Moving Away from Individual Bonds

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retired-early
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Moving Away from Individual Bonds

Post by retired-early »

Hi, I’m heavily invested in individual bonds - tax free municipals, taxable municipals, and corporate. Overall they generate around $100k tax free, $100k in IRA, and $60k in Roth. I always hold to maturity or call date. This has been our major investments for the past 20 years. We will soon have an inheritance that will generate another ~$40k per year. SS will be at the max amount when I turn 70, another ~$80k in today’s dollars.

My dilemma is that owning individual bonds requires active involvement with my broker on a pretty regular basis. My wife has no interest in this kind of active investing so once I’m gone or incapable there’s no one to take over and manage. Now in my 60s I’m looking to simplify. I’m pretty risk adverse and don’t want stocks. I’ve considered slowly moving IRAs to cash and tax free municipals to a tax free bond fund. We have bought iBonds over the past few years but even that may be too complex. We own our home, have new cars, no debt and fairly low expenses. We’re saving around $150k a year and both are retired. The money keeps piling up and I’m looking to trade some of that for a simple portfolio that can be on autopilot. Suggestions welcome.
Silk McCue
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Re: Moving Away from Individual Bonds

Post by Silk McCue »

“SS will be at the max amount when I turn 70, another ~$80k in today’s dollars.” That figure is incorrect. $54,600 is the current todays dollars amount.
The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2023, your maximum benefit would be $3,627. However, if you retire at age 62 in 2023, your maximum benefit would be $2,572. If you retire at age 70 in 2023, your maximum benefit would be $4,555.
Cheers
RyeBourbon
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Re: Moving Away from Individual Bonds

Post by RyeBourbon »

retired-early wrote: Fri Jun 02, 2023 3:44 pm Now in my 60s I’m looking to simplify. I’m pretty risk adverse and don’t want stocks.
You don't have to own stocks, but should have some exposure to equities via index mutual funds. Not owning equities has its own set of risks.
Retired June 2023. AA = 55/35/10
RyeBourbon
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Re: Moving Away from Individual Bonds

Post by RyeBourbon »

Silk McCue wrote: Fri Jun 02, 2023 4:17 pm “SS will be at the max amount when I turn 70, another ~$80k in today’s dollars.” That figure is incorrect. $54,600 is the current todays dollars amount.
The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2023, your maximum benefit would be $3,627. However, if you retire at age 62 in 2023, your maximum benefit would be $2,572. If you retire at age 70 in 2023, your maximum benefit would be $4,555.
Cheers
He is probably including his spouse's SS as well (albeit with an incorrect assumption that the spouse will receive 50% of the age 70 amount).
Retired June 2023. AA = 55/35/10
coachd50
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Re: Moving Away from Individual Bonds

Post by coachd50 »

retired-early wrote: Fri Jun 02, 2023 3:44 pm Hi, I’m heavily invested in individual bonds - tax free municipals, taxable municipals, and corporate. Overall they generate around $100k tax free, $100k in IRA, and $60k in Roth. I always hold to maturity or call date. This has been our major investments for the past 20 years. We will soon have an inheritance that will generate another ~$40k per year. SS will be at the max amount when I turn 70, another ~$80k in today’s dollars.

My dilemma is that owning individual bonds requires active involvement with my broker on a pretty regular basis. My wife has no interest in this kind of active investing so once I’m gone or incapable there’s no one to take over and manage. Now in my 60s I’m looking to simplify. I’m pretty risk adverse and don’t want stocks. I’ve considered slowly moving IRAs to cash and tax free municipals to a tax free bond fund. We have bought iBonds over the past few years but even that may be too complex. We own our home, have new cars, no debt and fairly low expenses. We’re saving around $150k a year and both are retired. The money keeps piling up and I’m looking to trade some of that for a simple portfolio that can be on autopilot. Suggestions welcome.
According to what you have written- right now your bonds generate $260,000 you spend about $110,000 , shortly you will be getting another $40,000 a year and then SS will pay out another $50,000 to $80,000 ?
Essentially you have (or will have) interest income plus SS of around $200,000 more than your expenses - not to mention the principal of those bonds? Or are you including the maturing bond principal in those figures?

Or am I not understanding the situation?
Topic Author
retired-early
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Re: Moving Away from Individual Bonds

Post by retired-early »

Silk McCue wrote: Fri Jun 02, 2023 4:17 pm “SS will be at the max amount when I turn 70, another ~$80k in today’s dollars.” That figure is incorrect. $54,600 is the current todays dollars amount.
The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2023, your maximum benefit would be $3,627. However, if you retire at age 62 in 2023, your maximum benefit would be $2,572. If you retire at age 70 in 2023, your maximum benefit would be $4,555.
Cheers
$54,600 for me and $21,726 for my wife.
Topic Author
retired-early
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Re: Moving Away from Individual Bonds

Post by retired-early »

coachd50 wrote: Fri Jun 02, 2023 4:25 pm
retired-early wrote: Fri Jun 02, 2023 3:44 pm Hi, I’m heavily invested in individual bonds - tax free municipals, taxable municipals, and corporate. Overall they generate around $100k tax free, $100k in IRA, and $60k in Roth. I always hold to maturity or call date. This has been our major investments for the past 20 years. We will soon have an inheritance that will generate another ~$40k per year. SS will be at the max amount when I turn 70, another ~$80k in today’s dollars.

