Individual Bonds vs Bond funds
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Individual Bonds vs Bond funds
First of all I come in peace.lol
I agree with the BH philosophy but this one I don't understand so please let me know what I'm missing.
It seems to make more sense to buy individual high quality bonds and if you hold them to maturity you never incur a loss. A bond fund, in a rising interest rate environment will see a big hit in NAV as we've just seen. It seems like a painful unnecessary lose that can be easily avoided.
Yes it definitely takes more effort and a willingness to learn about buying individual bonds but with some basic conservative guidance that some firms offer,
it can easily be done.
This is not an attack on the BH philosophy
but rather just starting a conversation.
I agree with the BH philosophy but this one I don't understand so please let me know what I'm missing.
It seems to make more sense to buy individual high quality bonds and if you hold them to maturity you never incur a loss. A bond fund, in a rising interest rate environment will see a big hit in NAV as we've just seen. It seems like a painful unnecessary lose that can be easily avoided.
Yes it definitely takes more effort and a willingness to learn about buying individual bonds but with some basic conservative guidance that some firms offer,
it can easily be done.
This is not an attack on the BH philosophy
but rather just starting a conversation.
Re: Individual Bonds vs Bond funds
https://www.bogleheads.org/wiki/Individ ... _bond_fund
Probably one should read everything that turns up here:
https://www.bogleheads.org/w/index.php? ... fulltext=1
Also read Larry Swedroe's or others books on bonds (search Amazon). The specific issue is Chapter 11 in Larry's book.
Probably one should read everything that turns up here:
https://www.bogleheads.org/w/index.php? ... fulltext=1
Also read Larry Swedroe's or others books on bonds (search Amazon). The specific issue is Chapter 11 in Larry's book.
Last edited by dbr on Fri Jul 01, 2022 4:50 pm, edited 1 time in total.
Re: Individual Bonds vs Bond funds
What you're suggesting is fine, but managing such individual bond ladders is a big hassle.
Re: Individual Bonds vs Bond funds
I prefer individual bonds. It's my personal preference.
However, individual bonds do go down in value. I have some TIPS that I bought that are negative right now. I do know that I will be made whole when they mature. But they do show up in my portfolio as negative since I would get less than I paid for them right now.
So definitely think through duration needs.
However, individual bonds do go down in value. I have some TIPS that I bought that are negative right now. I do know that I will be made whole when they mature. But they do show up in my portfolio as negative since I would get less than I paid for them right now.
So definitely think through duration needs.
Re: Individual Bonds vs Bond funds
Note there is no BH dictum that says people should not own individual bonds. Lots of posters here do exactly that.
Due to costs and risks that is best done with Treasuries. It would be a bad idea to do that with corporates and especially not with high yield bonds. Munis are probably somewhere in between.
It is not impossible to lose money on an individual bond if you pay a premium for it. That is more common in terms of real yields than nominal yields.
Due to costs and risks that is best done with Treasuries. It would be a bad idea to do that with corporates and especially not with high yield bonds. Munis are probably somewhere in between.
It is not impossible to lose money on an individual bond if you pay a premium for it. That is more common in terms of real yields than nominal yields.
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Re: Individual Bonds vs Bond funds
How to mitigate the interest rate risk of a bond fund...bowerynation86 wrote: ↑Fri Jul 01, 2022 4:41 pm A bond fund, in a rising interest rate environment will see a big hit in NAV as we've just seen.
MarketWatch article linkTo maintain their average duration, bond funds employ what’s known as a bond ladder. With a ladder, the proceeds of any bond that matures are reinvested in another bond with a sufficiently long maturity and duration so that the ladder’s average remains more or less unchanged.
Notice what this means for how a bond ladder responds when interest rates rise. Though the prices of previously-held bonds will decline, new bonds will constantly be added to the portfolio with higher yields. It turns out that over time, those higher yields make up for those price declines.
