mikes425
Commander
generally happy in semi-retirement and dividend income-land
Posts: 126
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Post by mikes425 on Jun 9, 2023 18:04:11 GMT
Pardon any prior naivete I may already have demonstrated about bond funds but a general 'macro' sort of question here. As I've unapologetically admitted before, I work with an occasional hourly FA and sometimes turn here for second opinions. At this time my PF is a roughly 50/50 AA at age 65/no debt, with div income of about 82k projected for 2023. Invested assets at about 2.6m now give or take 100k and earned freelance/other income in the realm of 35-40k in 'semi retirement' FWIW.
On the fixed income side largest bond fund holdings are in SCHO (Treas)SHY, VCSH, VFIDX, SCHP/TIPS and a few Floating Rate funds. Average duration of bond funds is 1-3 years with little longer duration exposure.
I do appreciate the higher income that these ST bond funds have been generating in the wake of their huge NAV losses last year, and that income is important to me. Do you foresee ST bond sector taking any further significant NAV "hit" going forward..and, in the event we might see some better performance on the equity side into the end of 2023, would it make sense to rethink so much concentration in ST versus perhaps adding back into equity a bit from some of these positions or..going out a bit longer in duration, and what might be a compelling case or deciding factor for doing so? Other bond sectors to consider? Often it's useful to get Ideas independently on forums like this which I in turn like to run by my FA to get his response as well.
Thanks!
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Post by steadyeddy on Jun 9, 2023 22:32:47 GMT
mikes425 , good post with a good set of questions. - What has been your AA say for the last 3 years? Was it always about 50/50? If yes I wouldn't change a thing. If you had higher equity allocation, it is not a bad idea to increase equity %. In other words rebalance. - Did you previously own intermediate term bonds/bond funds? If you did hold intermediate term bonds/funds before I would swap some ST bonds for IT bonds. I think a bit more perspective will help in providing some suggestions.
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mikes425
Commander
generally happy in semi-retirement and dividend income-land
Posts: 126
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Post by mikes425 on Jun 10, 2023 1:45:31 GMT
Thanks. AA has ranged from 45/65 to about 50/50 over the past few years. I've gradually built up equity to 50% over a longer timeframe...and in fact we pared back a couple of percent of equity exposure around the start of this year to 47-48%.
Yes, previously had a much larger position in VGIT/Intermediate Bond and swapped a large chunk of that into short term funds mentioned- mainly SHY. That wasn't that long ago. Now I'm beginning to wonder if I should reduce some of the ST exposure and add back into that intermediate fund.
Again I'm pretty pleased with the div returns these ST funds are generating for income given the higher int. rates, but FA seems inclined to think sticking with this bond duration average of 1-3 years is prudent. Last we talked he reaffirmed the logic that these (ST) funds are/were the least sensitive to interest rate 'volatility' - and DIV returns continue to improve as rates stay high or go higher. So there's that.
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Post by steadyeddy on Jun 10, 2023 2:35:30 GMT
Thanks. AA has ranged from 45/65 to about 50/50 over the past few years. I've gradually built up equity to 50% over a longer timeframe...and in fact we pared back a couple of percent of equity exposure around the start of this year to 47-48%. Yes, previously had a much larger position in VGIT/Intermediate Bond and swapped a large chunk of that into short term funds mentioned- mainly SHY. That wasn't that long ago. Now I'm beginning to wonder if I should reduce some of the ST exposure and add back into that intermediate fund. Again I'm pretty pleased with the div returns these ST funds are generating for income given the higher int. rates, but FA seems inclined to think sticking with this bond duration average of 1-3 years is prudent. Last we talked he reaffirmed the logic that these (ST) funds are/were the least sensitive to interest rate 'volatility' - and DIV returns continue to improve as rates stay high or go higher. So there's that. Well.. then leave well enough alone. Perfect is enemy of good enough.
