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Post by richm on Jul 10, 2024 7:12:13 GMT -5
How does a CD compare to bonds?
So they say we're supposed to invest x amount in bonds as protection about the market collapse.
Have a total of 48% of an account in bonds and an annuity fund in my "moderate" portfolio. The returns are insulting between 0.01% and 0.59%.
Is a 5-10-20 yr CD at 5% a better bet?
Or can a bond suddenly be turning enough in an emergency to be worth sitting there doing nothing?
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Post by madm002 on Jul 10, 2024 7:54:05 GMT -5
You can always sell bonds, in fact might go up in value if rates drop. It a good time to take a little more duration I think. If you do buy bonds make sure they are not callable. I just had some called away for a ridiculously small spread but they did
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Post by richm on Jul 10, 2024 8:34:05 GMT -5
I have to call the 401k account company and see what my options are - the bond funds suck. The annuity thing sucks too.
Did research on bonds show lower than stock performance but supposedly log term avg is around 6%. I could live with that or even 3-4% if they protect in a downturn. Not at the returns I'm seeing in my account.
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Post by ferris1248 on Jul 10, 2024 8:58:40 GMT -5
You're limited as to what you can do with a 401k (which I'm sure you're aware). Look at your options. I don't know if you can get CDs through a 401k. I think you can do a "rollover" to a an IRA but that needs to be looked at carefully. Consequences of not doing it right can be nasty taxwise.
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Post by nuevowavo on Jul 10, 2024 14:27:47 GMT -5
As madm002 said, bonds increase in value as interest rates go down, and vice versa. Since we should be entering a declining interest rate environment, it would make sense to lock in yields now, if you're concerned about market value. If your intention is to hold the bonds until maturity that doesn't matter.
As for a hedge against the stock market, there's no guarantee there. Take a look at 2022, when the Fed started raising rates. From January thru October bonds (the Bloomberg Aggregate Bond Index, the benchmark for a lot of investment grade bond finds) fell 15%, while the S&P 500 fell 18%. But over long periods, bonds do return around 6%.
But as I've said here before, I believe that stocks are the key to building wealth. My only fixed income position is the Schwab Money Market fund, yielding about 5.25%, and that's about 20% of my holdings (my only "cash"position).
If you do want some longer term fixed income, bond funds are much better than individual bonds for anyone but the truly wealthy.
Curious - what bonds do you have that are yielding less than 1%?
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Post by richm on Jul 10, 2024 16:29:39 GMT -5
As madm002 said, bonds increase in value as interest rates go down, and vice versa. Since we should be entering a declining interest rate environment, it would make sense to lock in yields now, if you're concerned about market value. If your intention is to hold the bonds until maturity that doesn't matter. As for a hedge against the stock market, there's no guarantee there. Take a look at 2022, when the Fed started raising rates. From January thru October bonds (the Bloomberg Aggregate Bond Index, the benchmark for a lot of investment grade bond finds) fell 15%, while the S&P 500 fell 18%. But over long periods, bonds do return around 6%. But as I've said here before, I believe that stocks are the key to building wealth. My only fixed income position is the Schwab Money Market fund, yielding about 5.25%, and that's about 20% of my holdings (my only "cash"position). If you do want some longer term fixed income, bond funds are much better than individual bonds for anyone but the truly wealthy. Curious - what bonds do you have that are yielding less than 1%? = 0.03% Supposedly this is up 2.99% for the past year American Funds Bond Fun of America R6 Fund = 0.01% Supposedly this is up 2.7% for the past year Not sure where the low numbers are coming from for the Jan 1 thru July 9 (yesterday) values. As Ferris said - my choices are extremely limited in the 401K. Principal does this risk vs allotment called "RetireView". My choice was smack dab in the middle of the aggressive to conservative choices, thought it was similar to my former date fund (we got 11-12% on this one last year). I did call and talk to a human, she pulled up my account and my investment options - said that what I'm seeing is what i get to choose from - we have about 25 funds to play with. I know I'm gonna pull the plug and 25% out of the annuity fund "Principal Fixed Income Guaranteed Option" at 0.59%. Need to read the information for the 25 or so funds and take my best shot with what there is. Some of these funds were created in 2019 and haven't had much time to flex. Fwiw - the Fidelity 500 Index was up 17.58% as of yesterday. In a few weeks, I'll get this stuff organized and ask about % allotments for the various funds. For example, they have me at 5% in the S&P 500 Index. |
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Post by madm002 on Jul 11, 2024 10:26:24 GMT -5
Rich, when you are ready take a look at funds, one growth, and one growth and income, one small cap, and one international. I weight them 30 35 20 and 15 percent. Its pretty easy to find funds that have a 11 to 12 % average return over last 10 to 15 years, which is what I look for and you would be well diversified.
Dont get me wrong I have done extremely when in individual stocks especially in my business area but I am starting to think a low risk 11 or 12 is better than a risky 15 to 20% return that you have to watch all day. Like right now, my portfolio jumps around based on Nvidia, which is overweight, at least for now.
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Post by PolarsStepdad on Jul 11, 2024 11:28:35 GMT -5
6 and 12 month CDs are paying better than 5% currently. I sold all my bonds last month and bought NVDA, AVGO, NIE, Cowz, ACHR,
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Post by PolarsStepdad on Jul 11, 2024 11:29:51 GMT -5
Rich, when you are ready take a look at funds, one growth, and one growth and income, one small cap, and one international. I weight them 30 35 20 and 15 percent. Its pretty easy to find funds that have a 11 to 12 % average return over last 10 to 15 years, which is what I look for and you would be well diversified. Dont get me wrong I have done extremely when in individual stocks especially in my business area but I am starting to think a low risk 11 or 12 is better than a risky 15 to 20% return that you have to watch all day. Like right now, my portfolio jumps around based on Nvidia, which is overweight, at least for now. I'd be tickled shitless for a steady but safe 10/11%. I would absolutely sink everything in that |
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Post by nuevowavo on Jul 11, 2024 13:29:08 GMT -5
rich, those two funds are fine, if you want to be in intermediate term bonds. The Fidelity fund tries to mimic the Bloomberg index, while the American fund is more income-oriented.
The numbers you reference are return, not yield. They both currently yield about 4.5%
Which begs the question - why expose your portfolio to market risk for 4.5% when you can be in a money market fund yielding 5.25%?
Of course, the expectation is for rates to fall, but they may not if inflation picks up again.
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