How long must you hold for this happy result to occur? One year less than twice the bond ladder’s average duration. That’s according to a formula derived by Martin Leibowitz and Anthony Bova, managing director and executive director at Morgan Stanley, respectively, and Stanley Kogelman, a principal at New York-based investment-advisory firm Advanced Portfolio Management. They presented it in an article published in 2015 in the Financial Analysts Journal, entitled "Bond Ladders and Rolling Yield Convergence."
From Northern Flicker:
post linkN years of retirement liabilities has a (Macaulay) duration of about (N + 1)/2 not N. So if you are funding 15 years, you would start with a duration of 8, and shorten the duration by half a year each year. Durations shorter than 8 would be set by holding a mix of VTIP/VTAPX and VAIPX. STIP is another short TIPS fund, and FIPDX and SCHP are other intermediate TIPS funds.
You also can consider that your retirement liabilities may be longer or shorter than projected, and if shorter, they may increase on a per year basis. This creates an asymmetry where the expected value of the duration of liabilities generally is shorter than the (deterministic) duration of projected liabilities.
A married couple where both do not die at the same time also creates some front loading of expenses, and shortening of expected duration.
K years from retirement with N years to be funded in retirement, the duration is approximately given by K + (N + 1)/2.
Asset duration should be matched to either the duration or expected duration of liabilities, not to the investment time horizon.
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Re: Individual Bonds vs Bond funds
Interesting read.
Thanks for the input.
Thanks for the input.
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Re: Individual Bonds vs Bond funds
Let's say I want to retire in 30 years and expect to withdraw from my bond portfolio for 30 years beyond that. One thing I could try to do is buy individual bonds and form a ladder with some maturing in year 30, some in 31, and so forth up to 60. Except there aren't really 60-year bonds, and perhaps even a 30-year bond is longer than I want to commit to if I think there's a good chance rates will go up in the future and I want to benefit from that.
So another thing I could do instead is construct a rolling bond ladder with a mix of 3, 5 and 10-year bonds because that's the longest term I'm comfortable with. Ok, well now I just created a duration-targeted bond fund. Since those already exist and have low expenses, I'll just buy one instead of making my own.
As I get closer to retirement (say within 10-15 years), I'll have to plan carefully and potentially rebalance over time into a shorter-term bond fund or individual bonds in order to avoid having to sell bonds at a loss due to interest rate shocks. But for now, I don't care about interest rate risk because my horizon is long enough for the bond fund to recover from (and eventually surpass) any adverse NAV impact due to rising rates.
So another thing I could do instead is construct a rolling bond ladder with a mix of 3, 5 and 10-year bonds because that's the longest term I'm comfortable with. Ok, well now I just created a duration-targeted bond fund. Since those already exist and have low expenses, I'll just buy one instead of making my own.
As I get closer to retirement (say within 10-15 years), I'll have to plan carefully and potentially rebalance over time into a shorter-term bond fund or individual bonds in order to avoid having to sell bonds at a loss due to interest rate shocks. But for now, I don't care about interest rate risk because my horizon is long enough for the bond fund to recover from (and eventually surpass) any adverse NAV impact due to rising rates.
Re: Individual Bonds vs Bond funds
You could also hold intermediate term bond funds for 60 years and save a lot of time, effort, and anxiety. One can consider how severe an issue bond risk really is in a portfolio of stocks and bonds. You can also consider the possibility of annuitizing some of your assets when you retire or in years after that, depending on the already existing balance of income streams to portfolio withdrawals.barnaby444 wrote: ↑Sat Jul 02, 2022 9:55 am Let's say I want to retire in 30 years and expect to withdraw from my bond portfolio for 30 years beyond that. One thing I could try to do is buy individual bonds and form a ladder with some maturing in year 30, some in 31, and so forth up to 60. Except there aren't really 60-year bonds, and perhaps even a 30-year bond is longer than I want to commit to if I think there's a good chance rates will go up in the future and I want to benefit from that.
So another thing I could do instead is construct a rolling bond ladder with a mix of 3, 5 and 10-year bonds because that's the longest term I'm comfortable with. Ok, well now I just created a duration-targeted bond fund. Since those already exist and have low expenses, I'll just buy one instead of making my own.
