Fixed Income Investing II

[pb4uski]

The reason that many of us got out of BND and other broad based bond funds was due to a lack of control over our bond portfolio. While it is true that the interest rate risk associated with bond funds would seem to be a benefit with the prospect of declining interest rates we haven't really seen a rate decrease by the Fed yet and the lack of control thing still exists, so I'll continue with my individual bond portfolio.

To me, a 10 year rolling ladder of brokered CDs or US Treasuries will perform equally or better than a high quality broad based bond fund like BND and can be controlled better. If one needs funds immediately you can either use the proceeds from the bond that matures next or sell it close to par. With a bond fund you have no choice other than to sell shares in the fund which is like selling a little piece of every bond in the portfolio.

 

[Golden Mean]

BND is a Morningstar GOLD (top) rated ETF that is basically free of expense (0.03%), yields about 4-5% today Good luck!

Just to be clear, BND is paying about a 3.1% dividend yield today. And that's only in the last couple of months, it was under 3% most of the year. IMHO the SEC Yield is not a useful number to tell you what they are paying out monthly (or ever?).

 

[imbatman]

Fair enough, I agree SEC and Effective Yield are both very imperfect. Some fund managers (ex. T. Rowe's MDXBX, granted a MF and not an ETF) are nice and report those, as well as Yield to Worst and Yield to Maturity (YTM) and Current yield.

Vanguard reports SEC (4.54), YTM (5.0), and Average Coupon (3.2). So somewhere between 3.2 - 5.0, depending on the dates of their data ha ha.

 

[jldavid47]

The interest rate on SWVXX at Schwab has started coming down slowly. It peaked at 5.28% late last month and is down to 5.24%. Not really a surprise and still not a bad return for cash.

 

[ShokWaveRider]

The interest rate on SWVXX at Schwab has started coming down slowly. It peaked at 5.28% late last month and is down to 5.24%. Not really a surprise and still not a bad return for cash.

SNAXX is down too to 5.39%

 

[soylentgreen]

I am leaving the forum. So long, farewell.
[mod edit]

Sorry to see you go!

 

[Montecfo]

The interest rate on SWVXX at Schwab has started coming down slowly. It peaked at 5.28% late last month and is down to 5.24%. Not really a surprise and still not a bad return for cash.

Yes. For the moment.

 

[Montecfo]

I know mostly individual Bonds are being discussed here, but for the uninitiated -

We have mostly CDS & money markets in our IRAs because that is all we find easy to understand in the fixed income,

As the Fed rate seems to stabilize from the recent meeting, what do you think of investing in BND, TO KEEP THINGS SIMPLE on lines with the 3 FUND Portfolio.

As we all know, it has had a recent devastating performance due to rapid rate increase your thoughts

Solicit your thoughts .....

The hate for bond funds was way overdone. The real culprit was duration. Sadly there was some misdirection about that here. Thankfully that has largely run it's course. Bond funds have their place and have many benefits, including liquidity to make their use for rebalancing easier than for individual bonds on CDs, for example.

Having said that, I am not a fan of bond indexes. If you construct a capitalization weighted index for equities, you weight the most valuables stocks. That has some merit.

A capitalization weighted bond index is a different animal. It gives the most weight to the most prolific issuers of debt not the most desirable. Also BND is heavily weighted to treasuries. If I want treasuries I will buy treasuries not a mix in a single fund.

Those low expenses did not keep investors from losing their shirts in 2022. Only active management did that.

So if I were inclined to buy bond funds now I would be looking at actively managed funds. Lots to choose from. Morningstar is your friend.

Having said that, BND probably does ok now that we are in a declining rate environment. And it would be fine in a stable rate environment.

 

[imbatman]

Sorry to see you go!

I second that, COcheesehead brought some great knowledge to these investing threads

 

[imbatman]

The hate for bond funds was way overdone.

Totally agree, it wasn't the investment that was the problem, it was the investors. There are few investments available where you can just buy something and not keep aware of the environment and how it may impact your investment. If you own an energy fund and oil prices are dropping and countries are releasing surplus from reserves, you got to know to sell that investment....just like if interest rates are headed for a steep climb and your bond fund holds 10+ year duration funds and has that in their prospectus mandate, yeah not going to end well. Admittedly, even I didn't do a great job of getting out fast enough but live and learn.

 

[pb4uski]

I am leaving the forum. So long, farewell.
[mod edit]

But why? Are there deleted posts that I missed that are the cause? I hope you reconsider and come back.

 

[Montecfo]

But why? Are there deleted posts that I missed that are the cause? I hope you reconsider and come back.

It was in a different thread. rampant obtuseness which sadly can happen around here.

Cocheesehead is a great contributor. My hope is he will return.

 

[Closet_Gamer]

It was in a different thread. rampant obtuseness which sadly can happen around here.

Cocheesehead is a great contributor. My hope is he will return.

Unfortunate. I hope he returns. Always enjoyed his contributions.

 

[Healthy Lifestyle]

But why? Are there deleted posts that I missed that are the cause? I hope you reconsider and come back.

I will miss his posts and thought he brought value to this forum.

Did he leave because of unhappiness or health?

