bond funds for taxable accounts?

Comments

• racqueteer

  January 26

  Depending on whether or not you have a state tax to also consider, USFR may not be a terrible choice. For myself, with the fund having minimal state tax implications, I'm able to avoid state taxes entirely. That said, it has operated like a high-yield bank account for some time now.
• Tarwheel

  January 26

  I sold all of the muni funds in our taxable account last year and reinvested in CDs and Treasuries, as well as an ultra-short bond fund, FCNVX. My CD- Treasury ladder goes out five years, with more issues on the short end. The yield on munis is so much lower than taxable bonds that they don’t seem worth it unless you’re in a higher tax bracket.
  
  Since we have so much money in CDs, Treasuries and short term bonds, I’m taking a little more risk with several moderately conservative allocation funds — namely FMSDX, PRFCX and TAIFX. As long as the yields on CDs and Treasuries remain fairly high, I will probably keep my ladder going as issues mature. I prefer Treasuries over CDs when the yields are comparable because they are more tax efficient and easier to sell if needed.
• yogibearbull

  January 26

  I also like ultra-ST FCNVX. Recently, its higher ER class was eliminated and its net ER now is 25 bps. It may be the only Fido mutual fund, besides Fido m-mkt funds, without any trading restrictions.
  
  MY ST mix at Fido and elsewhere is T-Bills (no longer rolled at maturity), m-mkt funds, FCNVX, USFR, ICSH, muni VMLUX.
• linter

  January 26

  thanks all, much food for thought if not grist for the mill. meanwhile, just looking at taxable bond funds, why might you choose them over JAAA? i guess it might have to do with taxes but it makes my head hurt trying to figure that out.
• finder

  January 26 edited January 26

  I have a similar question: Why not PAAA, or ICLO, or CLOI, or other ETFs which for the time being are very steady and grow faster than FCNVX? A possible answer is that JAAA was a bit volatile in March 2023, so it may become volatile again. But volatility of RSIVX and CBLDX is much higher.

  linter said:

  thanks all, much food for thought if not grist for the mill. meanwhile, just looking at taxable bond funds, why might you choose them over JAAA? i guess it might have to do with taxes but it makes my head hurt trying to figure that out.
• linter

  January 26

  finder: i'm with you and hope others will chime in...
• Crash

  January 26

  Volatility: The beta on FALN is 0.95, almost tracking the rest of the Market. That seems tolerable to me. I want to initiate a bond fund/ETF in my taxable account that will spin off dividends which I can then redeploy.
  
  Barron's shows 5.3% yield, Stock Rover shows 5.9% yield. Either way, it's hefty, and I'll take it. Not so juicy as TUHYX (7.39%) nor PRCPX (6.86%). I'm hanging onto those, too.
  Bonds of all sorts in the portfolio = 37% right now.
  
  
• FD1000

  January 27

  I can chime in but my style is different than yours.
  CBLDX + RSIVX/RSIIX are good options with lower volatility and both yields are higher than most at 8+% and 9+%.
  Usually, risk-adjusted performance is the most important, at least for me. That means performance + risk/volatility.
  Just because a fund pays 6,7, or whatever %, doesn't make it a good choice, you want both.
  Usually, higher yield = lower-rating bonds. This is why CBLDX+RSIIX are good choices, they have all 3. High income, good performance, excellent volatility. Not many funds have it.
  Is it a guarantee that RSIVX would make more money than TUHYX? no, nothing is a guarantee, but there is a good chance it RSIVX would be less volatile.
  Some people don't care. Investors have different goals.
  
  Right now I know of 3-4 bond funds with excellent performance and the price hardly goes down in the last several months.
• linter

  January 27

  again, FD and others, could you make the comparison not to, say, TUHYX, but specifically to JAAA, since it is far more like the others: good yield, good performance and fairly low volatility (at least for the last 1.5 years). thanks!
• FD1000

  January 27 edited January 27

  You are getting close, I'm a trader who may hold several weeks or months.
  In 2021 JAAA was the worst.
  In 2022, a unique crazy year, CBLDX+JAAA did better than RSIVX
  Since 2023, JAAA has the best risk/reward.
  But, in the last 1-3 months RSIVX leads.
  Approach the above or not using your own style.
• linter

  January 27

  thanks much. all this works very well with my style, such as it is.
• davfor

  January 28

  JAAA is new to me. I notice it began to move with fairly a steady upward trend in October 2022 several months after the Fed started to increase the federal funds rate. Also, other bond investment products such as SVARX, PIMIX, and BINC substantially outperformed it in November and December of 2023 when talk of an imminent rate cut was strong. It's my current sense the first rate cut is likely to occur sometime this spring. So, I am trying to get a handle on how rate cuts might impact JAAA's ongoing performance.
• linter

  January 28

  if you figure it out, feel free to let me/us know.
• davfor

  January 28 edited January 28

  linter said:

  if you figure it out, feel free to let me/us know.

