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Considering Bonds

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  • Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1863
    Joined: 02/11/2019

    I have mentioned many times in the past that all my invested money is in equities.  I have taken some jibes from some of you because of this (Mostly @peds)  I really do not expect that allocating a 10% to bonds would hurt my performance much if at all but I have been hesitant because I did not think I had any good options and it was easier to just plunk it all into VTSAX and S&P funds.  I do plan to use bonds at some point and the main reason I would like to consider them now is not for ballast or performance or market timing but because I would like to have a different asset to watch so I can learn more about it.  I could just watch it without buying in but it grabs you attention more if you have some skin in the game.

    Here are my options.  Right now I am only invested in the vanguard funds and I replicate the total market.

    The bond funds are quite unimpressive.  High fees and to my inexperienced eye they do not seem to track their index well.  In addition to the ER there is a 40 basis point management fee on this account.

    Which fund if any would you pick?

    Should I stick with equity for now and hope we get a better fund in a few years?

    Thanks for all the help!

    BlackRock Infla. Protected Bond Fund   Net Expense Ratio: 0.50%

    BlackRock High Yield Bond Fund   Net Expense Ratio: 0.61%

    PIMCO Total Return Fund   Net Expense Ratio: 0.71%

    Templeton Global Bond Fund   Net Expense Ratio: 0.69%

    “Never let your sense of morals prevent you from doing what is right.”

    #240652 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 6198
    Joined: 01/12/2016

    Kind of a mess of a post. If we’re to look at bond funds, why are they all displayed? Can you clean up to include only bond funds, and returns dont matter at all. Yield and duration and type of paper if anything other than the expense ratio is listed.

    #240653 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1863
    Joined: 02/11/2019

    Working on it.  It looked much better prior to posting.  and deleting things just messed with the formatting too much.  Let me see if I can clean it up

    “Never let your sense of morals prevent you from doing what is right.”

    #240655 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4452
    Joined: 01/08/2016

    ugh. that is a mess (also the formatting).

    and not the best price.

    the TIPS fund would be my choice based on cost, except you dont need TIPS.

    would even consider 10K ibonds and some munis maybe…..

     

    i applaud your consideration, and thats enough for me. my belief in bonds has to do with some behavioral help, some re-balancing help, some return help, and ultimately, its positive diversification.

    #240659 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2382
    Joined: 03/01/2018

    Assume these are 401k options. What other space is available?
    Is all 401k pretax?
    Spouse? Spouse have 401k or other?
    Any Roth IRA or tIRA?
    Any taxable brokerage?

    agree I Bonds are a good option for post tax bonds.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #240660 Reply
    Avatar ajm184 
    Participant
    Status: Other Professional
    Posts: 637
    Joined: 07/14/2017

    The Pimco fund is a go-anywhere bond fund that is suffering due to it commitment to residential housing bonds which have not performed well this year so far.  None of the choices are ‘good’ in my mind from the ER perspective.  I would say all are potentially good funds from the stand-point as all are active bonds funds and all will have differing approaches to accomplish its goals versus an index bond fund.

    Though I agree with the thought having ‘skin in the game’ makes a difference, you will need to be very intentional with the learning part imo. Bonds are imo quite a bit more complex than equities from a structuring standpoint and bond structure is where the best learning would occur imo.  A bond fund essentially translates everything into price.  Otherwise, it doesn’t appear you have a foundational reason having bonds in your portfolio.

    #240662 Reply
    Avatar mjohnson 
    Participant
    Status: Physician
    Posts: 57
    Joined: 05/05/2019
    Splash Refinancing Bonus

    Sounds like you have crummy options in your 401K plan.  Mine is similar, good low cost Vanguard stock options, but bond funds all have expense ratios of ~ 1%.  Therefore, I hold most bonds (Vanguard municipal) in my taxable account.

    #240664 Reply
    fatlittlepig fatlittlepig 
    Participant
    Status: Physician
    Posts: 1203
    Joined: 01/26/2017

    If you have bad 401K options then why bother. Buy them in a taxable account then?

    #240669 Reply
    Liked by DCdoc, Zaphod
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2382
    Joined: 03/01/2018
    I do plan to use bonds at some point and the main reason I would like to consider them now is not for ballast or performance or market timing but because I would like to have a different asset to watch so I can learn more about it.

