What does your bond portfolio look like in this low interest world?

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db55
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What does your bond portfolio look like in this low interest world?

Post by db55 »

Hi,
I'm interested in learning what others are doing with their bond portfolio during this period of historically low interest rates and historically high bond prices. Stock prices are also expensive (comparing P/E and dividend yield to historical values), but maybe not as expensive as bonds right now.

Over the past 5 years, have you maintained your original asset allocation between stocks and bonds (70/30, 60/40, 50/50, 40/60, or whatever) and re-balanced every year by selling stocks and buying bonds?

And what are you holding in your bond portfolio? Total bond market? Short-term bond fund? Municipal bond fund? High Yield? Long Term? Corporate? TIPS? Cash? and are you holding it in a taxable or tax-deferred account.

The long term return on bonds can be roughly predicted. The long term return on bonds if held to maturity is roughly equal to today's yield (a little higher if interest rates increase and vice versa). Vanguard Total Bond Market Fund is currently yielding 1.57% with a 6.63 year duration.

Stocks are much more volatile and unpredictable. They've done great over the past decade by they could crash at any time.

Some quotes to stir discussion:
From Warren Buffet's latest annual investor's letter: "Bonds are not the place to be these days." "Fixed-income investors worldwide — whether pension funds, insurance companies or retirees — face a bleak future."

I also just finished reading Rick Ferri's outstanding book "All About Asset Allocation" (it's one of the very best investing books I've read. I'd rank it with the best books from Graham, Bogle, Bernstein, etc. Lots of pertinent data and analysis. Highly recommend.) In his book, he states multiple times that any investment that cannot beat inflation doesn't belong in your portfolio. Beating inflation looks questionable for bonds or cash right now, and bonds beating inflation after taxes looks improbable (to me at least). If Mr. Ferri reads this post, I'd be very interested in his comments.

Thanks.
mjb
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Re: What does your bond portfolio look like in this low interest world?

Post by mjb »

I am selling covered calls and/or puts on bond funds. Juices returns a little.
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retired@50
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Re: What does your bond portfolio look like in this low interest world?

Post by retired@50 »

db55 wrote: Sun May 09, 2021 5:17 pm And what are you holding in your bond portfolio?
I hold Vanguard Total Bond Market and Total International Bond Market index funds in a tax-deferred account.

I haven't made any changes. Still re-investing dividends every month.

Regards,
This is one person's opinion. Nothing more.
dbr
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Re: What does your bond portfolio look like in this low interest world?

Post by dbr »

I have held half intermediate TIPS and half intermediate Treasuries in a 50/50 asset allocation for a couple of decades now. There is no plan to change anything. I did sell some stocks recently as rebalance band was exceeded. But we have been retired most of that time so this is a portfolio that is supporting modest withdrawals.

You could always contact Mr. Ferri and see if he would give you an opinion. He has posted on the forum as recently as last week:

viewtopic.php?p=5984806#p5984806
Last edited by dbr on Sun May 09, 2021 5:57 pm, edited 1 time in total.
bgf
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Re: What does your bond portfolio look like in this low interest world?

Post by bgf »

70/30 BND/BNDX

Vanguard Target Retirement Fund
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theorist
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Re: What does your bond portfolio look like in this low interest world?

Post by theorist »

I have about 25-30% of my portfolio in bonds. They are split between intermediate term treasuries and corporate (about 50/50) in tax protected accounts, and intermediate term municipal bonds (half CA specific and half in a general fund) in my taxable accounts. I also have a significant slug in Vanguard’s 2035 target date fund which holds roughly 27% bonds.

The percentage in bonds has drifted down to a low (flirting with less than 25%), but I plan to build it back up through contributions and rebalancing.
Chris K Jones
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Re: What does your bond portfolio look like in this low interest world?

Post by Chris K Jones »

60% Stocks; 40% bonds.

Over the last year, the only change I have made is that I limit tax exempt to no more than 25% of my fixed income holdings.
I have no plans to change anything else.

I don't rebalance annually. I only rebalance when I exceed my (5%) bands. It might happen soon.

70% of Bonds are in Vanguard Intermediate Term Bond Index and all of this is in IRA. 25% in Vanguard Intermediate Tax Exempt Fund/Vanguard Tax Exempt Bond Index Fund. 5% or so is in Vanguard Total Bond (or Fidelity's version, US Bond Index) and these are in tax deferred accounts and taxable.