My dilemma is that owning individual bonds requires active involvement with my broker on a pretty regular basis. My wife has no interest in this kind of active investing so once I’m gone or incapable there’s no one to take over and manage. Now in my 60s I’m looking to simplify. I’m pretty risk adverse and don’t want stocks. I’ve considered slowly moving IRAs to cash and tax free municipals to a tax free bond fund. We have bought iBonds over the past few years but even that may be too complex. We own our home, have new cars, no debt and fairly low expenses. We’re saving around $150k a year and both are retired. The money keeps piling up and I’m looking to trade some of that for a simple portfolio that can be on autopilot. Suggestions welcome.
According to what you have written- right now your bonds generate $260,000 you spend about $110,000 , shortly you will be getting another $40,000 a year and then SS will pay out another $50,000 to $80,000 ?
Essentially you have (or will have) interest income plus SS of around $200,000 more than your expenses - not to mention the principal of those bonds? Or are you including the maturing bond principal in those figures?

Or am I not understanding the situation?
I’m not including any principal. Above is all interest income.
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Artsdoctor
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Re: Moving Away from Individual Bonds

Post by Artsdoctor »

OP: I agree with you.

I've had individual munis for years and I've learned a lot because of that experience. However, you're correct in that they require care. Premium bonds require amortization which CPAs seem reluctant to do and you don't want discount munis. I've let those bonds mature and the proceeds go where my asset allocation demands. For you, it sounds as if you'll probably be looking at tax-exempt bond funds (perhaps short-term and intermediate-term?).

The simplification process is really important. It's fine to have your fingers in several pies early in your investment career because you can learn a lot (and perhaps make a little more on your investments?). But at some point, it's really very liberating to have things in one or two spots.

You'd probably benefit from equity exposure but you don't need to have an aggressive asset allocation. You're in your 60's so your investment horizon is long enough to ride out a volatile stock market.
coachd50
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Re: Moving Away from Individual Bonds

Post by coachd50 »

retired-early wrote: Fri Jun 02, 2023 4:33 pm
coachd50 wrote: Fri Jun 02, 2023 4:25 pm
retired-early wrote: Fri Jun 02, 2023 3:44 pm Hi, I’m heavily invested in individual bonds - tax free municipals, taxable municipals, and corporate. Overall they generate around $100k tax free, $100k in IRA, and $60k in Roth. I always hold to maturity or call date. This has been our major investments for the past 20 years. We will soon have an inheritance that will generate another ~$40k per year. SS will be at the max amount when I turn 70, another ~$80k in today’s dollars.

My dilemma is that owning individual bonds requires active involvement with my broker on a pretty regular basis. My wife has no interest in this kind of active investing so once I’m gone or incapable there’s no one to take over and manage. Now in my 60s I’m looking to simplify. I’m pretty risk adverse and don’t want stocks. I’ve considered slowly moving IRAs to cash and tax free municipals to a tax free bond fund. We have bought iBonds over the past few years but even that may be too complex. We own our home, have new cars, no debt and fairly low expenses. We’re saving around $150k a year and both are retired. The money keeps piling up and I’m looking to trade some of that for a simple portfolio that can be on autopilot. Suggestions welcome.
According to what you have written- right now your bonds generate $260,000 you spend about $110,000 , shortly you will be getting another $40,000 a year and then SS will pay out another $50,000 to $80,000 ?
Essentially you have (or will have) interest income plus SS of around $200,000 more than your expenses - not to mention the principal of those bonds? Or are you including the maturing bond principal in those figures?

Or am I not understanding the situation?
I’m not including any principal. Above is all interest income.
The amount of income you are earning ABOVE what you are spending seems to be equivalent to the top 10% of all earners in the US. Congratulations!

I would not presume to provide much advice regarding investments- but based on your statement that "the money keeps piling up" I would suggest a deep dive and thoughtful conversation between you and your spouse regarding goals as you enter the homestretch of your
Last edited by coachd50 on Fri Jun 02, 2023 6:36 pm, edited 2 times in total.
WapelloHawk
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Re: Moving Away from Individual Bonds

Post by WapelloHawk »

VWALX - VG high yield muni. Tax free, requires no thought, very steady income. You never mentioned principal - only income - so fund price appears less important to you (me too).
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retired-early
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Re: Moving Away from Individual Bonds

Post by retired-early »

WapelloHawk wrote: Fri Jun 02, 2023 4:55 pm VWALX - VG high yield muni. Tax free, requires no thought, very steady income. You never mentioned principal - only income - so fund price appears less important to you (me too).
Thanks! I’m at Fidelity right now, maybe they have something similar. I could open a Vanguard account but that adds more complexity unless I move Fidelity accounts over there.
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illumination
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Re: Moving Away from Individual Bonds

Post by illumination »

Has buying bonds this way been a big game changer for you in terms of yield? I'd be curious to compare your rate of return with something much simpler. Is liquidity an issue?

