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Follower ○○

Why add a bond fund?

I turn 70 next month and plan to live off two Social Security checks (mine and my husbands), a RMD from my TIRA, and some farm income (however agriculture income is kind of in the toliet right now, but hopefully will turn around in the next few years). 

Besides this I have $58,100 in a Roth IRA that I hope to be able to leave alone and pass on to my daughter. It is invested at Fidelity in the following: 

FBALX Fidelity Balanced Fund - $40,963

FSKAX Fidelity Total Market Index Fund - $4451

SPAXX Fidelity Government Money Market (my core position) - $12,683

The money in SPAXX, my core position that I refer to as cash draws alittle interest, 1.72% YTD, but I feel like I should do something with that cash since some of it has been in there for almost a year. I have been cautious because I was afraid of the market going down ... and my thought was that if it did then I could use that cash to buy more FBALX at a sale price. 

Recently I talked to a Fidelity advisor and he suggested that I buy FTBFX Fidelity Total Bond with that cash. My issue is that I know nothing about bonds ... I have only invested in allocation funds (which I understand have some bonds in them too). I don't claim to be savvy about investing, and never will be. So my question is do any of you think that this bond fund would be a good idea, and if so why. Or should I just leave those dollars in cash to invest in a down market?

Jody

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Frequent Contributor

Re: Why add a bond fund?

It might be a good idea, but I understand hanging on to the cash, if only getting 1.8%, as that is better than most banks. I like FTBFX fine and hold some of that, but Fidelity does have a low cost index bond fund, which is another consideration? They seem to try t keep it a secret and I would have to go into my account to find the ticker. Something to keep in mind, I would not be is a hurry to purchase this fund, as interest rates are a lower and likely to trend upwards next year.

If I were you I'd look at some ultra short term ETFs like NEAR and ICSH.

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Frequent Contributor

Re: Why add a bond fund?

Current yield on government m-mkt SPAXX [Fido core/settlement] is now 1.3%. 

Retail-prime m-mkt SPRXX is at 1.5%.

FTBFX is a decent core-plus [like multi-lite] bond fund with 30-day SEC yield 2.5%. It can have up to 20% in HY and/or EM bond. It has an active ETF cousin FBND.

Your portfolio is most affected by FBALX and that is a fine balanced fund. AF-BALFX is also available NTF at Fido.

YBB
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Contributor ○○○

Re: Why add a bond fund?

No mention of your daughter's age, but I will guess mid 40s. Therefore she has a time frame of 20 years to use/need the money. I would average the money in over the next year and call it good. What does a young person accumulating do today? Hold off investing in equities because they are priced too rich? FTBFX (bonds in general) would be a fund for ballast against the equities in a balanced portfolio. I am sure your hope is for growing that Roth so over-protecting with a long time frame is no help for growth. JMHO.

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Frequent Contributor

Re: Why add a bond fund?


@FatKat wrote:

I like FTBFX fine and hold some of that, but Fidelity does have a low cost index bond fund, which is another consideration? They seem to try t keep it a secret and I would have to go into my account to find the ticker.

You must be talking about FXNAX

 


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Frequent Contributor

Re: Why add a bond fund?


@bigsteve wrote:

@FatKat wrote:

I like FTBFX fine and hold some of that, but Fidelity does have a low cost index bond fund, which is another consideration? They seem to try t keep it a secret and I would have to go into my account to find the ticker.

You must be talking about FXNAX

 



That's it, a reasonable very low cost fund. I hold that one and FTBFX. they both work well for me. Fidelity Total Bond Fund and Dodge and Cox DODIX are both decent funds and very close in expenses. If you have a Fidelity account then there is the fee advantage holding FTBFX. 

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Explorer ○○

Re: Why add a bond fund?

Since you are sort of investing for your daughter (and she is much younger than you) why not slowly (monthly) move the money market funds into your index fund over the next 5 years. You have some bond exposure in your balanced fund and seem to be looking for growth. As you and your daughter get older some of the index fund could then work its way into the balanced fund for more protection down the road. I am assuming there are no loads or fees as you rearrange your holdings. Not a perfect portfolio but it is simple and will get the job done.