Best wishes
lostdog
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Re: What does your bond portfolio look like in this low interest world?

Post by lostdog »

BNDW (Vanguard Total World Bond) in a tax deferred account.
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BuyAndHoldOn
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Re: What does your bond portfolio look like in this low interest world?

Post by BuyAndHoldOn »

Almost entirely in stocks; the only bonds I hold now are Emerging Market bonds (mostly sovereigns). This is through an ETF (LEMB) and mutual fund (FNMIX) in a tax deferred account.

I look forward to rates rising - at some point, maybe slowly - enough that I consider things like long-dated treasuries (or at least the standard Total Bond type of fund). If rates rise quickly: stocks probably will sell off, and then I'll probably just buy those....
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jdb
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Re: What does your bond portfolio look like in this low interest world?

Post by jdb »

50-50 equities and bonds. The bond portfolio in taxable is combination of Vanguard intermediate tax exempt fund and ladder of tax exempt individual bonds. In tax deferred a combination of BND and a TIPS ladder. No changes last 5 years. Plan to maintain this allocation next 10 years. Don’t pay attention to it. More concerned with my late season Florida tomato crop than bonds. Good luck.
Triple digit golfer
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Re: What does your bond portfolio look like in this low interest world?

Post by Triple digit golfer »

Vanguard Total Bond and Intermediate Term Bond Index. 401k only offers the latter.
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AerialWombat
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Re: What does your bond portfolio look like in this low interest world?

Post by AerialWombat »

Almost identical to what it looked like 2 years ago. Interest rates have zero impact on the reason I hold bonds in my portfolio.

Stay. The. Course.
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Re: What does your bond portfolio look like in this low interest world?

Post by livesoft »

Our bond portfolio consists of Total US Bond Index, Short-term corporate bond index, and TIAA Traditional Annuity (like a stable value fund).

The ratio is about 82% Total Bond, 12% ST-corp bond, 6% TIAA TA.

@db55, so how does knowing our bond portfolio help you?
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Kenkat
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Re: What does your bond portfolio look like in this low interest world?

Post by Kenkat »

My bond allocation is supposed to be 30% of my portfolio but it’s closer to 25% with the market run up. I’ve done one rebalancing transaction and have shifted new contributions to fixed income; at some point I may need to do another rebalance (we will see).

My bond allocation looks basically like this:

11% in Vanguard Total Bond Index
8% in 401k Stable Value (3% currently)
3% in Vanguard Intermediate Term Municipal
3% in Vanguard High Yield Bond / Pimco High Yield Bond (401k)

The exact percentages are somewhat influenced by various options available by account (Vanguard IRA, 401k, Vanguard taxable).
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ClevrChico
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Re: What does your bond portfolio look like in this low interest world?

Post by ClevrChico »

My AA has about 25% in bonds. Half in Total Bond, half in Stable Value. Bond AA will increase on a glide path.

I keep reminding myself to stay the course, especially with all the bond posts lately.

If Vanguard Target Funds start replacing bonds with something else, then it may be time to consider a change.
UpperNwGuy
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Re: What does your bond portfolio look like in this low interest world?

Post by UpperNwGuy »

AerialWombat wrote: Sun May 09, 2021 7:04 pm Almost identical to what it looked like 2 years ago. Interest rates have zero impact on the reason I hold bonds in my portfolio.

Stay. The. Course.
Exactly.
Triple digit golfer
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Re: What does your bond portfolio look like in this low interest world?

Post by Triple digit golfer »

UpperNwGuy wrote: Sun May 09, 2021 7:44 pm
AerialWombat wrote: Sun May 09, 2021 7:04 pm Almost identical to what it looked like 2 years ago. Interest rates have zero impact on the reason I hold bonds in my portfolio.

Stay. The. Course.
Exactly.
Bingo. Isn't an AA supposed to be one you will stick with in any market conditions?
chw
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Re: What does your bond portfolio look like in this low interest world?

Post by chw »

Moved 60% of FI allocation in Intermediate treasuries to stable value fund yielding 2.5%, remainder split between Vanguard Hi Yield Bond, and Ibonds. Will return to treasuries when yield rises above 2.5 % for a few quarters.
J295
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Re: What does your bond portfolio look like in this low interest world?

Post by J295 »

Consistent with my IPS since my retirement in 2013.
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Re: What does your bond portfolio look like in this low interest world?

