Bond alternative?

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riptide
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Bond alternative?

Post by riptide »

Are there any safe low risk funds they are an alternative to Bond Funds? I am tired of the Bond Fund. It seems to go down more than just hold your funds.
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Re: Bond alternative?

Post by indexfundfan »

There are MYGAs, which behave like CDs.

viewtopic.php?t=334589
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Re: Bond alternative?

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xyzzy
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Re: Bond alternative?

Post by Stinky »

riptide wrote: Tue Jan 18, 2022 5:13 pm I am tired of the Bond Fund. It seems to go down more than just hold your funds.
Another vote for MYGAs. For example, you can get up to 2.50% for a three year product from an “A” rated company.

And, even if interest rates go up, you’ll receive full principal and interest, without market value adjustment, at maturity.
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Re: Bond alternative?

Post by willthrill81 »

riptide wrote: Tue Jan 18, 2022 5:13 pm Are there any safe low risk funds they are an alternative to Bond Funds? I am tired of the Bond Fund. It seems to go down more than just hold your funds.
I bonds can be bought directly through the Treasury. They are currently paying a little over 7% interest. There are many threads about them.
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Re: Bond alternative?

Post by Chamade »

indexfundfan wrote: Tue Jan 18, 2022 5:18 pm There are MYGAs, which behave like CDs.

viewtopic.php?t=334589
I am curious, since we have received a windfall from house sale and would
like to use part of the money to create a safe haven that can be accessed
starting in about 2 years. Currently 95% of our invested assets are in VTSAX.
Would MYGAs be a good alternative to bond investing fund at this point in time?
About 300k.
exodusNH
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Re: Bond alternative?

Post by exodusNH »

Chamade wrote: Tue Jan 18, 2022 9:56 pm
indexfundfan wrote: Tue Jan 18, 2022 5:18 pm There are MYGAs, which behave like CDs.

viewtopic.php?t=334589
I am curious, since we have received a windfall from house sale and would
like to use part of the money to create a safe haven that can be accessed
starting in about 2 years. Currently 95% of our invested assets are in VTSAX.
Would MYGAs be a good alternative to bond investing fund at this point in time?
About 300k.
They can be, if you will be at least 59.5 when it matures. Otherwise, you'll face a tax penalty OR have to roll it into another MYGA or other qualifying insurance product.
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Re: Bond alternative?

Post by Stinky »

Chamade wrote: Tue Jan 18, 2022 9:56 pm
indexfundfan wrote: Tue Jan 18, 2022 5:18 pm There are MYGAs, which behave like CDs.

viewtopic.php?t=334589
I am curious, since we have received a windfall from house sale and would like to use part of the money to create a safe haven that can be accessed starting in about 2 years. Currently 95% of our invested assets are in VTSAX.

Would MYGAs be a good alternative to bond investing fund at this point in time?

About 300k.
Several points to bring up about this:
1. The selection of products for 2 year MYGAs is pretty limited. In my state, Oceanview (rated A- by AM Best) offers a 2.00% rate on a 2 year MYGA. See this link. https://www.blueprintincome.com/fixed-a ... AL&terms=2

There is just one other company on the Blueprint Income website for my state that offers a 2 year MYGA - SILAC. They currently pay 2.15% for a product with no withdrawals before the end of the 2 years, and 1.75% for a product that offers withdrawals of 10% per year I believe. SILAC's rating from AM Best is only B+.

You will have a larger selection of products, and higher rates, if you can go for 3 years or longer.

2. With $300k to invest, you'll be above the guaranty fund limit for most states. Many Bogleheads who purchase MYGAs do not exceed their state guaranty fund limits when they purchase a MYGA. Here's a link that will lead you to the website of your state guaranty fund. You should familiarize yourself with guaranty fund protection before you purchase a MYGA. https://www.nolhga.com/policyholderinfo ... ocation/ga

3. Most MYGAs, including those cited here, have steep surrender charges for withdrawals prior to the expiration of the guaranty period. Many, but not all, allow limited "free partial withdrawals", often 10% per year, without penalty prior to expiration.

4. If you receive interest from an annuity prior to age 59.5, you will incur a tax penalty of 10% of the interest earned, in addition to regular taxable income being reported to you.

I'm not trying to dissuade you - just present you with relevant facts and thoughts.