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Follower ○○

Re: Why add a bond fund?

Thanks for all your comments so far. I need suggestions to toss around to decide what to do. 

My initial question was why to add the bond fund as suggested by the Fidelity advisor, and I guess it must be to take away from the risk of the Fidelity Balanced Fund and the Fidelity Total Market Index Fund. 

What if I put my $12,683 cash (money market) money right now into FTBFX Fidelity Total Bond Fund, or the Fidelity Index Bond Fund. Then it would at least create alittle more interest than the SPAXX money market fund it is currently in ... then gradually as suggested move it into the Fidelity Balanced Fund or the Fidelity Total Market Index Fund? 

Is there any reason if I purchase one of the Fidelity Bond Funds that I have to hold on to them for a certain length of time to avoid some kind of penalities?

What are the flaws in this stratagy?

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Frequent Contributor

Re: Why add a bond fund?


@jody49 wrote:

Thanks for all your comments so far. I need suggestions to toss around to decide what to do. 

My initial question was why to add the bond fund as suggested by the Fidelity advisor, and I guess it must be to take away from the risk of the Fidelity Balanced Fund and the Fidelity Total Market Index Fund. 

What if I put my $12,683 cash (money market) money right now into FTBFX Fidelity Total Bond Fund, or the Fidelity Index Bond Fund. Then it would at least create alittle more interest than the SPAXX money market fund it is currently in ... then gradually as suggested move it into the Fidelity Balanced Fund or the Fidelity Total Market Index Fund? 

Is there any reason if I purchase one of the Fidelity Bond Funds that I have to hold on to them for a certain length of time to avoid some kind of penalities?

What are the flaws in this stratagy?


FTBFX Fidelity Total Bond Fund, which pays 2.44% has been on an earnings roll this year, as interests rates dropped. No one can be sure about interest rates, but my personal guess is that by next year interests rates will stabilize higher, around 1.9-2%, but right now the interest rate is lower, so I would  wait until it goes up a bit, of invest in a shorter term fund like an ETF, like NEAR @2.18% or ICSH, which are free at Fidelity and both cheap to hold, ICSH is only 8 bases points and pays 2.09%.

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Follower ○○

Re: Why add a bond fund?

FatKat - I am really going to show my stupidity now. As I stated in my opening post, I am not knowledegeable about investing in bonds. I fact, you could call me in pre-school!

What do you mean that FTBFX pays out 2.44%? When I look at the Fidelity website it shows that FTBFX has a performance record of YTD - +9.77%, 1 YR - +11.07%, 3 YR - +3.72%, 5YR - +3.70, 10 YR - +4,59%. I see nothing that says is pays out 2.44%. 

Obviously I do not understand how bonds work. Can you give me a simple lesson, or refer me to an article on how this works

Thanks!

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Frequent Contributor

Re: Why add a bond fund?


@jody49 wrote:

FatKat - I am really going to show my stupidity now. As I stated in my opening post, I am not knowledegeable about investing in bonds. I fact, you could call me in pre-school!

What do you mean that FTBFX pays out 2.44%? When I look at the Fidelity website it shows that FTBFX has a performance record of YTD - +9.77%, 1 YR - +11.07%, 3 YR - +3.72%, 5YR - +3.70, 10 YR - +4,59%. I see nothing that says is pays out 2.44%. 

Obviously I do not understand how bonds work. Can you give me a simple lesson, or refer me to an article on how this works

Thanks!


This is the rate of yield paid now, what you can expect to earn next month.

See the SEC on this page? https://www.morningstar.com/funds/xnas/ftbfx/quote

What the YTD rate is referring to is how much the fund made this past year and it is unusually high because interest rates dropped to a now low. It would not be likely that the fund would do this again since interest rates have dropped all this past year.

I good way to decide if you would be well served with the fund is ask yourself if you will hold the fund five years from now? If the answer is yes, then buy the fund, you will make more money than you would with a shorter term fund, as I suggested. 

