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Maybe I should have started a new thread but people here that invest in bonds, do you use ETFs/mutual funds or do you invest in individual bonds?

Personally I invest in individual bonds since I know what I will get at maturity while with funds there isn't really a maturity ... so when you need the money the fund could be down 10 or 20% and I wouldn't like that.

Same goes for if you need to raise money by selling a bond. The prices of all fixed income investments swing up and down. doesn't matter if it is an individual bond or a bond fund. It's the nature of the beast and you cannot avoid it.

Preferred stocks are arguably better than individual bonds. For example, TBB (AT&T preferred maturing 2066) has 5.87% current yield.
WFC-L (perpetual) has 6.06% yield.

If you are looking for income investments, CEFs and ETFs can pay much better than bonds or bond funds.
Here is a list of a bunch that sell at a discount from Net Asset Value (NAV) and their yields. Some of them pay monthly.
The tag "s" have strong buy recommendation, the tag "b" have weak buy recommendation.
I own several of these.

Never buy a CEF/ETF that is selling at a premium. You want good discount and good yield.

For comparison, Vanguard Total Bond Market Index Fund (BND) current yield is 3.76%

    
Symb  Discount   Yield  
AOD    -4.17%  12.42%  s
CPZ    -7.47%  10.76%  s
EOD   -10.34%   8.86%  s
ETV    -7.26%   8.33%  s
NIE   -10.58%   7.89%  s
UTF    -7.32%   7.73%  s

ERH    -7.54%   7.80%  b
ETJ    -8.05%   8.77%  b
NBXG  -12.49%   9.60%  b
STK    -4.38%   4.96%  b

ADX    -8.30%   8.01%  
AIO    -6.53%   7.57%  
ASG    -9.06%   8.54%  
ASGI   -1.09%  12.12%  
BCAT   -6.74%  22.08%  
BCX    -8.31%   8.42%  
BDJ    -5.41%   8.17%  
BGR    -5.58%   8.85%  
BGY    -8.69%   8.84%  
BME    -8.25%   8.22%  
BMEZ   -8.13%   8.72%  
BOE   -10.23%   8.57%  
BST    -6.29%   7.12%  
BSTZ  -11.38%   9.04%  
BTX   -14.74%   9.39%  
BXMX   -9.09%   7.52%  
CGO    -8.79%   8.11%  
CHW   -10.85%   7.94%  
CII    -2.77%   7.21%  
CSQ    -7.38%   6.45%  
DIAX  -11.03%   8.11%  
DPG    -8.90%   6.32%  
EMF   -11.36%   1.28%  
EMO    -7.48%  10.07%  
EOI    -1.99%   7.78%  
EOS    -5.22%   7.80%  
ETB    -6.62%   8.41%  
ETG    -5.90%   7.15%  
ETO    -9.01%   7.41%  
ETW    -9.86%   8.80%  
EVT    -8.32%   8.04%  
EXG    -5.65%   8.58%  
FFA    -8.26%   7.19%  
GAM   -10.42%   7.14%  
GDV   -10.83%   6.17%  
GGN    -2.20%   7.36%  
GLO   -12.61%  10.02%  
GLQ   -13.09%  10.13%  
GLV   -12.65%  10.50%  
GNT    -9.54%   6.94%  
GRX   -11.00%   7.31%  
HEQ   -11.66%   9.29%  
HQH    -9.14%  10.74%  
HQL    -9.28%   9.99%  
HTD    -5.12%   7.58%  
IAE    -4.83%  10.14%  
IDE    -4.43%   9.76%  
IGA    -4.37%  10.37%  
IGD    -3.28%  10.17%  
IHD    -7.27%  10.34%  
JCE    -5.38%   8.09%  
KYN   -11.79%   8.28%  
LGI    -5.75%  10.22%  
MCN    -6.12%  11.73%  
NFJ   -11.98%   9.49%  
NXG    -4.62%  13.29%  
PDX   -10.88%   7.24%  
PEO   -10.60%   9.49%  
PGP    -1.96%   9.72%  
QQQX   -8.62%   7.98%  
RIV    -8.36%  13.19%  
RLTY   -7.13%   8.66%  
RMT   -12.50%   6.72%  
RQI    -5.05%   7.73%  
RVT   -10.38%   7.11%  
SCD    -8.86%   9.59%  
SPXX   -7.83%   7.65%  
STEW  -20.79%   3.72%  
TDF   -13.64%   0.87%  
THW    -2.87%  10.87%  
TY    -10.71%   3.11%  
TYG    -8.32%  10.33%  
USA    -9.22%  11.25%  
UTG    -3.58%   6.23%  
ZTR    -9.39%   9.15%  

