Author Topic: Investng in bonds  (Read 1973 times)

gillstone

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Investng in bonds
« on: January 11, 2016, 10:11:18 AM »
I convinced DW that now that we've maxed out the tax-advantaged options we should open a brokerage account and start investing in something besides a savings account.  She reluctantly agreed on a few conditions:

1. Vanguard account (where we hold our other IRAs)
2. Bonds/Bond fund for the first $3000
    a. Must be investment grade
    b. prefer government backed if possible
3. After the first 3000 I can invest as I see fit (planning on eventual portfolio of 85% VTI and 15% BND)

I've looked through Vanguard's option and there are great options but with the expected volatility I'm not sure how to proceed

GrowingTheGreen

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Re: Investng in bonds
« Reply #1 on: January 11, 2016, 10:37:40 AM »
Don't worry about the volatility. Best time to buy for the long-term investor is the present. Proceed by buying!

Since your wife is in the more conservative camp, check out the Life Strategy Income Fund or Life Strategy Conservative Growth fund. These will essentially accomplish what your wife wants. This greatly simplifies things and doesn't require rebalancing on your end.

If she's set on the first $3k going complexly into a bond fund, check out the Total Bond Market Index (VBMFX). After you hit your $3k, jump to the Total Stock Market Index (VTSMX). Both of these funds are very broadly diversified.

CorpRaider

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Re: Investng in bonds
« Reply #2 on: January 15, 2016, 11:57:25 AM »
One of the other posters on here made a good argument that most U.S. retail investors should own no other bond funds in a taxable account until they have maxed out their $10K per annum cap on U.S. treasury series I bonds.  You can research them on the treasury direct site if you're interested.
« Last Edit: January 15, 2016, 11:58:57 AM by CorpRaider »

Indexer

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Re: Investng in bonds
« Reply #3 on: January 15, 2016, 12:10:39 PM »
Couple things.

For tax efficiency purposes it actually makes more sense to keep stock index funds in your taxable account and keep any bonds in your 401k/IRA. Basically bond income is taxed at ordinary income tax rates, but qualified stock dividends and long term capital gains are taxed at a lower rate. So while keeping your overall portfolio the same just keeping stock index funds in the taxable and bonds in the tax deferred accounts can help save you some money on taxes.

I wouldn't worry to much about volatility with bonds. Stocks are volatile. High quality bonds actually tend to go up in value when stocks are crashing so adding bonds to your portfolio should decrease volatility, not increase it. Even bonds by themselves are pretty conservative. They can fluctuate, but stocks can drop in a day what bonds can drop in a year.

johnny847

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Re: Investng in bonds
« Reply #4 on: January 15, 2016, 12:19:51 PM »
For tax efficiency purposes it actually makes more sense to keep stock index funds in your taxable account and keep any bonds in your 401k/IRA. Basically bond income is taxed at ordinary income tax rates, but qualified stock dividends and long term capital gains are taxed at a lower rate. So while keeping your overall portfolio the same just keeping stock index funds in the taxable and bonds in the tax deferred accounts can help save you some money on taxes.

Adding to this, OP I'd try to persuade your wife that you just buy stocks in the taxable, and for teh first 3k, for every purchae in the taxable you sell stocks in your 401k and buy bonds there.

MustacheAndaHalf

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Re: Investng in bonds
« Reply #5 on: January 15, 2016, 11:10:48 PM »
If the goal is calming your nerves, the safest way to invest $3,000 in bonds is a short-term Treasury fund.
Vanguard Short-Term Treasury Fund Investor Shares (VFISX)
The good:  Mutual funds consisting of U.S. Treasury bonds are the safest investments outside FDIC insurance at your bank.  Treasuries are backed by the full faith and credit of the U.S. government.  Using short-term bonds means you're less impacted by interest rate changes.
The bad: Short-term bonds have low yields (0.89%) - even lower than online savings accounts (1% at Ally).

If this is just to get you started in investing, a mutual fund holding U.S. Treasury bonds will be safe.  Later on, you could migrate to an intermediate-term treasury bond fund, or total bond market fund.