  It seems reasonable to me to expect the total return from floating rate products will trend down if rates begin to go down. The last paragraph of their most recent quarterly newsletter doesn't specifically address that issue but does present a somewhat bullish income outlook depending on how far any rate decline proceeds this year. My suspicion is that if rates move down the total return from JAAA may well start to lag the total return from products such as the ones I noted above.
  
  
• FD1000

  January 28 edited January 28

  The Nov-Dec huge performance is over.
  YTD is what counts now. My "gamble" right now is on funds with low SD + bigger yield, think 8+%, and excellent performance YTD.
  There are 4 funds on my short list, I own 2.
  
  https://schrts.co/TeIaWmPu
  
  Definitely not PIMIX and its higher SD and lower yield. I used to own PIMIX at 50+% for years until 01/2018. The magic has been gone since then. For investors who hold, I prefer RCTIX.
  
• davfor

  January 29 edited January 29

  FD1000 said:

  The Nov-Dec huge performance is over.
  

  Looking forward into 2024 has me considering what is likely to happen if the federal funds rate begins to decline this spring as I think it probably will. By then, the forward looking bond market may well be pricing in rate cuts in addition to those priced in during the latter part of 2023. For the first time in several years I am fairly optimistic about multisector bond fund prospects for the current year as it begins. (PIMIX is a fair weather fund and will likely do well if 2024 turns out to be a bullish year for multisector bond funds. But, 2021 clearly showed it to be too volatile to include among my bond fund holdings.)
• WABAC

  January 29 edited January 29

  Hard to see why the Fed would cut rates if the economy continues to perk along. If they're cutting rates methinks it would be because of a nasty landing.
  
  Long article that confirms my bias opinion at the link.
• Old_Joe

  January 29

  Interesting perspective.
• Crash

  January 29 edited January 29

  Bond funds for taxable accounts? Yes. Just did so with FALN. "Fallen Angels." Formerly I.G. grade companies' bonds, now junk.
• davfor

  January 29 edited January 29

  There are numerous reasons the fed may well be receptive to cutting rates when they become convinced that the pandemic induced spike in inflation is on a firm downward path. Here are a few possible reasons off top of my head: facilitate reductions in what have become very restrictive mortgage rates as well as reductions in other household sector financing costs, reduce the ongoing cost of financing the swollen federal deficit, reduce state and local public sector borrowing costs, reduce the likelihood of a significant spike in bankruptcies and defaults among business entities that in growing numbers need to refinance debts incurred during the zero interest rate era, reduce what is becoming a restrictive real interest rate in order to help maintain ongoing growth in the economy, convey to the public their sense the inflation spike is moving into the rear view mirror and to thereby reduce the level of ongoing inflation expectations.
• WABAC

  January 29

  @davfor, yes, I can think of all those reasons why people might wish for cuts. How many of them have anything to do with the Fed's legal mandate?
  
  It has been my hunch through all of this that Powell has no desire to be remembered in the same breath with Arthur Burns. Powell and Burns might agree on one thing though:
  
  Maybe it's time for other parts of the system to step up and see what they can do about these issues that people think can only be solved by lending money for free.
  
  If Jane and Joe Uber driver can't afford health insurance, or a mortgage, I think Joe and Jane would be better off with a strong union than a Fed policy making it easier for gig and health care companies to borrow money,
  
  
  
  
• Crash

  January 29

  bingo.
• FD1000

  January 30 edited January 30

  The "king" of bonds, Gundlach, and other "experts" made bad predictions about rates and why I don't invest based on predictions and hope.
  I own funds that have done well lately.
  BTW, the Fed controls the short term rate, but markets control the longer term.
  The 10 year may be at 3.5-4% for the next 6 months and that's not a big decrease.
• Baseball_Fan

  January 30

  @FD1000...so would it be correct to say you worship at the alter of price momentum? Or trend? Aren't you setting yourself up for reversal risk?
  
