Where are you putting your fixed income/ bond investments?

[Lsbcal]

I would put it this way. One selects an AA, a stock strategy and a bond strategy which hopefully work together. The risk assessment is personal and drives these selections. Age and changing economic circumstances are some factors that set one's risk profile.

So all this has to play together. It's great if one can point to several decades over which their strategy has actually worked out.

Buy-hold with a fixed AA is only one of many investment methods.

 

[pb4uski]

Options, you seem to have very selectively quoted 2B's post. If you look at the post in total, 2B prefers CDs to bonds. Nothing wrong with that IMO and it is certainly not "dangerous" as you claim.

I would differ with 2B that any loss of value with higher interest rates is "permanent", but I concede it can be long lasting. In theory, you need to hold for the portfolio's duration in order to become whole.

I don't currently own any bond funds other than target maturity bond funds due to interest rate risk concerns but I concede that my multi-year concern that interest rates will rise hasn't yet come true but I'm convinced it will, it is just a matter of when.

 

[mathjak107]

Ouch on FFRHX. Sometimes it can suddenly bite you. It is actually a pretty risky fund.

you can't go by what happened in 2008 to funds like this .

much more conservative funds then this like fidelity ulra conservatie bond fund got hammered as well as money markets.

i hold the distinction of being in a money market that broke the buck and i lost a few bucks.

most fund familys did what fidelity did. they maintained a central core fund that contained those mortgage back securities and managers could beef up their funds yield by utilizing it.

no one knew that stuff would turn toxic.

funds like ultra conservative bond and ffrhx had quite a bit of it as well as my money market (non fidelity).

but those days are gone ,at least for now and these funds are trading back in the range they should

 

[audreyh1]

you can't go by what happened in 2008 to funds like this .

much more conservative funds then this like fidelity ulra conservatie bond fund got hammered as well as money markets.

i hold the distinction of being in a money market that broke the buck and i lost a few bucks.

most fund familys did what fidelity did. they maintained a central core fund that contained those mortgage back securities and managers could beef up their funds yield by utilizing it.

no one knew that stuff would turn toxic.

funds like ultra conservative bond and ffrhx had quite a bit of it as well as my money market (non fidelity).

but those days are gone ,at least for now and these funds are trading back in the range they should

The recent 2.4% drop in one month would probably freak out an investor who thought FFRHX is a good choice as a cash substitute. It has recovered some of that loss and is only down 1.6% over the past month, and has now broke even for the year. But a week ago things looked much worse.

The fact is that it is a high yield bond fund, so using it as a cash substitute looking for a bond fund with an "edge" for rising interest rates - well, you had just better be informed about the potential volatility.

The way FFRHX behaved in 2008 is exactly the way it behaves whenever we go through a period with a credit crisis or a credit squeeze which is what has happened recently. When spreads widen on high yield bonds due to credit concerns, FFRHX takes a hit, and it can be very sudden.

 

[gcgang]

EDV - Vanguard Extended Maturity Treasuries (20-30 year zeroes). A year ago no one thought this was a good investment, and they really hate it now. So, of course, it is up 44% ytd. Yield is about 2.75%.

 

[mathjak107]

The recent 2.4% drop in one month would probably freak out an investor who thought FFRHX is a good choice as a cash substitute. It has recovered some of that loss and is only down 1.6% over the past month, and has now broke even for the year. But a week ago things looked much worse.

The fact is that it is a high yield bond fund, so using it as a cash substitute looking for a bond fund with an "edge" for rising interest rates - well, you had just better be informed about the potential volatility.

The way FFRHX behaved in 2008 is exactly the way it behaves whenever we go through a period with a credit crisis or a credit squeeze which is what has happened recently. When spreads widen on high yield bonds due to credit concerns, FFRHX takes a hit, and it can be very sudden.

anyone who thinks it is a substitute for cash or even a conservative bond fund has no clue what they are buying then.

it is a junk bond fund at heart. it makes short term loans with floating interest rates to less than stellar borrowers. it is fidelity's most conservative high yield fund and is a far cry from a cash substitute.

it has a relative volatility that is 75% less than the s&p 500. 44% is rated BB and 35% B.

fidelity has a new fund ,short duration high yield which is a notch up in risk.

 

[FIREd]

My fixed income allocation is:

50% US bonds (mostly intermediate-term, investment-and-above-grade bonds; but I also have some longer term TIPS and a small amount in junk bonds bought recently)
30% CDs and I-bonds
20% short term reserves (cash mostly)

Any good CD deals out there? I was hoping for a Penfed special but it looks like it is not going to happen this year.

