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https://kitces.com/blog/how-to-do-a-backdoor-roth-ira-contribution-while-avoiding-the-ira-aggregation-rule-and-the-step-transaction-doctrine/Since the income limits on Roth conversions were removed in 2010, higher-income individuals who are not eligible to make a Roth IRA contribution have been able to make an indirect “backdoor Roth contribution” instead, by simply contributing to a non-deductible IRA (which can always be done regardless of income) and converting it shortly thereafter.
Nice post. Maybe I missed it but have you ever posted on your background/profession? CFA?This is an example of what are called "Retail Notes". They're frequently offered by large, recognizable, primarily financial institutions.
Fidelity calls its program for selling these Corporate Notes℠. It has a good description of these bonds:
https://www.fidelity.com/fixed-income-bonds/individual-bonds/corporate-bonds/corporate-notes-program
Unlike ordinary corporate notes, these are sliced into manageable $1K pieces and sold "without commission" (the underwriting costs are baked into the rates). Another difference is that these are typically junior (subordinated) notes, meaning that in the case of default, you stand in line behind holders of other notes. The GS note here is rated BBB+ by S&P.
I did a look on Fidelity's site for secondary issue GS notes and found that I could buy $2K or more (in $1K increments) of a note maturing 2/15/18, yielding 2.54% including fees. So the rate isn't anything special.
Here's that bond's listing on TDA. Note that the pricing there vs. Fidelity is waaay worse. The min offered at TDA is $5K (vs. $2K) and the best yield is under 2.1%. Same bond, different broker. At least with new issue retail notes, you're getting the same price ($1K, par) wherever it is sold. Still, different brokers will offer different bonds.
Recognize that because of the call option in the retail bond, buying it is somewhat of a heads GS wins, tails you lose. If interest rates don't go up much, GS will call the bond and you'll have a ½ - 1 year bond at 2.5%. if interest rates go up more than 1%, you'll be locked into 3.5% for another year.
IMHO retail bonds are designed as simple easy to use investments for people who don't want to deal with commissions, accrued interest, amortization, tax complexities, market discounts and premiums, OID, etc. that come with "real" bonds. Retail bonds are more like savings bonds issued by corporations. They tend to have respectable but not the best rates. They can be a good way to get your toes in the water.
The cost is embedded wtihin the annuity parameters like payout rate, guaranteed minimum return, etc. So there's no explicit cost stated. These are not low cost vehicles, but it's difficult to figure out how much they are costing you.Since 2006, EIAs [equity indexed annuities] have undergone several changes, including a name change. Insurers began calling these products FIAs (fixed–indexed annuities) instead of EIAs, in order to avoid suggestions (and avert any accusations) that EIA contract owners were investing their money in stocks (also known as equities). Many investment professionals simply called them “index annuities.”
Contrast that with the image on the fund's fact sheet that omits mentioning the need for collateral. Contrary to the image above the fact sheet states that 100% of the money invested (not just a remainder) goes into the fixed income portfolio. Since the prospectus also omits anything about using collateral, it obviously doesn't say how much collateral is needed.As with the carrying costs, simple subtraction is the best way to account for these other expenses. Say they totaled 2%/year, then 2% would be subtracted from the fund's expected return. I pulled that 2% figure out of the blue for a placeholder; I've no idea what these other costs total at any given point in time (the prospectus says they vary over time as well).investment-related expenses not shown in the [fund expense] tables include brokerage commissions and undisclosed markups on principal transactions, which reduce the return on your investment in a Fund and may be significant. ... In cases where a Fund enters into a swap transaction or certain other transactions based on an index, the transaction pricing will typically reflect, among other things, compensation to the counterparty for providing the investment exposure. The transaction pricing also may reflect charges by the Index sponsor for the use of the Index sponsor’s intellectual property and/or index data (“Intellectual Property”) in connection with the transaction. These investment-related costs may be significant and will cause the return on a Fund’s investment in a swap transaction or other transaction based on the index to underperform the index. The terms of these transactions may change over time, potentially in response to market conditions, without notice to shareholders.
https://doubleline.com/dl/wp-content/uploads/6-30-2016_CAPEStrategy-10FAQ_JSherman.pdfEach $1 investment seeks to obtain $1 of exposure to the CAPE® Index via swaps and $1 of exposure to the underlying portfolio of bonds managed by DoubleLine. ... This portoflio has no financial leverage because no money is borrowed .... There is implicit economic leverage due to the use of unfunded swaps ....
Source:Worst case scenario? The US dollar might depreciate against some other currency. That’s a long-shot but it could happen. Will that push up US interest rates? Doubtful. The US Fed determines the short rate, and the global search for safe assets plus expectations of future US Fed policy determines the longer rates.
Guess what. As we head into the next GFC (Global Financial Crisis), the US continues to look awfully good. Don’t bet against the dollar or US interest rates. Uncle Sam wears the biggest pants in the world.
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