Any bond fund recommendations?

[fenders53]

I'm not informed enough about bond funds, but I know I need to get some of my portfolio into a fund for a hedge I'll need some month or year soon.  I do have plenty of bonds, buts it's ALL in the short to very short maturity.  Yields have die of course for anything short.  I was going to do this late 2018, but was afraid the FED would run rates up higher and wreck me overnight. I sure guess wrong on that one.  Now bonds have had a nice run so it's going to be a slow dollar cost average in for sure.  Anyway I am thinking about TLT which is 20yr treasuries.

[Otter]

(12-05-2019, 08:44 PM)fenders53 Wrote: I'm not informed enough about bond funds, but I know I need to get some of my portfolio into a fund for a hedge I'll need some month or year soon.  I do have plenty of bonds, buts it's ALL in the short to very short maturity.  Yields have die of course for anything short.  I was going to do this late 2018, but was afraid the FED would run rates up higher and wreck me overnight. I sure guess wrong on that one.  Now bonds have had a nice run so it's going to be a slow dollar cost average in for sure.  Anyway I am thinking about TLT which is 20yr treasuries.

Not sure I'd be looking at bonds on the downslope of a 35-year bull market, when bond prices peaked quite a while ago. This year's 75 basis point rate cuts dropped yields by a third, and the Fed is now signaling a pause. With the stock market at all-time-highs, near full employment, and homebuilder indices hitting levels not seen in 20 years, the Fed cutting yields back to Great Recession levels looks pretty unlikely.

Even a small move back towards normal bond yields would destroy bond prices. Funds aren't individual bonds. You aren't guaranteed a return of capital. 

I find it hard enough to tolerate token annual dividend increases in the range of 2%, as that doesn't really keep up with inflation. It's easier to stomach with high-yielders like T, which I treat as income farms. Not sure I'd want to give the government a 20-year loan at that rate, as boomers continue to age into the expensive phase of government programs.

[fenders53]

(12-16-2019, 08:36 PM)Otter Wrote:

(12-05-2019, 08:44 PM)fenders53 Wrote: I'm not informed enough about bond funds, but I know I need to get some of my portfolio into a fund for a hedge I'll need some month or year soon.  I do have plenty of bonds, buts it's ALL in the short to very short maturity.  Yields have die of course for anything short.  I was going to do this late 2018, but was afraid the FED would run rates up higher and wreck me overnight. I sure guess wrong on that one.  Now bonds have had a nice run so it's going to be a slow dollar cost average in for sure.  Anyway I am thinking about TLT which is 20yr treasuries.

Not sure I'd be looking at bonds on the downslope of a 35-year bull market, when bond prices peaked quite a while ago. This year's 75 basis point rate cuts dropped yields by a third, and the Fed is now signaling a pause. With the stock market at all-time-highs, near full employment, and homebuilder indices hitting levels not seen in 20 years, the Fed cutting yields back to Great Recession levels looks pretty unlikely.

Even a small move back towards normal bond yields would destroy bond prices. Funds aren't individual bonds. You aren't guaranteed a return of capital. 

I find it hard enough to tolerate token annual dividend increases in the range of 2%, as that doesn't really keep up with inflation. It's easier to stomach with high-yielders like T, which I treat as income farms. Not sure I'd want to give the government a 20-year loan at that rate, as boomers continue to age into the expensive phase of government programs.

Appreciate the feedback.  I'm definitely not interested in a real bond position after the very strong 2019 run.  I do indeed want it as a hedge (reliable as possible). that will offer some dividend yield.  I can't excited about gold for the lack of income.  Stocks like T are exactly what I am trying to hedge against.  It yields like a junk bond but a hedge it is not with that debt.  I have a lot of above average equity yielders.  Any sense of security one gets from being overweighted in them, the Aristocrats or even Utes is probably misguided when everything reverts to the mean.  I was  perfectly content with 2% yield on my cash, but that's getting much harder to do in my IRA, and I'm pretty cashy.  I guess I'll just have to be a better stock picker to make up for it overall.  Patience is what's actually required.  This might be a long wait and that's not such a bad thing.

[Otter]

(12-16-2019, 10:21 PM)fenders53 Wrote:

(12-16-2019, 08:36 PM)Otter Wrote:

(12-05-2019, 08:44 PM)fenders53 Wrote: I'm not informed enough about bond funds, but I know I need to get some of my portfolio into a fund for a hedge I'll need some month or year soon.  I do have plenty of bonds, buts it's ALL in the short to very short maturity.  Yields have die of course for anything short.  I was going to do this late 2018, but was afraid the FED would run rates up higher and wreck me overnight. I sure guess wrong on that one.  Now bonds have had a nice run so it's going to be a slow dollar cost average in for sure.  Anyway I am thinking about TLT which is 20yr treasuries.