 

[rbmrtn]

Any good CD deals out there? I was hoping for a Penfed special but it looks like it is not going to happen this year.

Nothing as good as the PenFed from last year. Some brokered CDs @ 3.1%/10yr and 2.7 -2.8 % range for 6-7 yrs.

 

[samclem]

The way FFRHX behaved in 2008 is exactly the way it behaves whenever we go through a period with a credit crisis or a credit squeeze which is what has happened recently. When spreads widen on high yield bonds due to credit concerns, FFRHX takes a hit, and it can be very sudden.

It seems to me that most folks count on their bonds to have relatively low corelation to their stocks so that their portfolio has less overall volatility than it would otherwise have. Junk bonds usually track stocks fairly closely, just the opposite of what would be desired in this regard.

 

[audreyh1]

It seems to me that most folks count on their bonds to have relatively low corelation to their stocks so that their portfolio has less overall volatility than it would otherwise have. Junk bonds usually track stocks fairly closely, just the opposite of what would be desired in this regard.

That's right. That's why I don't invest in junk/high yield bond funds directly - because they act like stocks, and I use bonds and cash as diversifies for my stocks.

 

[mathjak107]

for bonds i use a mix of fidelity corporate bond,fidelity total bond and vanguard short term bond.

for a really diverse mix of bonds i like what amounts to a bond fund portfolio although i don't have a need to use it myself..

25% iShares Barclays Aggregate Bond ETF (AGG) (Tracks a broad index of high-quality U.S. bonds)

25% iShares iboxx $ Investment Grade Corporate (LQD) (Tracks an index of the most liquid, long-term corporate bonds)

10% Fidelity Floating Rate High Income (FFRHX) (Invests in floating rate bank loans that automatically adjusts to rising short-term interest rates. It offers additional inflation hedge)

10% iShares MBS Fixed Income (MBB) (Tracks a broad index mortgage-backed securities)

7.5% SPDR DB International Govt Inflation-Protected Bond (WIP) (Invests in an index of non-U.S., inflation-linked bonds)

7.5% PowerShares Emerging Markets Sovereign Debt (PCY) (Tracks an index of emerging markets government debt)

7.5% iShares Barclays TIPS Bond (TIP) (Tracks an index of inflation-protected, U.S. Treasury securities)

7.5% iShares Iboxx $ High Yield Corporate Bond (HYG) (Tracks an index of high yield bonds)

 

[foxfirev5]

One concept I have trouble with is the "hold the bond fund for a period at least as long as it's duration" statement. True in most instances of a rate rise and with dividends reinvested. However, if they take the interest distributions they in fact may never regain their principle in a rising rate environment which could continue for a long time.

Of course I have zero predictive abilities so I'll continue to spread my investments across the field and hope for the best.

 

[mathjak107]

Actually the duration is based on the fact you will not be reinvesting and the distributions you get would rise by that amount say going from 5 to 6%.

reinvesting the interest can shorten the time frame.


re-investing interest is not like reinvesting stock dividends . reinvesting interest is introducing actual additional money INCREASING your allocation dollar wise..

 

[Don46]

The bulk of our 47% allocation to fixed income is in intermediate-term diversified "core" type bond funds. 5% is in cash and cash equivalents. 5% in a short-term very high quality bond fund. I avoid high yield bond funds, although the core bond funds probably hold some when they think it is attractive.

Which funds do you use? I suppose your strategy is such that you can draw on cash first, then the short term high quality, and let the intermediate term bonds ride the market without having to sell when things are down?

 

[eytonxav]

anyone who thinks it is a substitute for cash or even a conservative bond fund has no clue what they are buying then.

it is a junk bond fund at heart. it makes short term loans with floating interest rates to less than stellar borrowers. it is fidelity's most conservative high yield fund and is a far cry from a cash substitute.

it has a relative volatility that is 75% less than the s&p 500. 44% is rated BB and 35% B.

fidelity has a new fund ,short duration high yield which is a notch up in risk.

It seems to me, the main purpose of this fund is to hedge against rising interest rates. If one isn't concerned about that, there are probably better high yield funds to pick from.

 

[mathjak107]

it is one of my choices if and when rates and inflation start to kick up

 

[freebird5825]

Bond and mixed funds, percentages = (bonds + cash) in overall portfolio...

VWALX 41% (used as TE income generator)
VWINX 8%
VWITX 4%
VMLTX 2%
VBIAX 2% (Roth)
DODIX 1% (Roth)
I bonds 1%

AA = 41/59, stocks/(bonds+cash)

 

[tuixiu]

100% stable value fund, pulling in 1.8% last time I checked.

 

[tuixiu]

Bond and mixed funds, percentages = (bonds + cash) in overall portfolio...