As I get closer to retirement (say within 10-15 years), I'll have to plan carefully and potentially rebalance over time into a shorter-term bond fund or individual bonds in order to avoid having to sell bonds at a loss due to interest rate shocks. But for now, I don't care about interest rate risk because my horizon is long enough for the bond fund to recover from (and eventually surpass) any adverse NAV impact due to rising rates.
A risk in setting up a 30 year bond ladder is good or bad luck concerning available interest rates at the time. Nothing is as risk free as might initially appear. Similar comments apply to annuities.
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Re: Individual Bonds vs Bond funds
I think you missed the point of my post. See highlighted portion.dbr wrote: ↑Sat Jul 02, 2022 10:03 amYou could also hold intermediate term bond funds for 60 years and save a lot of time, effort, and anxiety. One can consider how severe an issue bond risk really is in a portfolio of stocks and bonds. You can also consider the possibility of annuitizing some of your assets when you retire or in years after that, depending on the already existing balance of income streams to portfolio withdrawals.barnaby444 wrote: ↑Sat Jul 02, 2022 9:55 am Let's say I want to retire in 30 years and expect to withdraw from my bond portfolio for 30 years beyond that. One thing I could try to do is buy individual bonds and form a ladder with some maturing in year 30, some in 31, and so forth up to 60. Except there aren't really 60-year bonds, and perhaps even a 30-year bond is longer than I want to commit to if I think there's a good chance rates will go up in the future and I want to benefit from that.
So another thing I could do instead is construct a rolling bond ladder with a mix of 3, 5 and 10-year bonds because that's the longest term I'm comfortable with. Ok, well now I just created a duration-targeted bond fund. Since those already exist and have low expenses, I'll just buy one instead of making my own.
As I get closer to retirement (say within 10-15 years), I'll have to plan carefully and potentially rebalance over time into a shorter-term bond fund or individual bonds in order to avoid having to sell bonds at a loss due to interest rate shocks. But for now, I don't care about interest rate risk because my horizon is long enough for the bond fund to recover from (and eventually surpass) any adverse NAV impact due to rising rates.
A risk in setting up a 30 year bond ladder is good or bad luck concerning available interest rates at the time. Nothing is as risk free as might initially appear. Similar comments apply to annuities.
Re: Individual Bonds vs Bond funds
Indeed I did not read carefully. I guess I can claim to agree with your conclusion.barnaby444 wrote: ↑Sat Jul 02, 2022 10:07 amI think you missed the point of my post. See highlighted portion.dbr wrote: ↑Sat Jul 02, 2022 10:03 amYou could also hold intermediate term bond funds for 60 years and save a lot of time, effort, and anxiety. One can consider how severe an issue bond risk really is in a portfolio of stocks and bonds. You can also consider the possibility of annuitizing some of your assets when you retire or in years after that, depending on the already existing balance of income streams to portfolio withdrawals.barnaby444 wrote: ↑Sat Jul 02, 2022 9:55 am Let's say I want to retire in 30 years and expect to withdraw from my bond portfolio for 30 years beyond that. One thing I could try to do is buy individual bonds and form a ladder with some maturing in year 30, some in 31, and so forth up to 60. Except there aren't really 60-year bonds, and perhaps even a 30-year bond is longer than I want to commit to if I think there's a good chance rates will go up in the future and I want to benefit from that.
So another thing I could do instead is construct a rolling bond ladder with a mix of 3, 5 and 10-year bonds because that's the longest term I'm comfortable with. Ok, well now I just created a duration-targeted bond fund. Since those already exist and have low expenses, I'll just buy one instead of making my own.
As I get closer to retirement (say within 10-15 years), I'll have to plan carefully and potentially rebalance over time into a shorter-term bond fund or individual bonds in order to avoid having to sell bonds at a loss due to interest rate shocks. But for now, I don't care about interest rate risk because my horizon is long enough for the bond fund to recover from (and eventually surpass) any adverse NAV impact due to rising rates.