You might just be better off in a Money Market Mutual Fund, they have municipal, treasury, corporate, etc. If it's less yield, might be good to figure out just how much less yield it really is. This is where I've landed for most of my fixed income. I know I can do better, but its just not worth it to me because I value liquidity and not losing principal.

No way I would be juggling all of those individual bonds.
Torino
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Re: Moving Away from Individual Bonds

Post by Torino »

I use the following at Fidelity in Taxable

FZEXX: Tax Free Money Market
FSTFX (0.29%) : Limited Term Municipal Income - Duration 2.5 years
FLTMX (0.35%): Intermediate Municipal Income - Duration a little less than 5 years
FTABX (0.25%) : Tax Free Bond - Duration 7 years

Just find an overall duration that you are comfortable with and verify they are AMT free

There are other bond fund options @ Fidelity - for the most part Fidelity has a strong bond research team.
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retired-early
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Re: Moving Away from Individual Bonds

Post by retired-early »

illumination wrote: Fri Jun 02, 2023 7:27 pm Has buying bonds this way been a big game changer for you in terms of yield? I'd be curious to compare your rate of return with something much simpler. Is liquidity an issue?

You might just be better off in a Money Market Mutual Fund, they have municipal, treasury, corporate, etc. If it's less yield, might be good to figure out just how much less yield it really is. This is where I've landed for most of my fixed income. I know I can do better, but its just not worth it to me because I value liquidity and not losing principal.

No way I would be juggling all of those individual bonds.
Yield has worked out for me and has allowed me to retire and sleep well at night, Taxable yield is over 6%. Tax free is over 5%. I’ve been pretty happy with individual bonds and haven’t had much issue. A couple PR bonds lost a few thousand, nothing major. I’ve got several taxable bonds paying near 8%. That said, the time has come to start moving to a simpler portfolio.

Liquidity is not an issue although there have been times where I thought about selling for various reasons but never have.

Money market is a pretty decent deal right now paying around 4.75%. I’ve been moving maturing bonds to cash until I figure out what to do.
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retired-early
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Re: Moving Away from Individual Bonds

Post by retired-early »

Torino wrote: Fri Jun 02, 2023 7:28 pm I use the following at Fidelity in Taxable

FZEXX: Tax Free Money Market
FSTFX (0.29%) : Limited Term Municipal Income - Duration 2.5 years
FLTMX (0.35%): Intermediate Municipal Income - Duration a little less than 5 years
FTABX (0.25%) : Tax Free Bond - Duration 7 years

Just find an overall duration that you are comfortable with and verify they are AMT free

There are other bond fund options @ Fidelity - for the most part Fidelity has a strong bond research team.
Thank you! I’ll check them out. For the first one you use Tax Free in taxable?
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Re: Moving Away from Individual Bonds

Post by jebmke »

retired-early wrote: Fri Jun 02, 2023 7:48 pm Liquidity is not an issue although there have been times where I thought about selling for various reasons but never have.
If you have heirs, liquidity might be important. Individual bonds, except for maybe US Treasuries, can be a royal pain for survivors.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
swylie
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Re: Moving Away from Individual Bonds

Post by swylie »

I'm curious why you hold tax free bonds in a traditional IRA? Is it because of the high yield? Don't you have to pay ordinary income tax on any distributions...which defeats the tax free status?
000
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Re: Moving Away from Individual Bonds

Post by 000 »

Biggest risk to a 100% nominal fixed income portfolio is inflation. Fortunately TIPS are available, but it is still generally recommended to have some exposure to the businesses that make so many of the things we use.
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retired-early
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Re: Moving Away from Individual Bonds

Post by retired-early »

swylie wrote: Fri Jun 02, 2023 8:15 pm I'm curious why you hold tax free bonds in a traditional IRA? Is it because of the high yield? Don't you have to pay ordinary income tax on any distributions...which defeats the tax free status?
I only hold taxable bonds in my traditional and Roth IRA.
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retired-early
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Re: Moving Away from Individual Bonds

Post by retired-early »

000 wrote: Fri Jun 02, 2023 8:24 pm Biggest risk to a 100% nominal fixed income portfolio is inflation. Fortunately TIPS are available, but it is still generally recommended to have some exposure to the businesses that make so many of the things we use.
I read TIPS can lose money if there’s deflation. Not sure if that’s anything to be concerned about though.
000
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Re: Moving Away from Individual Bonds

Post by 000 »

retired-early wrote: Fri Jun 02, 2023 8:43 pm I read TIPS can lose money if there’s deflation. Not sure if that’s anything to be concerned about though.
Yes, TIPS can lose money if there's deflation (more than expected), but if the things one is buying have also deflated in price, this would not necessarily be a problem.

