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Bond OEF Investing for More Conservative Investors

I am a conservative investor in retirement, who is focused on modest/relative safe total returns, with a strong emphasis on preservation of principal. I use bond oefs, and attempt to invest in bonds that I intend to hold for at least a year. I use Schwab brokerage for my investing, and I hold a large percentage of funds that are in Institutional class shares. I choose to invest a minimum of 5% of my total portfolio in each bond oef I purchase, and I attempt to limit the total number of funds I hold to no more than 10 to 12, but sometimes fewer than that. In my IRA, I tend to choose a little more risky funds, to produce total return that will help recoup my RMD harvesting each year--4 to 6% is a general objective in my IRA account. In my taxable account I attempt to be a little less risky, attempting to minimize taxes, and producing a total return that exceeds CDs and high return bank accounts--3 to 4% total return in my taxable account is my overall objective. I re-evaluate my fund selections at the end of each year and decide if there are any changes I want to make for the next calendar year. So, for example, I have been looking at potential changes in my taxable account recently, and I decided to "reduce" my DBLSX holding, and start a new taxable account position in PUTIX. In my IRA account recently, I decided to sell my PTIAX holding and started a new position in IISIX. I expect to make a few more adjustments over the next couple of week in both my taxable and IRA accounts.

If you have a similar investing style, or similar interests, I would be interested in hearing what you are doing.
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Comments

  • Hi dtconroe

    I find your posts informative and helpful on another site. I am 63 recently retired and not collecting social security or any pension. I have moved to a very conservative portfolio with the definite emphasis on principal preservation also. I will probably take a small pension and my social security at 65 or 66. I am at approx 21% Cash,cds...,20% balanced funds(vwiax,fbalx,vbiax...), 20% equities (fskax,vcsax,vimax...),20% bond funds mostly with pimco (pttrx,pigix,pmzix...)12% Pimix, 7% short term (vfsux). I am willing to forego larger gains and am content with the lower yields and less principal risk. I am mostly in taxable accounts and not tax efficient . I don't feel very knowledgeable when I read posts by others and have and will continue to plod along. I have done pretty well by just being in the market, knowing I have not maximized returns. I am looking to invest some from the cash account and was looking at IISIX also. I know it has been talked about on the other site I follow that you post on also . I am trying to get where a market downturn won't effect anything I do. Worse case scenario I will just put more in vwiax or vwiux.
  • Hello dtconroe. I have similar thoughts to your investing style. But I have a 50% allocation to equities so my bond OEF allocation may be a little more "conservative". 50% of my bonds are in DBLSX and MWCIX and 50% is in what I call "higher yield". My higher yield contains SEMMX, IISIX, VCFAX. I am not as structured as you. I plan to hold these long term (hopefully years) unless the bond market crashes as some people are expecting.
  • autoshops and Gary, thanks for responding. I have found investors have carved out their own unique mix of conservative bond oef funds, that fit their unique objectives and investing style. I certainly understand how many investors hold balanced funds and equities, probably most do--holding conservative bond oefs for ballast purposes and holding them for income, are very typical. When I was in my early 60s, I held many balanced funds and some equities, but as I got older, I had accumulated enough where my objectives became more conservative, so that I could just have a stress free retirement. I am spending quite a bit of time in my taxable account recently--funds like DBLSX are very solid low risk funds, and the question I need to answer is whether I can take a bit more risk to get more total return, without the stress of dealing with that risk. I have decided that PUTIX is a fund worth holding in my taxable account. I like the nontraditional bond category a lot because you can find funds that significantly vary in how you can use them--sometimes for income, sometimes for total return, sometimes for ballast, etc. One of the other reasons I like nontraditional bond funds, is that they often have a primary goal of "absolute return" and have fewer constraints, and more investing tools in their arsenal, to achieve those performance objectives.
  • One issue I am evaluating is how much, and what kind, of bond oefs, I want to hold in my taxable account. I have held BTMIX for all of 2019, and it had a good year, but it averages below 3% total return over its history. I have generally wanted funds in my taxable account, with an average total return history of over 3%. Both BTMIX and DBLSX can have TR years of over 3%, but they usually revert back to their "safe" but lower TR. I have held NVHAX periodically in the past, but it is more volatile and risky than BTMIX. I have a few shares of SEMMX in my taxable account, and it has a history of averaging close to 5% over it history. SEMMX is not tax efficient, so if I increased it in my taxable account, I would restrict the portfolio percentage in a smaller amount. Another fund I do not hold, but interests me, is ZEOIX. In my taxable account, I prefer to hold several different kind of bond oefs, for some diversification benefits. Holding a Muni fund, a nontraditional bond fund, a short term bond fund, and a short duration HY bond fund, would be a nice, but low risk diversification mix. Any thoughts on the benefits of holding a diverse array of bond oefs in your taxable account?
  • @dtconroe - VMPAX is another good conservative muni fund to look at.
  • syzygy--I agree. A couple of years ago I owned VMPAX and ORSTX--very similar funds that served me well at that time. If you are looking for lower risk Muni funds, these are funds I continue to maintain on a watchlist of funds.
  • Hi,dtconroe