Please post back with questions.
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Re: Bond alternative?

Post by indexfundfan »

Agree with all the points mentioned by Stinky. You can get a better range of products if you can extend to 3 years. Oceanview and Gainbridge.life, both rated A-, offer the 3-yr at 2.5%.

If you are below age 59.5, the higher interest rates from MYGAs compared to CD alternatives will still get you a better yield even with the 10% tax penalty. For example, instead of getting 2.5% for the 3-year MYGA, you will get 2.25%.

Nevertheless, with $300k, I would probably start with putting $20k (for a couple) into I bonds first.
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Re: Bond alternative?

Post by dbr »

Let me attempt a list of things that maintain a face value and don't go up and down:

1. Currency
2. Checking accounts
3. Savings accounts
4. CDs
5. Savings Bonds (I and EE bonds have special terms and conditions you can check at Treasury Direct)
6. Fixed annuities from MYGAs that return the money to life annuities that have a cash value of zero from the beginning but pay a fixed income. Pension and Social Security payments fall in this category.
7. Stable value funds in a 401k
8. Bonds held to maturity, though in the interim the market price varies. This could include the TIPS Liability Matching Portfolio for income.
9. Fixed mortgages or loans in the sense of being a negative face value "bond" which usually is being paid down in a fixed manner.

Maybe I forgot something.
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Re: Bond alternative?

Post by riptide »

willthrill81 wrote: Tue Jan 18, 2022 9:18 pm
riptide wrote: Tue Jan 18, 2022 5:13 pm Are there any safe low risk funds they are an alternative to Bond Funds? I am tired of the Bond Fund. It seems to go down more than just hold your funds.
I bonds can be bought directly through the Treasury. They are currently paying a little over 7% interest. There are many threads about them.
I Bonds are now paying 7%!? That is outstanding if I understand that correctly. I currenlty have EE series Treasury Bonds that mature September 2022. I will look into gettting into I Bonds, if this is with Treasury Direct.
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Re: Bond alternative?

Post by UnLearnYourself »

riptide wrote: Tue Jan 18, 2022 5:13 pm Are there any safe low risk funds they are an alternative to Bond Funds? I am tired of the Bond Fund. It seems to go down more than just hold your funds.
I just transferred my Fidelity "intermediate bond' fund for Fidelity "fixed income" fund (stable value fund), paying 2.5% historically. Not exciting, but my understanding is the yield is contracted, and less volatile. Not sure I'll hold it like this forever, but seemed to be a better place to park my bond allocation for now.
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Re: Bond alternative?

Post by dbr »

riptide wrote: Tue Jan 18, 2022 5:13 pm It seems to go down more than just hold your funds.
What does this mean? It is a property of bond funds that the NAV (price of a share) is variable, both up and down, and that the return, which also includes the value of your holding with distributions reinvested, can be positive or negative for any particular period of time.

As an example the 1, 5, and 10 year compound annual returns of Vanguard total bond fund as of 12/31/21 have been -1.67%, 3.58%, and 2.86%. So in the last year the return was negative and average over recent years has been positive. It is entirely possible the return for 2022 will be negative. Over the last 34 years or so the standard deviation of annual returns has been +/- 3.8% against a compound average of 5.7%. The maximum drawdown has been a loss of 5.9%. It isn't known what the average return over the next 34 years might be. The current direction of the fund if you use SEC yield as an estimate is +1.66% but much can happen over time.

Is this a problem that you did not anticipate?
Last edited by dbr on Wed Jan 19, 2022 2:42 pm, edited 1 time in total.
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Re: Bond alternative?

Post by patrick »

US savings bonds, as well as the best checking and savings accounts, currently yield much higher than regular bonds:

* 7.12% on Series I US savings bonds for 6 months, then periodically adjusts based on recent inflation. $10,000 annual purchase limit, no redemption allowed for one year, defers federal taxes, avoids state taxes.
* 6.17% at Digital Credit Union. $1,000 limit.
* 6% at H-E-B Debit. $2,000 limit. Requires some activity every 90 days to avoid fees, a $1 ACH push is sufficient.
* 5% at Service Credit Union. $500 limit, you can also get 3% on an additional $3,000.
* 4.07% at Genisys Credit Union. $7,500 limit, requires 10 debit purchases of $5 or more each month.
* 3.3% at Evansville Teachers Federal Credit Union. $20,000 limit, requires 15 debit purchases (any amount) each month and an electronic deposit.
* 3% at One Finance. No limit, but funding the 3% account is limited to 10% payroll/benefits direct deposits, up to a maximum of $1,000 per month.
* 1% at T-Mobile Money. No limit or requirements.
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Re: Bond alternative?