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Post by retiredat48 on Jun 10, 2023 14:10:31 GMT
mikes425 , steadyeddy ,...Hi Mike. I have been involved/following Mike and his portfolio for over a decade. He once was about 15/85, and now about 50/50...great. But Mike, your answers are in your questions! You now clearly know how bond funds work and what "duration" is...or bond maturity. You appreciate the fact that MM funds/short term b funds are just that--short term. Goal is to lock some up longer term yields. Thus, some comments: Your questions are missing an option...locking in some longer term FIXED INCOME FUND yields. I suggest consider some corporate and government Treasury bonds in the mix. For instance, if 5 and ten yr treasuries get a yield at 4% or more, buy some. This will do great, a risk-free rate for living on, for your portfolio. Expect to get 1-2% more annually if using corporate bond funds. (Note: I am not sure we will ever get to 4% or more gvt rates for the foreseeable future). So buy at 3.92% rates???...your call. For stock side, consider higher yielding funds like SCHD, or other funds suggested...as well as some dividend growth players such as vanguard's VIG. Lower current yield, but growing dividends each year. I like VIG now because it is a good inflation hedge..companies have pricing power to be able to grow income. Value likely has a good market time coming up in next year; and these companies have capital to implement AI (art intel) which is expected to INCREASE PRODUCTIVITY for many companies over the next decade. Edit to add: Mike, I just heard an "echo"...Yogi posted from Barrons: " BONDs are undergoing a generational change due to rising and higher rates in an environment of persistent inflation and higher deficits. Recommended are dividend-paying stocks, shorter-term bonds and Treasuries (intermediate-term for those not bothered by yield fluctuations). "
Edit to also add: And Mike, if the fed raises rates further, and we get a longer term treasury bond selloff (yields rising) consider adding some to TLT, 20 year treasury bond fund. See chart. Can lock in a yield for 20 years...great for your age. And if you ask: what about higher inflation over 20 years?...Reply is: That is why you own 50% stock funds!! Good day. R48
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mikes425
Commander
generally happy in semi-retirement and dividend income-land
Posts: 126
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Post by mikes425 on Jun 10, 2023 14:53:42 GMT
retiredat48 , steadyeddy , Thanks for the feedback, and good to hear from you Bob! The Barrons piece is particularly timely and relevant to my question... I actually have been in SCHD for quite some time now and like it a lot. If anything, my follow-up Q would be about where to "pick from" in terms of say, reducing the ST bond and adding to SCHD, and others. BTW, VYM has been a long term core holding as well. So perhaps adding to VCSH with regard to more corporate bond is a move to make - I already have a large position there. Likewise VGIT, which we talked about some time back. I reduced that last last year and added proceeds into SHY. Thinking perhaps putting more back into VGIT. As for duration beyond Intermediate term... that's a category I'll need to consider as far as funds to look at, and again, am presuming the idea would be to reduce some of the ST bond positions to fund an entry into say, a TLT. or, LT Corp bond ETF. Great info and thanks as always
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Post by chang on Jun 10, 2023 18:32:45 GMT
Your questions are missing an option...locking in some longer term FIXED INCOME FUND yields. I suggest consider some corporate and government Treasury bonds in the mix. For instance, if 5 and ten yr treasuries get a yield at 4% or more, buy some. This will do great, a risk-free rate for living on, for your portfolio. Expect to get 1-2% more annually if using corporate bond funds. (Note: I am not sure we will ever get to 4% or more gvt rates for the foreseeable future). So buy at 3.92% rates???...your call. The 10Y treasury is at 3.75%, but strangely enough the 20Y is at 4.05%. (The 30Y is back down to 3.88%). If you'd lock in 4% for 10Y, why not lock it in for 20Y? fixedincome.fidelity.com/ftgw/fi/FILanding#tbcurrent-yields|median-yieldRight now, ST treasuries yield more than corporates until you get down to A/BBB ratings, and then corporates have only a thin advantage in yield. Doesn't seem worth taking on significant credit rate risk for a tiny bit more yield. Absolutely no point owning AAA-AA rated bonds that yield less than treasuries. People don't much mention AA+ rated US Agency bonds, which yield considerably more than treasuries AND corporates (down to BBB): fixedincome.fidelity.com/ftgw/fi/FILanding#tbcurrent-yields|highest-yieldActually, there are AAA-rated municipal bonds of all maturities from 2-10 years issued by Arlington TX yielding 5% tax free: fixedincome.fidelity.com/ftgw/fi/FILanding#tbnewissues|bond-type|te-ag-cp-mu5% tax free is roughly 7% tax equivalent. Why are these not great buys now?
