Author Topic: Want to put my money in a bond fund for a year  (Read 3340 times)

zing12

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Want to put my money in a bond fund for a year
« on: January 18, 2016, 11:00:12 AM »
Hello Mustachians,

In February, I am embarking on a mini-retirement, a one year trip around the world. I am single and childless and debt free and don't own a house. I am trying to get a life insurance policy with my parents as beneficiaries, to cover final expenses if I were to pass away.

However, I am a little worried that State Farm didn't like the idea of my travel plans when I had the interview with the underwriters recently. I am trying to prepare a contingency plan if my life insurance application gets declined (I don't think I'll have time to apply with other companies before leaving).

So, I have a Charles Schwab 401(k) with 10 grand in it. I want to use that as self-insured life insurance as that should cover a funeral. (I have travel insurance that covers repatriation of mortal remains so it's only local costs we need to worry about.)

Right now I have that money invested in SWPPX, Schwab's S&P Index fund. I am thinking of putting it into a bond fund for the year. Is my line of thought correct, and does anyone have recommendations? Particularly Schwab funds, because I don't pay transaction fees.

Thanks!

Ursus Major

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Re: Want to put my money in a bond fund for a year
« Reply #1 on: January 18, 2016, 11:56:51 AM »
You didn't mention your age, since your parents are still alive I am assuming that you are young enough and the contingency you are preparing for has a really small chance of occurring. So my first thought was to suggest to just ride it out and leave the money in SWPPX. (That would be especially true, if you have other financial assets).

I don't know how high funeral costs are, where you are, but if they were significantly less than $10k - say $7k - you could ride out a 30% drop in the market and still be okay. Or you could decide just part of your money.

Since the money is in a 401(k), you generally cannot switch into "any" Schwab fund, it depends what your specific plan has available. Some of the available funds might even be funds from a different fund family. So if you could provide a list of the funds (ideally with ticker symbol) that would be of great help.

When choosing a bond fund, I would pick one with as short a duration as possible, because I wouldn't want to loose principal, since after a year you're likely to switch back to a stock fund.  If you 401(k) offers a so-called "Stable-Value" fund that would also be a great choice, too, since its principal fluctuates even less.

zing12

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Re: Want to put my money in a bond fund for a year
« Reply #2 on: January 18, 2016, 12:28:34 PM »
Thanks for the response. Yes, I am only 27 so it's a relatively small chance of occurrence. Still, my parents have had some rough years financially and paying for a funeral for me would be a decent chunk of their savings. Independence is a big value of mine so I don't want them to get stuck with those costs. The 401(k) would be subject to income taxes if I passed so it's really only about $7k if that were to happen. I reallly have no idea what funerals cost, I figured 10k was a good guesstimate. My family is in Cleveland, it's not a too terribly expensive area so not sure how that factors in.

I do have other cash in savings accounts but I will spend a good amount of it while travelling. I'll come home with say $5-10k in cash and the $10k in the 401(k), and that's all I'll have to my name. I normally would consider leaving it in the S&P but all the market hysteria the past few days has made me consider getting out now in case we are in for a volatile year.

I worked for a small company, and my former boss is big into investing, so he pays for what appears to be the Cadillac plan 401(k). It basically allows me to buy anything on the market, stocks, ETFs, mutual funds, whatever. The Schwab mutual funds have no fees/loads, although they do offer several thousand funds from other sources (Schwab OneSource) that also have no fees/loads.

The Schwab Bond Funds are as follows: SWGSX, SWLBX, SWBDX, SWRSX, SWIIX.  LBX and BDX seem to be the obvious ones, though I'm not sure what the purpose of IIX is.

If you have any other recommendations feel free to list them, because I can check and see if they are part of OneSource. Here is the full list: http://www.schwab.com/public/schwab/investing/accounts_products/investment/mutual_funds/no_load_mutual_funds/onesource_select_list
« Last Edit: January 18, 2016, 12:41:07 PM by zing12 »

Retire-Canada

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Re: Want to put my money in a bond fund for a year
« Reply #3 on: January 18, 2016, 02:00:58 PM »
I reallly have no idea what funerals cost, I figured 10k was a good guesstimate. My family is in Cleveland, it's not a too terribly expensive area so not sure how that factors in.

I do have other cash in savings accounts but I will spend a good amount of it while travelling. I'll come home with say $5-10k in cash and the $10k in the 401(k), and that's all I'll have to my name. I normally would consider leaving it in the S&P but all the market hysteria the past few days has made me consider getting out now in case we are in for a volatile year.



You missed the boat on getting out of the market while it was high. Unless you fear the S&P 500 going to zero just leave that money alone. Go travelling and don't think about it. You'll do more damage trying to "protect" your money than if you leave it where it is.