VWALX 41% (used as TE income generator)
VWINX 8%
VWITX 4%
VMLTX 2%
VBIAX 2% (Roth)
DODIX 1% (Roth)
I bonds 1%

AA = 41/59, stocks/(bonds+cash)

That is some serious slicing and dicing man!

 

[audreyh1]

Which funds do you use? I suppose your strategy is such that you can draw on cash first, then the short term high quality, and let the intermediate term bonds ride the market without having to sell when things are down?

Yes - I have a ladder, as it were, but that's really more for duration diversification. It only matters if bonds are down in which case I might be drawing from stocks anyway. It works for rebalancing as well. If stocks are down, then whichever of the cash, short-term bond funds, or long-term bond funds is up the most get used for rebalancing. It won't necessarily be cash first - it totally depends on what each asset class has done in the prior year.

DODIX is my core intermediate bond fund. I have some additional intermediate fixed income diversification with MWTRX, FSICX, FGNMX, and FTABX. My short-term is all in VBISX.

 

[freebird5825]

That is some serious slicing and dicing man!

It's actually woman in my case.

Some of it is leftover from the days before I came to this forum and got a bit smarter at things.

The big chunk in VWALX is intentional. I had 8 years between FIRE and being eligible for my own FERS pension, so I decided to crank up that fund even more after I FIREd in 2007. Love those 30 day TE dividends.
I can also write a check if I had a huge "right now" expense to cover.

Once I turn 59.5, I will do something with the 2 funds in the Roth.

In the meantime, I am building up the shorter duration TE bond funds to get better diversification.

 

[audreyh1]

It's actually woman in my case.

Some of it is leftover from the days before I came to this forum and got a bit smarter at things.

The big chunk in VWALX is intentional. I had 8 years between FIRE and being eligible for my own FERS pension, so I decided to crank up that fund even more after I FIREd in 2007. Love those 30 day TE dividends.
I can also write a check if I had a huge "right now" expense to cover.

Once I turn 59.5, I will do something with the 2 funds in the Roth.

In the meantime, I am building up the shorter duration TE bond funds to get better diversification.

I guess you don't mind the occasional roller coaster ride with that fund!

 

[MichaelB]

We have very little tax deferred accounts, so our fixed income is tax-exempt funds. About half in Vanguard intermediate term TE (vwiux) and the other half evenly split between Fidelity TE (ftabx) and some individual muni bonds I picked up between '08 - '10 when they were on fire-sale. To diversify a bit I just moved 5% our our allocation from fixed income to DBC. With a yield below 2% I figure the opportunity cost is pretty low, and if rates do rise over the next year or two I would expect commodities to follow suit.

 

[pb4uski]

I wonder sometimes whether my concerns on interest rate risk might be misplaced in that higher interest rates would likely be associated with a recovering economy so in theory, fixed income losses from rising interest rates might be offset (or more than offset) by equity appreciation.

 

[2B]

With all due respect, this is rather dangerous advice. Vanguard came out with a recent paper pointing to the pitfalls of this kind of thinking. Truth is, thinking on proper placement of proper fixed income placement is all over the map, with debates on total bond vs. Short term bond versus tips versus no tips versus I bonds versus international bonds versus no international bonds. In the end, and I forget who to attribute this to, but "nobody know nothin'." These debates are just that, simply debates. The enemy to tying to find the perfect investment or portfolio is the search for the perfect one. Attesting to this is Fidelity's very recent study demonstrating the most successful PF's with their institution were inactive as they belonged to people who were deceased. The key is to pick an allocation you're comfortable with staying with.

I saw their paper. If I remember it correctly, it simply showed that if you put your money into their total bond fund and left it their all of the principle was made whole after some period of time (~10 years?). I asked the Vanguard CFP if the total bond fund held their bonds to maturity. I never received a yes or no answer. I was shown their paper.

I have asked many times for someone to show me a spread sheet of how the bond fund that doesn't hold to maturity will exceed the value of an equivalent portfolio of individual bonds that will eventually be redeemed at par. So far, I'm still waiting.

Not wanting to be ugly but I suspect I am. Vanguard has a large business interest in selling bond mutual funds.

Much of the total bond fund's holdings are government bonds. CD rates of comparable maturities have a higher yield. They are theoretically just as safe if you stay under the $250,000 FDIC limit from individual banks. If my CD ladder is set to have the same average maturity, it will have a better yield. I also know that all of my principle will come back to me some day no matter how far up interest rates go if I don't sell.

Bond funds are low effort. CD ladders aren't for everyone. I'm waiting for the threads that will pop up here if 10 year treasuries go to 10%.