Additionally, each TIPS has a nominal dollar par value which is the minimum the TIPS will be worth at maturity no matter how much deflation happens.

Fidelity has a nice TIPS fund FIPDX.
Sagenick48
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Re: Moving Away from Individual Bonds

Post by Sagenick48 »

While I agree with the posters about inflation risk and the need to have equities, I will tell you what I did in when I was in your place.

I let my bond portfolio, not bond funds which I didn’t like because of the lack of a maturity date, both municipalities and Corporates mature, and reinvested the proceeds in CDs.
The market goes up, the market goes down.
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Re: Moving Away from Individual Bonds

Post by mikeyzito22 »

Sure,

No one has asked the question. How much actual money is saved nominally (that can be liquidated) and how much is your spend? Is your house paid for? It looks like you're in great shape the way you plan it. However, concrete questions like how much do you spend, how much have you saved, and how much do you plan on to give are amiss here. Also, healthcare expenses and housing would be questions for any retiree. I appreciate your post. If you are "invested" way over what you spend....it sounds great!

I would also add, that even in your age bracket, it would make sense to be at least 20% equities. I know an awful of of retirees that are actually 80% at least because most of their income comes from SS and pensions. It would be nice to know more.

Also, I agree that if you want to generate income from munis in taxable, the funds that have been mentioned for Fidelity to match your time horizon are great!
000
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Re: Moving Away from Individual Bonds

Post by 000 »

Sagenick48 wrote: Fri Jun 02, 2023 9:51 pm While I agree with the posters about inflation risk and the need to have equities, I will tell you what I did in when I was in your place.

I let my bond portfolio, not bond funds which I didn’t like because of the lack of a maturity date, both municipalities and Corporates mature, and reinvested the proceeds in CDs.
https://www.ishares.com/us/strategies/b ... nd-ladders
coachd50
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Re: Moving Away from Individual Bonds

Post by coachd50 »

mikeyzito22 wrote: Fri Jun 02, 2023 10:11 pm Sure,

No one has asked the question. How much actual money is saved nominally (that can be liquidated) and how much is your spend? Is your house paid for? It looks like you're in great shape the way you plan it. However, concrete questions like how much do you spend, how much have you saved, and how much do you plan on to give are amiss here. Also, healthcare expenses and housing would be questions for any retiree. I appreciate your post. If you are "invested" way over what you spend....it sounds great!

I would also add, that even in your age bracket, it would make sense to be at least 20% equities. I know an awful of of retirees that are actually 80% at least because most of their income comes from SS and pensions. It would be nice to know more.

Also, I agree that if you want to generate income from munis in taxable, the funds that have been mentioned for Fidelity to match your time horizon are great!
I believe he answered many of the questions you posed in his first paragraph.
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retired-early
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Re: Moving Away from Individual Bonds

Post by retired-early »

Sagenick48 wrote: Fri Jun 02, 2023 9:51 pm While I agree with the posters about inflation risk and the need to have equities, I will tell you what I did in when I was in your place.

I let my bond portfolio, not bond funds which I didn’t like because of the lack of a maturity date, both municipalities and Corporates mature, and reinvested the proceeds in CDs.
I’ve been moving to cash as the bonds mature. I like the idea of not losing principal. It may not keep up with inflation but probably close enough for my personal inflation rate. Down side is higher Federal taxes. Still doing Roth conversions so that helps for the future.
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Re: Moving Away from Individual Bonds

Post by Parkinglotracer »

Beside moving the Money to bond funds or ETFs as taxes allow, my suggestions would be to consider spending or gifting more money each year in order to maximize the affect of your time left on earth. Congrats!
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Artsdoctor
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Re: Moving Away from Individual Bonds

Post by Artsdoctor »

retired-early wrote: Fri Jun 02, 2023 7:48 pm
illumination wrote: Fri Jun 02, 2023 7:27 pm Has buying bonds this way been a big game changer for you in terms of yield? I'd be curious to compare your rate of return with something much simpler. Is liquidity an issue?

You might just be better off in a Money Market Mutual Fund, they have municipal, treasury, corporate, etc. If it's less yield, might be good to figure out just how much less yield it really is. This is where I've landed for most of my fixed income. I know I can do better, but its just not worth it to me because I value liquidity and not losing principal.

No way I would be juggling all of those individual bonds.
Yield has worked out for me and has allowed me to retire and sleep well at night, Taxable yield is over 6%. Tax free is over 5%. I’ve been pretty happy with individual bonds and haven’t had much issue. A couple PR bonds lost a few thousand, nothing major. I’ve got several taxable bonds paying near 8%. That said, the time has come to start moving to a simpler portfolio.

Liquidity is not an issue although there have been times where I thought about selling for various reasons but never have.