Post by placeholder »

Same as it's been since I developed my portfolio in 2007 and that's 50/50 bond index and stable value.
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Stinky
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Re: What does your bond portfolio look like in this low interest world?

Post by Stinky »

I’ve moved a good part of my fixed income portfolio to multi year guaranteed annuities (MYGAs). Better yield than bond funds, no market value fluctuations if held to maturity.

I will decide whether to go back into bonds as the MYGAs mature.
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Drewski04
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Re: What does your bond portfolio look like in this low interest world?

Post by Drewski04 »

Stinky wrote: Sun May 09, 2021 9:42 pm I’ve moved a good part of my fixed income portfolio to multi year guaranteed annuities (MYGAs). Better yield than bond funds, no market value fluctuations if held to maturity.

I will decide whether to go back into bonds as the MYGAs mature.
A great move in my opinion. In this rate environment, I’m not sure why more people don’t do this, probably an existing negative opinion of annuities.

And Imagine those that are also paying fees to an advisor or fund manager to hold bonds right now, doesn’t make a lot of sense to me.
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Re: What does your bond portfolio look like in this low interest world?

Post by mrspock »

Drewski04 wrote: Sun May 09, 2021 10:20 pm
Stinky wrote: Sun May 09, 2021 9:42 pm I’ve moved a good part of my fixed income portfolio to multi year guaranteed annuities (MYGAs). Better yield than bond funds, no market value fluctuations if held to maturity.

I will decide whether to go back into bonds as the MYGAs mature.
A great move in my opinion. In this rate environment, I’m not sure why more people don’t do this, probably an existing negative opinion of annuities.

And Imagine those that are also paying fees to an advisor or fund manager to hold bonds right now, doesn’t make a lot of sense to me.
Lack of diversification? Because if the insurance co goes broke you are stuck with the state’s rickety annuity insurance fund? Which is not as strong as FDIC. Poor tax efficiency? Terrible liquidity?

All of these things are easily worth the yield gap. Easily…. all day long.
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Re: What does your bond portfolio look like in this low interest world?

Post by jayars35 »

I have been ~30% in bonds, but a recent inheritance dropped my bond %. I am now getting it back up to 30%. My bond allocation is split between Schwab short term bond index fund (SWSBX) and the Schwab total bond index ETF that is held in their Target 2035 Index fund (SWYFX).
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Drewski04
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Re: What does your bond portfolio look like in this low interest world?

Post by Drewski04 »

mrspock wrote: Sun May 09, 2021 10:30 pm
Drewski04 wrote: Sun May 09, 2021 10:20 pm
Stinky wrote: Sun May 09, 2021 9:42 pm I’ve moved a good part of my fixed income portfolio to multi year guaranteed annuities (MYGAs). Better yield than bond funds, no market value fluctuations if held to maturity.

I will decide whether to go back into bonds as the MYGAs mature.
A great move in my opinion. In this rate environment, I’m not sure why more people don’t do this, probably an existing negative opinion of annuities.

And Imagine those that are also paying fees to an advisor or fund manager to hold bonds right now, doesn’t make a lot of sense to me.
Lack of diversification? Because if the insurance co goes broke you are stuck with the state’s rickety annuity insurance fund? Which is not as strong as FDIC. Poor tax efficiency? Terrible liquidity?

All of these things are easily worth the yield gap. Easily…. all day long.
What is the last A rated insurance company that went “belly up” and fixed annuity holders lost their money?

Who insures your house and car...do you lose sleep over it not being the FDIC?

Liquidity? Most MYGA’s offer 5% to 10% penalty free withdrawals per year.

Besides, aren’t we talking about long term funds? If liquidity is a concern for a 3-5 year MYGA, then those funds should be in cash.

Tax issues? The annuity grows tax deferred, what about bonds?

Whatever someone chooses is fine, but there is definitely more to look at with Bonds and MYGA’s in this environment.
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Re: What does your bond portfolio look like in this low interest world?

Post by ivgrivchuck »

db55 wrote: Sun May 09, 2021 5:17 pm And what are you holding in your bond portfolio? Total bond market? Short-term bond fund? Municipal bond fund? High Yield? Long Term? Corporate? TIPS? Cash? and are you holding it in a taxable or tax-deferred account.
Maxing out I- and EE-bonds. This has somewhat increased my bond allocation (a little bit anti-Boglehead I admit, but nothing too crazy).
37% VTI | 37% VXUS | 13% I-bonds | 13% EE-bonds
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Leif
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Re: What does your bond portfolio look like in this low interest world?

