Over past two Januarys I’ve sold two 7-unit apartment buildings (and am saddled with CAP gain and depreciation recapture) The sale gave us an incredible 10-12 year IRR of 35% and 42% respectively (many of those years unleveraged) but also created a sickening tax bill. (I’m not one of the cool kids who does the 1031 exchange or puts my apartment buildings in my IRA…I’m just a lovable lout that bought rundown buildings in my home town). From those proceeds, I created a bond ladder with couple other income producing assets (BKLN, JAAA) to nudge the overall yield of the ladder upward. 10 year ladder, with 12-40K maturing each year. THEN I put about 100K out to years 27-30 both zero treasuries and TIPs. My thought was that it was a Win/Semi-Win. If yield curve UNinverts, which it will, and that pops long term rates a little higher, I’ll lose money short term, but I’ll have a real 2.25% return on about 70K and a 4.8% nominal return on 30K worth of zeroes for the next 27-30 years. Sort of “longevity annuity” but fully funded! A little sloppy. Some are low coupon TIPs which will total return well, but not throw off much income. Also some regular treasuries, a couple of agencies at 6% but heavy on TIPS. Some high coupon, some low (.125% to 2.43%). I bought most of the TIPs with a real YTM of 2.2% and above. I’ve also got 120K in iBonds, 70K with 1.3% inflation factor, 50K at .9%. I may redeploy the .9’s next year with a “fresh” slate tax wise. I’m also STRONGLY considering sheltering some of the interest by trading in some bonds for MYGAs if it’s not too late. I’ve been hemming and hawing over whether to use Stan the Annuity Man or a local person. Also for clarity, this bond ladder only represents 20% of our assets. We’ve got 2m~ in IRAs, 401K, annuity and other funds, and 400K value of remaining 2 rental properties which net 30-35K per year.
I should note that we more or less adhere to a 50,30,10 stock bond RE mix. We have an AUM advisor which I’m trying to slowly get my wife to agree to “fire nicely”. As we’re in retirement now, I’m certainly not going to pay someone 1% a year to manage a bond ladder yielding 4-5% a year. But it gives her security and that’s OK. We have 2-3% in crowdfunded real estate, mostly hard money lending funds, and 1% in crypto (my return has been over 3,000% so I’ve already taken out 30x what I put in and am playing with house money. I’m no crypto genius, I just happened to do a LOT of reading and bumped into it in 2013. Lucky me.
So question: My wife and I have sizable solo 401K’s with Vanguard. They don’t allow brokerage accounts, only Vanguard Funds. But I thought it MIGHT be smart to move the 401ks to Fidelity, put as much of the bond ladder in those 401ks as possible, then use the taxable account to buy Index funds (I just do vanguard total US market, total ex-su then tilt with vanguard small cap value). My caveat is that this is a NON rolling (for the most part) bond ladder, and we’ll need to spend each rung as it comes due. Does it make sense to “shelter” these bonds from interest when we’ll have to yank it out and pay tax as regular income? One idea: I do this “switch” but each year when I need to cash in a rung, sell some index fund from the taxable for the amount I need, then re purchase that amount in the 401K to “replace it”. This way I’m cashing in the rung, it’s done its job, no tax on interest, no tax on withdrawal, just whatever capital gain OR loss from the stock index fund position. If I’ve “sold low” no problem, just take the tax loss, wait 31 days, re-buy it with the matured bond proceeds inside the 401K.
Also, any thoughts about Stan the Annuity Man? Just the cheesiness of his title makes me cringe but he seems to be the real deal and I haven’t heard anything bad about him. Someone that visible that was cheating people or doing a lousy job ought to have a reputation by now and I haven’t seen anything but glowing recommendations. And he really seems to “dig his craft”. I respect that.
Also considering adding a bit more into these floating rate funds and AAA CLO fund. I know the basics of CLOs (lower and lower tranches then finally an equity tranch which is the riskiest like OXLC, and the like.) But as look over their long term history, I don’t see any disasters on the "higher" tranches. Yes, some credit risk as the bonds are “junk” territory, but short term, actively managed. I have 25K in JAAA and same in BKLN which I use as a little boost to my bond ladder (400K-ish). I understand if rates go down, or we get a recession there will be some defaults, but what is the risk here? Is it 5-8% drawdown or 20% drawdown?
Thank you in advance. I hope this was clear enough!
I should note that we more or less adhere to a 50,30,10 stock bond RE mix. We have an AUM advisor which I’m trying to slowly get my wife to agree to “fire nicely”. As we’re in retirement now, I’m certainly not going to pay someone 1% a year to manage a bond ladder yielding 4-5% a year. But it gives her security and that’s OK. We have 2-3% in crowdfunded real estate, mostly hard money lending funds, and 1% in crypto (my return has been over 3,000% so I’ve already taken out 30x what I put in and am playing with house money. I’m no crypto genius, I just happened to do a LOT of reading and bumped into it in 2013. Lucky me.
So question: My wife and I have sizable solo 401K’s with Vanguard. They don’t allow brokerage accounts, only Vanguard Funds. But I thought it MIGHT be smart to move the 401ks to Fidelity, put as much of the bond ladder in those 401ks as possible, then use the taxable account to buy Index funds (I just do vanguard total US market, total ex-su then tilt with vanguard small cap value). My caveat is that this is a NON rolling (for the most part) bond ladder, and we’ll need to spend each rung as it comes due. Does it make sense to “shelter” these bonds from interest when we’ll have to yank it out and pay tax as regular income? One idea: I do this “switch” but each year when I need to cash in a rung, sell some index fund from the taxable for the amount I need, then re purchase that amount in the 401K to “replace it”. This way I’m cashing in the rung, it’s done its job, no tax on interest, no tax on withdrawal, just whatever capital gain OR loss from the stock index fund position. If I’ve “sold low” no problem, just take the tax loss, wait 31 days, re-buy it with the matured bond proceeds inside the 401K.
Also, any thoughts about Stan the Annuity Man? Just the cheesiness of his title makes me cringe but he seems to be the real deal and I haven’t heard anything bad about him. Someone that visible that was cheating people or doing a lousy job ought to have a reputation by now and I haven’t seen anything but glowing recommendations. And he really seems to “dig his craft”. I respect that.
Also considering adding a bit more into these floating rate funds and AAA CLO fund. I know the basics of CLOs (lower and lower tranches then finally an equity tranch which is the riskiest like OXLC, and the like.) But as look over their long term history, I don’t see any disasters on the "higher" tranches. Yes, some credit risk as the bonds are “junk” territory, but short term, actively managed. I have 25K in JAAA and same in BKLN which I use as a little boost to my bond ladder (400K-ish). I understand if rates go down, or we get a recession there will be some defaults, but what is the risk here? Is it 5-8% drawdown or 20% drawdown?
Thank you in advance. I hope this was clear enough!