Money market is a pretty decent deal right now paying around 4.75%. I’ve been moving maturing bonds to cash until I figure out what to do.
It would be exceptionally unusual to be yielding over 5% in tax-exempt bonds. I suspect that your coupon might be 5%+ but those are premium bonds, almost certainly; alternatively, the credit quality would have to be pretty low. You have to amortize the coupons so take a look at your 1099s to get a more complete picture. This is an extremely common misconception which is important to appreciate since you might be very disappointed in yields from mutual funds/ETFs without that context.
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Hacksawdave
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Re: Moving Away from Individual Bonds

Post by Hacksawdave »

OP, I use municipals in my taxable account for income as well. It is simplicity as the monthly income is transferred to my bank account for cashflow. I don’t care if the NAV of the fund changes or what the principal amount is as I am not selling it. Regardless of price, the number of shares stays the same and the monthly distribution of income fluctuates. What you are buying is a perpetual bond ladder with fluctuating monthly income distributions. For instance, I have a little over 25,000 share of the Vanguard CA tax-exempt longs VCLAX as one of my three municipal holdings:

• Upon retirement at end of 2019: 25,022 shares, market value $313,777, monthly dividend $758
• Before rate hikes 10/31/2021: 25,022 shares, market value $319,283, monthly dividend $648
• Current month-end 05/31/2023: 25,022 shares, market value $278,997, monthly dividend $722

Have I made or lost principle? Neither, as I have not sold anything. I still have the same 25,022 shares in the fund that now have an unrealized capital loss (after 2021’s unrealized gains) in the cost basis for something I have not sold. I want to add more shares once they get to a cost of $0.0261 per basis point of dividend payout.

You are doing a good thing by wanting to simplify. I’ve had some female former colleagues that I have advised along the way to participate more in the joint finances. Too many times I’ve heard that it’s “Hubby’s job” and I ask “Well, who signs the tax returns? You have a stake in this too.” She needs to learn the basics of your newly simplified portfolio and participate before you can no longer manage it for both.
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Electron
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Re: Moving Away from Individual Bonds

Post by Electron »

My income in retirement comes from the following sources. The focus should generally be on Total Return over time rather than annual Income.

1. Social Security
2. IRAs - RMDs
3. Tax Exempt Dividends from four Vanguard Municipal Bond funds (VCLAX, VCADX, VWALX, VWIUX)
4. Dividends and Capital Gains Distributions from Equity and Balanced Mutual Funds
5. Dividends from Individual Stock Holdings
6. Dividends from Money Market funds

I would suggest starting your transition with Municipal Bond funds. If you consider the funds to be permanent holdings for income, any drop in NAV should not be a problem.

Tax Loss Harvesting can be used if significant unrealized capital losses become available in any given year. Note that Municipal Bond funds should be getting better pricing on bonds compared with individual investors buying in smaller amounts.

The individual stocks that I hold include stocks that were inherited along with others that I purchased myself. One surprise has been annual dividend increases in almost every holding. It has been difficult simplifying this part of the portfolio with unrealized capital gains in all but one of the holdings.
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Northern Flicker
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Re: Moving Away from Individual Bonds

Post by Northern Flicker »

Owning individual corporate bonds will take idiosyncratic credit risk. The idiosyncratic part of credit risk is diversifiable, and hence uncompensated.
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retired-early
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Re: Moving Away from Individual Bonds

Post by retired-early »

Artsdoctor wrote: Sat Jun 03, 2023 8:51 am
retired-early wrote: Fri Jun 02, 2023 7:48 pm
illumination wrote: Fri Jun 02, 2023 7:27 pm Has buying bonds this way been a big game changer for you in terms of yield? I'd be curious to compare your rate of return with something much simpler. Is liquidity an issue?

You might just be better off in a Money Market Mutual Fund, they have municipal, treasury, corporate, etc. If it's less yield, might be good to figure out just how much less yield it really is. This is where I've landed for most of my fixed income. I know I can do better, but its just not worth it to me because I value liquidity and not losing principal.

No way I would be juggling all of those individual bonds.
Yield has worked out for me and has allowed me to retire and sleep well at night, Taxable yield is over 6%. Tax free is over 5%. I’ve been pretty happy with individual bonds and haven’t had much issue. A couple PR bonds lost a few thousand, nothing major. I’ve got several taxable bonds paying near 8%. That said, the time has come to start moving to a simpler portfolio.

Liquidity is not an issue although there have been times where I thought about selling for various reasons but never have.