Post by Leif »

Same as previously. My target is 50/50. I'm a bit over now. I've been rebalancing from stocks to fixed income when my stock allocation exceeds the threshold set in my IPS.

I like to have choices so I have about 5 years of short term fixed income (cash, ST Treasury bonds, ST TIPS). The balance of my fixed income is in TBM and TIPS.
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Re: What does your bond portfolio look like in this low interest world?

Post by stimulacra »

15% EDV (Extended Duration Treasuries)
10% VIPSX (Vanguard Inflation-Protected Securities)
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Re: What does your bond portfolio look like in this low interest world?

Post by placeholder »

Drewski04 wrote: Sun May 09, 2021 10:20 pm
Stinky wrote: Sun May 09, 2021 9:42 pm I’ve moved a good part of my fixed income portfolio to multi year guaranteed annuities (MYGAs). Better yield than bond funds, no market value fluctuations if held to maturity.

I will decide whether to go back into bonds as the MYGAs mature.
A great move in my opinion. In this rate environment, I’m not sure why more people don’t do this, probably an existing negative opinion of annuities.
For the simple reason that my fixed income is in tax deferred which is my 401k and those are not available.
Northern Flicker
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Re: What does your bond portfolio look like in this low interest world?

Post by Northern Flicker »

Currently:

64% stable value fund
20% intermediate treasuries
10% insured CD
3% cash
3% i-bonds
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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db55
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Re: What does your bond portfolio look like in this low interest world?

Post by db55 »

livesoft wrote: Sun May 09, 2021 7:08 pm Our bond portfolio consists of Total US Bond Index, Short-term corporate bond index, and TIAA Traditional Annuity (like a stable value fund).

The ratio is about 82% Total Bond, 12% ST-corp bond, 6% TIAA TA.

@db55, so how does knowing our bond portfolio help you?
Thanks for everyone's feedback.

That's a very good question. :-) I'm asking others about their bond allocation (primarily vs stocks and cash) because at these interest rates I agree with Buffet and believe that bonds are one of the more over-valued asset classes and that the risk/reward balance is not good. Therefore my bond allocation is currently below my normal/desired bond asset allocation. Over the past 12 years this has payed off for me in a big way. Of course I accepted greater risk in order to gain that payoff. Over the past few years, US stocks are also getting pretty pricey, especially large growth stocks. I'm asking others for their inputs to gain their insights on asset allocation in this somewhat extreme environment - to help me to decide whether to bring my bond allocation back up to full normal (which would be 60/40).

Although I generally agree with the Boglehead asset allocation philosophy (set it and forget it), I also believe that at times the market over-reacts (in either direction) and that it makes sense to shift allocation towards under-valued or more fairly-valued assets and away from over-valued assets. Buy low, sell high. And I also agree with Rick Ferri's advice that assets that are unlikely to keep up with inflation should be reduced. Hence my question.

We are living in interesting times.
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Re: What does your bond portfolio look like in this low interest world?

Post by chipperd »

db55 wrote: Mon May 10, 2021 3:52 am
livesoft wrote: Sun May 09, 2021 7:08 pm Our bond portfolio consists of Total US Bond Index, Short-term corporate bond index, and TIAA Traditional Annuity (like a stable value fund).

The ratio is about 82% Total Bond, 12% ST-corp bond, 6% TIAA TA.

@db55, so how does knowing our bond portfolio help you?
Thanks for everyone's feedback.

That's a very good question. :-) I'm asking others about their bond allocation (primarily vs stocks and cash) because at these interest rates I agree with Buffet and believe that bonds are one of the more over-valued asset classes and that the risk/reward balance is not good. Therefore my bond allocation is currently below my normal/desired bond asset allocation. Over the past 12 years this has payed off for me in a big way. Of course I accepted greater risk in order to gain that payoff. Over the past few years, US stocks are also getting pretty pricey, especially large growth stocks. I'm asking others for their inputs to gain their insights on asset allocation in this somewhat extreme environment - to help me to decide whether to bring my bond allocation back up to full normal (which would be 60/40).