A risk in setting up a 30 year bond ladder is good or bad luck concerning available interest rates at the time. Nothing is as risk free as might initially appear. Similar comments apply to annuities.
Re: Individual Bonds vs Bond funds
If you have specific well-understood liabilities, individual bonds can be a win, because you can purchase individual bonds with appropriate maturity and then just ignore them until the bond matures and matches the liability.bowerynation86 wrote: ↑Fri Jul 01, 2022 4:41 pm It seems to make more sense to buy individual high quality bonds and if you hold them to maturity you never incur a loss. A bond fund, in a rising interest rate environment will see a big hit in NAV as we've just seen. It seems like a painful unnecessary lose that can be easily avoided.
But the "never incur a loss" only works if you can hold the bond until maturity. If it turns out you need to access the funds to replace your roof, you may have to sell at a loss. If you need to access the funds to install accessibility features in your house, you may have to sell at a loss.
If you manually manage a ladder of bonds over a 30-year period and compare it to a duration-matched index fund over the same 30-year period, sometimes the fund will creep ahead, sometimes the fund will fall behind, but which is more valuable at any given point can't really be predicted in advance. I mean, it's not completely random, there are trends, but they'll switch positions on top over time. Yes, there's been a NAV hit recently - but in previous years there was a gain as rates were falling, and over a long period you need to net those out when considering how terrible the results are. It's not something magical.
Against all of that, there is the question of whether most individuals know what they're doing when purchasing individual bonds. I've been experimenting with purchasing T-bills simply because I want to learn about it. It's not as confusing as options, but it is definitely more confusing than stocks or ETFs or CDs. The variance in terminology between the interfaces of the two brokerages I've used doesn't help. So far I haven't accidentally offered to buy $10M in T-bills, but I am still working out exactly what my yield is, and I know I'm still wrong because my numbers aren't matching the numbers posted. I can very easily imagine someone screwing themselves up badly enough with individual purchases to totally offset any "gain" from having secure principal - I can imagine screwing things up myself, and I have some objective evidence that I'm towards the higher percentiles in terms of financial acumen (I mean relative to the population, not relative to Bogleheads. Here I'm 51st percentile ).
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Re: Individual Bonds vs Bond funds
Yes there is a learning curve and it does take some effort but after a 10 min walk thru I was able buy treasuries with the guy still on the phone to make sure I didn’t make a mistake.
I continued to buy on my own.
I have some knowledge but average intelligence can learn it with some effort.
No one is going to let you buy $10mil of Treasuries unless you have the money.
There are many checks as to what you are buying before you actually buy them including showing you the dollar amount of your purchase.
If people have to sell bonds to put on a new roof,
then you should re-evaluate their investment strategy.
I continued to buy on my own.
I have some knowledge but average intelligence can learn it with some effort.
No one is going to let you buy $10mil of Treasuries unless you have the money.
There are many checks as to what you are buying before you actually buy them including showing you the dollar amount of your purchase.
If people have to sell bonds to put on a new roof,
then you should re-evaluate their investment strategy.
Re: Individual Bonds vs Bond funds
If I have to put on a new roof, I have to sell something so it might as well be bonds since I sure don't want to pay tax on my equity gains.bowerynation86 wrote: ↑Sat Jul 02, 2022 11:19 am Yes there is a learning curve and it does take some effort but after a 10 min walk thru I was able buy treasuries with the guy still on the phone to make sure I didn’t make a mistake.
I continued to buy on my own.
I have some knowledge but average intelligence can learn it with some effort.
No one is going to let you buy $10mil of Treasuries unless you have the money.
There are many checks as to what you are buying before you actually buy them including showing you the dollar amount of your purchase.
If people have to sell bonds to put on a new roof,
then you should re-evaluate their investment strategy.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Re: Individual Bonds vs Bond funds
The bonds could be way up rather than down. It might even be one can rebalance in the deal.jebmke wrote: ↑Sat Jul 02, 2022 11:54 amIf I have to put on a new roof, I have to sell something so it might as well be bonds since I sure don't want to pay tax on my equity gains.bowerynation86 wrote: ↑Sat Jul 02, 2022 11:19 am Yes there is a learning curve and it does take some effort but after a 10 min walk thru I was able buy treasuries with the guy still on the phone to make sure I didn’t make a mistake.