If you want to know where this list came from, drop me an email.

Ray, if I were interested say in those first six funds you listed, would a taxable account be a good or bad place for them? I’m not yet quite certain how taxes work wrt to these types of funds…

Thank you for the list!

if I were interested say in those first six funds you listed, would a taxable account be a good or bad place for them? I’m not yet quite certain how taxes work wrt to these types of funds…

Each has its own tax mix of distributions. You would need to look at each one for its details.
For example, google "abrdn total dynamic dividend fund (aod) tax treatment" which shows "a mix of net investment income, short-term capital gains, long-term capital gains, and/or a return of capital (ROC). The specific tax treatment for an individual investor's distributions is detailed on the Form 1099-DIV"

and "seeks to have more than 50% of its current dividend income qualify for the lower U.S. federal income tax rates applicable to "qualified dividend income".

From https://www.aberdeeninvestments.com/docs?documentI...
AOD expects distributions broken down as 11% STCG and 0% LTCG and 81% ROC.

ROC is not always bad, it isn't bad as long as the NAV is going up. There are ways that CEFs & ETFs can arrange things so that some of what they pay can legally be treated as ROC. ROC, of course, is not taxed.


Eaton Vance is very good at that in many of their funds. Ex: ETV "seeks to minimize and defer federal income taxes incurred by shareholders in connection with their investment in the Fund."
"The Fund has adopted a policy to pay common shareholders a stable monthly distribution, and may pay distributions consisting of amounts characterized for federal income tax purposes as qualified and non-qualified ordinary dividends, capital gains distributions and non-dividend distributions, also known as return of capital."

These are great in a taxable account, as you get the distributions virtually tax-free.

ROC, of course, is not taxed.

Like everything tax-related, it's more complicated than that. If you haven't used up your basis, then it's true that it's not taxed in the year you receive it. However, if you have used up your basis, it's taxed as a capital gain in the year you receive it.

If you haven't used up your basis, your basis goes down. That means if you sell, your capital gain is more (or capital loss less), which may result in additional tax owed (or not, depending upon lots of other factors).

So rather than being not taxed, it results in deferred tax for a while, and then when taxed, it's often taxed at a lower rate (LTCG instead of marginal). Both good things, but not "not taxed".

Brian

Recommend the PIMCO collection of income funds including high-yield CEFs for this purpose.

These funds use varying degrees of leverage to juice the yields, mixed with varying levels of non-investment grade debt. Why PIMCO? They're the best and most experienced at this.

A great forum / community discussing these is over on early-retirement.org, with a few very knowledgeable retired bond fundies discussing the trading and ins and outs of ROC, leverage, NII, UNII, etc. I've learned a lot in the last year and have 1/3 of my portfolio invested in 11+% yields. https://www.early-retirement.org/threads/cef-holdi...

They are NOT to be held in a rising interest rate environment. They universally got crushed in '22, but most did not cut dividends (well, PTY did once in la te '21) and have more than recovered.

Again, dividends-reinvested best. (and at Fidelity and a couple of others the reinvestments are at the lowest recent 5-day NAV.)

But what's the point of investing in an income fund and reinvesting the dividend? Yes, that's going to give you a better total return, but if you are going for Total Return you should be investing in stocks.

Moreover, it is tax-inefficient since you have the drag of paying income tax on the dividends every year.