Although I generally agree with the Boglehead asset allocation philosophy (set it and forget it), I also believe that at times the market over-reacts (in either direction) and that it makes sense to shift allocation towards under-valued or more fairly-valued assets and away from over-valued assets. Buy low, sell high. And I also agree with Rick Ferri's advice that assets that are unlikely to keep up with inflation should be reduced. Hence my question.

We are living in interesting times.
So based on this post, you are asking if others are dabbling in a bit of market timing with a portion of their portfolio? I mean who are we mere mortals to say what is over vs under valued right?
Myself, I've been purchasing I bonds and VBTIX as part of a rebalancing effort to get back to 50/25/25. Best of luck.
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UpperNwGuy
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Re: What does your bond portfolio look like in this low interest world?

Post by UpperNwGuy »

OP, I think you're performance chasing. First you allowed your AA to tilt towards stocks because stocks were doing well. Now you want to reduce your bonds even further because interest rates are low. Yet you claim to believe in the set it and forget it philosophy.
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Re: What does your bond portfolio look like in this low interest world?

Post by Dude2 »

One perspective is to consider bonds as items that need to "age". Your basket of bonds has a duration, so consider them based on that duration. You can peek inside the oven (or take a sample out of the cask), but the item isn't done yet, so you can't quite draw all your conclusion based on that glimpse or taste. This situation in which real rates have dropped with a result that stocks have done well is surely part of some cycle that will stay for a time and then move onto another phase, averaging out to what you'd expect from such an asset class as bonds. If your plan is to hold some mix of the two asset classes, why should you change your plan? Why did you decide bonds were worth investing in in the first place? This is the crux of the matter with these kinds of posts. Also, who cares what Warren Buffet says?
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Re: What does your bond portfolio look like in this low interest world?

Post by Stinky »

placeholder wrote: Sun May 09, 2021 11:58 pm
Drewski04 wrote: Sun May 09, 2021 10:20 pm
Stinky wrote: Sun May 09, 2021 9:42 pm I’ve moved a good part of my fixed income portfolio to multi year guaranteed annuities (MYGAs). Better yield than bond funds, no market value fluctuations if held to maturity.

I will decide whether to go back into bonds as the MYGAs mature.
A great move in my opinion. In this rate environment, I’m not sure why more people don’t do this, probably an existing negative opinion of annuities.
For the simple reason that my fixed income is in tax deferred which is my 401k and those are not available.
That's right - MYGAs are not available in 401(k) plans. That disqualifies many potential buyers, including me before I rolled my 401(k) into an IRA. (For many folks, the stable value fund within their 401(k) is a very attractive alternative to a bond fund.)

Also, when purchased in a taxable account, any interest withdrawn from a MYGA before the owner is age 59.5 incurs a 10% tax penalty, plus regular income tax. Further, most MYGAs have steep surrender charges for withdrawals prior to the maturity date, so they are best for a "buy and hold" investor.

As with any investment, MYGAs have positives and negatives, and are by no means the best asset class for all fixed income accounts. But they're a useful tool for many folks.

Drewski04 mentioned above that a negative opinion of annuities might hold back many potential buyers. I agree with that. Additionally, I think that a lack of knowledge of the product, and its positives and negatives, also plays a part.
Last edited by Stinky on Mon May 10, 2021 6:12 am, edited 1 time in total.
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bradinsky
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Re: What does your bond portfolio look like in this low interest world?

Post by bradinsky »

Stinky wrote: Sun May 09, 2021 9:42 pm I’ve moved a good part of my fixed income portfolio to multi year guaranteed annuities (MYGAs). Better yield than bond funds, no market value fluctuations if held to maturity.

I will decide whether to go back into bonds as the MYGAs mature.
+1
We did the same thing last December.
BlueCable
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Re: What does your bond portfolio look like in this low interest world?

Post by BlueCable »

100% savings bonds. Probably 2:1 EE to I-Bond since we've been buying I-Bonds longer for our emergency fund.
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Re: What does your bond portfolio look like in this low interest world?

Post by nisiprius »

This is an answer to your question, certainly not a recommendation or even a suggestion.

1) We have made no changes due to "this low interest world" other than to sigh. I can give many reasons for making no changes. Most of the arguments for making changes seem spurious to me. I think I know what my risk tolerance is, and there is nothing I can point to, in fact or in my feelings, to make me think that it has increased.