I continued to buy on my own.
I have some knowledge but average intelligence can learn it with some effort.
No one is going to let you buy $10mil of Treasuries unless you have the money.
There are many checks as to what you are buying before you actually buy them including showing you the dollar amount of your purchase.
If people have to sell bonds to put on a new roof,
then you should re-evaluate their investment strategy.
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Re: Individual Bonds vs Bond funds
One could argue that if you don’t have to sell bonds to put on a new roof then you should re-evaluate your investment strategyjebmke wrote: ↑Sat Jul 02, 2022 11:54 amIf I have to put on a new roof, I have to sell something so it might as well be bonds since I sure don't want to pay tax on my equity gains.bowerynation86 wrote: ↑Sat Jul 02, 2022 11:19 am Yes there is a learning curve and it does take some effort but after a 10 min walk thru I was able buy treasuries with the guy still on the phone to make sure I didn’t make a mistake.
I continued to buy on my own.
I have some knowledge but average intelligence can learn it with some effort.
No one is going to let you buy $10mil of Treasuries unless you have the money.
There are many checks as to what you are buying before you actually buy them including showing you the dollar amount of your purchase.
If people have to sell bonds to put on a new roof,
then you should re-evaluate their investment strategy.
Re: Individual Bonds vs Bond funds
For liability matching, then individual bonds are sensible IMO.
But for a generic opened ended rolling ladder of bonds, then the bond fund does the same thing. The NAV fluctuations are not really any different then the market value of your individual bonds fluctuating day to day. The bond fund may see a principal loss from selling a lower yielding bond but then is made whole from the higher coupons. Whereas the person keeping individual bonds is stuck with a bond that is paying low coupons but then sees the whole principal returned at the end of each bond when they need to reinvest the next ladder rung at the new rates. These are two sides to the same coin, there is not a free lunch here (any small amount of free lunch is quickly arbitraged away by institutions on the open market).
But for a generic opened ended rolling ladder of bonds, then the bond fund does the same thing. The NAV fluctuations are not really any different then the market value of your individual bonds fluctuating day to day. The bond fund may see a principal loss from selling a lower yielding bond but then is made whole from the higher coupons. Whereas the person keeping individual bonds is stuck with a bond that is paying low coupons but then sees the whole principal returned at the end of each bond when they need to reinvest the next ladder rung at the new rates. These are two sides to the same coin, there is not a free lunch here (any small amount of free lunch is quickly arbitraged away by institutions on the open market).
Re: Individual Bonds vs Bond funds
Great topic. I assume we're talking about individual bonds on the secondary market or at auction, not I Bonds (which I do own, but are kind of a special case).
I have a mix of both -- bond funds as part of my long-term AA--and individual bonds for my more immediate retirement income floor to replace my paycheck. Investment grade Individual bonds offer one of the few "guaranteed" returns for a specific period of time in investing and, for me, I need that confidence with my retirement nest egg. When I retire (hopefully next year), a portion of my portfolio will kick off enough income to meet minimum expenses for X number of years--the rest of the portfolio being devoted for long term capital appreciation and opportunistic rebalancing to meet discretionary expenses. This is my plan and that's my goal for owning individual bonds.
Others have other plans--like building up X years of cash or just "selling" what you need when you need it--and that's fine. I personally wouldn't recommend owning a bunch of individual bonds without a clear reason. It's an obtuse market that caters to institutions, leaving smaller investors with bad bid/ask spreads and high markups. However, I've found nuggets of good deals in less-traded corners like zero coupon municipals. Also, the yields available now (unlike just a few months ago) are quite higher than in many investment grade bond funds. There are easy pickings for 4%+ tax free munis and heck even some decade+ boring old bank CDs are offering 4%.