Money market is a pretty decent deal right now paying around 4.75%. I’ve been moving maturing bonds to cash until I figure out what to do.
It would be exceptionally unusual to be yielding over 5% in tax-exempt bonds. I suspect that your coupon might be 5%+ but those are premium bonds, almost certainly; alternatively, the credit quality would have to be pretty low. You have to amortize the coupons so take a look at your 1099s to get a more complete picture. This is an extremely common misconception which is important to appreciate since you might be very disappointed in yields from mutual funds/ETFs without that context.
Most were bought at par or lower and none have defaulted other than PR. Even then I got almost all money back. They range from 4% to 6%. Most are around 5%. These were bought over the past 20 years.
Weathering
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Re: Moving Away from Individual Bonds

Post by Weathering »

Redacted
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Outer Marker
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Re: Moving Away from Individual Bonds

Post by Outer Marker »

retired-early wrote: Fri Jun 02, 2023 3:44 pm We’re saving around $150k a year and both are retired. The money keeps piling up and I’m looking to trade some of that for a simple portfolio that can be on autopilot. Suggestions welcome.
I'd recommend you use the Vanguard Tax Managed Balanced Fund for your taxable accounts. https://investor.vanguard.com/investmen ... file/vtmfx

And the Vanguard Target Retirement Income Fund for your tax-advantaged accounts. https://investor.vanguard.com/investmen ... file/vtinx

That will give you a comprehensive, conservative, and well-balanced portfolio requiring virtually no attention.
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Artsdoctor
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Re: Moving Away from Individual Bonds

Post by Artsdoctor »

^^^ If you've bought individual muni bonds issued from Puerto Rico in the past and you were satisfied with getting "most of" your money back, then you might want to consider a high-yield tax-exempt bond fund. Vanguard offers this although I'm sure other companies do, and the credit quality is generally lower than your standard tax-exempt bond fund--so your yield may be a bit higher.
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Hacksawdave
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Re: Moving Away from Individual Bonds

Post by Hacksawdave »

Weathering wrote: Sat Jun 03, 2023 2:11 pm
Hacksawdave wrote: Sat Jun 03, 2023 10:55 am I want to add more shares once they get to a cost of $0.0261 per basis point of dividend payout.
Can you share the equation you use to calculate this? E.g., is it “$0.0261=annualized payout/share price”?
Sure! Look at the fund's monthly distributions. A distribution yield of 4.12% / NAV of $10.75 / 100 for one basis point is $0.0260922 per basis point.
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Re: Moving Away from Individual Bonds

Post by Electron »

You might want to consider a high-yield tax-exempt bond fund. Vanguard offers this although I'm sure other companies do, and the credit quality is generally lower than your standard tax-exempt bond fund--so your yield may be a bit higher.
Vanguard High-Yield Tax-Exempt Admiral shares (VWALX) is more conservative than most high-yield municipal bond funds and Morningstar has placed the fund in the Municipal National Long category rather than the High Yield category.

VWALX is now my largest Municipal bond fund position. This fund has outperformed all other Vanguard Municipal Bond funds over longer periods of time.

Morningstar has given the fund a Five Star rating.
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Artsdoctor
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Re: Moving Away from Individual Bonds

Post by Artsdoctor »

Electron wrote: Sat Jun 03, 2023 5:32 pm
You might want to consider a high-yield tax-exempt bond fund. Vanguard offers this although I'm sure other companies do, and the credit quality is generally lower than your standard tax-exempt bond fund--so your yield may be a bit higher.
Vanguard High-Yield Tax-Exempt Admiral shares (VWALX) is more conservative than most high-yield municipal bond funds and Morningstar has placed the fund in the Municipal National Long category rather than the High Yield category.

VWALX is now my largest Municipal bond fund position. This fund has outperformed all other Vanguard Municipal Bond funds over longer periods of time.

Morningstar has given the fund a Five Star rating.
That was my point. Vanguard does an excellent job with its high-yield tax-exempt bond fund. Some investors prefer higher credit quality and are willing to reduce the yield accordingly (Baird has a very strong investor following, for example), but others are fine with lower quality bonds. Vanguard's line-up is pretty conservative in its high-yield portfolio--it's hard to think of it as "junk." So if someone is willing to hold an individual muni from Puerto Rico, it's clear that high credit quality bonds are not a priority.
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Re: Moving Away from Individual Bonds

Post by JonFund »

I would not move away from individual bonds just because it involves "active involvement" with your broker. If you have a good, trusting relationship with him/her, you should be able to let them make those crucial bond decisions for you, especially considering that you are holding your bonds to maturity and not trading them, per se.
As an investor who moved away from bond funds to individual bonds, my recommendation is to never move from individual bonds to bond funds. The lack of transparency and control with bond funds won't let you sleep well at night. As I'm sure you've come to realize, with individual bonds it's nice to know exactly how much income you're pulling in, and exactly when you will get it, and exactly who the issuer is of that particular bond. All the best!
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Artsdoctor
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Re: Moving Away from Individual Bonds

Post by Artsdoctor »