 

[imbatman]

Did he leave because of unhappiness or health?

While I think none of us really know, it appears to be due to his displeasure with interactions on an electrical wiring thread (why this exists on "Early-Retirement" is beyond me....)

https://www.early-retirement.org/forums/f27/electrical-question-120163-5.html#post3026517

 

[REWahoo]

I watched it happen and it appears to me his plug fell out of the wall...

 

[Flieger]

I am leaving the forum. So long, farewell.
[mod edit]

I hope you'll reconsider.

There are always those that feel the need to belittle or bully where a simple statement will suffice, but you can't let those impact something that is fun or productive for you in life. Just my $0.02

Flieger

 

[rkser]

The hate for bond funds was way overdone. The real culprit was duration. Sadly there was some misdirection about that here. Thankfully that has largely run it's course. Bond funds have their place and have many benefits, including liquidity to make their use for rebalancing easier than for individual bonds on CDs, for example.

Having said that, I am not a fan of bond indexes. If you construct a capitalization weighted index for equities, you weight the most valuables stocks. That has some merit.

A capitalization weighted bond index is a different animal. It gives the most weight to the most prolific issuers of debt not the most desirable. Also BND is heavily weighted to treasuries. If I want treasuries I will buy treasuries not a mix in a single fund.

Those low expenses did not keep investors from losing their shirts in 2022. Only active management did that.

So if I were inclined to buy bond funds now I would be looking at actively managed funds. Lots to choose from. Morningstar is your friend.

Having said that, BND probably does ok now that we are in a declining rate environment. And it would be fine in a stable rate environment.

Thankyou, I appreciate your thoughts on BND

 

[rkser]

I am leaving the forum. So long, farewell.
[mod edit]

I will miss your posts, as I gained from them.
Good luck with whatever you decide.

 

[jazz4cash]

Back to headline topic….
Received my 1st bond call notice. 38150APM1 Is Goldman Sachs 6.75 Oct ‘27 maturity. I am not surprised. I think it is past 1st call. Fidelity notified via email. Actual redemption is 1/31.

 

[Midpack]

Just thought this was an enlightening chart showing how bond fund returns are impacted by NAV price fluctuations. I moved all our fixed income allocation from bond funds to T-bills/notes in Summer 2022, but I am mulling over what I will do when T-bills/notes are no longer attractive - no rush but one day. I have read plenty of articles comparing bond funds to individual bonds already, but after seeing what happened to bond fund NAVs over the past few years, it's not a no brainer to go back to funds for me. I have never tried to build an individual bond fund portfolio, but I suspect I don't have the interest to research individual bonds properly to have some diversity.

I still contend I am not a market timer, but...

https://www.schwab.com/learn/story/bonds-vs-bond-funds-which-is-right-you

 

[mrfeh]

Just thought this was an enlightening chart showing how bond fund returns are impacted by NAV price fluctuations. I moved all our fixed income allocation from bond funds to T-bills/notes in Summer 2022, but I am mulling over what I will do when T-bills/notes are no longer attractive - no rush but one day. I have read plenty of articles comparing bond funds to individual bonds already, but after seeing what happened to bond fund NAVs over the past few years, it's not a no brainer to go back to funds for me. I have never tried to build an individual bond fund portfolio.

I still contend I am not a market timer, but...

https://www.schwab.com/learn/story/bonds-vs-bond-funds-which-is-right-you

That chart doesn't include 2023. Total return of VBTLX was 5.7% last year.

I'm not selling shares for expenses, so the current NAV is not relevant, other than the fact that monthly re-investments are cheap.

 

[audreyh1]

That chart doesn't include 2023. Total return of VBTLX was 5.7% last year.

I'm not selling shares for expenses, so the current NAV is not relevant, other than the fact that monthly re-investments are cheap.

Yes, even while rates were continuing to rise during 2023!

I don’t care about bond fund NAV either. If it drops lower I usually end up buying more via rebalancing regardless.

 

[pb4uski]

Just thought this was an enlightening chart showing how bond fund returns are impacted by NAV price fluctuations. I moved all our fixed income allocation from bond funds to T-bills/notes in Summer 2022, but I am mulling over what I will do when T-bills/notes are no longer attractive - no rush but one day. I have read plenty of articles comparing bond funds to individual bonds already, but after seeing what happened to bond fund NAVs over the past few years, it's not a no brainer to go back to funds for me. I have never tried to build an individual bond fund portfolio, but I suspect I don't have the interest to research individual bonds properly to have some diversity.

I still contend I am not a market timer, but...

https://www.schwab.com/learn/story/bonds-vs-bond-funds-which-is-right-you

Not necessarily recommending, but one option that is in-between would be to make a ladder of target maturity bond funds. iBonds has corporate, treasury, high yield, TIP and muni flavors available.

I personally wouldn't bother with the Treasury or TIPs offerings, just make a Treasury or TIPs ladder if that is your desire, but for corporates, high yield and munis it might be a good compromise.

 

[teej1985]

The interest rate on SWVXX at Schwab has started coming down slowly. It peaked at 5.28% late last month and is down to 5.24%. Not really a surprise and still not a bad return for cash.

This doesn't seem like a meaningful reduction to me.