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Started By
Message
Bond funds for long-term savings?
Posted on 8/11/17 at 8:31 am
Posted on 8/11/17 at 8:31 am
I have some cash sitting around at 1.1% in a Capital One 360 MM account. It is money I do not need, barring a major emergency or house upgrade, until retirement, many years away.
I'm maxed out on retirement contributions, IRA, etc., and I already have as much exposure to stocks as I can stand. No more stocks at this time.
Been looking at Vanguard bond funds to park 50K to 100K of those savings for long term and maybe get a better return than 1.1%.
VFIDX is intermediate term bonds (mix of med. and high quality) with avg 5 yr return 3.12% and 10 yr 5.49%. VWEHX is riskier, medium- and lower-quality corporate bonds, with avg 5 yr return 6% and 10 yr 7%.
Any thoughts or warnings on moving some of my 1.1% money into these or similar bond funds for long-term savings?
I'm maxed out on retirement contributions, IRA, etc., and I already have as much exposure to stocks as I can stand. No more stocks at this time.
Been looking at Vanguard bond funds to park 50K to 100K of those savings for long term and maybe get a better return than 1.1%.
VFIDX is intermediate term bonds (mix of med. and high quality) with avg 5 yr return 3.12% and 10 yr 5.49%. VWEHX is riskier, medium- and lower-quality corporate bonds, with avg 5 yr return 6% and 10 yr 7%.
Any thoughts or warnings on moving some of my 1.1% money into these or similar bond funds for long-term savings?
6
Posted on 8/11/17 at 9:51 am to Twenty 49
If you don't need it, I'll take it.
Posted on 8/11/17 at 11:00 am to Twenty 49
I have some bond funds. Of course, they'll go up and down too but the idea is to have an investment that maybe doesn't pay as well but also doesn't fluctuate as much.
Plus bond funds won't necessarily go in the same direction as stock funds, which lowers your overall portfolio volatility.
Plus bond funds won't necessarily go in the same direction as stock funds, which lowers your overall portfolio volatility.
Posted on 8/11/17 at 11:17 am to Twenty 49
I'm concerned about short term and mid term volatility in the bond market.
Posted on 8/11/17 at 11:54 am to Twenty 49
As long as you plan to keep the asset for longer than the duration, you can reasonably use it as a savings account, even in an rising interest rate environment.
Posted on 8/11/17 at 12:33 pm to Volvagia
Individual bonds have durations. A fund does not. The bonds held in the funds will but the share price of funds can fluctuate substantially even if the fund holds bonds of certain durations.
Posted on 8/11/17 at 1:50 pm to dirtsandwich
quote:
Individual bonds have durations. A fund does not.
You got that backwards boss. An individual bond has a maturity. A fund has an average maturity and more importantly, a duration. The duration will tell you the sensitivity to interest rate swings.
Posted on 8/11/17 at 2:00 pm to Shepherd88
Misspoke. I'm glad you pointed that out.
But the idea that one can hold a bond fund through its duration isn't right unless I'm missing something.
But the idea that one can hold a bond fund through its duration isn't right unless I'm missing something.
Posted on 8/11/17 at 2:32 pm to dirtsandwich
Theoretically you could if the fund stopped new acquisitions, however the fund itself will continually add more bonds pushing the duration to the target duration of the fund instead of reaching 0.
Hopefully that typed as well as my brain thought it.
Hopefully that typed as well as my brain thought it.
Posted on 8/11/17 at 3:15 pm to dirtsandwich
quote:
the idea that one can hold a bond fund through its duration isn't right unless I'm missing something.
If a bond has the trait, why can't you average it for the fund?
Most bond mutual funds I've seen provide those traits: average duration and average maturity attributes.
Sure, it might be off a bit, but it gives you an idea of the time frame you want to leave the assets there locked up if you want to use it as a savings.
Posted on 8/11/17 at 3:23 pm to Volvagia
Wouldn't you need a fund with a definite life to lock in a yield?
I agree with this. OP should look at a uit or other closed end bond funds.
quote:
Theoretically you could if the fund stopped new acquisitions, however the fund itself will continually add more bonds pushing the duration to the target duration of the fund instead of reaching 0
I agree with this. OP should look at a uit or other closed end bond funds.
This post was edited on 8/11/17 at 3:30 pm
Posted on 8/11/17 at 4:54 pm to sneakytiger
quote:
Wouldn't you need a fund with a definite life to lock in a yield?
We aren't talking about calculating a yield to worst.
If you put down 5k into a fund with an average duration of say seven years, you know that ideally you would like to leave it there for approximately that time frame to account for an increase in yield decreasing the value of capital.
It doesn't matter that the fund content is revolving, or that each additional contribution will have its own fresh clock. As long as you reinvest dividends into the fund and hold it for the duration, you are mitigating your exposure to interest rate risk.
This post was edited on 8/11/17 at 4:55 pm
Posted on 8/11/17 at 10:21 pm to Twenty 49
In my IRA accounts, I use BIV for the bond allocation. I prefer it over a total bond fund as I don't want exposure to mortgage bonds. Mortgage bonds have the additional risk of lower yield due to people paying off their mortgages early.
This post was edited on 8/11/17 at 10:26 pm
Posted on 8/11/17 at 10:56 pm to Twenty 49
Bond funds are about to get killed in the next year or so with the fluctuation of interest rates and our major debt crisis.
I would look at individual bonds or storage money in an overfunded insurance policy to get 4-5% net growth tax free( municipal bonds but more growth with more liquidity.)
I would look at individual bonds or storage money in an overfunded insurance policy to get 4-5% net growth tax free( municipal bonds but more growth with more liquidity.)
Posted on 8/11/17 at 11:07 pm to player711
Vanguard Wellesley.
Posted on 8/13/17 at 8:10 pm to player711
This is what I was trying to say.
quote:
Bond funds are about to get killed in the next year or so with the fluctuation of interest rates and our major debt crisis.
Posted on 8/13/17 at 9:56 pm to dirtsandwich
Bond prices goes down, yield goes up. If you hold and reinvest dividend, you'll come out ahead in the end. Now I wouldn't be holding long term bonds, but quality short/intermediate bonds are no problem.
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