JonFund wrote: Sat Jun 03, 2023 7:01 pm I would not move away from individual bonds just because it involves "active involvement" with your broker. If you have a good, trusting relationship with him/her, you should be able to let them make those crucial bond decisions for you, especially considering that you are holding your bonds to maturity and not trading them, per se.
As an investor who moved away from bond funds to individual bonds, my recommendation is to never move from individual bonds to bond funds. The lack of transparency and control with bond funds won't let you sleep well at night. As I'm sure you've come to realize, with individual bonds it's nice to know exactly how much income you're pulling in, and exactly when you will get it, and exactly who the issuer is of that particular bond. All the best!
I think that this is a valid point for you. But not for everyone. Holding individual munis to maturity is helpful but transaction costs with individual munis can be very opaque so investors need to know exactly who's making what on a trade (buying and selling). A broker is making money off of those trades and it's a rare broker that describes how much money they're making on those trades. Individual munis require care--you'll need to make sure the income is amortized correctly (for premium bonds) and you'll need to be aware of the tax consequences associated with holding discount munis. I've held many individual munis over many years, and I learned a lot from that experience--but it was more labor-intensive than most are willing to endure (to do it correctly). For others, they might be fine. But I sleep just fine with mutual funds.

Certainly the comment above about getting "most of" the money back from Puerto Rico bonds (OP) says it better than I ever could.
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Electron
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Re: Moving Away from Individual Bonds

Post by Electron »

Portfolio Visualizer is an excellent tool for comparing the past performance of mutual funds.

Here is a chart and analysis that includes Vanguard High Yield Tax-Exempt, Vanguard Long Term Tax-Exempt, and Vanguard Intermediate Term Tax-Exempt.

The chart shows the Growth of $10,000 and assumes reinvestment of dividends. The time frame is 2007 through 2023. It is easy to change the start date and other parameters. Data for the Admiral shares is available starting in 2001. A longer time frame can be viewed using the Investor shares for each fund. You can also substitute other High Yield Tax-Exempt funds such as T. Rowe Price PRFHX.

Portfolio Income is shown in a bar chart at the bottom of the page.

https://www.portfoliovisualizer.com/bac ... ion3_3=100
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Re: Moving Away from Individual Bonds

Post by invest2bfree »

retired-early wrote: Fri Jun 02, 2023 3:44 pm Hi, I’m heavily invested in individual bonds - tax free municipals, taxable municipals, and corporate. Overall they generate around $100k tax free, $100k in IRA, and $60k in Roth. I always hold to maturity or call date. This has been our major investments for the past 20 years. We will soon have an inheritance that will generate another ~$40k per year. SS will be at the max amount when I turn 70, another ~$80k in today’s dollars.

My dilemma is that owning individual bonds requires active involvement with my broker on a pretty regular basis. My wife has no interest in this kind of active investing so once I’m gone or incapable there’s no one to take over and manage. Now in my 60s I’m looking to simplify. I’m pretty risk adverse and don’t want stocks. I’ve considered slowly moving IRAs to cash and tax free municipals to a tax free bond fund. We have bought iBonds over the past few years but even that may be too complex. We own our home, have new cars, no debt and fairly low expenses. We’re saving around $150k a year and both are retired. The money keeps piling up and I’m looking to trade some of that for a simple portfolio that can be on autopilot. Suggestions welcome.
vwesx a great fund if you want to use.

vclt if you want an index option.

I suggest you look at all in one fund like AOR which just does all the heavy lifting and call it a day.
36% (IRA) - Individual LT Corporate Bonds , 33%(taxable) - schy, 33%(taxable) - SCHD Dividend Growth
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retired-early
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Re: Moving Away from Individual Bonds

Post by retired-early »

JonFund wrote: Sat Jun 03, 2023 7:01 pm I would not move away from individual bonds just because it involves "active involvement" with your broker. If you have a good, trusting relationship with him/her, you should be able to let them make those crucial bond decisions for you, especially considering that you are holding your bonds to maturity and not trading them, per se.
As an investor who moved away from bond funds to individual bonds, my recommendation is to never move from individual bonds to bond funds. The lack of transparency and control with bond funds won't let you sleep well at night. As I'm sure you've come to realize, with individual bonds it's nice to know exactly how much income you're pulling in, and exactly when you will get it, and exactly who the issuer is of that particular bond. All the best!
We do have a trusting relationship. That said, I would be uncomfortable giving him full control. I may be able to overcome that but even so anything can happen. He may leave the firm, retire, etc.
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Re: Moving Away from Individual Bonds

Post by retired-early »

A lot of Vanguard recommendations. I’m with Fidelity so not sure if there’s equivalent funds or maybe need to think about moving my accounts over there. Also not interested in equities. I’m just not wired to potentially lose up to 50% of my investment. I’m going to keep moving to cash (CD, treasuries, etc) but if rates go way down may need to look at alternatives.
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Re: Moving Away from Individual Bonds

Post by Theseus »

WapelloHawk wrote: Fri Jun 02, 2023 4:55 pm VWALX - VG high yield muni. Tax free, requires no thought, very steady income. You never mentioned principal - only income - so fund price appears less important to you (me too).
This is what I was going to suggest as well. I have money in this fund since 2009. So long as you can ride out fluctuation - which is a little higher than the regular bond funds, the returns are good and requires no maintenance. In fact I added more to it this year when I tax loss harvested in another bond fund.
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Re: Moving Away from Individual Bonds

Post by Outer Marker »

Vanguard's bond funds are generally regarded as superior. You might want to move there if you're going to be predominately in bonds.

