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The amount of fixed income someone has is sometimes what they decide it is. We could increase our fixed income because we have a fairly large 401k balance and a fairly large "cash" savings account that if w chose to do so, we just withdraw the interest, we could increase our monthly "fixed income" by quite a bit. However, we choose to live on just Social Security and my very small pension which total just $4,500 a month. However, as our expenses average just about $3,400 a month, we are doing quite well -- so far, at least (knock wood).
We do live very frugally, however, with only one car and a paid-off home and a very casual lifestyle, and we don't try to impress anyone. We actually have no splurges to speak of -- for example, my main "entertainment" expense is the purchase of used books (as our local library is not very good), and my husband's main entertainment expense is fishing lures. We no longer travel, and with the decline in restaurant service and the increase in restaurant prices, we no longer go out to eat. (We are both very good cooks, however, which also saves quite a bit of money.)
P.S. We intend to save the 401k and our savings for our very old age to pay for some kind of home health aide, if that proves necessary, plus we could sell our home if we need to move to some kind of ALF.
This is similar to our situation as we live on Social Security and pensions. Our RMDs go into a taxable 3 fund portfolio.
We don't have a whole lot in bond funds and are currently putting monthly deposits in MMFs and CDs.
We aren't necessarily interested in leaving legacy money as our kids are doing well. If our IRAs aren't needed for future care, I'm sure our kids will be happy to receive an inheritance.
Like Katharsis, we no longer travel, developed a greater interest in home cooking during Covid, eating out less often than before Covid.
Correct, a default could be just a missed payment or it could be not paying principle.
I believe in some cases a technical default occurs when certain financial metrics of the borrower fall below threshold numbers indicating a deterioration in the financial condition of the company. This technical default occurs even if the borrower NEVER misses a payment, and the technical default can trigger all sorts of hypothetical things.
2022 was a rude awakening. It absolutely mauled bond funds, even those of modest duration and specializing in the lowest risk-category (tax-exempt municipals, etc.). Having sustained 2022, I struggle to equate bonds with capital preservation.
Which municipal tax exempt bond defaulted in 2022? I recall:
Puerto Rico restructuring in 2016
Detroit defaulting on some GOs in 2013
Stockton CA in 2012
Jefferson County AL in 2008
Jefferson Parish LA in 2008
Vallejo in 2008
2022 has taught we that bonds aren't like cash, just with higher rates of return! That is the message that I'd like to convey here.
Very true.
But with your infinite holding timeframe, and with interest payments reinvested, those reinvestments occurred with bond prices quite low thereby giving you a nice expectation for ROI going forward.
I believe in some cases a technical default occurs when certain financial metrics of the borrower fall below threshold numbers indicating a deterioration in the financial condition of the company. This technical default occurs even if the borrower NEVER misses a payment, and the technical default can trigger all sorts of hypothetical things.
Right. So default percentages by themselves don’t tell the whole story.
Which municipal tax exempt bond defaulted in 2022? I recall:
Puerto Rico restructuring in 2016
Detroit defaulting on some GOs in 2013
Stockton CA in 2012
Jefferson County AL in 2008
Jefferson Parish LA in 2008
Vallejo in 2008
But I don't recall anything in 2022.
Most of the recent muni defaults which there were few, were senior centers and education related. All were not rated.
I have excessive cash in a money market, but was advised to move some of it to CDs or my bonds to lock in months to years yields, before June, when most are thinking the Fed will lower rates.
I'll do it, but watch inflation shoot up in a surprise
I'm pretty certain the peasant is not talking about defaults, but rather the falling bond prices in 2022, caused by higher interest rates.
Yup. For some reason, everyone is obsessed here with default risk. In a bond fund, even if a few holdings default, the aggregate won't be much affected. But interest rates... well, that was the rude awakening. 2022 was unprecedented. No such thing happened in 2008, or (I'm guessing here - didn't look it up) in 1982, 1973 or even 1929-1932. The mantra, "bonds may be slow and inferior to stocks in the CAGR, but they're safe, solid and downright boring"... was obliterated by 2022.
As for holding period etc., yes, presumably an intermediate-term bond fund will recover in... intermediate term; so that if my self-declared holding period is infinite, it shouldn't matter in infinite time. This is true. But I'm not holding bond funds with objective of maximum return over infinite time. Were that to have been the case, I'd have zero bond fund holdings, instead being 100% in stocks, maybe leavened by something in private equity or other exotics. The purpose of bond funds is to tamp-down on volatility (standard deviation). Thus again, 2022 was a rude awakening.
What about individual bonds? I admit no knowledge of them, or even how to buy them. Can one call Fidelity/Vanguard/Schwab, asking the kind gentleman or lady fielding the call, to place an order? If not, I'm lost.
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