If you are going to come home with $5K-$10K in cash, you have $10K invested and a funeral will cost $10K than leave the investments alone. You'll probably have enough cash to pay for a funeral and if you don't between your remaining cash and your investments you most certainly will.
« Last Edit: January 18, 2016, 02:30:16 PM by Retire-Canada »

Heckler

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Re: Want to put my money in a bond fund for a year
« Reply #4 on: January 18, 2016, 02:59:06 PM »
IMO you are far better off looking for a second option life insurer than tieing down money theres a 0.5% chance of you needing in the next year.  One year isnt long enough to hold bonds without loosing money.  Hell, you're 27 - should have no problem getting life insurance.

Unless you are planning in free climbing the worlds highest towers for GoPro. Then you should cash out first.

zing12

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Re: Want to put my money in a bond fund for a year
« Reply #5 on: January 18, 2016, 06:09:16 PM »
IMO you are far better off looking for a second option life insurer than tieing down money theres a 0.5% chance of you needing in the next year.  One year isnt long enough to hold bonds without loosing money.  Hell, you're 27 - should have no problem getting life insurance.

Unless you are planning in free climbing the worlds highest towers for GoPro. Then you should cash out first.

Problem is on Feb 3 I'm getting on a plane, and they do a medical exams and long interviews, etc. Not sure I'd have the time to hunt down an insurer. What do you mean by losing money? Do you just mean opportunity cost or actual real losses?

Heckler

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Re: Want to put my money in a bond fund for a year
« Reply #6 on: January 18, 2016, 06:21:52 PM »
Actually losing money if you buy a bond fund and interest rates go up in the next year AND you decide to sell tge bonds in a year to get back into stocks.  The price of your bond fund Could go down and not recover until the increased interest makes up the reduction in price.  You should plan to hold a bond fund for at least the duration of the fund.

http://canadiancouchpotato.com/category/bonds/

Theres everything I know about bonds.  Ill try to find the specific article Im think of.

If its 100% preservation of capital over a one year period you're looking for, a  1 year GIC (in Canada) is what youre looking for.  I dont know the name of the US version. Maybe a CD?
« Last Edit: January 18, 2016, 06:46:10 PM by Heckler »

Heckler

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Re: Want to put my money in a bond fund for a year
« Reply #7 on: January 18, 2016, 06:24:51 PM »
http://canadiancouchpotato.com/2015/05/18/how-changing-interest-rates-affect-fixed-income/

Here it is. 

A one year outlook on any investment (stocks or bonds) is a plan destined to fail you.  You are certainly reducing your one year risk by going 100% bonds over equities though!
« Last Edit: January 18, 2016, 06:26:50 PM by Heckler »

soupcxan

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Re: Want to put my money in a bond fund for a year
« Reply #8 on: January 18, 2016, 07:02:25 PM »
This makes no sense.

1. What 27 year old is worried about dying while on vacation? Are you climbing Mount Everest? Are you planning to hurt yourself?

2. If you do die, will your parents care that they're getting $7k? This is irrelevant in the context of losing their child.

3. There are plenty of no medical exam insurance policies available with $10k limits, easily found through Google.

Is this a troll or what?

zing12

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Re: Want to put my money in a bond fund for a year
« Reply #9 on: January 18, 2016, 07:46:56 PM »
Not trolling, not climbing Everest, not harming myself. just trying to plan for death which is a part of good financial planning. And the right thing to do.

I don't care if my parents care about $7k or not, I do care about paying my own way in life as opposed to expecting my parents to bail me out, even if this is something that is unlikely to happen.

I think one of the most inconsiderate things I could do is not plan for death and make somebody else (who have no money, they suck with money) foot the bill, because of my own cavalier lack of planning. In my view they'd be hurting enough if I died, last thing I'd want to do is F them over financially. In my view as an independent adult my funeral costs are MY responsibility not somebody elses.

And the no medical exam policies I found had minimum ages, all of which were older than 27. But you are correct in that I should look harder for one of those, because that would be much simpler.
« Last Edit: January 18, 2016, 08:04:25 PM by zing12 »

zing12

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Re: Want to put my money in a bond fund for a year
« Reply #10 on: January 18, 2016, 07:52:10 PM »
http://canadiancouchpotato.com/2015/05/18/how-changing-interest-rates-affect-fixed-income/

Here it is. 

A one year outlook on any investment (stocks or bonds) is a plan destined to fail you.  You are certainly reducing your one year risk by going 100% bonds over equities though!

Thanks, this is good info. I'll either stick with the stocks or go with a money market. Maybe a mix of the two.
« Last Edit: January 18, 2016, 07:57:19 PM by zing12 »

earthshine

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Re: Want to put my money in a bond fund for a year
« Reply #11 on: January 18, 2016, 08:04:44 PM »
Good for you... Watching out for your family. Best of luck on your journey. check the money market for fdic coverage of you feel it's needed