So does one offer better returns than the other? I doubt I personally would beat BND on a total return basis over a 30-year time horizon, but BND can't guarantee me X income over X years like individual bonds can, so the two serve different purposes and are not really comparable.
I have a mix of both -- bond funds as part of my long-term AA--and individual bonds for my more immediate retirement income floor to replace my paycheck. Investment grade Individual bonds offer one of the few "guaranteed" returns for a specific period of time in investing and, for me, I need that confidence with my retirement nest egg. When I retire (hopefully next year), a portion of my portfolio will kick off enough income to meet minimum expenses for X number of years--the rest of the portfolio being devoted for long term capital appreciation and opportunistic rebalancing to meet discretionary expenses. This is my plan and that's my goal for owning individual bonds.
Others have other plans--like building up X years of cash or just "selling" what you need when you need it--and that's fine. I personally wouldn't recommend owning a bunch of individual bonds without a clear reason. It's an obtuse market that caters to institutions, leaving smaller investors with bad bid/ask spreads and high markups. However, I've found nuggets of good deals in less-traded corners like zero coupon municipals. Also, the yields available now (unlike just a few months ago) are quite higher than in many investment grade bond funds. There are easy pickings for 4%+ tax free munis and heck even some decade+ boring old bank CDs are offering 4%.
So does one offer better returns than the other? I doubt I personally would beat BND on a total return basis over a 30-year time horizon, but BND can't guarantee me X income over X years like individual bonds can, so the two serve different purposes and are not really comparable.
Re: Individual Bonds vs Bond funds
I hold only bonds outright (always to maturity), not in mutual funds, with a clear strategy. My Roth IRA is a LMP ladder with maturities from 2032 to 2048 that was built over many years. The maturity value of each rung is 3% more than the previous one, by design. These are all Treasury and Agency zero's, with the Agency bonds rated the same as Treasurys. Zeros typically yield 10-20 bp more than similar maturity coupon-paying bonds, and long Agency bonds typically yield 40-60 bp more than Treasurys. Many of the Agency bonds were purchased at an even more advantageous yield -- on the order of 20-30 bp -- because bond dealers often price certain lots of bonds to sell more quickly; they are not difficult to spot. I don't know how any bond fund would match what I have built, and at low cost.unbiased wrote: ↑Sun Jul 03, 2022 10:48 pm Others have other plans--like building up X years of cash or just "selling" what you need when you need it--and that's fine. I personally wouldn't recommend owning a bunch of individual bonds without a clear reason. It's an obtuse market that caters to institutions, leaving smaller investors with bad bid/ask spreads and high markups. However, I've found nuggets of good deals in less-traded corners like zero coupon municipals. Also, the yields available now (unlike just a few months ago) are quite higher than in many investment grade bond funds. There are easy pickings for 4%+ tax free munis and heck even some decade+ boring old bank CDs are offering 4%.
So does one offer better returns than the other? I doubt I personally would beat BND on a total return basis over a 30-year time horizon, but BND can't guarantee me X income over X years like individual bonds can, so the two serve different purposes and are not really comparable.
In taxable space, I hold a loosely-structured ladder from 2022 to 2039 with similar types of bonds as above. I'm not concerned with bid-ask spreads when I buy since I hold the bonds to maturity and make sure the YTMs are attractive before purchasing. The markups are generally visible at Fidelity brokerage, with both the bid and ask prices/yields being displayed; the bond concessions at Fidelity are $0 per bond on Treasurys and $1 on other bonds -- very reasonable. A rung matures almost every year and if the proceeds are not needed for expenses, they are reinvested, typically near the longer end. If I were to need $ from this ladder in an emergency, I would either sell a rung(s) approaching maturity or take out a short-term margin loan until the next rung matures. In a normal forward-sloping yield curve environment (which we're not in at the moment), bonds approaching maturity can often be sold with capital gains.
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Re: Individual Bonds vs Bond funds
Not necessarily. If you set up your ladder so that one bond matures every year, you only have to buy a new bond to replace it every year. I just did this in my Fidelity account and it took about 5 minutes.
