What to do with Fixed Income

[G-Man]

Same here, but if I get hit by a beer truck I'm sure DW will be uninterested. For those uninterested like DW I think I would advise a ladder of corporate bond target date maturity ETFs and a 10-rung Treasury ladder for the fixed income allocation. That would be 20 tickers for a 10-year ladder and only require attention once a year.

Can you explain that in more detail. I'm very much interested.

 

[pb4uski]

Both Invesco and Blackrock offer target maturity bond ETFs. Each ETF buys and holds to maturity bonds that mature in a certain year. In the maturity year, the fund does a final distribution of all of its assets in December and then that fund is closed. There are Treasury, investment grade corporate, high yield, municipal bonds and TIPS versions. It is an easy way to own a diversified bond portfolio and hold to maturity. YMMV.

So it is easy to create a ladder but still have a diversified bond portfolio. I don't think it is necessary for Treasuries and it is easier to just buy Treasuries, but for other types of bonds I think they can be handy.

I have owned Bulletshares in the past. If/when corporate spreads widen I will consider them or iBonds for my corporate bond allocation.

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

https://www.blackrock.com/us/financial-professionals/tools/ibonds

 

[Montecfo]

^^^ These are I think underappreciated. They address to some of the shortcomings of bond funds and of individual bond ladders,.sort of straddling these two different approaches to bond investing.

 

[misanman]

We have ten year iShares ladders in our IRA and Roth IRAs and they have been a good option for us. Don't really know how they compare to the Bullet shares but assume they are about the same.

 

[Murf2]

Would a 1 or 2 year CD ladder on Auto Roll be an efficient way to keep up with inflation? Wouldn’t rates generally adjust to the economic environment?
It seems like a simple way for me to keep my FI earning a reasonable amount. What am I not accounting for?

TIA
Murf

 

[SnowballCamper]

The lag between inflation and the increase in CD rates, and recent history shows CD rates nowhere near what the inflation was (I don't recall any CD rates near 8%).

 

[Murf2]

Thanks for the reply! Is this a problem that is only applicable to CD’s? I thought that having them roll every 3 months would help them keep up.
How does a Treasury bond ladder avoid this problem if they aren’t TIPS?

I’m not sure I understand the part about 8%.

Thanks again!
Murf

 

[SnowballCamper]

A regular treasury bond ladder doesn't avoid this problem of inflation. I used 8% because that's about what inflation went up to back in 2022.

Using I-bonds will maintain your spending power but you're limited in the amount you can purchase per year ($10k I think).

TIPS will work if you set yourself up to hold them until maturity. If you need to sell them, the market price might not get you what you expected in terms of inflation protection.

 

[Koolau]

The lag between inflation and the increase in CD rates, and recent history shows CD rates nowhere near what the inflation was (I don't recall any CD rates near 8%).

Heh, heh, I do. But it was last century!

 

[pb4uski]

Would a 1 or 2 year CD ladder on Auto Roll be an efficient way to keep up with inflation? Wouldn’t rates generally adjust to the economic environment?
It seems like a simple way for me to keep my FI earning a reasonable amount. What am I not accounting for?

TIA
Murf

If the goal is to keep up with inflation, why not just buy TIPS?

 

[rembrandt]

Heh, heh, I do. But it was last century!

In the 1970s, CD rates started around 4% and increased to almost 13.5% by the end of the decade. This was due to the Federal Reserve raising interest rates to fight inflation.

 

[Murf2]

If the goal is to keep up with inflation, why not just buy TIPS?

I guess it’s because they are something new to me. Fear of the unknown, in a way.
I’ve watched videos & read about them but just have trouble pulling the trigger.
I’m 3 yrs from drawing SS and have about 30% in stock index funds. Would you recommend a TIPS ladder or should someone like me, a novice just invest in a fund?

Thanks to all for taking the time to help!
Murf

 

[pb4uski]

What you could do is buy a 3-rung TIPS ladder with what you expect to receive in DS each year.

While TIPS have a lot of moving parts it all boils down to if you hold to maturity between purchase and maturity you get a return of inflation plus the yield to maturity at purchase which hovers from 1.5%-2.5%.