Post by dbr »

patrick wrote: Wed Jan 19, 2022 2:38 pm US savings bonds, as well as the best checking and savings accounts, currently yield much higher than regular bonds:

* 7.12% on Series I US savings bonds for 6 months, then periodically adjusts based on recent inflation. $10,000 annual purchase limit, no redemption allowed for one year, defers federal taxes, avoids state taxes.
* 6.17% at Digital Credit Union. $1,000 limit.
* 6% at H-E-B Debit. $2,000 limit. Requires some activity every 90 days to avoid fees, a $1 ACH push is sufficient.
* 5% at Service Credit Union. $500 limit, you can also get 3% on an additional $3,000.
* 4.07% at Genisys Credit Union. $7,500 limit, requires 10 debit purchases of $5 or more each month.
* 3.3% at Evansville Teachers Federal Credit Union. $20,000 limit, requires 15 debit purchases (any amount) each month and an electronic deposit.
* 3% at One Finance. No limit, but funding the 3% account is limited to 10% payroll/benefits direct deposits, up to a maximum of $1,000 per month.
* 1% at T-Mobile Money. No limit or requirements.
Good list. And a note about I bonds is that if inflation would fall back to 3%, or whatever it does, then the interest on those bonds will also fall to that number, just so no one misunderstands that the current 7.12% is not for as long as the bond is held.
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Re: Bond alternative?

Post by riptide »

Unfortunately, I don't understand I bonds and have just a few questions. Is there a number to call at Treaury Direct to ask questions?? I have EE Bonds that were given to me 30 years ago, and mature this year! What a kind gift from my parents!! I would like to do this for my children. I just need to learn a bit about I bounds. Am only familiar with EE Series Bonds.....
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Re: Bond alternative?

Post by exodusNH »

riptide wrote: Wed Jan 19, 2022 3:10 pm Unfortunately, I don't understand I bonds and have just a few questions. Is there a number to call at Treaury Direct to ask questions?? I have EE Bonds that were given to me 30 years ago, and mature this year! What a kind gift from my parents!! I would like to do this for my children. I just need to learn a bit about I bounds. Am only familiar with EE Series Bonds.....
They're basically the same, except they have a fixed-at-issuance interest rate (currently 0%) and a variable rate that's tied to the inflation number. That gets reset every May and November and is applied to every bond on their 6 month "anniversary". When you buy a bond, whatever the variable rate was last set at is in effect for 6 months.

If you buy right now, your bond will have an issue date of January 1, 2022. The fixed rate is 0. The variable rate is 7.12%, which was determined in Nov 2021.

May 1, 2022: fixed rate set for all new bonds, e.g. Y%. New variable rate set, e.g. Z%. Bonds purchased between then and Oct 31 will have these rates.

On June 1, the January bond gets assigned the new variable rate of Z%. Fixed rate is still 0, not Y% since the fixed rate is set at issue.

On November 1, 2022, the May process resets. Fixed rate of X%, variable rate W%.

On Dec 1, 2022, your bond's variable rate is set to W%.

Repeat this cycle until you cash the bonds in.
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Re: Bond alternative?

Post by bikechuck »

Stinky wrote: Tue Jan 18, 2022 8:09 pm
riptide wrote: Tue Jan 18, 2022 5:13 pm I am tired of the Bond Fund. It seems to go down more than just hold your funds.
Another vote for MYGAs. For example, you can get up to 2.50% for a three year product from an “A” rated company.

And, even if interest rates go up, you’ll receive full principal and interest, without market value adjustment, at maturity.
Can you own MYGAs in an IRA? If so, do you purchase them directly from an insurance company and how would you do so with funds currently invested with a broker such as Vanguard, Schwab or Fidelity?
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Re: Bond alternative?