  BTW, completely agree with you, the experts are guessing like anyone else and it's all about who can put on a coat and a tie and articulate the best narrative.
  
  Probably best to just ignore them, set your allocation where you can sleep at night, diversify between some bonds, cash, gold, stocks and go live your life,be nice to people.
  
  Will say tom Lee with fundstrat has been the only tea leaf reader who's been correct for a while but the house is falling types get more clicks. The guy taggert. Who has interesting guests on his podcasts has been way wrong for love you long time it's almost comical. Pure noise and waste of time under the guise of educating people on investing
  
  Good luck and good health to all
  
  Baseball fan
• davfor

  January 30 edited January 30

  WABAC said:

  @davfor, yes, I can think of all those reasons why people might wish for cuts. How many of them have anything to do with the Fed's legal mandate?
  
  

  The Federal Reserve System has been given a dual mandate—pursuing the economic goals of maximum employment and price stability.
  
  Its my sense this fed has succeeded in establishing its inflation fighting credentials. And, the feds goal is to achieve both maximum employment and price stability and to thereby keep the economy growing. There are fairly strong signs the inflation rate may be sustainably trending downward after experiencing a strong spike caused by supply/demand imbalances during the the pandemic. The aggregate supply and demand of workers is also moving towards a balance point. With a sustainable path to achieving the price stability coming into view, it is reasonable for the fed to start shifting more of its focus to reducing the strains and imbalances caused by the interest rate spike (including those noted above). Doing that will help it continue to achieve the maximum employment part of its mandate. Waiting longer than necessary increases the risk of unnecessarily weakening the economy and of increasing the unemployment rate. Will it take 3, 6, 12, or 24 months worth of additional favorable data to provide the fed enough time to confirm that reducing the fed funds rate is prudent? My expectation is that 6 months or less will be enough. But, I am not yet making any significant investment decisions based on that expectation. (What was once the bond sleeve of my portfolio was renamed to be the ballast sleeve several years ago.)
  
• FD1000

  January 30 edited January 30

  Baseball_Fan, I have been doing pretty well using the big picture + T/A for decades..(link).
  
  You can also see what I think of many experts over the years, including Tom Lee (link).
• WABAC

  January 30 edited January 30

  davfor said:

  WABAC said:

  @davfor, yes, I can think of all those reasons why people might wish for cuts. How many of them have anything to do with the Fed's legal mandate?
  
  

  The Federal Reserve System has been given a dual mandate—pursuing the economic goals of maximum employment and price stability.
  
  Its my sense this fed has succeeded in establishing its inflation fighting credentials. And, the feds goal is to achieve both maximum employment and price stability and to thereby keep the economy growing. There are fairly strong signs the inflation rate may be sustainably trending downward after experiencing a strong spike caused by supply/demand imbalances during the the pandemic. The aggregate supply and demand of workers is also moving towards a balance point. With a sustainable path to achieving the price stability coming into view, it is reasonable for the fed to start shifting more of its focus to reducing the strains and imbalances caused by the interest rate spike (including those noted above). Doing that will help it continue to achieve the maximum employment part of its mandate. Waiting longer than necessary increases the risk of unnecessarily weakening the economy and of increasing the unemployment rate. Will it take 3, 6, 12, or 24 months worth of additional favorable data to provide the fed enough time to confirm that reducing the fed funds rate is prudent? My expectation is that 6 months or less will be enough. But, I am not yet making any significant investment decisions based on that expectation. (What was once the bond sleeve of my portfolio was renamed to be the ballast sleeve several years ago.)
  

  You make sound arguments. I can't dispute that. It's only my hunch that leans the other way from a cut in the first quarter. We will see how it goes. Stay tuned.
  
  
  
• Crash

  January 30

  Hunch: I'm expecting nothing in the way of cuts until 2025.
• Baseball_Fan

  January 30

  @FD1000... thanks for the links... nice work pertaining to your investments...the link indicating the results from the expert prognosticators had me chuckling out loud.
  
  Baseball fan
• WABAC

  January 31

  Crash said:

  Hunch: I'm expecting nothing in the way of cuts until 2025.

  That would not surprise me.