* This post is about Government Bond OEFs. Historically, this has been a very popular choice for safe haven, ballast, and alternative to cash roles. These are dominated by AAA and AA investment grade bonds, so they are excellent for avoiding credit risk. The real variable is that longer durations are doing very well, as the Feds appear willing to keep interest rate risk stable--as a result longer duration government bonds are having record total return years, compared to their longer term histories. Here are a few funds that are very good options, some of which you might not have heard of:
1. FSTGX: Standtard Deviation 2.28, Duration 3.79, Credit Rating AAA, M* Risk Average,
1/3 yr Total Return 5.78/2.58
2. CRATX: Standard Deviation 2.18, Duration ? , Credit Rating AA, M* Risk Average,
1/3yr Total Return 6.21/2.94
3. SNGVX: Standard Deviation 1.33, Duration 2.4, Credit Rating AAA, M* Risk Average,
1/3yr Total Return 3.88/2.37
4. LEXNX: Standard Deviation 1.96, Duration 3.21, Credit Rating AAA, M* Risk Low,
1/3yr Total Return 5.22/2.65
5. FGMNX: Standard Deviation 2.93, Duration 2.93, Credit Rating AAA, M* Risk Average,
1/3yr Total Return, 5.55/2.75
6. EALDX: Standard Deviation .47, Duration .33, Credit Rating AAA, M* Risk Average,
1/3yr Total Return 1.45/1.74
Comments: FSTGX, CRATX, LEXNX, and FGMNX had 1 year total returns in the 5% to 6% range which is a pretty good return for a safe haven option. Their longer term Total Return performance is traditionally in the 2+% range, but there is no fear of interest rate increases 2019 and apparently not for 2020. EALDX is the ultra short duration fund, that has lower total return, because interest rate risk is not a concern right now. LEXNX is the only M* Low Risk fund but it still has excellent total return performance.
Seven Rule for a Wealthy Retirement Sorry for the delayed response; I have been off-line for a few days!
Thank you ALL for your sage input and analysis!!!
I follow most of what is expressed/stated and if I interpret it as intended, it appears to me that:
1) paying off the mortgage immediately is not desirable
2) paying additional principle to reduce the loan duration is acceptable
Is that accurate?
To restate: the 1,500/mo P&I does include additional principle in order to reduce the loan duration to almost ten years.
As some have mentioned, what if future stock market & bond market returns are not what they have been over the last "several" years (I presume, that's likely). We've had one heck of a ride the last decade or so!
Would it not make an expedited pay-down of the loan more advantageous? 4% mortgage; 3.5% portfolio return over the next decade (for example).
If I am still missing the point, please help me understand.
Thx, Matt
BUY - SELL - OR PONDER February 2020 Hi Gary,
Yeah, I think we'll do good as long as the market goes up. I saw on Fido they added more info to the fund page. I like that. Also I own GLFOX in that space. Have for years. Looks like they don't clash too much as far as which countries they invest in.
God bless
the Pudd
What’s a bond fund like this doing in T. Rowe’s stable? (RPIEX) I wrote: The fund did well out of the gate, for its first two years, but has been essentially flat over the past three. My guess is that the star rating will nevertheless go up in a couple of weeks when the fund hits the five year mark.
The fund now has a five year rating, and its overall rating did go up to 2 stars. Still poor, pulled down by its last three years of performance. The point is that it is a good idea to look beyond summary figures, even ones that summarize the past 3, 5, or 10 years. Look also at how the fund has done over time, year by year, cycle by cycle.
Seven Rule for a Wealthy Retirement Yeah - I don’t think I was reading it very clearly. Apologies
@mcmarcasco. But I’ve taken the liberty of restating the question in a way that’s easier for me to comprehend. Hopefully, it hasn’t substantively altered the essence of the original question.
-
Question:
I am trying to decide how best to repay a fairly new 30-year (4% fixed) mortgage. If I continue on my current path, I will incur $50,000 in additional INTEREST.
Here are the three options I’m considering :
(1) Pay off the mortgage now ... If I pay off my $150,000 mortgage balance, I then free up $1,500/mo and $18,000/yr. Over 10 years, that's $180,000 I can DCA invest (assuming no gains or losses).
(2) Ride it out the term, investing the $150,000. Using the rule of 72 and historical 7% return, then at the end of 10 years I would have doubled my investment to $300,000 gross, NET $150,000 profit. ... Less the $50,000 of Mortgage INTEREST, I am left with $100,000 net gain after 10 years.
(3) Pay additional principle and reduce the payoff time ($150,000 balance / $1,500 P&I / plus a little extra for about a 10-year payoff. -
That’s how the question appears to me. (Hopefully close to the original intent.) I’ll leave the math here up to
@msf or others with stronger math skills. Restating my original reaction: Paying off a 4% mortgage early strikes me from an investment standpoint as quite similar to purchasing a very high quality bond having a 4% compounded yield. You’ve effectively sacrificed the liquidity the loan provided in return for that guaranteed 4% compounded interest you would have paid the lender. For defensive positioning in a down market, a fixed rate long duration bond is beneficial. But in a “heady” equity market environment
or a period of rapidly rising interest rates, a 4% bond would look lousy.