Re: Individual Bonds vs Bond funds
You're right, truenorth418 -- this definitely is not a hassle for me, and with the extra yield I receive by making careful choices, it is well worth it. Ladder management takes very little time and I actually enjoy identifying new bonds to buy for it.truenorth418 wrote: ↑Mon Jul 04, 2022 8:02 amNot necessarily. If you set up your ladder so that one bond matures every year, you only have to buy a new bond to replace it every year. I just did this in my Fidelity account and it took about 5 minutes.
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Re: Individual Bonds vs Bond funds
With rates so low in last few yrs when you had bonds maturing,
what were the length of your new bonds you were purchasing?
what were the length of your new bonds you were purchasing?
Re: Individual Bonds vs Bond funds
For my Roth, the rungs around 2040+ were filled out in the past couple of years, generally in the neighborhood of 2.8% YTM. However, these were funded by early selling of rungs maturing prior to 2032 that had very large capital gains due to the extremely steep yield curve starting in 2020. Haven't added new $ to the Roth since retirement years ago.bowerynation86 wrote: ↑Mon Jul 04, 2022 8:45 am With rates so low in last few yrs when you had bonds maturing,
what were the length of your new bonds you were purchasing?
For the taxable ladder, I recently added to rungs maturing in 2036-2038 at YTMs of 3.75 to 4.25%.
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Re: Individual Bonds vs Bond funds
It's really not. A rolling ladder of Treasury Bills or Treasury Notes is exceedingly simple to generate on Treasury Direct. The auto-rollover feature will rollover bonds for up to 2 years (especially useful for for Treasury Bills). The final redemption can be directed to the funding [bank] account. Rungs can be set up as frequently as weekly.
Retirement is best when you have a lot to live on, and a lot to live for. * None of what I post is investment advice.* |
FIRE'd July 2023
Re: Individual Bonds vs Bond funds
Many years ago I had a relative end up with half a million in their checking account because they lost track renewing T bills. In those days you got a paper chit in the mail and had to send it back to renew.AlwaysLearningMore wrote: ↑Mon Jul 04, 2022 12:41 pmIt's really not. A rolling ladder of Treasury Bills or Treasury Notes is exceedingly simple to generate on Treasury Direct. The auto-rollover feature will rollover bonds for up to 2 years (especially useful for for Treasury Bills). The final redemption can be directed to the funding [bank] account. Rungs can be set up as frequently as weekly.
But I tend to agree it isn't that hard to roll a ladder at Treasury Direct. My own choice would just be a bond fund, but the option is there either way.
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Re: Individual Bonds vs Bond funds
This can be at least partially ameliorated by linking the Treasury Direct account to a money market fund which the investor routinely accesses.dbr wrote: ↑Mon Jul 04, 2022 2:09 pmMany years ago I had a relative end up with half a million in their checking account because they lost track renewing T bills. In those days you got a paper chit in the mail and had to send it back to renew.AlwaysLearningMore wrote: ↑Mon Jul 04, 2022 12:41 pmIt's really not. A rolling ladder of Treasury Bills or Treasury Notes is exceedingly simple to generate on Treasury Direct. The auto-rollover feature will rollover bonds for up to 2 years (especially useful for for Treasury Bills). The final redemption can be directed to the funding [bank] account. Rungs can be set up as frequently as weekly.
But I tend to agree it isn't that hard to roll a ladder at Treasury Direct. My own choice would just be a bond fund, but the option is there either way.
Retirement is best when you have a lot to live on, and a lot to live for. * None of what I post is investment advice.* |
FIRE'd July 2023
Re: Individual Bonds vs Bond funds
I haven't investigated what Treasury Direct offers exactly for managing ladders of treasuries, but I'll look into it - thanks for the suggestion. Generally, though, managing individual bonds is a hassle. Adding money, withdrawing, investing interest payments, rolling over to new bonds - it adds up to quite a headache.AlwaysLearningMore wrote: ↑Mon Jul 04, 2022 12:41 pmIt's really not. A rolling ladder of Treasury Bills or Treasury Notes is exceedingly simple to generate on Treasury Direct. The auto-rollover feature will rollover bonds for up to 2 years (especially useful for for Treasury Bills). The final redemption can be directed to the funding [bank] account. Rungs can be set up as frequently as weekly.