Here is a backtest & chart for PONRX (PIMCO Income Fund for retirement plans) with and without reinvesting dividends and SPY. https://testfol.io/?s=iCpnLC4TGSl

If you took the dividends as spending income then the principal amount did not grow, and you collected total a bit more than your initial investment from 4/2/2007 to now.

But SPY in the same period grew 3 times more than PONRX with reinvested dividends.

I keep going 'round and 'round over this subject.
"Buy an income fund for the juicy income?"
"Yes!!"
"But the total return stinks unless you reinvest the dividends."
"So reinvest the dividends."
"But if I reinvest the dividends then I don't see the income. And the whole idea was to get a steady, juicy income. So I should have bought a stock fund in the first place."
"Dang!"

if you are going for Total Return you should be investing in stocks.

If you pick the RIGHT stocks/funds at the RIGHT times. But a total return north of 9% WITHOUT stockpicking and timing (as long as interest rates don't spike) is just about as good.

Moreover, it is tax-inefficient since you have the drag of paying income tax on the dividends every year

Surprised at this from you, Ray. No taxes in an IRA. It has never made sense to use high dividend funds in a taxable account.

backtest & chart for PONRX at testfol.io

Apparently testfol.io, like most sites, does not adjust for dividends in the base chart. Stockcharts does. Try out this accurate chart instead.
https://schrts.co/VMIuzkWx

Tells a much different story. PONRX, for one, gapped up from and then paced the S&P for years until the 2022 (interest-rate driven) bear market brought it back down in line, and has matched it since.

9+% yields from well managed certain types of income funds in a 3% and dropping risk-free rate environment (not BDCs) can be a solid component of a portfolio. But whatever, suit yourself.

“Apparently testfol.io, like most sites, does not adjust for dividends in the base chart. Stockcharts does. Try out this accurate chart instead.
https://schrts.co/VMIuzkWx

I believe testfol is total return. If not it’s useless.

Is your chart using the same y-axis units for both?

Also from Stockcharts:

https://stockcharts.com/freecharts/perf.php?PONRX,...

PONRX acts just as a bond fund with a large expense ratio might be expected to.

A fund like PONRX which is usually rated well still has around 50% in below investment grade companies which can be bad when things go wrong.

Maybe this is incorrect (if so, please correct) but when I look at Morningstar PONRX has a 10 yr return of 4.21% and a 15 yr return of 5.36%.

That is much higher than a more conservative total market bond fund like BND (Vanguard) with 10/15yr returns of 1.98% and 2.22%.

I happened to look at Dodge and Cox DODIX Income fund which has 3.25% and 3.36% returns over 10/15 yrs. Too bad it is a mutual fund only.

I guess I just prefer to take very little risk on fixed income.

Rich

Ha!
FlyingCircus, you sent me on a 4 hour trip down a rabbit hole. I get sidetracked easily.

"Moreover, it is tax-inefficient since you have the drag of paying income tax on the dividends every year"

Surprised at this from you, Ray. No taxes in an IRA. It has never made sense to use high dividend funds in a taxable account.


It's complicated.
Sure, no tax in a ROTH, but you do eventually pay ordinary income tax on a regular IRA.

To model the effect in a taxable account you'd have to do a complex set of calculations, modelling reinvestment of the after-tax dividend. That would not be fun.

Funds that have a high artifical Return Of Capital such as Eaton Vance Tax-Advantaged Dividend Income Fund (EVT) (yield 8.15%) are fine in a taxable account. One could make a good case that those are better there than in an IRA.
(artificial means that the ROC payment doesn't reduce the NAV.)


Apparently testfol.io, like most sites, does not adjust for dividends in the base chart. Stockcharts does. Try out this accurate chart instead.
https://schrts.co/VMIuzkWx

This is incorrect. True, most sites chart price-only. But testfol.io defaults to reinvested dividends. https://testfol.io/?s=kwxxV3YDJvU

Yahoo shows the dividend-reinvested data in the historical data tab.
From 5/1/2007-11/1/2025,
Price-only:
PONRX went from 10.10 to 10.97. 1.09x
SPY went from 150.92 to 682.06. 9.52x

With reinvested dividends:
PONRX went from 3.53 to 10.97. 3.11x
SPY went from 106.85 to 682.06. 6.38x

By doing some cut/paste into excel you can make the chart showing adjust for dividends. Too bad yahoo doesn't do that.

