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Laddering With Individual Bonds

johnNjohnN
in Fund Discussions
https://www.forbes.com/sites/wadepfau/2020/01/23/laddering-with-individual-bonds/?ss=retirement#2880c6ce3a3f

Laddering With Individual Bonds
Wade PfauContributor
Retirement
Professor @ The American College; Principal @ McLean Asset Management
Duration matching is not straightforward for bond funds when shares of the bond fund must be sold to meet ongoing retirement expenses. If rates have risen, shares of the bond fund may need to be sold at a loss, with more shares sold to meet a given spending objective. This triggers sequence risk and locks in losses. Immunization only works if interest payments can be reinvested at a new higher interest rate to compensate for capital losses. But not all the funds are fully reinvested when a spending goal is met, so reinvestment risk and interest rate risk do not get neutralized. The return on remaining assets would need to be even higher to keep the retirement liability funded. Immunization is harder when there is also a spending goal to support.

Comments

  • CrashCrash
    I'm not using a broker. Buying individual bonds in my circumstances in downright prohibitive. I trust my bond fund managers. Getting decent, if not GOOD yield--- even in this current low-interest rate world.
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