The only thing I would say is that I see very little difference nowadays between good bank accounts (CDs and high-yield savings), money market mutual funds, and short- term bond funds, so the "reason" why I still have some short-term bond funds is just that I don't see any particular reason to move money around... particularly since it's in a TIRA and I don't want to take a taxable distribution or open a TIRA-titled bank account.

2) Phrases like "this low interest world" and "rising rate environment" and "inflation hedging" are dangerous because they hide a pack of assumptions and predictions, most of which are not the least bit certain. In 2014, Bloomberg polled 68 economists for their six-month forecasts of the ten-year Treasury rate. 68 out of 68 said it would go up, the only question being by how much. It went down.

Anyway: of our fixed income, about:
10% short-term bond funds,
25% Vanguard Total Bond Market Index Fund
40% Vanguard Inflation-Protected Securities Fund
25% Series I savings bonds.

You'll notice an emphasis on inflation indexing. That isn't anything new. I bought my first TIPS bond, as an individual bond, in 1998, i.e. I was an early adopter. The fact that I'm able to have 25% in series I savings bonds tells you two things: first, that I loaded up on them a long time ago when the "fixed rate" (over inflation) was around 3% and the annual purchase limit was $30,000 per person, and, second, that I am in the "mass affluent" wealth category.

The choices of Total Bond and Inflation-Protected Securities funds are both examples of "good enough," not any belief that these are well-tuned optimums.

3) Around 2007 I annuitized about a quarter of our portfolio, which now provides an regular income stream supplementing Social Security. Half is explicit inflation-indexed, half is a TIAA "graded" system in which the payments increase, but not directly tied to inflation. I don't count either Social Security or these annuities as part of our investment portfolio.
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Exchme
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Re: What does your bond portfolio look like in this low interest world?

Post by Exchme »

Bonds don't exist in isolation, there aren't any great places to put your money, so we are seeing, stocks, real estate, commodities, even crypto all through the roof.

I see the dividend stock people touting that idea and shake my head in wonder, they waited until stocks were really high and then bought them.

Annuities are not for me, a lifetime of experience tells me to just avoid insurance products as high commission, low value items.

Thinking about vineviz's advice that we should all hold some long term treasuries as they have tended to do well when the stock market declines, sounds like a good idea, but can't bring myself to do it.

I always hated bonds so held none until the last 5 years (I stupidly held some cash), then increased bonds as retirement neared. Now retired at 80/20-ish, with all the bonds in Total Market. I can't tell if it's market timing or getting more conservative, but with every month that reaches new highs in the stock market, I'm taking half the gains and putting it in bonds. Bonds still have value as a way to squirrel away your gains.
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Re: What does your bond portfolio look like in this low interest world?

Post by dbr »

Exchme wrote: Mon May 10, 2021 7:17 am Bonds don't exist in isolation, there aren't any great places to put your money, so we are seeing, stocks, real estate, commodities, even crypto all through the roof.

I see the dividend stock people touting that idea and shake my head in wonder, they waited until stocks were really high and then bought them.

Annuities are not for me, a lifetime of experience tells me to just avoid insurance products as high commission, low value items.

Thinking about vineviz's advice that we should all hold some long term treasuries as they have tended to do well when the stock market declines, sounds like a good idea, but can't bring myself to do it.

I always hated bonds so held none until the last 5 years (I stupidly held some cash), then increased bonds as retirement neared. Now retired at 80/20-ish, with all the bonds in Total Market. I can't tell if it's market timing or getting more conservative, but with every month that reaches new highs in the stock market, I'm taking half the gains and putting it in bonds. Bonds still have value as a way to squirrel away your gains.
You are close to arriving at the idea of devising an asset allocation that meets your need, ability, and willingness to take risk and rebalancing back to target when one asset outruns the other by too much.
retiredjg
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Re: What does your bond portfolio look like in this low interest world?

Post by retiredjg »

My bond allocation is the same as it has been for several years...mostly total bond index, some Intermediate Term Investment Grade. The ratio is about 80/20 right now, but I don't really care much about that. To me, they are all just "bonds".

My bond allocation's job is to preserve my nest egg for expenses in retirement. I would not bother to go looking for more yield since making the portfolio grow is not its job.
Dave55
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Re: What does your bond portfolio look like in this low interest world?