Post by Stinky »

bikechuck wrote: Wed Jan 19, 2022 4:23 pm
Stinky wrote: Tue Jan 18, 2022 8:09 pm
riptide wrote: Tue Jan 18, 2022 5:13 pm I am tired of the Bond Fund. It seems to go down more than just hold your funds.
Another vote for MYGAs. For example, you can get up to 2.50% for a three year product from an “A” rated company.

And, even if interest rates go up, you’ll receive full principal and interest, without market value adjustment, at maturity.
Can you own MYGAs in an IRA? If so, do you purchase them directly from an insurance company and how would you do so with funds currently invested with a broker such as Vanguard, Schwab or Fidelity?
Yes, you can own MYGAs in an IRA or a Roth IRA.

In my case, I worked through an agency (Blueprint Income) to commit to an insurers product. I then moved funds into my settlement account at Vanguard, and the insurance company directly requested a transfer of the funds from my settlement account.
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Re: Bond alternative?

Post by riptide »

Did the 7% rate happen just this year?! The rate was near 0% just a few years ago. I gave up on getting any new treasury bonds because they made nothing. This is awesome! What changed?
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Re: Bond alternative?

Post by Parkinglotracer »

patrick wrote: Wed Jan 19, 2022 2:38 pm US savings bonds, as well as the best checking and savings accounts, currently yield much higher than regular bonds:

* 7.12% on Series I US savings bonds for 6 months, then periodically adjusts based on recent inflation. $10,000 annual purchase limit, no redemption allowed for one year, defers federal taxes, avoids state taxes.
* 6.17% at Digital Credit Union. $1,000 limit.
* 6% at H-E-B Debit. $2,000 limit. Requires some activity every 90 days to avoid fees, a $1 ACH push is sufficient.
* 5% at Service Credit Union. $500 limit, you can also get 3% on an additional $3,000.
* 4.07% at Genisys Credit Union. $7,500 limit, requires 10 debit purchases of $5 or more each month.
* 3.3% at Evansville Teachers Federal Credit Union. $20,000 limit, requires 15 debit purchases (any amount) each month and an electronic deposit.
* 3% at One Finance. No limit, but funding the 3% account is limited to 10% payroll/benefits direct deposits, up to a maximum of $1,000 per month.
* 1% at T-Mobile Money. No limit or requirements.
I just opened up a t Mobile checking act. 1% fdic inured. Customer Support not great to date.
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Re: Bond alternative?

Post by TheGreyingDuke »

riptide wrote: Thu Jan 20, 2022 7:53 am Did the 7% rate happen just this year?! The rate was near 0% just a few years ago. I gave up on getting any new treasury bonds because they made nothing. This is awesome! What changed?
The variable rate is linked to the inflation rate; inflation is up and so is the variable rate
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Re: Bond alternative?

Post by TheGreyingDuke »

riptide wrote: Wed Jan 19, 2022 3:10 pm Unfortunately, I don't understand I bonds and have just a few questions. Is there a number to call at Treaury Direct to ask questions?? I have EE Bonds that were given to me 30 years ago, and mature this year! What a kind gift from my parents!! I would like to do this for my children. I just need to learn a bit about I bounds. Am only familiar with EE Series Bonds.....
If you are income qualified, you can deposit the proceeds of the bonds into 529 plan accounts for your dependents.

https://dwdcpa.com/resources/insights/t ... -529-plans
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Re: Bond alternative?

Post by dbr »

riptide wrote: Thu Jan 20, 2022 7:53 am Did the 7% rate happen just this year?! The rate was near 0% just a few years ago. I gave up on getting any new treasury bonds because they made nothing. This is awesome! What changed?
It is NOT good news that the variable rate is up because inflation has spiked. It might be good news that people who bought I bonds all along and have a lot of money in them have that money protected from inflation while people invested other ways will have to depend on their portfolios otherwise to maintain support for increasing spending. Balanced portfolios of stocks and bonds are generally able to weather inflation over time, TIPS are indexed up for inflation, Social Security is inflation indexed, payments from fixed pensions and annuities are eaten away, tax rates may be increased on increased income if or until cut points and benefits are indexed up, and so on. Property taxes on housing can be a problem. Not all budgets are equally affected by inflation depending in what items increase the most in price.
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Re: Bond alternative?

