you.

I think perhaps you are trying to lock in some higher rates now before they go back down?

Yes - and I suppose add some risk mitigation (i.e. some diversity)

 

[Rianne]

We recently got a pension buyout similar to your amount. Bought a 4.3% 5-year CD, and varied other CDs and treasuries at various rates, coupons, and time frames, and are not done yet. We're looking for cash flow in the settlement account to replace the yearly pension annuity while preserving the principal.

Probably depends on how old you are and your goals. We're still approx. 50% in index funds.

 

[Lsbcal]

Yes - and I suppose add some risk mitigation (i.e. some diversity)

You should clearly define for yourself what you are trying to accomplish. For instance, short term risk mitigation or a more permanent investment approach? And what kind of bond risks do you want? Credit risk (investment grade bonds) or no credit risk (Treasuries)?

Perhaps consider a Treasury bond ladder that you fund over a period of months/years.

 

[VanWinkle]

I'm not sure what you mean? As interest rates rise, bonds go down in value (so they are cheaper now than say a year ago)? If interest rates go back down (which is reasonable to assume over the next few years), then the value of the bonds will increase

I'm saying both individual bonds and bond funds are much more appealing now than they were just 6 months ago. I do what is easy, but you may want to manage a bond ladder or multiple bond duration instead of a fund.

 

[Northforker]

I am buying short term CD's (6 months and less) for 4% to 4.75%, mostly monthly payers to levelize income at zero risk, very simple.

 

[qwerty3656]

I'm saying both individual bonds and bond funds are much more appealing now than they were just 6 months ago. I do what is easy, but you may want to manage a bond ladder or multiple bond duration instead of a fund.

Sorry - I had a brain freeze and completely mis read what you were saying originally

 

[pb4uski]

Let's say I wanted to invest [500k] into bonds over the next [6 months]. I would rather own individual bonds. Is there any rules of thumb or guides on putting something like that together?

If you want safe and simple, Schwab and Fido have CD/Treasury ladder tools that allow you to create a ladder for the number of years and rungs that you want. Schwab's tool allows you to have different size rungs, skip rungs if you want, etc. and then once you have it you can buy it rung by rung. I just used it today to finish filling out my bond/CD ladder. I usually pick the highest yielding offering on the rung since they are all credit risk free and I don't care if my interest is from coupon or discount.

 

[qwerty3656]

If you want safe and simple, Schwab and Fido have CD/Treasury ladder tools that allow you to create a ladder for the number of years and rungs that you want. Schwab's tool allows you to have different size rungs, skip rungs if you want, etc. and then once you have it you can buy it rung by rung. I just used it today to finish filling out my bond/CD ladder. I usually pick the highest yielding offering on the rung since they are all credit risk free and I don't care if my interest is from coupon or discount.

I found the Fidelity Bond Ladder Tool and played with it a little. Do you have any thoughts on choosing the time horizion, periodicity, etc (other than personal preference)? Like does it matter what month I start or whether its monthly/quarterly/semi-annual?

 

[pb4uski]

No right answer, but I think most people posting here prefer 5 year and lesser maturities at this point given the inverted yield curve. A 5-year CD ladder would yield 4.31% today... not bad for zero credit risk and no interest rate risk if held to maturity.

 

[thepalmersinking]

Why not park in in 2 yr treasuries that are over 4%. Until the dust settles.

 

[COcheesehead]

Why not park in in 2 yr treasuries that are over 4%. Until the dust settles.

And then what?

 

[Montecfo]

I am kind of intrigued by the strategy of investing in only short term issues now. The rate inversion should be telling you future rates are likely to be lower than current rates. So you may want to extend maturities, at least for some of your portfolio.

Otherwise you are making a large bet on rates 1 or 2 years out. May feel good now but be fool's gold.

 

[pb4uski]

Yeah, I'm currently a little overweight on 2023-2025 maturities and underweight on 2025-2026 maturities and right on target for 2028+. As bonds mature in 2023, I'll backfill 2025-2026 up to target.

 

[Freedom56]

Don't fall into the risk off trade that Wall Street bond traders are buying into. They are risking other people's money. They were wrong in 2020, 2021, and have been wrong all year Long rates will eventually rise. Buy individual treasuries, CDs, or corporates with up to three year durations. Bond funds are still overpriced. Don't believe all the talk about the interest rate rise has been priced in. Bond funds distribution will remain low for the foreseeable future. Despite all the misinformation, SEC yields do not indicate future income. If you don't believe that, just look at the short duration bond funds. The are still paying less than 2% in distributions and will continue to suffer capital losses.

Bond funds continue to bleed investors.

https://www.lipperusfundflows.com/#create:home:Home:/php/signup_trial.php

 

[Chuckanut]

I am kind of intrigued by the strategy of investing in only short term issues now. The rate inversion should be telling you future rates are likely to be lower than current rates. So you may want to extend maturities, at least for some of your portfolio.

Otherwise you are making a large bet on rates 1 or 2 years out. May feel good now but be fool's gold.

The article in Advisorpedia mentions that the yield curve un-inverts mostly when the short-term rates drop. Interesting.

 

[gauss]

One option might be to invest in Target Maturity bond funds/etfs such as Invesco Bulletshares (ie BSCN (2023) , BSCO (2024) , BSCP (2025) etc).


In theory, if you hold the fund to maturity, then you should mitigate some of the interest-rate risk inherit in traditional bond funds (but this is not guaranteed).

Note, however, you do cede some control about which securities the funds hold.

My personal experience was that I purchased an 8 year ladder of these a few years ago. Things went well up to until after Covid hit and then the monthly income payments started to decrease.

I thought the decrease in income was a permanent shift due to Covid, but this year the income is starting to come back up -- weird.

Anyways, it might be a way to get bond exposure without buying all the individual bonds while mitigating the interest-rate risk if held to maturity IMHO.

-gauss