Post by Dave55 »

mrspock wrote: Sun May 09, 2021 10:30 pm
Drewski04 wrote: Sun May 09, 2021 10:20 pm
Stinky wrote: Sun May 09, 2021 9:42 pm I’ve moved a good part of my fixed income portfolio to multi year guaranteed annuities (MYGAs). Better yield than bond funds, no market value fluctuations if held to maturity.

I will decide whether to go back into bonds as the MYGAs mature.
A great move in my opinion. In this rate environment, I’m not sure why more people don’t do this, probably an existing negative opinion of annuities.

And Imagine those that are also paying fees to an advisor or fund manager to hold bonds right now, doesn’t make a lot of sense to me.
Lack of diversification? Because if the insurance co goes broke you are stuck with the state’s rickety annuity insurance fund? Which is not as strong as FDIC. Poor tax efficiency? Terrible liquidity?

All of these things are easily worth the yield gap. Easily…. all day long.
+1 Agree.

Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
MrLoco
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Re: What does your bond portfolio look like in this low interest world?

Post by MrLoco »

I see these posts and concerns with the future of bonds/bond funds.

My question is : Where else will you put money to act as a ballast to stocks?
Too much cash is not an option. The only real estate I want is my primary home. I am not into crypto (yet).

So for me that leaves a Total Bond Fund in An IRA and a muni bond fund in taxable.
I think the key is to hold these investments long term. The duration on the Total Bond Fund is 6.5 years and the Muni 4.5 years.
If interest rates do rise the new bonds purchased will be at a higher interest rate to offset the decline in the bond value.
And even with current low yields, bonds are still much better than cash. Plus the munis are federal tax free.
I may dabble in TIPS. But I don't sweat my bond funds now.
I am sure if equities drop 50% ; I will be thankful for all my bond funds.

I think if you start "tinkering" too much with an AA; you end up doing more harm than good.
Nowizard
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Re: What does your bond portfolio look like in this low interest world?

Post by Nowizard »

Primarily, ours is what it has always been (Vanguard Total Bond Index) with a 10% tweak of transfer to an intermediate index. Our only concern is our advancing age and awareness that we may not be "long term" investors with a time frame matching that of the Total Bond Index duration. That is a secondary concern, however, since our view is that sometimes you make the most by losing the least. This is a comment that reflects our use of bonds is for safety rather than investment returns and the belief that some of the extensive concern about the low interest for bonds today is due to them having performed more like equities in the relatively recent past, changing return expectations.

Tim
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ApeAttack
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Re: What does your bond portfolio look like in this low interest world?

Post by ApeAttack »

retired@50 wrote: Sun May 09, 2021 5:41 pm
db55 wrote: Sun May 09, 2021 5:17 pm And what are you holding in your bond portfolio?
I hold Vanguard Total Bond Market and Total International Bond Market index funds in a tax-deferred account.

I haven't made any changes. Still re-investing dividends every month.

Regards,
Same for me.

Recently I've been swapping cash for I-Bonds in my EF as well.
Just another lazy index investor who recently found out about I-Bonds (https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm).
tibbitts
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Re: What does your bond portfolio look like in this low interest world?

Post by tibbitts »

Drewski04 wrote: Sun May 09, 2021 10:20 pm
Stinky wrote: Sun May 09, 2021 9:42 pm I’ve moved a good part of my fixed income portfolio to multi year guaranteed annuities (MYGAs). Better yield than bond funds, no market value fluctuations if held to maturity.

I will decide whether to go back into bonds as the MYGAs mature.
A great move in my opinion. In this rate environment, I’m not sure why more people don’t do this, probably an existing negative opinion of annuities.

And Imagine those that are also paying fees to an advisor or fund manager to hold bonds right now, doesn’t make a lot of sense to me.
It's very simple why I haven't done this and most people haven't: I don't know how to just point, click and transfer to/from a MYGA within an existing account, like I can with stock or bond funds (or ETFs, if I had a brokerage account.) A lot of people with significant enough bond holdings for it to matter are also at a stage where they're trying to simplify their holdings, not complicate them.

So since I'm not an expert in MYGAs, am I wrong, and if not how do we fix that problem?
tibbitts
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Re: What does your bond portfolio look like in this low interest world?

Post by tibbitts »

To answer the original question, I moved all the traditional bond funds I had (some GNMA, mostly short/intermediate corporate) to 3% TIAA. However I still have non-Boglehead-approved High Yield Corporate, EM, and Floating Rate bond funds. All of that is in deferred accounts. In taxable, I'm spending down my short-term cash-like (CDs, etc.) funds by sending them to the U.S. Treasury to pay for Roth conversions (of mostly equity funds.)
dbr
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Re: What does your bond portfolio look like in this low interest world?