    Click to expand…

    I don’t agree with this. Changing your asset allocation for learning purposes is a poor idea, just some mental gymnastics that a grown adult shouldn’t need. There are perfectly good reasons to change your asset allocation but this isn’t one of them.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #240672 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2382
    Joined: 03/01/2018

    Are there any target retirement choices available?

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #240673 Reply
    Avatar JBME 
    Participant
    Status: Spouse
    Posts: 533
    Joined: 03/26/2018

    don’t you have a taxable account? buy munis there to get to your AA with bonds across all your accounts. Those aren’t great bond options in your 401k. Try to talk to someone about getting better bond funds in there?

    #240681 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1863
    Joined: 02/11/2019
    the TIPS fund would be my choice based on cost, except you dont need TIPS. would even consider 10K ibonds and some munis maybe…..   i applaud your consideration, and thats enough for me. my belief in bonds has to do with some behavioral help, some re-balancing help, some return help, and ultimately, its positive diversification.

    Click to expand…

    I agree I do not need TIPS

    I could look into ibonds that is something I do not know much about

    Last I checked munis did not offer much advantage for me in my tax bracket.  I am in the federal 24% bracket and NY 6.8%ish.  There is a NYS Muni but it is long duration bond fund and it did not seem low risk enough to justify.

    Assume these are 401k options. What other space is available?

    Click to expand…

    Roth but I would rather not use that for bonds.  Same with HSA.

    Spouse does not have a current 401K but she does have an old one.  It is less then 5% of our retirement so not very useful.

    Is all 401k pretax?

    Click to expand…

    yes

    Any taxable brokerage?

    Click to expand…

    Yes all in equity right now

    agree I Bonds are a good option for post tax bonds.

    Click to expand…

    I should look into this

    “Never let your sense of morals prevent you from doing what is right.”

    #240682 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1863
    Joined: 02/11/2019
    Are there any target retirement choices available?

    Click to expand…

    yes but they are crummy as well.

    don’t agree with this. Changing your asset allocation for learning purposes is a poor idea, just some mental gymnastics that a grown adult shouldn’t need. There are perfectly good reasons to change your asset allocation but this isn’t one of them.

    Click to expand…

    I have not changed anything yet.  Just considering my options.  Over the past 1-2 years as I took control of my financed I have watched how my stock funds have preformed and looked at the older information and I think it really helped me know what I do not know.  When I was new at this I thought that looking at the old data it should not be very hard to “time” things in my favor.  How obvious it seemed.  I have been watching carefully making my predictions all along the way these past 18 months and I am convinced now that market timing is not worthwhile.

    You are right I could just follow a total bond fund in a similar fashion to the same effect but I think it would be more useful if it is one that I am invested in or planning to invest in in the future.

    When I wrote my IPS I decided that I was going to introduce bonds at age 40 or at an retirement fund amount of 1M.  Which ever comes first.  I am still more then 5 years and 500K from that point.    I have learned a lot since I made myself those rules and I am considering changing them to a little sooner based on what I have learned and what I think I do not know and need to learn.

     

    Appreciate the advice so far.  Seems Like Ibonds are work looking into.

    “Never let your sense of morals prevent you from doing what is right.”

    #240689 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1863
    Joined: 02/11/2019
    don’t you have a taxable account? buy munis there to get to your AA with bonds across all your accounts. Those aren’t great bond options in your 401k. Try to talk to someone about getting better bond funds in there?

    Click to expand…

    Yeah I have taxable but I do not make enough to make munis really worth it but enough that I would rather not have bonds in taxable.

    We are a relatively small community hospital I do not know how much they will listen to me about fund choices but I might give that a try.

    “Never let your sense of morals prevent you from doing what is right.”

    #240690 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2382
    Joined: 03/01/2018

    ibonds now, married you can do $25k per year if you do it right and treat it as a part of your EF

    you can also purchase T bills in taxable, treat as part of EF, interest is exempt from state tax, most places at least, confirm for NY

    locums -> 1099 -> solo k -> BND at Etrade

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #240698 Reply

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