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Thank you. I see on Treaury Direct you can Direct Buy. I saw that the rate for EE Bonds is a sorry .10 percent! Nothing changed! I have 30 year bonds that mature Sept 2022 that are at 4%! Excellent. So, I won't buy any more EE Bonds. The I bonds have a 7% rate , while EE have .10 rate? This does not make sense. Isn't the fixed rate what is most important for owning a treasury bond?
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Re: Bond alternative?

Post by TheGreyingDuke »

riptide wrote: Fri Jan 21, 2022 7:29 am Thank you. I see on Treaury Direct you can Direct Buy. I saw that the rate for EE Bonds is a sorry .10 percent! Nothing changed! I have 30 year bonds that mature Sept 2022 that are at 4%! Excellent. So, I won't buy any more EE Bonds. The I bonds have a 7% rate , while EE have .10 rate? This does not make sense. Isn't the fixed rate what is most important for owning a treasury bond?
Perhaps, and knowing that the fixed rate on the I Bond is 0% makes them look especially unappealing in some scenarios.
The two instruments serve different purposes.
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Re: Bond alternative?

Post by furiouschads »

I turned some of my bond money into solar panels.

Another idea:

7% nominal BAC and WF non-callable $1,000 denomination preferred stock. From time to time they go on sale. High denomination removes them from the sights of most preferred stock investors. See http://www.philosophicaleconomics.com/2 ... ed-stocks/

iBonds of course.
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Re: Bond alternative?

Post by riptide »

TheGreyingDuke wrote: Fri Jan 21, 2022 7:51 am
riptide wrote: Fri Jan 21, 2022 7:29 am Thank you. I see on Treaury Direct you can Direct Buy. I saw that the rate for EE Bonds is a sorry .10 percent! Nothing changed! I have 30 year bonds that mature Sept 2022 that are at 4%! Excellent. So, I won't buy any more EE Bonds. The I bonds have a 7% rate , while EE have .10 rate? This does not make sense. Isn't the fixed rate what is most important for owning a treasury bond?
Perhaps, and knowing that the fixed rate on the I Bond is 0% makes them look especially unappealing in some scenarios.
The two instruments serve different purposes.
With I Bond at O% whats the use of buying any Treaury Bonds! I will wait until the rate goes back up to 2,3, or 4 or more percent!
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Re: Bond alternative?

Post by Da5id »

riptide wrote: Fri Jan 21, 2022 8:39 am
TheGreyingDuke wrote: Fri Jan 21, 2022 7:51 am
riptide wrote: Fri Jan 21, 2022 7:29 am Thank you. I see on Treaury Direct you can Direct Buy. I saw that the rate for EE Bonds is a sorry .10 percent! Nothing changed! I have 30 year bonds that mature Sept 2022 that are at 4%! Excellent. So, I won't buy any more EE Bonds. The I bonds have a 7% rate , while EE have .10 rate? This does not make sense. Isn't the fixed rate what is most important for owning a treasury bond?
Perhaps, and knowing that the fixed rate on the I Bond is 0% makes them look especially unappealing in some scenarios.
The two instruments serve different purposes.
With I Bond at O% whats the use of buying any Treaury Bonds! I will wait until the rate goes back up to 2,3, or 4 or more percent!
Bonds have bad yields, US stocks are perhaps overpriced, yet invest we must... You seem very focused on nominal rather than real yield. Do you have a plan for your investments? If not, you should make one rather than trying to time the market. If so, where does that plan say your money should go?

As to I-bonds, they are a great emergency fund holding. Not necessarily a great long term retirement fund holding, but in the short term the 7.12% composite yield is really good.
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Re: Bond alternative?

Post by bikechuck »

Stinky wrote: Wed Jan 19, 2022 4:30 pm
bikechuck wrote: Wed Jan 19, 2022 4:23 pm
Stinky wrote: Tue Jan 18, 2022 8:09 pm
riptide wrote: Tue Jan 18, 2022 5:13 pm I am tired of the Bond Fund. It seems to go down more than just hold your funds.
Another vote for MYGAs. For example, you can get up to 2.50% for a three year product from an “A” rated company.

And, even if interest rates go up, you’ll receive full principal and interest, without market value adjustment, at maturity.
Can you own MYGAs in an IRA? If so, do you purchase them directly from an insurance company and how would you do so with funds currently invested with a broker such as Vanguard, Schwab or Fidelity?
Yes, you can own MYGAs in an IRA or a Roth IRA.

