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When younger I don't see much of a need for fixed income but as you approach and enter retirement I can certainly see a need. Personally I favor treasuries, TIPs, CDs, and MYGAs over bond funds. For me bond funds are an unknown in an area where I expect a known output. If I buy a treasury I know what I will be getting at maturity. Obviously I won't know what effect inflation will have on its purchasing power but it is a known quantity. Same for CDs and MYGAs. TIPs are a bit more confusing and while I have some, I don't have a lot due to extra complexity and some will say, even before Trump, how the government calculates inflation.

A bond fund can go up or down depending on interest rates. If you needed money a few years ago your fund could have dropped 10-15%. I don't want that unknown from an investment I'm counting on for stability. That is what I expect from stocks or other investments like gold, real estate, etc.

Do people here actually invest a good amount in bond funds like Vanguard's BND ETF? Is it due to simplicity?

With how things are economically and world wide my investing is getting more defensive and having equal amounts of US/international stocks, adding gold and a large chunk of fixed income until things (or if) settle down to where I'm more confident of investing.

Thanks
Rich

A bond fund can go up or down depending on interest rates...
Do people here actually invest a good amount in bond funds like Vanguard's BND ETFF?

I hold individual preferred stocks, not anything like a preferred stock fund, but bonds would work the same way, the way I would use them. If I could get hold of a bond database so I could search it without having to put up with a broker's pitching me and doing searches for me, I'd hold individual bonds.

The bond itself will not vary in payout once it's been sold. A $100 bond with a 6% coupon will pay $6 per year, year in and year out, independently of interest rates in the market and regardless of the bond's current market price.

Since I don't have access to any bond databases, but I do have access to a preferred stock database (QuantumOnline.com, https://www.quantumonline.com/ ) I use preferreds. I hold the preferreds until they're called, and I'd hold the bonds until they mature, not caring about underlying interest rates or market prices (other than with preferreds, the entry price). That way I get a steady income without the vagaries of the market. As you said, those vagaries are what common stocks are for; those vagaries are where the positive gains can occur, at commensurate risk of loss, and that's where I put my at-risk money.

Eric Hines

Can you recommend some individual preferred shares?

I own preferred shares of WFC, BAC and SYR and looking to diversify.

Quantum Online is a good site to find out details of individual preferred shares. But they don’t have analysts or discussion forums. There doesn’t seem to be any good free websites which cover preferreds.

Thanks.

I have some rules I follow, courtesy of Doug K. Le Du's book and a year's subscription to his newsletter.

My rules:
1) Moody's rating of Baa3 or better
2) coupon of 6% or better (but not too much better: one preferred I jumped on paid 10%, and that company went bankrupt. Maybe that was a one-off, maybe it's a limit.)
3) call date at least three years into the future
4) entry market price below par; that gives me a small capital gain when it's called. Not too far below par, though; that would indicate a company that's in trouble. "Too far below:" for a $25 par preferred, a market price in the $20-$22 range or lower is a deeply orange flag, if not outright red
5) alternatively, an entry market price not farther above par than what two dividend payments (quarterly or semi-annually if the latter is the payout schedule) can cover. That lets the early dividend payments cover the capital loss while subsequently aggregating to net income.

Searching QuantumOnline is a manual process. There used to a program (PreferredSearch)on SourceForge that searched QuantumOnline and Yahoo! to get market price and other data, but the author got tired of keeping up with Yahoo!'s constantly changing its stock data searchability, and he abandoned it. I think the package is still on SourceForge; if anyone has the skills to excise the Yahoo! part of the program so it at least continued to search QuantumOnline, that would be beneficial.

Eric Hines

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Bond Investing FAQ

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