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Post by retiredat48 on Jun 11, 2023 0:43:03 GMT
Your questions are missing an option...locking in some longer term FIXED INCOME FUND yields. I suggest consider some corporate and government Treasury bonds in the mix. For instance, if 5 and ten yr treasuries get a yield at 4% or more, buy some. This will do great, a risk-free rate for living on, for your portfolio. Expect to get 1-2% more annually if using corporate bond funds. (Note: I am not sure we will ever get to 4% or more gvt rates for the foreseeable future). So buy at 3.92% rates???...your call. The 10Y treasury is at 3.75%, but strangely enough the 20Y is at 4.05%. (The 30Y is back down to 3.88%). If you'd lock in 4% for 10Y, why not lock it in for 20Y? fixedincome.fidelity.com/ftgw/fi/FILanding#tbcurrent-yields|median-yieldR48 Quick comments in bold: Because of the bond rule of gain or loss that is equal to interest rqte rise (fall) multiplied by the duration (related to maturity). Longer term is more risky. So nav price of ten year bonds falls 10% with a 1% rise in rates; a 20 yr bond falls 20% with a 1% rise in rates.Right now, ST treasuries yield more than corporates until you get down to A/BBB ratings, and then corporates have only a thin advantage in yield. Doesn't seem worth taking on significant credit rate risk for a tiny bit more yield. Absolutely no point owning AAA-AA rated bonds that yield less than treasuries. It is why I own few corp bond funds.People don't much mention AA+ rated US Agency bonds, which yield considerably more than treasuries AND corporates (down to BBB): fixedincome.fidelity.com/ftgw/fi/FILanding#tbcurrent-yields|highest-yieldLet fund managers do the bidding of what is best. BTW I like active versus passive bond funds.Actually, there are AAA-rated municipal bonds of all maturities from 2-10 years issued by Arlington TX yielding 5% tax free: fixedincome.fidelity.com/ftgw/fi/FILanding#tbnewissues|bond-type|te-ag-cp-mu5% tax free is roughly 7% tax equivalent. Why are these not great buys now?
R48 reply: Depends on how the income is gained to pay the interest. A highway toll bond? a general receipts bond? Now if Arlington all of a sudden has a great influx of illegal immigrants, who will pay/drained monies? If houses in Arlington fall in price, and taxes collected decline, how will Arlington recover? Fed gvt has never defaulted; hundreds of towns have.
-------------------------------
Good day. R48
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Post by chang on Jun 11, 2023 6:46:28 GMT
To anitya : you asked for the Arlington TX muni CUSIPs. Just go (after logging in) to fixedincome.fidelity.com/ftgw/fi/FILanding#tbnewissues|bond-typeand scroll down to "Municipal: 60", and these will be the FIRST bonds you see. They appear to have every maturity out to 2025/6/7/8/9/2030/2031/2032, all yielding the same 5.000%. (Click to expand.) Just click on any of them to see the CUSIP number:
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Post by fishingrod on Jun 11, 2023 10:03:56 GMT
Careful.
Coupon is 5%, but the price on the bond is at a premium. This makes the yield lower. Take a look at the expected yield, which would be an estimate of yield to maturity. It takes into consideration the price of the bond at the time.
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Post by chang on Jun 11, 2023 10:12:20 GMT
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Post by Chahta on Jun 11, 2023 15:48:48 GMT
Pardon any prior naivete I may already have demonstrated about bond funds but a general 'macro' sort of question here. As I've unapologetically admitted before, I work with an occasional hourly FA and sometimes turn here for second opinions. At this time my PF is a roughly 50/50 AA at age 65/no debt, with div income of about 82k projected for 2023. Invested assets at about 2.6m now give or take 100k and earned freelance/other income in the realm of 35-40k in 'semi retirement' FWIW. On the fixed income side largest bond fund holdings are in SCHO (Treas)SHY, VCSH, VFIDX, SCHP/TIPS and a few Floating Rate funds. Average duration of bond funds is 1-3 years with little longer duration exposure. I do appreciate the higher income that these ST bond funds have been generating in the wake of their huge NAV losses last year, and that income is important to me. Do you foresee ST bond sector taking any further significant NAV "hit" going forward..and, in the event we might see some better performance on the equity side into the end of 2023, would it make sense to rethink so much concentration in ST versus perhaps adding back into equity a bit from some of these positions or..going out a bit longer in duration, and what might be a compelling case or deciding factor for doing so? Other bond sectors to consider? Often it's useful to get Ideas independently on forums like this which I in turn like to run by my FA to get his response as well. Thanks! yogibearbull has a good synopsis on ST bond funds in one of his posts recently.
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