PS No questions are stupid, as asking questions is how all of us learn.

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Frequent Contributor

Re: Why add a bond fund?


@jody49 wrote:

FatKat - I am really going to show my stupidity now. As I stated in my opening post, I am not knowledegeable about investing in bonds. I fact, you could call me in pre-school!

What do you mean that FTBFX pays out 2.44%? When I look at the Fidelity website it shows that FTBFX has a performance record of YTD - +9.77%, 1 YR - +11.07%, 3 YR - +3.72%, 5YR - +3.70, 10 YR - +4,59%. I see nothing that says is pays out 2.44%. 

Obviously I do not understand how bonds work. Can you give me a simple lesson, or refer me to an article on how this works

Thanks!


That is 30-day SEC yield for FTBFX [2.44% at 10/31/19, 2.53% at 11/25/19]. It is the potential future long-term return you may expect. The other data you cite are the actual returns - the actual and potential returns may differ a lot based on other events.

YBB
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Participant ○○○

Re: Why add a bond fund?


@jody49 wrote:

I turn 70 next month and plan to live off two Social Security checks (mine and my husbands), a RMD from my TIRA, and some farm income (however agriculture income is kind of in the toliet right now, but hopefully will turn around in the next few years). 

Besides this I have $58,100 in a Roth IRA that I hope to be able to leave alone and pass on to my daughter. It is invested at Fidelity in the following: 

FBALX Fidelity Balanced Fund - $40,963

FSKAX Fidelity Total Market Index Fund - $4451

SPAXX Fidelity Government Money Market (my core position) - $12,683

The money in SPAXX, my core position that I refer to as cash draws alittle interest, 1.72% YTD, but I feel like I should do something with that cash since some of it has been in there for almost a year. I have been cautious because I was afraid of the market going down ... and my thought was that if it did then I could use that cash to buy more FBALX at a sale price. 

Recently I talked to a Fidelity advisor and he suggested that I buy FTBFX Fidelity Total Bond with that cash. My issue is that I know nothing about bonds ... I have only invested in allocation funds (which I understand have some bonds in them too). I don't claim to be savvy about investing, and never will be. So my question is do any of you think that this bond fund would be a good idea, and if so why. Or should I just leave those dollars in cash to invest in a down market?

Jody


Jody,

I never suggest individual positions by choice.  

If you are in good health, it's quite possible that the ROTH might have 25 years to grow before your daughter could receive it.  If that many years is plausible, why not take more risk with the portfolio?  Warren Buffett has suggested investing in a S&P 500 fund, but certainly that plus perhaps a All-World minus U.S. etf and a smaller position in a All-World Bond ETF might be a good way to go if you wanted more diversification.  

In the last seven years, a S&P 500 ETF outdistanced FBALX Fidelity Balanced Fund by 50 percent.  No knowing the future, but Warren is smarter than I am.  

ctyankee

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Explorer ○○

Re: Why add a bond fund?


@jody49 wrote:

FatKat - I am really going to show my stupidity now. As I stated in my opening post, I am not knowledegeable about investing in bonds. I fact, you could call me in pre-school!

What do you mean that FTBFX pays out 2.44%? When I look at the Fidelity website it shows that FTBFX has a performance record of YTD - +9.77%, 1 YR - +11.07%, 3 YR - +3.72%, 5YR - +3.70, 10 YR - +4,59%. I see nothing that says is pays out 2.44%. 

Obviously I do not understand how bonds work. Can you give me a simple lesson, or refer me to an article on how this works

Thanks!


jody,

I am far from an expert on bonds, but I think perhaps that the reason the performance record mentioned above is so much higher than the payout mentioned is that as interest rates fall the value of bond shares rise.  The 2.44% may be what the fund earns and the performance record is the earning plus the increase in share price because interest rates are falling. If interest rates rise, then the share price will fall. If I am wrong, I am sure someone will correct me.  Best of luck to you.

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Frequent Contributor

Re: Why add a bond fund?


@hondo wrote:

@jody49 wrote:

FatKat - I am really going to show my stupidity now. As I stated in my opening post, I am not knowledegeable about investing in bonds. I fact, you could call me in pre-school!

