I keep my non-stock portfolio all in individual bonds and CDs to avoid principal loss in bond funds when interest rates rise. My bond/cd holdings yield a weighted average of 3.1%, all arranged in a 10 year ladder. I live off of stock dividends and bond/CD interest, and I have 35 years left to live.
If I'm living off interest, why worry about a principal loss in a bond fund? I just want to preserve the principal for my kids to inherit someday. However, this strategy gives me poor bond diversification (vs a bond fund), and I get poorer yields buying from The Vanguard bond desk as a small time buyer of individual bonds. Therefore, I would like to get back to bond funds someday, maybe when interest rates hit 4%? Then rates might drift up and down from there, averaging out the principal gains and losses over the years.
Is anybody else on this fence? Am I too paranoid about interest rates? This "maybe not so clever" strategy has cost me a lot of principal gain in the last 5 years as interest rates find magical ways to go lower!
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If I'm living off interest, why worry about a principal loss in a bond fund? I just want to preserve the principal for my kids to inherit someday. However, this strategy gives me poor bond diversification (vs a bond fund), and I get poorer yields buying from The Vanguard bond desk as a small time buyer of individual bonds. Therefore, I would like to get back to bond funds someday, maybe when interest rates hit 4%? Then rates might drift up and down from there, averaging out the principal gains and losses over the years.
Is anybody else on this fence? Am I too paranoid about interest rates? This "maybe not so clever" strategy has cost me a lot of principal gain in the last 5 years as interest rates find magical ways to go lower!
Sent from my iPhone using Early Retirement Forum