Author Topic: Fidelity Bond Options  (Read 1356 times)

2lazy2retire

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Fidelity Bond Options
« on: April 06, 2018, 09:23:04 AM »
I'm looking for a bond option to "smooth the ride" but my current 401k with Fidelity does no have anything like the famed VBTLX - below are a list of offerings and associated fees.

I'm leaning towards the lower fee treasury ones - at 0.06%  - maybe split 50% in each LT and INT?.  Any guidance much appreciated

FID LT TR IDX PR (FLBAX)
FID INT TR IDX PR (FIBAX)



FID INT TR IDX PR (FIBAX)
Bond Investments   0.06%   No additional fees apply.

Investments you currently own FID INTERMED BOND (FTHRX)
Bond Investments   0.45%   No additional fees apply

FID INVST GR BD (FBNDX)
Bond Investments   0.45%   No additional fees apply.

FID LT TR IDX PR (FLBAX)
Bond Investments   0.06%   No additional fees apply.

FID NEW MARKETS INC (FNMIX)
Bond Investments   0.82%   No additional fees apply.

FIDELITY GOVT INCOME (FGOVX)
Bond Investments   0.45%   No additional fees apply.

LOOMIS CORE PL BD N (NERNX)
Bond Investments   0.39%   No additional fees apply.

PIF SH TERM INC INST (PSHIX)
Bond Investments   0.43%   No additional fees apply.

TMPL GLOBAL BOND R6 (FBNRX)
Bond Investments   0.58%   No additional fees apply.

FID GOVT MMKT (SPAXX)
03/31/2018   1.24%
Short-Term Investments   0.42%
« Last Edit: April 06, 2018, 09:26:32 AM by 2lazy2retire »

NoStacheOhio

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Re: Fidelity Bond Options
« Reply #1 on: April 06, 2018, 11:48:07 AM »
Those are both good options.

Alternatively, could you just open an IRA and Vanguard and keep your bonds there?

neil

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Re: Fidelity Bond Options
« Reply #2 on: April 06, 2018, 12:46:46 PM »
In a massive simplification, a total bond index looks closest to a government intermediate bond given that government is the largest component and a weighted average of the yield curve gives roughly the same duration.  If you open up Morningstar to look at total return, FIBAX and VBTLX correlate much better than FLBAX.  But it is definitely not the same (see 2008) because you are missing those short and long term tails of the yield curve, and you are missing corporate exposure.

In an argument about buying an investment that correlates opposite of VTSAX (all public corporations, though obviously not bonds) it is probably fine to drop the corporate component for sake of simplicity.  I wouldn't necessarily blindly trust Morningstar, but you can see they rate FTHRX two star and it clearly underperformed in the 2007-2009 region versus VBTLX and FIBAX, which is exactly the opposite of what you want out of a bond fund in the first place.  Whether that is due to cost or management or whatever, it's pretty irrelevant; and I would lean on the side of simplicity rather than trying to figure out which funds are run by strong managers.

I really think if you start going any deeper to find the right balance, it's probably a waste of time.  My SO has a very lousy 401K.  I just explained it was fine because we are much more aggressively invested elsewhere and the portfolio as a whole is fine.  It's likely we move the money into an IRA within a couple years at most so we just go with the best options for now and simplify later.  So you could go into an argument about if FIBAX needs to be supplemented with other funds and technically it might; but in the end, I'm not sure it really matters too much if you're a long way to FIRE, your bonds are a low percentage anyway, or if you have assets elsewhere that can provide the correct balance for cheaper.

2lazy2retire

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Re: Fidelity Bond Options
« Reply #3 on: April 09, 2018, 07:51:46 AM »
In a massive simplification, a total bond index looks closest to a government intermediate bond given that government is the largest component and a weighted average of the yield curve gives roughly the same duration.  If you open up Morningstar to look at total return, FIBAX and VBTLX correlate much better than FLBAX.  But it is definitely not the same (see 2008) because you are missing those short and long term tails of the yield curve, and you are missing corporate exposure.

In an argument about buying an investment that correlates opposite of VTSAX (all public corporations, though obviously not bonds) it is probably fine to drop the corporate component for sake of simplicity.  I wouldn't necessarily blindly trust Morningstar, but you can see they rate FTHRX two star and it clearly underperformed in the 2007-2009 region versus VBTLX and FIBAX, which is exactly the opposite of what you want out of a bond fund in the first place.  Whether that is due to cost or management or whatever, it's pretty irrelevant; and I would lean on the side of simplicity rather than trying to figure out which funds are run by strong managers.