Not sure I'd be looking at bonds on the downslope of a 35-year bull market, when bond prices peaked quite a while ago. This year's 75 basis point rate cuts dropped yields by a third, and the Fed is now signaling a pause. With the stock market at all-time-highs, near full employment, and homebuilder indices hitting levels not seen in 20 years, the Fed cutting yields back to Great Recession levels looks pretty unlikely.

Even a small move back towards normal bond yields would destroy bond prices. Funds aren't individual bonds. You aren't guaranteed a return of capital. 

I find it hard enough to tolerate token annual dividend increases in the range of 2%, as that doesn't really keep up with inflation. It's easier to stomach with high-yielders like T, which I treat as income farms. Not sure I'd want to give the government a 20-year loan at that rate, as boomers continue to age into the expensive phase of government programs.

Appreciate the feedback.  I'm definitely not interested in a real bond position after the very strong 2019 run.  I do indeed want it as a hedge (reliable as possible). that will offer some dividend yield.  I can't excited about gold for the lack of income.  Stocks like T are exactly what I am trying to hedge against.  It yields like a junk bond but a hedge it is not with that debt.  I have a lot of above average equity yielders.  Any sense of security one gets from being overweighted in them, the Aristocrats or even Utes is probably misguided when everything reverts to the mean.  I was  perfectly content with 2% yield on my cash, but that's getting much harder to do in my IRA, and I'm pretty cashy.  I guess I'll just have to be a better stock picker to make up for it overall.  Patience is what's actually required.  This might be a long wait and that's not such a bad thing.

The carnage for stocks is a lot less if they go back to average P/E ratios for the past 30 years, vs. what happens to bond prices if they revert to historical average yields. 

Also, not sure what the long-term demand looks like for government paper in western economies, which are looking at population stagnation or decline as boomers age out and die. Bonds are based on a promise that the next generation will produce enough to pay the outstanding liabilities plus coupon. Things can coast along fine, until they don't. 

Equities at least aren't tied to any particular government, and companies can go where the growth is (assuming the trend of globalization that has dominated since WWII ended continues, and protectionism doesn't reign again). 

I'm a bond skeptic, but the skepticism is tied to my general investment philosophies about seeking value. Yields would have to go deeply negative for decades for bond prices to match historic stock market return percentages over the next several decades. It could conceivably happen, but I think the odds are low.

Edited to add - If I felt confident enough to identify emerging market economies with healthy population growth rates, stable governments, high yield vs. US/Euro/Japanese paper, and a decent shot at navigating the turmoil of climate change, I'd take a good look at their bonds. People who can do that reliably tend to work at hedge funds, and make more than I do.

[fenders53]

(12-16-2019, 11:03 PM)Otter Wrote:

(12-16-2019, 10:21 PM)fenders53 Wrote:

(12-16-2019, 08:36 PM)Otter Wrote:

(12-05-2019, 08:44 PM)fenders53 Wrote: I'm not informed enough about bond funds, but I know I need to get some of my portfolio into a fund for a hedge I'll need some month or year soon.  I do have plenty of bonds, buts it's ALL in the short to very short maturity.  Yields have die of course for anything short.  I was going to do this late 2018, but was afraid the FED would run rates up higher and wreck me overnight. I sure guess wrong on that one.  Now bonds have had a nice run so it's going to be a slow dollar cost average in for sure.  Anyway I am thinking about TLT which is 20yr treasuries.

Not sure I'd be looking at bonds on the downslope of a 35-year bull market, when bond prices peaked quite a while ago. This year's 75 basis point rate cuts dropped yields by a third, and the Fed is now signaling a pause. With the stock market at all-time-highs, near full employment, and homebuilder indices hitting levels not seen in 20 years, the Fed cutting yields back to Great Recession levels looks pretty unlikely.

Even a small move back towards normal bond yields would destroy bond prices. Funds aren't individual bonds. You aren't guaranteed a return of capital. 

I find it hard enough to tolerate token annual dividend increases in the range of 2%, as that doesn't really keep up with inflation. It's easier to stomach with high-yielders like T, which I treat as income farms. Not sure I'd want to give the government a 20-year loan at that rate, as boomers continue to age into the expensive phase of government programs.

Appreciate the feedback.  I'm definitely not interested in a real bond position after the very strong 2019 run.  I do indeed want it as a hedge (reliable as possible). that will offer some dividend yield.  I can't excited about gold for the lack of income.  Stocks like T are exactly what I am trying to hedge against.  It yields like a junk bond but a hedge it is not with that debt.  I have a lot of above average equity yielders.  Any sense of security one gets from being overweighted in them, the Aristocrats or even Utes is probably misguided when everything reverts to the mean.  I was  perfectly content with 2% yield on my cash, but that's getting much harder to do in my IRA, and I'm pretty cashy.  I guess I'll just have to be a better stock picker to make up for it overall.  Patience is what's actually required.  This might be a long wait and that's not such a bad thing.

