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re: Fixed income: Bonds versus CDs

Posted on 2/5/24 at 9:50 pm to
Posted by Big Scrub TX
Member since Dec 2013
34708 posts
Posted on 2/5/24 at 9:50 pm to
quote:

I've been buying more 3 and 6 mo. TBills
Just buy USFR. It's easier and higher.

quote:

few A rated and BBB corporates yielding 6-7ish %.
Just buy JAAA - it's easier and higher.
Posted by beaverfever
Little Rock
Member since Jan 2008
33368 posts
Posted on 2/6/24 at 5:32 am to
If you want some exposure to a bond fund like JAAA would you say that a Roth IRA is a preferable vehicle than a regular brokerage account because of the tax implications on the dividends? That's where I've generally put REITs and it seems like the same logic would apply here?
This post was edited on 2/6/24 at 5:37 am
Posted by slackster
Houston
Member since Mar 2009
87780 posts
Posted on 2/6/24 at 6:17 am to
quote:

That's where I've generally put REITs and it seems like the same logic would apply here?
All else being equal, don’t hold REITs in your Roth. Hold them in your brokerage account.

I realize sheltering the dividends seems attractive, but REIT dividends are tax favorable already. Put your higher upside stocks in your Roth. Depending on your overall asset allocation, I’d own very little in bonds in my Roth. Thats your best growth account.

Posted by Tigerstark
Parts unknown
Member since Aug 2011
6281 posts
Posted on 2/6/24 at 6:56 am to
When interest rates go down, bonds will appreciate. The risk is the reverse happen when rates go up. But in todays environment the risk reward is in your favor.

If you are buying bonds themselves it does give you more risk since you would be managing the duration (sensitivity to interest rates) and the time period to maturity, so you could conceivable see lots of up movement of rates over time.
Posted by Roscoe14
Member since Jul 2021
235 posts
Posted on 2/6/24 at 8:09 am to
quote:

(early to mid-60s?).

I wish. And I am not going all fixed income. Right now the portfolio is at around 11% FI. Lot of room to increase that.
Posted by bovine1
Walnut Ridge,AR via Tallulah,LA
Member since Dec 2004
1311 posts
Posted on 2/6/24 at 8:56 am to
I use those funds at times but mostly I buy ind bonds. I don't like the principal fluctuation in funds and etfs people dump them on bad news that increases the downside.
Posted by Jag_Warrior
Virginia
Member since May 2015
4289 posts
Posted on 2/6/24 at 9:51 am to
quote:

by the way, I appreciate your USFR thread. I began using it around a year ago for quite a few clients. I had no familiarity with the floating rate treasury market until your thread. Researched it and rich I knew about it in 2022 instead.


Same here. Right after he first mentioned it, I researched USFR and began throwing free cash from options profits into the fund. It’s proven to be an excellent, liquid option for cash, and that rate premium kicker is very nice.
Posted by Big Scrub TX
Member since Dec 2013
34708 posts
Posted on 2/6/24 at 10:00 am to
quote:

I don't like the principal fluctuation in funds and etfs people dump them on bad news that increases the downside.
It depends on what funds and etfs you are talking about, but don't kid yourself about bonds. You might not see any reported movements on the tape, but they aren't very liquid usually. During the covid spike down, munis and treasuries traded like penny stocks!
Posted by bovine1
Walnut Ridge,AR via Tallulah,LA
Member since Dec 2004
1311 posts
Posted on 2/6/24 at 10:54 am to
I agree Big Scrub but I stay under 5 yrs and ladder ind issues. I also have other liquid funds so I don't have to sell into a panic. I do use ce funds if I go longer. I buy at more than average discounts and neg z scores only though. I also like to use cefs and etfs in bank loans like BGT and SRLN. Also EIC and bdcs like PSEC.

Posted by Big Scrub TX
Member since Dec 2013
34708 posts
Posted on 2/6/24 at 2:08 pm to
quote:

Also EIC
SOOO illiquid - but I love the collateral. If you like that, then take a look at ECC. That's my biggest holding across all accounts.
Posted by bovine1
Walnut Ridge,AR via Tallulah,LA
Member since Dec 2004
1311 posts
Posted on 2/6/24 at 2:43 pm to
Thanks I'll check it out.
Posted by Bestbank Tiger
Premium Member
Member since Jan 2005
73687 posts
Posted on 2/6/24 at 8:44 pm to
quote:


As for bank CDs, I don't quite see the liquidity problem.
Maybe I'm not experienced enough with all of the CD options.
But in the past, early forfeiture of a CD penalizes you 3 months interest.

Does the fact that there is a penalty at all suck? Sure.
But calculate out what 3 months interest is and let me know how much that will sting based on needing to break the contract. My guess is that it would feel like pennies.


Yep. I just entered that market. Penalty isn't bad at all, and that's assuming I'll need to tap the CD which is highly unlikely.
Posted by Big Scrub TX
Member since Dec 2013
34708 posts
Posted on 2/6/24 at 11:39 pm to
quote:

Yep. I just entered that market. Penalty isn't bad at all, and that's assuming I'll need to tap the CD which is highly unlikely.
But what's the benefit you're getting for locking up your money?
Posted by Bestbank Tiger
Premium Member
Member since Jan 2005
73687 posts
Posted on 2/7/24 at 6:41 pm to
quote:

But what's the benefit you're getting for locking up your money?


Interest payments.

Posted by Big Scrub TX
Member since Dec 2013
34708 posts
Posted on 2/7/24 at 11:20 pm to
quote:

Interest payments.
How much in excess of the non-lock amount?
Posted by Pendulum
Member since Jan 2009
7298 posts
Posted on 2/8/24 at 1:38 pm to
Not enough
Posted by LSUtiger89
Baton Rouge
Member since Dec 2007
3881 posts
Posted on 2/8/24 at 7:00 pm to
quote:

I like muni bonds.


He said it’s a retirement account. You can’t put muni bonds in retirement accounts!
Posted by Big Scrub TX
Member since Dec 2013
34708 posts
Posted on 2/8/24 at 9:04 pm to
quote:

Not enough
My entire point.
Posted by Dale Gribble
Member since Aug 2014
258 posts
Posted on 2/8/24 at 9:37 pm to
Fixed income newb here. Can someone explain the differences between USFR and VMFXX? I have a lot of cash in VMFXX as opposed to my banks FDIC insured money market account because of it’s higher yield (5.3% vs 4.3%).
Posted by slackster
Houston
Member since Mar 2009
87780 posts
Posted on 2/8/24 at 9:53 pm to
quote:

He said it’s a retirement account. You can’t put muni bonds in retirement accounts!


You can, but why would you?
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