    Back in late November 2018, you spoke about several funds, of which ZEOIX was one. Usually high yield is too volatile for my investing choices. I researched this fund and found it to be in my wheel house after all. I bought 5000 shares in November of 2018. It has posted a return of 5.33% ytd. The fund has a low volatility with a duration of 0.88 years. My nav in the fund is up since purchase, with a nice monthly yield.....thank you for the heads up on this fund.

    craignw
  • I'm enjoying this conversation, but what is OEF?
  • Hi "guys,"

    This seems bogus. Will attempt to get MF webadmin to verify the "participants" on this thread.
  • edited December 2019
    Puddnhead said:

    Hi "guys,"

    This seems bogus. Will attempt to get MF webadmin to verify the "participants" on this thread.

    What seems bogus?

    I assure you that dtconroe has countless valuable posts on the Bond Squad Forum on Morningstar. I certainly agree with austchops first sentence.

    Mona

  • I was surprised to see dtconroe posting on this site .And I assure you as others already know that he has alot to offer readers and they will be served well to read his posts.
  • to suggest something perhaps offensive, perhaps it is or should be assumed that readers here either will know or will have googled for common terms of art: mf, etf, etn, cef, oef, er, cagr, apr, even ebitda, etc.
  • edited December 2019
    Hello Puddnhead. Several of the posters on this thread, me included, have posted most recently at Morningstar with the same screen names.
  • I missed much of this conversation--had a family Christmas gathering tonight. I just started posting on this forum, after years of posting on M*. This thread is very much in line with two recent threads I started at M*, in which I used the same posting name. I made a post at M* that I was going to start posting on the MFO forum, and invited others to join me, including Gary1952 and Craignw. MikeM asked what OEF stands for--Open End Fund. Craignw, nice to see you posting here and hope ZEOIX works well for you. Mona, thanks for the kind words. For those who do not know me, I look forward to getting to know each of you, and look forward exchanging ideas and sharing information.
  • Welcome @dtconroe. I hope to hear and learn more from your bond experience.
  • austchops, thanks for the kind words. Hope we can get to share more information on this thread.
  • Back to some investing topics! My wife has a traditional IRA, and in 2020 she is required to begin her RMD process. Our approach to RMDs, is to take the total RMD amount at the beginning of the calendar year, transfer it to our taxable account, and then make a reinvestment decision about this RMD transfer to our taxable account. My wife is even more conservative than I am, would put it in a tin can in the back of the yard if it was totally up to her, but has agreed to a conservative bond oef in her IRA account. Currently, she is totally invested in MWCIX, but I think we will diversify a little more into her account starting in 2020. IISIX is a fund that I am considering adding to her MWCIX fund for a little more total return, but still be supportive of her very low risk tolerance. We will try to produce enough TR in her account, to recoup the RMD withdrawal each year.
  • Unless you own higher % in stocks I don't see the reason to own very low SD bond funds. The following is a simple example based on several funds mentioned in this thread.
    Looking at short-term duration Muni funds NVHAX,BTMIX,VMPAX,ORSTX. For 3 year performance, Portfolio Visualizer (link) shows that NVHAX performance is 2-3 times better and it's SD=1.5 was worth it and why NVHAX Sharpe ratio + Sortino are much better.