The carnage for stocks is a lot less if they go back to average P/E ratios for the past 30 years, vs. what happens to bond prices if they revert to historical average yields. 

Also, not sure what the long-term demand looks like for government paper in western economies, which are looking at population stagnation or decline as boomers age out and die. Bonds are based on a promise that the next generation will produce enough to pay the outstanding liabilities plus coupon. Things can coast along fine, until they don't. 

Equities at least aren't tied to any particular government, and companies can go where the growth is (assuming the trend of globalization that has dominated since WWII ended continues, and protectionism doesn't reign again). 

I'm a bond skeptic, but the skepticism is tied to my general investment philosophies about seeking value. Yields would have to go deeply negative for decades for bond prices to match historic stock market return percentages over the next several decades. It could conceivably happen, but I think the odds are low.

Edited to add - If I felt confident enough to identify emerging market economies with healthy population growth rates, stable governments, high yield vs. US/Euro/Japanese paper, and a decent shot at navigating the turmoil of climate change, I'd take a good look at their bonds. People who can do that reliably tend to work at hedge funds, and make more than I do.

My investing style the past 30 years suggests that we agree.  I've never seen bonds as a growth vehicle.  I still don't.  If I had paid for an investment adviser when I switched to  Vanguard last year, I'd be about 40% bonds right now.  For now that would have worked out. From a lower base long bonds do provide a hedge.  We clearly aren't there today.  I'm sure you've read my investment rules "Never do what you wish you had done last week, month etc".  I try to never chase ANYTHING.   

I'm not willing to take a 40% port hit anymore.  That day will come with liquidity juiced and PEs somewhat high.  This isn't 1999 equity euphoria.  I completely "get that".  I need a hedge for the short to mid-term.  I can't find anything other than cash, and hence this thread as cash is less desirable with current rates.  For now the answer may be what I am already doing.  A huge basket of extremely short duration bond funds.

I'll continue to follow Gundlach.  He is the bond king and he isn't telling me to jump in now.  It's his opinion corporate bonds will offer incredible opportunity some year soon, right after people learn their AA and AAA bonds aren't actually quite that safe when it hits the fan.  I'm just hoping the FED is smart enough to not play the zero yield game well before corporate profits struggle in a real way.  How can it not be obvious that ends bad? 

You are correct that emerging markets will offer opportunity.  I'm not knowledgeable enough to know how to play that.  Pick the wrong hedge fund and I'll lose.  And that's why I am hanging out with you picking DGI stocks. 

[crimsonghost747]

(12-17-2019, 07:53 AM)fenders53 Wrote: I'm not willing to take a 40% port hit anymore. 

I need a hedge for the short to mid-term.  I can't find anything other than cash, and hence this thread as cash is less desirable with current rates.  For now the answer may be what I am already doing.  A huge basket of extremely short duration bond funds.

Well, that changes things a little. Because at first I was under the impression that you wanted bonds as a true hedge, meaning they will move upwards when the market is going downwards. So I thought the main point is to gain price appreciation should the shit hit the fan. And I don't like to be that speculative, especially with bonds and even more so with the current low yields.

But if you are just looking for a place to park some cash with some sort of a yield, then bonds may very well be the answer. But I'd definitely go with individual bonds, not a bond fund. I don't know what you can get for cash in a CD or similar, but the current US government yield is 1.54% for a one year bond. It's not much but it's a safe bet in that you know that you'll get your money back on the specific date. And you don't really run any risk of losses if you hold until maturity. (the only real risk is the US government defaulting.. somehow I doubt it when they can always print more) Some corporate bonds will yield more but honestly I don't think they are worth the time and the risk at the moment. 


Preferred shares could be another option. They can certainly fall with the general market too but they should keep their value much better than regular shares and they tend to have pretty juicy yields.

[fenders53]

(12-17-2019, 08:51 AM)crimsonghost747 Wrote:

(12-17-2019, 07:53 AM)fenders53 Wrote: I'm not willing to take a 40% port hit anymore. 

I need a hedge for the short to mid-term.  I can't find anything other than cash, and hence this thread as cash is less desirable with current rates.  For now the answer may be what I am already doing.  A huge basket of extremely short duration bond funds.

Well, that changes things a little. Because at first I was under the impression that you wanted bonds as a true hedge, meaning they will move upwards when the market is going downwards. So I thought the main point is to gain price appreciation should the shit hit the fan. And I don't like to be that speculative, especially with bonds and even more so with the current low yields.

