What to add in bond holdings?
What to add in bond holdings?
As the year ends, I'm reviewing our allocations, specifically the bond area. Generally, our AA breaks down like this for all investment accounts:
33/52/12
Munis are roughly 22% of the full invested total.
Corporates about 16%
Gov't issues at 12%
The breakdown within just the bonds:
Munis=45%
Corp=31%
Gov't=24%
I have some cash to invest. Are we better off not adding to the muni total, as that already represents the largest portion of our bond holdings? These are generally some individual bonds and the rest in funds. Trying to be diversified.
Thanks...
33/52/12
Munis are roughly 22% of the full invested total.
Corporates about 16%
Gov't issues at 12%
The breakdown within just the bonds:
Munis=45%
Corp=31%
Gov't=24%
I have some cash to invest. Are we better off not adding to the muni total, as that already represents the largest portion of our bond holdings? These are generally some individual bonds and the rest in funds. Trying to be diversified.
Thanks...
Insert clever comment here...
- Sandtrap
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Re: What to add in bond holdings?
For more comprehensive contextual responses:nesdog wrote: ↑Tue Dec 07, 2021 12:02 pm As the year ends, I'm reviewing our allocations, specifically the bond area. Generally, our AA breaks down like this for all investment accounts:
33/52/12
Munis are roughly 22% of the full invested total.
Corporates about 16%
Gov't issues at 12%
The breakdown within just the bonds:
Munis=45%
Corp=31%
Gov't=24%
I have some cash to invest. Are we better off not adding to the muni total, as that already represents the largest portion of our bond holdings? These are generally some individual bonds and the rest in funds. Trying to be diversified.
Thanks...
(you can edit your post using the "pencil icon")
Notes:
1. It would help to list the funds (names and tickers) and also the ER. (expense ratios).(edit your post)
2. Also, split the lists whether the funds are in "taxable" or "tax advantaged" (401k, IRA, etc) space.
Question:
Why have you gone this path instead of simplifying and diversifying with low cost bond/muni/corp index funds so that only 1 or 2 are needed?
For example: Vanguard Total Bond Index Fund: VBTLX (ER=.05) (fully diversified low cost index fund).
https://investor.vanguard.com/mutual-fu ... file/VBTLX
j
Re: What to add in bond holdings?
The choice to own munis is driven by tax considerations if you do or have to hold bonds in taxable. If munis are the indicated choice then for tax reasons probably all the bonds in that taxable account would be munis. Most people would not hold any munis unless forced to by tax reasons.
Re: What to add in bond holdings?
Agree that tax consideration is the main factor to consider unless your Investment policy statement says you should only own so much in munis versus corps versus govt bonds. In general about half to munis doesn't concern me. At least it didn't bother me back when I owned munis.
Another factor is how much of your munis is in a single state versus national? You may want to limit your exposure to the risk of a single state's bad finances impacting the bond prices.
Another factor is how much of your munis is in a single state versus national? You may want to limit your exposure to the risk of a single state's bad finances impacting the bond prices.
- mrpotatoheadsays
- Posts: 546
- Joined: Fri Mar 16, 2012 2:36 pm
Re: What to add in bond holdings?
Bonds can (or should) be viewed as the stable portion of your portfolio; growth (through risk) can (or should) be achieved through equities.
The tiny benefit of municipals (for highly taxed individuals only) versus Treasuries is not worth the risk. The tiny benefit of corporate bonds (yield) versus Treasuries is not worth the risk; in a down market even short-term corporate bonds have quickly lost 20%.
Therefore, risk can (or should) be taken through equity holdings. Your equity-to-bond allocation correlates to the amount of risk you take. Assume a maximum drawdown of 50% for equities. Diversity can (or should) be achieved through equities. Diversity across equity factors has historically proven to limit drawdown.
Consider the following allocation for your bond partition only:
Intermediate-term Treasury bonds (30%)
Intermediate-term TIPS (20%)
Short-term Treasury bonds (30%)
Short-term TIPS (20%)
Compare the above to the diverse Vanguard Total Bond Market Index in down and/or inflationary markets.
Re: What to add in bond holdings?
If you haven't already maxed out your I bond purchases for 2021, that's what I'd do with the first 10k (single) or 20k (married).
Re: What to add in bond holdings?
+1 It's a no brainer. Even if the I-Bond rate resets to 0% in April (it won't) but even if it did, you'll earn a guaranteed 3.5%+ for the year. Hard to beat that now.
Also, with interest rates likely to increase the price of bond funds may go down.
Re: What to add in bond holdings?
Thanks for the responses.
My initial idea was just to touch on the diversity of the bond totals only. After reading over the posts, I realize I have to really attack a much bigger picture, encompassing my entire portfolio. I need to lay out everything in our usual BH manner and then post for comments. That will be much more useful. Will do so when I get a chance to sort it out.
My initial idea was just to touch on the diversity of the bond totals only. After reading over the posts, I realize I have to really attack a much bigger picture, encompassing my entire portfolio. I need to lay out everything in our usual BH manner and then post for comments. That will be much more useful. Will do so when I get a chance to sort it out.
Insert clever comment here...
Re: What to add in bond holdings?
W. Bernstein says that it's ok to own corporates and munis as long as you have plenty of CDs and treasuries.nesdog wrote: ↑Tue Dec 07, 2021 12:02 pm The breakdown within just the bonds:
Munis=45%
Corp=31%
Gov't=24%
I have some cash to invest. Are we better off not adding to the muni total, as that already represents the largest portion of our bond holdings? These are generally some individual bonds and the rest in funds. Trying to be diversified.
Thanks...
My personal rule is to not go over 30% of my total holdings in munis. Why, because they aren't a safe as treasuries/CDs. I'm more interested in the return of my money rather than the return on my money.
I don't own any corporate/investment grade because I speculate that munis are safer.
Right now, if I was going to put new money in fixed income, I would look hard at duration matched inflation protected treasuries (DMTIPS ).
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Re: What to add in bond holdings?
agreeUpperNwGuy wrote: ↑Thu Dec 09, 2021 7:57 amDiversification is not nearly as important in bonds as it is in stocks. More important issues are yield, safety, and tax situation.
Taxes are important.
It's all about the quality of the holdings.
Didn't Larry Swedroe recommend AAA or better?