In my case, I worked through an agency (Blueprint Income) to commit to an insurers product. I then moved funds into my settlement account at Vanguard, and the insurance company directly requested a transfer of the funds from my settlement account.
Thanks so much!
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Re: Bond alternative?

Post by BruinBones »

If you have a 401k that has a Stable Value Fund, then their contracted (nearly guaranteed) rate is an attractive alternative to bond funds. The G fund (guaranteed not to lose value from inflation) is similar and a nice option for you. I use both for 95% of my bond allocation.
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Re: Bond alternative?

Post by willthrill81 »

furiouschads wrote: Fri Jan 21, 2022 8:10 am I turned some of my bond money into solar panels.
In the right circumstances, that can be a fantastic move.

We pay about the least for electricity of anyone in the nation, making solar a poor investment as of now at least (payback period over 20 years).
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Re: Bond alternative?

Post by willthrill81 »

Da5id wrote: Fri Jan 21, 2022 8:52 am As to I-bonds, they are a great emergency fund holding. Not necessarily a great long term retirement fund holding, but in the short term the 7.12% composite yield is really good.
The bond market is expecting bonds to lag inflation for at least the next decade, so I bonds are definitely better than that. Historically, being guaranteed to match inflation with one's fixed income was not a bad option. Marketable bonds returned -1.6% real from 1941-1981.
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Re: Bond alternative?

Post by riptide »

BruinBones wrote: Fri Jan 21, 2022 10:52 am If you have a 401k that has a Stable Value Fund, then their contracted (nearly guaranteed) rate is an attractive alternative to bond funds. The G fund (guaranteed not to lose value from inflation) is similar and a nice option for you. I use both for 95% of my bond allocation.
I have TSP , i'm a Federal Employee. I never thought of holding my Bond allocation in my TSP. I have a brokerage account as well. I hold some total bond fund in my Brokerage, but I don't hold any G fund. My TSP is set for set it and forget it with 70%C 30% S fund!
Brokerage account-100% stocks | VG total Market 55% | VG small cap value 20% | VG Reit index 25% | | TSP Account 75C/25S | C Fund75%, S25%, | | Bonds: U.S. Treasury 5 year Note, 1 year T Bill
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riptide
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Re: Bond alternative?

Post by riptide »

Da5id wrote: Fri Jan 21, 2022 8:52 am
riptide wrote: Fri Jan 21, 2022 8:39 am
TheGreyingDuke wrote: Fri Jan 21, 2022 7:51 am
riptide wrote: Fri Jan 21, 2022 7:29 am Thank you. I see on Treaury Direct you can Direct Buy. I saw that the rate for EE Bonds is a sorry .10 percent! Nothing changed! I have 30 year bonds that mature Sept 2022 that are at 4%! Excellent. So, I won't buy any more EE Bonds. The I bonds have a 7% rate , while EE have .10 rate? This does not make sense. Isn't the fixed rate what is most important for owning a treasury bond?
Perhaps, and knowing that the fixed rate on the I Bond is 0% makes them look especially unappealing in some scenarios.
The two instruments serve different purposes.
With I Bond at O% whats the use of buying any Treaury Bonds! I will wait until the rate goes back up to 2,3, or 4 or more percent!
Bonds have bad yields, US stocks are perhaps overpriced, yet invest we must... You seem very focused on nominal rather than real yield. Do you have a plan for your investments? If not, you should make one rather than trying to time the market. If so, where does that plan say your money should go?

As to I-bonds, they are a great emergency fund holding. Not necessarily a great long term retirement fund holding, but in the short term the 7.12% composite yield is really good.

Yes, I have a plan for both my Brokerage account and my TSP account. I just don't agree with the ultra conservative investing perspective of Bogleheads.
Brokerage account-100% stocks | VG total Market 55% | VG small cap value 20% | VG Reit index 25% | | TSP Account 75C/25S | C Fund75%, S25%, | | Bonds: U.S. Treasury 5 year Note, 1 year T Bill
Da5id
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Re: Bond alternative?