But if you are just looking for a place to park some cash with some sort of a yield, then bonds may very well be the answer. But I'd definitely go with individual bonds, not a bond fund. I don't know what you can get for cash in a CD or similar, but the current US government yield is 1.54% for a one year bond. It's not much but it's a safe bet in that you know that you'll get your money back on the specific date. And you don't really run any risk of losses if you hold until maturity. (the only real risk is the US government defaulting.. somehow I doubt it when they can always print more) Some corporate bonds will yield more but honestly I don't think they are worth the time and the risk at the moment. 


Preferred shares could be another option. They can certainly fall with the general market too but they should keep their value much better than regular shares and they tend to have pretty juicy yields.

A hedge is in fact what I truly desire for some part of my port.  TLT has served that purpose well historically.  US long bonds just ran 20% and offer a low yield so this doesn't appear to be one of those times.  I get 2% (barely) from my cash/extremely short term bond fund combo currently.   The yield is fading fast though.  It was 2.5%+ from the same funds not so long ago.

I'm not educated enough on purchasing individual bonds. Sounds like it is time to learn. First a more advanced book, then I can dip my toe in the market with a quality corporate bond and watch it move around. Nothing accelerates the learning curve like some skin in the game.

[crimsonghost747]

(12-17-2019, 10:03 AM)fenders53 Wrote: I'm not educated enough on purchasing individual bonds.  Sounds like it is time to learn.  First a more advanced book, then I can dip my toe in the market with a quality corporate bond and watch it move around.  Nothing accelerates the learning curve like some skin in the game.

The beauty of holding a non-callable bond until maturity is that it really makes the process quite simple. Instead of having to think of all the different scenarios, you only really need to worry about "how likely is this entity (corporation/government/whatever) to be capable of paying back this amount of money on this particular date." Then calculate the yield-to-maturity and you pretty much have all you need. 


You also lock in the profits at the time of purchase so basically once you've pressed the big red buy button, then all you do is wait until maturity. Sometimes you collect the money at maturity, sometimes along the way, in either case it does not matter where the bond price goes because it will be at face value on the expiration date.

But to be honest corporate bonds are at a tough place now. It's hard to find anything even remotely trustworthy that yields significantly more than the government bonds. For all the extra research you do on the company and it's financials, plus the risk of default that you take, it's really hard to find ones that yield enough.

The above is basically for using bonds instead of cash and holding until maturity. I have no idea how bonds work if you plan to use them more as a trading instrument for the potential price appreciation.

[fenders53]

Thanks again.  After a little more study, I need to pick up a few individual bonds and learn.  I'll find something with a few years to maturity and  ask questions.  It doesn't have to be the best purchase ever.  I promise I won't just buy a couple $100K bonds and ask "Well how'd I do Crimson and Otter?"  

I have a degree in Biz, but it was so long ago.  I do remember the study and it was really basic in retrospect.  The basics of bond yields is not complicated.  Then I pull up a listing on my broker and even short T-bills look complicated.  Just not as simple as buying 10 shares of JNJ and collecting the Div lol.  I did own a small position in a high yield corporate bond fund a while back.  Most all the companies were BBB or better.  It was pretty volatile compared to my short-term bond funds, but less than most individual stocks.  I'm OK with the volatility part.  You guys probably realize that.  I sleep just fine knowing I might just buy 2000 shares next week because I have 20 put contracts open at once.  What I am NOT OK with is investing real money into that bond fund I just described, then really having no idea why it made a fairly large move in a couple days.

As a young man, I remember my friend's Grandfather explaining bonds to us.  You give them $1,000.  They pay you better than the bank interest for ten years then you get you $1000 back.  That's not what going on at CNBC lol.  I know it can be incredibly complicated if you want it to be.  I like your callable bond idea if I can find one I like.

[Otter]

Online brokerages make it pretty easy these days to search/buy individual bonds or CDs and customize what you are looking for (term, callability, yield, etc). Schwab's "Find Bonds & Fixed Income" option under the Trade tab is super easy. Ameritrade's Bond Wizard is also easy to use.

[fenders53]

(12-17-2019, 06:21 PM)Otter Wrote: Online brokerages make it pretty easy these days to search/buy individual bonds or CDs and customize what you are looking for (term, callability, yield, etc). Schwab's "Find Bonds & Fixed Income" option under the Trade tab is super easy. Ameritrade's Bond Wizard is also easy to use.

All of my significant funds are in Vanguard.  They never make anything quite as simple as TDA, but the search function seems adequate.  When I get a minute I'll attempt to copy a listing onto this thread so I can ask a few questions.  I definitely see what you guys are saying about corporate not being worth the bother right now, but just for practice I may still buy one that expires in a few years so I can observe the mechanics and track it.  I'm not planning to be a bond trader, but things change and I desire an understanding to exit if that just makes sense some year.  I'll likely just stick to what I understand for trading.  Equities work more than fine for that "bucket".  Callable bonds sound like what I want.

[ChadR]

You might also want to look at preferred shares. Basically just like bonds. Callable at $25 per share and paying you interest every quarter.