What do you mean that FTBFX pays out 2.44%? When I look at the Fidelity website it shows that FTBFX has a performance record of YTD - +9.77%, 1 YR - +11.07%, 3 YR - +3.72%, 5YR - +3.70, 10 YR - +4,59%. I see nothing that says is pays out 2.44%. 

Obviously I do not understand how bonds work. Can you give me a simple lesson, or refer me to an article on how this works

Thanks!


jody,

I am far from an expert on bonds, but I think perhaps that the reason the performance record mentioned above is so much higher than the payout mentioned is that as interest rates fall the value of bond shares rise.  The 2.44% may be what the fund earns and the performance record is the earning plus the increase in share price because interest rates are falling. If interest rates rise, then the share price will fall. If I am wrong, I am sure someone will correct me.  Best of luck to you.


That's right. Now, with interest rates lower and it would be unlikely that interest rates will rise quickly in the near future, the fund will likely return a 3 percent, or better yield over the next few years. Commitment to staying invested would be the main issue for consideration. If there is some doubt, then a bond fund with a shorter duration might be preferable.

If loss of any principle is intolerable, then a fund like FCONX, at an expense of 35 bases points, with a duration of .28 years and a A credit rating might be a better alternative to keeping it in a money market.

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Participant ○○

Re: Why add a bond fund?

If we consider the 10 year treasury as a proxy for "Bonds", then please notice that they are currently yielding 1.77%. 

The most recent core inflation rate rate is 2.3%.

In other words, the inflation adjusted yield on "Bonds" is -0.5%. 

Let us call this the real yield.

30 years ago or so, the real yield on "Bonds" was typically between 3 to 4%. 

A little further back and there were occasions where "Bonds" yielded near 6% on a real basis.

So, naturally there is some old advice still going around that everybody ought to have some bonds in their portfolio; but at what price?

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Frequent Contributor

Re: Why add a bond fund?

From May through October the high was 1.81% in July and the low was 1.65% in June. 

https://inflationdata.com/Inflation/Inflation_Rate/CurrentInflation.asp?reloaded=true

One would attempt to do better than keeping the cash in a vehicle that paid less

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Contributor ○○○

Re: Why add a bond fund?

A clarification is needed. The 2.44% is the yield (interest rate paid). The YTD 9.77% is the Total Return (TR). That includes the yield plus the gain in share value. Only the yield is paid out. The TR is only captured when shares are sold. TR varies year to year (+ or -) while yield remains mostly constant.


@jody49 wrote:

FatKat - I am really going to show my stupidity now. As I stated in my opening post, I am not knowledegeable about investing in bonds. I fact, you could call me in pre-school!

What do you mean that FTBFX pays out 2.44%? When I look at the Fidelity website it shows that FTBFX has a performance record of YTD - +9.77%, 1 YR - +11.07%, 3 YR - +3.72%, 5YR - +3.70, 10 YR - +4,59%. I see nothing that says is pays out 2.44%. 

Obviously I do not understand how bonds work. Can you give me a simple lesson, or refer me to an article on how this works

Thanks!


 

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Follower ○○

Re: Why add a bond fund?

Yogi - You said that the current yield for SPAXX is 1.3%. Where do you find that? I had stated in my opening post that it was 1.72% YTD ... which I got off my personal Fidelity account page that shows all my current investments. When I hover over SPAXX it says that the current YTD is 1.72%.

I don't doubt you, but just wanted to know where to find the correct info. I do not have the M* paid account, just the free account, so it that is where it is found I don't have access to that. 

Thanks!

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Frequent Contributor

Re: Why add a bond fund?

@jody49 , check daily pricing link at Fido - it has current 7-day SEC yields for m-mkt funds. Don't know why Fido shows stale info on m-mkt detail pages. TTM is old history.

https://www.fidelity.com/mutual-funds/information/overview

https://fundresearch.fidelity.com/fund-screener/results/table/daily-pricing-yields/legalName/asc/1?c...

YBB
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