Post by dbr »

tibbitts wrote: Mon May 10, 2021 9:14 am
Drewski04 wrote: Sun May 09, 2021 10:20 pm
Stinky wrote: Sun May 09, 2021 9:42 pm I’ve moved a good part of my fixed income portfolio to multi year guaranteed annuities (MYGAs). Better yield than bond funds, no market value fluctuations if held to maturity.

I will decide whether to go back into bonds as the MYGAs mature.
A great move in my opinion. In this rate environment, I’m not sure why more people don’t do this, probably an existing negative opinion of annuities.

And Imagine those that are also paying fees to an advisor or fund manager to hold bonds right now, doesn’t make a lot of sense to me.
It's very simple why I haven't done this and most people haven't: I don't know how to just point, click and transfer to/from a MYGA within an existing account, like I can with stock or bond funds (or ETFs, if I had a brokerage account.) A lot of people with significant enough bond holdings for it to matter are also at a stage where they're trying to simplify their holdings, not complicate them.

So since I'm not an expert in MYGAs, am I wrong, and if not how do we fix that problem?
I'm not so sure someone with an accumulated portfolio in high six or in seven figures and with a significant allocation to bonds in 401k and IRA accounts is going to go out and start allocating perhaps $500k to MYGAs just like that. It is more likely such a person would be fine to just maintain whatever asset selection they have always had rather than change everything around.

Note that in historical perspective increasing current yield on those bonds from 1%-2% to 2%-3% or maybe a little more with some risk for a little while is not a very helpful change.

But we all pay our money and take our choice.

https://www.nytimes.com/1988/02/28/maga ... r%20choice.

https://www.zeninvestor.org/you-pays-yo ... r-chances/
bargainhuntingking
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Re: What does your bond portfolio look like in this low interest world?

Post by bargainhuntingking »

Age early 50s, ~30% bonds total.

Comprised roughly of:

50% Total Bond Index
25% Intermediate Term Treasury Index
25% International Bond Index
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ruralavalon
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Re: What does your bond portfolio look like in this low interest world?

Post by ruralavalon »

db55 wrote: Sun May 09, 2021 5:17 pm Hi,
I'm interested in learning what others are doing with their bond portfolio during this period of historically low interest rates and historically high bond prices. Stock prices are also expensive (comparing P/E and dividend yield to historical values), but maybe not as expensive as bonds right now.

Over the past 5 years, have you maintained your original asset allocation between stocks and bonds (70/30, 60/40, 50/50, 40/60, or whatever) and re-balanced every year by selling stocks and buying bonds?

And what are you holding in your bond portfolio? Total bond market? Short-term bond fund? Municipal bond fund? High Yield? Long Term? Corporate? TIPS? Cash? and are you holding it in a taxable or tax-deferred account.

The long term return on bonds can be roughly predicted. The long term return on bonds if held to maturity is roughly equal to today's yield (a little higher if interest rates increase and vice versa). Vanguard Total Bond Market Fund is currently yielding 1.57% with a 6.63 year duration.

Stocks are much more volatile and unpredictable. They've done great over the past decade by they could crash at any time.

Some quotes to stir discussion:
From Warren Buffet's latest annual investor's letter: "Bonds are not the place to be these days." "Fixed-income investors worldwide — whether pension funds, insurance companies or retirees — face a bleak future."

I also just finished reading Rick Ferri's outstanding book "All About Asset Allocation" (it's one of the very best investing books I've read. I'd rank it with the best books from Graham, Bogle, Bernstein, etc. Lots of pertinent data and analysis. Highly recommend.) In his book, he states multiple times that any investment that cannot beat inflation doesn't belong in your portfolio. Beating inflation looks questionable for bonds or cash right now, and bonds beating inflation after taxes looks improbable (to me at least). If Mr. Ferri reads this post, I'd be very interested in his comments.

Thanks.
Age 75, retired. Our asset allocation is 50/50, which we have maintained for about 14 years. We rebalance whenever 5% off target.

Our fixed income is entirely in Vanguard Intermediate-term Bond Index Fund (VBILX) in my rollover IRA and has been for many years. We have no cash allocation.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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