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Re: Individual Bonds vs Bond funds
Tipswatch has an article today on using Treasury Direct to purchase Treasury Bills. Some here may find it useful, and can compare it to their other options.visualguy wrote: ↑Mon Jul 04, 2022 6:25 pmI haven't investigated what Treasury Direct offers exactly for managing ladders of treasuries, but I'll look into it - thanks for the suggestion. Generally, though, managing individual bonds is a hassle. Adding money, withdrawing, investing interest payments, rolling over to new bonds - it adds up to quite a headache.AlwaysLearningMore wrote: ↑Mon Jul 04, 2022 12:41 pmIt's really not. A rolling ladder of Treasury Bills or Treasury Notes is exceedingly simple to generate on Treasury Direct. The auto-rollover feature will rollover bonds for up to 2 years (especially useful for for Treasury Bills). The final redemption can be directed to the funding [bank] account. Rungs can be set up as frequently as weekly.
https://tipswatch.com/2022/07/04/lookin ... ury-bills/
Retirement is best when you have a lot to live on, and a lot to live for. * None of what I post is investment advice.* |
FIRE'd July 2023
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Re: Individual Bonds vs Bond funds
There is nothing in this thread that hasn't been said here many times before over the last six months. I'll stick to my bond funds. I'm not interested in managing a portfolio of individual bonds.
- AerialWombat
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Re: Individual Bonds vs Bond funds
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Last edited by AerialWombat on Thu Aug 25, 2022 7:16 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
Re: Individual Bonds vs Bond funds
If my grandma without a high school education could manage a CD ladder, I think, I'm more than capable of managing a treasury ladder with a university education. Times have really changed.AerialWombat wrote: ↑Mon Jul 04, 2022 7:25 pmA couple months ago, I started building a T-bill ladder to replace a CD ladder that had all matured. At first I thought the individual T-bills would satiate an undiagnosed thirst to be active in my portfolio. I was wrong, and I already see how it will become another chore. I didn't FIRE so I could deal with making sure I was sober, awake, and at a computer during auction week.UpperNwGuy wrote: ↑Mon Jul 04, 2022 6:34 pm There is nothing in this thread that hasn't been said here many times before over the last six months. I'll stick to my bond funds. I'm not interested in managing a portfolio of individual bonds.
I'm thinking VGSH and chill might be a better path. I don't know. Still mulling it over.
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Re: Individual Bonds vs Bond funds
Your grandmother sounds like a wonderful, detail-oriented person with plenty of free time. I am not that way.rockstar wrote: ↑Mon Jul 04, 2022 7:31 pmIf my grandma without a high school education could manage a CD ladder, I think, I'm more than capable of managing a treasury ladder with a university education. Times have really changed.AerialWombat wrote: ↑Mon Jul 04, 2022 7:25 pmA couple months ago, I started building a T-bill ladder to replace a CD ladder that had all matured. At first I thought the individual T-bills would satiate an undiagnosed thirst to be active in my portfolio. I was wrong, and I already see how it will become another chore. I didn't FIRE so I could deal with making sure I was sober, awake, and at a computer during auction week.UpperNwGuy wrote: ↑Mon Jul 04, 2022 6:34 pm There is nothing in this thread that hasn't been said here many times before over the last six months. I'll stick to my bond funds. I'm not interested in managing a portfolio of individual bonds.
I'm thinking VGSH and chill might be a better path. I don't know. Still mulling it over.
- AerialWombat
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Re: Individual Bonds vs Bond funds
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Last edited by AerialWombat on Thu Aug 25, 2022 7:16 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
Re: Individual Bonds vs Bond funds
We purchase $40k worth of I and EE bonds yearly. Whatever left is in equity. Live simply.