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What are you guys doing for your fixed income these days?
I believe that all the extreme financial engineering since 2008 has introduced unacceptable risks in Bond funds. The proof is the great bond meltdown of the last 36 months. The volatility in fixed income has been unprecedented.
Are intermediate bond funds still a buy? Rates may fall but inflationary risks are still high due to all the deficit spending of our government, if the economy goes south there may be another massive bailout by the Fed resulting in even more inflation and then an even greater bond crash when the Fed is forced to correct it's mistakes.
I am thinking staying in 2 to 3 year maturities in Treasuries may be a better bet than buying something like Total Bond (VBTLX) with a 6-7 year duration. The thing about the bond funds is that they take a crazy amount of time to recover from rate fluctuations due to all the internal rollover of the bonds which is out of your control.
So, I am wondering if anyone here as opted to keep their fixed income in pure Treasuries with their desired maturities - i.e. some in shorter duration, some intermediate so they in essence create their own "bond fund".
I recently invested in a 5 year and 7 year treasury note with a discount coupon. This is in a taxable account, so a bond fund generates capital gains, but the treasury note does not. This is my sister’s account and she is 77. She does not need monthly income.
If I need to sell early, treasuries are easy to sell on the secondary market. I won’t lose money unless interest rates go up.
i use a high yield floating rate bond fund , a intermediate term bond fund that is only about 3.5 years in duration, a short term bond fund under 3 years in duration .
all are very interest rate insensitive.
besides my regular portfolios i also have an experimental leveraged 60/40 portfolio that uses a heavy leveraged bond fund
tyd is a bond fund that is heavy heavy rate sensitive but is only 13% of the portfolio but carry’s itself like as if it was 40% .
it also has 20% upro which is a 3x stock fund and that carries the weight of 60% equities.
the rest is in dbmf a managed futures fund of short and long action .
I have t bills, but over time they have synced in and expire all at the same time. It's a little better than my Online savings at Barclays (4.35%). Thinking about getting I bonds now in 2023, as they pay 1.3% fixed and the max. is 10K only, anyway.
What I like is that even in my 403b, the 'cash' positions (SPAXX and FBALX) have a 7-day yield of about 5.1%. I don't remember it being that way lately.
Altogether, only maybe 15% are stocks, including all accounts. I know it is very conservative, but I believe it's keeping up with CPI at least (until I figure out what to spend it all on).
It's only money after all. Nobody cares. It will eventually find its own drain hole, no matter what you think you are doing.
I ladder 3-month T Bills and have one mature every week for about $330. I will continue this as long as they are over 5%.
I buy them at the auction every Friday.
So, my understanding is that over 2x duration - 1 i.e. 6.5 * 2 = 13 - 1 = 12 years, you are going to receive the SEC yield unless of course interest rates fluctuate which they will.
5 year t-note is yielding 3.8% or so right now.
For an asset allocation, assuming a decumulating 80/20 portfolio in retirement, would recommend:
a) All VBTLX
b) 10% VBTLX, 10% 5Y T-Note
c) 10% VBTLX, 5% 3Y T-Note, 5Y T-Note
d) Something else?
upside for VBTLX isn't great, what are the chances we go back down to 0.5% with rates? I think that was an anomaly that will not happen again. Leaning towards b) to lock in a 3.8% US bond for 5 years. If rates come down then you're still getting a premium. If rates go up then with 5Y duration your risk is limited, you can roll over in short time over to a higher rate. Thoughts?
Thanks. I was watching some reports by the talking heads and they were saying that this is a historic opportunity to lock in yields for the long term. However, I am a bit skeptical. 3.8-4% is still historically VERY low and given the lower bound I don't see much upside in cap appreciate at this rate. Am I mistaken?
I was more willing to take on intermediate duration (6 years or so) at 5+% rates.
Thanks. I was watching some reports by the talking heads and they were saying that this is a historic opportunity to lock in yields for the long term. However, I am a bit skeptical. 3.8-4% is still historically VERY low and given the lower bound I don't see much upside in cap appreciate at this rate. Am I mistaken?
I was more willing to take on intermediate duration (6 years or so) at 5+% rates.
stocks respond better then bonds to lower rates so if anything i would ditch the bonds .
most of what is good for bonds is better for stocks .
i would add more to my fidelity stock funds that are pretty conservative despite being all stocks .fidelity equity income stands out as one.
fidelity low priced stock fund another .
these tend to lag the s&p because they are less risky and volatile.
even high yield is a better choice then going out longer ..they are a lower risk version of equities.
especially a fund like fidelity capital and income who is invested in not only high yield bonds but
a bit of distressed stocks too .
unless one is doing a risk parity portfolio like the permanent portfolio or golden butterfly which require going out longer , there are to many better choices then increasing duration.
right now i love my fidelity floating rate high income at almost a 10% yield
Thanks. I was watching some reports by the talking heads and they were saying that this is a historic opportunity to lock in yields for the long term. However, I am a bit skeptical. 3.8-4% is still historically VERY low and given the lower bound I don't see much upside in cap appreciate at this rate. Am I mistaken?
I was more willing to take on intermediate duration (6 years or so) at 5+% rates.
Nobody knows if the peak of this cycle is at 4%. A lot of textbooks call for locking in rates of 6%. Those days may be over.
If you take mortgage rates have fallen below 7% maybe we have seen peak for the cycle. Where rates were 5% may be below that now. How quick interest rates can change.
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