Where PONRX shines is that it has much lower volatility and lower max drawdown.

(BTW, Yahoo internally has prices out to many decimal places. Ex: 3.5330681800842285 and 10.970000267028809 for PONRX's 3.53 and 10.97. You just have to do some fiddly scraping.)



PONRX, for one, gapped up from and then paced the S&P for years until the 2022 (interest-rate driven) bear market brought it back down in line, and has matched it since.

This is because PONRX inception date was 4/2/2007, just before the 2008/2009 financial bear market. But that was just the luck of the start date. What has it looked like since, say, 2010?
The big big advantage of PONRX is that is is much less volatile.

I am always reminded of something that I read once: "A strategy of picking up pennies in front of a steamroller always looks like a success, right up until the point that the steamroller arrives.
The problem is that returns look good in any period that does not have a visiting steamroller in it."

The advantage of funds like PONRX is that they generally just skim over the potholes.

... 9+% yields from well managed certain types of income funds ...

I'm not sure where you can get 9+%. PONRX is currently 5.43%.

testfol.io has a lot of capability to look at different things. For example, you can incorporate periodic withdrawals. A constant 6% withdrawal taken monthly on $10,000 is $50/mo.

If you take that from both SPY and PONRX, the ending values are $20,069 and $10,790.
Yes, SPY had 2 bad drawdowns in 2009 and 2020, but it didn't got to zero. It was behind until 2021 and then shot way up. https://testfol.io/?s=ao1mBBOXgwz

But whatever, suit yourself.

Yup, whatever. Everybody has their own balance of greed/fear.

And this is not news. SPY has beaten every other asset class for the last 15 years (not including QQQ because that's not its own asset class), ESPECIALLY bond funds, even well managed PIMCO funds.

Here's a more interesting perf chart - yes, it's a total return chart - of another PIMCO fund PDI since inception vs SPY. up around 300% on a total return basis. Yup, SPY beat that one too, but quadrupling one's money in 13 years is still pretty good, yeah?.

https://stockcharts.com/freecharts/perf.php?PDI,SP...

But I'm making a point no one here is interested in and we're talking past each other, so enough.

FC

FC, I’ve been following with much interest!

But I'm making a point no one here is interested in and we're talking past each other, so enough.

The point you were making upthread seemed to be that bond funds like PONRX had kept pace with SPY.

You wrote: "PONRX, for one, gapped up from and then paced the S&P for years until the 2022 (interest-rate driven) bear market brought it back down in line, and has matched it since".

This opinion seemed to be based on the odd chart you posted, and the incorrect belief that testfol does not include dividends. We're just trying to help.

Here's a more interesting perf chart - yes, it's a total return chart - of another PIMCO fund PDI since inception vs SPY. up around 300% on a total return basis. Yup, SPY beat that one too, but quadrupling one's money in 13 years is still pretty good, yeah?.


Yes, but what's the point?
If you are going to reinvest the dividends--which you must do if you care about total return--then the metrics that matter are total return, Maximum Drawdown, Volatility, and other risk metrics like Sharpe Ratio, Sortino Ratio.

Between PDI, SPY, and VTI, PDI is the worst by all of these metrics.

Looking at the total return chart, PDI acts more like a stock than a bond.
https://testfol.io/?s=ftAbOo4A5eM

Same chart taking the dividend instead of reinvesting:
https://testfol.io/?s=fovAl17fr3Z

To paraphrase Tuco (Eli Wallach): ""When you want stock return, buy stock. Don't buy bond."

PDI is a junk bond fund. 76% of its holdings are below investment grade.


But I'm making a point no one here is interested in and we're talking past each other, so enough.

True. But this did give me a reason to dig into some analysis, so all good.

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