Post by Da5id »

riptide wrote: Fri Jan 21, 2022 11:03 am Yes, I have a plan for both my Brokerage account and my TSP account. I just don't agree with the ultra conservative investing perspective of Bogleheads.
Wait, you asked a question in Bogleheads expecting an answer that isn't in line with what Boglehead's members generally think? Regardless, what aspect of my answer was "ultra conservative" in particular? And given that the original question was looking for "safe low risk funds", how far out there can the answers really be anyway?
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emlowe
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Re: Bond alternative?

Post by emlowe »

riptide wrote: Fri Jan 21, 2022 7:29 am Thank you. I see on Treaury Direct you can Direct Buy. I saw that the rate for EE Bonds is a sorry .10 percent! Nothing changed! I have 30 year bonds that mature Sept 2022 that are at 4%! Excellent. So, I won't buy any more EE Bonds. The I bonds have a 7% rate , while EE have .10 rate? This does not make sense. Isn't the fixed rate what is most important for owning a treasury bond?
You do understand that if you hold the EE bond for 20 years, it doubles which equates to 3.527%/yr.

There is a one-time adjustment done at 20 years that doubles the bond. So it's an interesting investment with a pretty long holding period to get the doubling.

The I-Bond variable rate moves up in down every 6 months with inflation, so sometimes it pays quite a bit, other times it can pay 0. It will never go less than zero though. The I-Bond fixed rate is currently 0%, which is not likely to change. But the composite rate is very attractive right now.
Ferri Core 4: 40% Bonds | 6% Reit | 18% Total i18n | 36% Total US
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Re: Bond alternative?

Post by dbr »

riptide wrote: Fri Jan 21, 2022 7:29 am Thank you. I see on Treaury Direct you can Direct Buy. I saw that the rate for EE Bonds is a sorry .10 percent! Nothing changed! I have 30 year bonds that mature Sept 2022 that are at 4%! Excellent. So, I won't buy any more EE Bonds. The I bonds have a 7% rate , while EE have .10 rate? This does not make sense. Isn't the fixed rate what is most important for owning a treasury bond?
No. The most important thing in owning I bonds is getting an inflation adjustment with no interest rate risk. The offset to that is that right now you guarantee that the real return will be zero. A lot of people are going to find themselves bit in butt when they realize the implications of that. EE bonds are a peculiar long term investment that seems just odd to me.

The real problem is that people just can't stand that they can't have what they want all the time.
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Re: Bond alternative?

Post by Da5id »

dbr wrote: Sat Jan 22, 2022 10:10 am The most important thing in owning I bonds is getting an inflation adjustment with no interest rate risk. The offset to that is that right now you guarantee that the real return will be zero. A lot of people are going to find themselves bit in butt when they realize the implications of that.
I think the "bit in the butt" part of I-bonds isn't very severe though. Selling out of them to switch to something more to your liking doesn't have huge consequences other than the federal tax bill on the interest coming due. The purchase limits do make it so that you can only very slowly switch back into an I-bond holding once sold though. I-bonds are currently better than the alternatives, but assuming inflation tames (who knows when that will be?) they may again become worse.
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Re: Bond alternative?

Post by dbr »

Da5id wrote: Sat Jan 22, 2022 10:18 am
dbr wrote: Sat Jan 22, 2022 10:10 am The most important thing in owning I bonds is getting an inflation adjustment with no interest rate risk. The offset to that is that right now you guarantee that the real return will be zero. A lot of people are going to find themselves bit in butt when they realize the implications of that.
I think the "bit in the butt" part of I-bonds isn't very severe though. Selling out of them to switch to something more to your liking doesn't have huge consequences other than the federal tax bill on the interest coming due. The purchase limits do make it so that you can only very slowly switch back into an I-bond holding once sold though. I-bonds are currently better than the alternatives, but assuming inflation tames (who knows when that will be?) they may again become worse.
Yeah, the rules make it impossible to play much of a game with I bonds, other than setting up ten or twenty trusts to hold the money. It is probably a good thing. But a result is that the whole thing is a tempest in a teapot.

In fifty years of investing my mindset has never worked in the direction of what is currently better than something else, but a lot of people do invest that way so more power to them. I will grant that my current situation is biased by having a couple or three decades of things that were better. I admit it was a mistake to have not maxed I bonds when the fixed rate was 2%-3% or so. That was between 1998 and 2002, which was not much time to invest very much, especially for people maxing out tax deferred investing and not having very large bond allocations.
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