I really think if you start going any deeper to find the right balance, it's probably a waste of time.  My SO has a very lousy 401K.  I just explained it was fine because we are much more aggressively invested elsewhere and the portfolio as a whole is fine.  It's likely we move the money into an IRA within a couple years at most so we just go with the best options for now and simplify later.  So you could go into an argument about if FIBAX needs to be supplemented with other funds and technically it might; but in the end, I'm not sure it really matters too much if you're a long way to FIRE, your bonds are a low percentage anyway, or if you have assets elsewhere that can provide the correct balance for cheaper.

Thanks for this - I was a little concerned about missing out on corp but in the interest of simplicity I think FIBAX is close enough to VBTLX for the purpose required.
Planning to FIRE soon so transferring out to a Vanguard IRA will be an option as the poster above mentioned.


CorpRaider

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Re: Fidelity Bond Options
« Reply #4 on: April 09, 2018, 01:00:06 PM »
Jack Bogle and some others actually prefer intermediate term treasuries to total bond.

Radagast

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Re: Fidelity Bond Options
« Reply #5 on: April 09, 2018, 08:36:17 PM »
Either is a reasonable choice if it is 20% of your total investments or less. If it is smaller than that I lean towards the longer term fund, as it can help counter stock risk in some cases, rather than just deadening it. Long term bonds can be more efficient for long term investors especially in small amounts, but they are also riskier.

The intermediate term bond is more similar to a total bond fund, but that is not necessarily better, just different.

Looks like they both compare to similar funds in terms of behavior.
Some Morning Star Comparisons

Image:



Portfolio Visualizer Link, regular contributions to balanced allocation Backtested to a date when bond prices were about the same as they are now to show that long term bonds are more efficient if bond yields either stay vaguely the same, or go down, but note they are worse if yields rise. However, you can see in practice it doesn't matter much as just a 10% allocation.

Jack Bogle and some others actually prefer intermediate term treasuries to total bond.
I think Bogle actually likes more corporates, for a 50/50 corporate/government split. However, academics and advisors strongly prefer government bonds. Swenson, Swedroe, Bernstein, Ferri, and others suggest government debt as being more aligned with investors' interests and less correlated with the stock market.

mintleaf

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Re: Fidelity Bond Options
« Reply #6 on: April 10, 2018, 11:14:42 AM »
Personally I use FLBAX for my bond slice. I suspect that a lot of people think of bonds as "not-stocks", rather than as an asset class in their own right. But if all you want is something to soften the swings of the stock market, cash can do that just as well. To me, bonds have a specific purpose: responding well to deflationary tendencies in the economy. We haven't had much of that recently, but we will again someday. And for that specific goal, the longer and safer the bond, the better.

2lazy2retire

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Re: Fidelity Bond Options
« Reply #7 on: April 10, 2018, 01:54:43 PM »
Personally I use FLBAX for my bond slice. I suspect that a lot of people think of bonds as "not-stocks", rather than as an asset class in their own right. But if all you want is something to soften the swings of the stock market, cash can do that just as well. To me, bonds have a specific purpose: responding well to deflationary tendencies in the economy. We haven't had much of that recently, but we will again someday. And for that specific goal, the longer and safer the bond, the better.

I guess as the fees are the same - going with a 50/50 - split on FIBAX/FLBAX might be the way to go - the bonds will make up 35% of a

Stocks 61%/Bonds 35%/Cash 4%

Grande

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Re: Fidelity Bond Options
« Reply #8 on: May 03, 2018, 08:43:51 PM »
Personally I use FLBAX for my bond slice. I suspect that a lot of people think of bonds as "not-stocks", rather than as an asset class in their own right. But if all you want is something to soften the swings of the stock market, cash can do that just as well. To me, bonds have a specific purpose: responding well to deflationary tendencies in the economy. We haven't had much of that recently, but we will again someday. And for that specific goal, the longer and safer the bond, the better.

I guess as the fees are the same - going with a 50/50 - split on FIBAX/FLBAX might be the way to go - the bonds will make up 35% of a

Stocks 61%/Bonds 35%/Cash 4%

I would question long term bonds in an environment where yields can go no where but up.