25% equities is the point of minimum risk on the "effecient frontier." It produces both higher returns and lower risk than an all bond portfolio. You might consider holding a small allocation to equities - perhaps in the form of a conservative "all in one" fund to avoid heartburn over the vibration of the individual components.
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Re: Moving Away from Individual Bonds

Post by Artsdoctor »

retired-early wrote: Sun Jun 04, 2023 6:58 am A lot of Vanguard recommendations. I’m with Fidelity so not sure if there’s equivalent funds or maybe need to think about moving my accounts over there. Also not interested in equities. I’m just not wired to potentially lose up to 50% of my investment. I’m going to keep moving to cash (CD, treasuries, etc) but if rates go way down may need to look at alternatives.
If you're at Fidelity and don't mind ETFs, the Vanguard intermediate-term tax-exempt ETF (VTEB) is reasonable, and you can also consider MUB. You lose the ability to tax-loss harvest easily and efficiently but with a little effect, it'll work.
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Re: Moving Away from Individual Bonds

Post by dbr »

retired-early wrote: Fri Jun 02, 2023 8:43 pm
000 wrote: Fri Jun 02, 2023 8:24 pm Biggest risk to a 100% nominal fixed income portfolio is inflation. Fortunately TIPS are available, but it is still generally recommended to have some exposure to the businesses that make so many of the things we use.
I read TIPS can lose money if there’s deflation. Not sure if that’s anything to be concerned about though.
Of course the indexed value of a TIPS falls when the CPI falls. That is the very meaning of being a real indexed bond. Strangely enough they let you off the hook at the point where the the value hits the bond face value and any further drop in the index stops. They didn't have to do that. Objectively with TIPS you stay even under inflationary and deflationary circumstances, so that would seem to be a good thing either way.

How much a concern that would be depends on what one thinks happens to other assets when economic conditions result in deflation. By all odds it is indeed good in those circumstances to have someone owe you a fixed number of nominal dollars which are becoming more valuable in terms of purchasing power assuming deflation includes the goods one wants continuing to be conveniently available in the face of economic disruption going with deflationary events. When there is inflation one should be a nominal borrower and pay back with inflated (less valuable) dollars as time goes on.
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Re: Moving Away from Individual Bonds

Post by Hacksawdave »

retired-early wrote: Sun Jun 04, 2023 6:58 am A lot of Vanguard recommendations. I’m with Fidelity so not sure if there’s equivalent funds or maybe need to think about moving my accounts over there. Also not interested in equities. I’m just not wired to potentially lose up to 50% of my investment. I’m going to keep moving to cash (CD, treasuries, etc) but if rates go way down may need to look at alternatives.
Fidelity has over twenty offerings for both national and state specific municipal funds. I prefer Vanguard due to the lower expenses and longer tenure. I had some funds with Fidelity for awhile in the late 90s to 2000s. It was a style preference for me to move all to Vanguard.

Electron left a fabulous link to portfolio visualizer for you to compare both Vanguard and Fidelity funds together to see which suits your needs better.

One thing I did not ask is if your broker automatically reinvests the proceeds from your maturing individual bonds automatically to a new issue or places the proceeds in cash somewhere. You could move returned capital proceeds from a maturing issue to a like duration fund if that makes you feel more comfortable.
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Re: Moving Away from Individual Bonds

Post by retired-early »

Hacksawdave wrote: Sun Jun 04, 2023 10:24 am
retired-early wrote: Sun Jun 04, 2023 6:58 am A lot of Vanguard recommendations. I’m with Fidelity so not sure if there’s equivalent funds or maybe need to think about moving my accounts over there. Also not interested in equities. I’m just not wired to potentially lose up to 50% of my investment. I’m going to keep moving to cash (CD, treasuries, etc) but if rates go way down may need to look at alternatives.
Fidelity has over twenty offerings for both national and state specific municipal funds. I prefer Vanguard due to the lower expenses and longer tenure. I had some funds with Fidelity for awhile in the late 90s to 2000s. It was a style preference for me to move all to Vanguard.

Electron left a fabulous link to portfolio visualizer for you to compare both Vanguard and Fidelity funds together to see which suits your needs better.

One thing I did not ask is if your broker automatically reinvests the proceeds from your maturing individual bonds automatically to a new issue or places the proceeds in cash somewhere. You could move returned capital proceeds from a maturing issue to a like duration fund if that makes you feel more comfortable.
I’ll definitely check out the portfolio visualizer. Lots of recommendations here that I need to spend time looking at.

My broker doesn’t automatically reinvest. Proceeds go to cash and lately I’ve been transferring to Fidelity. Fidelity makes it easy to transfer funds, a couple minutes to fill out an online form and funds are moved within one or two business days.
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