  • I have already stated the "reason" why we are looking at very conservative bond oef funds for my wife's IRA. We are not interested in Muni funds for her Tax Exempt IRA, and she is very very conservative, and so we will only focus on very low risk bond oefs, which is in her comfort zone.
  • Hi and Welcome to MFO @dtconroe
    You noted: "in 2020 she is required to begin her RMD process. Our approach to RMDs, is to take the total RMD amount at the beginning of the calendar year.
    --- If 2020 is the first year for RMD, the money doesn't have to be pulled until the end of the calendar year; with the exception if the money is needed sooner for other reasons. I allow the yearly RMD money to sit until near the end of a calendar year to continue to grow tax deferred.
    Regards,
    Catch
  • Hi catch22, thanks for posting. Yes, we are aware of the various options for how you take the RMD. I have been taking RMDs for several years, and have done it a couple of different ways. When we transfer the RMD money to our taxable account, we have a variety of fund options in our joint taxable account, where the money can be invested and grow with minimal to no tax consequences, or we may choose to use that RMD transfer to pay for some large expenditures that are due at the beginning of the year for us. There are pros and cons to the various strategies of how you harvest the RMDs, so I certainly see why various individuals choose the approach that best fits their particular situation. With regard to what my wife and I are considering for her Traditional IRA, we have not yet decided what we are going to do, but diversifying a little more is what we are now looking at.
  • edited December 2019
    dtconroe, you may not need to start RMDs for your wife next year. Depends on when the SECURE Act kicks in.
  • edited December 2019
    Re: RMD - You can, in a sense, have your cake and eat it too - not that it makes a huge difference in net amount received. I simply move the expected RMD amount into a cash or cash equivalence fund well ahead of the actual time it will be taken. At that point it becomes “hidden” within my investment portfolio until the actual RMD / distribution. Around the end of year, as @Catch22 suggests, still works fine for RMD compliance. It’s at that time I transfer the funds earlier set aside into a non-sheltered cash account. Does allow the money sitting in cash to grow tax deferred until you actually pull it out. An added. enefitnis that it allows a degree of flexibility, should circumstances change.

    Interesting discussion. I prefer to use various diversified income and moderate / conservative allocation funds at TRP and D&C (DODLX) and let those guys decide how much and what kind of bonds to hold. But I can see the appeal of using CEF bonds (apparently in a modified laddering approach) late in retirement. From the bit I’ve read, CEFs are thought to hold some good value currently. Boils down to what you know best and each’s individual comfort level. Welcome to the guys who came over from M*. I’ve seen some of your CEF discussions on that board, but have never posted there.
  • Gary: "...you may not need to start RMDs for your wife next year. Depends on when the SECURE Act kicks in."

    Hey Gary, thanks for the information. We will be having some conversations with our Schwab brokerage reps, before we address my wife's RMD.
  • Gary: "...you may not need to start RMDs for your wife next year. Depends on when the SECURE Act kicks in."

    At Fidelity, at least, it apparently already has. I had mine setup on auto pilot through Fidelity to start in 2020. One 5-min phone call was all it took to move it out 2 years.
  • edited December 2019
    I am a few years out but now I am a “young” retiree so I will now have 5 years before my first RMD. Plus the chart gets reset so those taking RMDs already will reset lower next year.
  • @MikeM,

    OEF = Open End Fund vs (CEF = Closed End Fund)
  • OEF - another name for mutual fund.
  • ZEOIX has been on my wish list since 2014 when I wanted to find a low risk fund with similar risk-reward characteristics as the closed RPHYX. David did a nice review of ZEOIX back then and I know he has talked highly of it in interviews. Problem for me is that one of my buy criteria is not to pay a transfer fee for any fund. Alas, at Schwab and TRP where the bulk of my money sits there is that fee. I check periodically on my Schwab account to see if that has changed but it has not.

    For those interested, Zeo Capital Advisers has started another low risk credit fund with similar objectives and style to ZEOIX. It is called Zeo sustainable credit fund, ZSRIX.

    https://www.zeo.com/strategy/
  • dtconroe: I have held BTMIX for all of 2019, and it had a good year, but it averages below 3% total return over its history. I have generally wanted funds in my taxable account, with an average total return history of over 3%. Both BTMIX and DBLSX can have TR years of over 3%, but they usually revert back to their "safe" but lower TR. I have held NVHAX periodically in the past, but it is more volatile and risky than BTMIX"

    FD:Looking at short-term duration Muni funds NVHAX,BTMIX,VMPAX,ORSTX. For 3 year performance, Portfolio Visualizer (link) shows that NVHAX performance is 2-3 times better and it's SD=1.5 was worth it and why NVHAX Sharpe ratio + Sortino are much better.

    dtconroe: I have already stated the "reason" why we are looking at very conservative bond oef funds for my wife's IRA."

    FD: My post was about your use of BTMIX in a taxable account per your post earlier.
    BTMIX had a good year? YTD it made only 3.96% while NVHAX made 7.65% and many inter-term Muni made over 10%.
    Why would any reasonable retiree go for a long term of 3% performance for their whole taxable account?
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