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With passage of the most recent Federal legislation the Congressional Budget Office projects another 3.5 trillion dollars added to the US debt over the next 10 years. The inevitable result of this will be the Federal Reserve having to increase interest rates.
In 2022 this scenario resulted in a bloodbath in my intermediate bond fund. I don’t remember in my copious reading any advanced warnings of prices dropping precipitously as interest rates increased (in fairness I had read about the inverse relationship between prices and yields, just no warning as to just how bad it could be). Since then I have converted all the money that was in my intermediate bond fund to short term ETFs to shorten my bond funds’ duration and thus limit any future damage from rising rates.
My question is do any Humble Dollar readers have any other suggestions as to how to get a decent return on these monies other than depositing these monies into a Federal money market fund?
I’ve decided Federal Money Market Fund and Short Term Treasury Bond Fund will serve my purpose for bonds. Try as I have, I just don’t understand TIPS funds enough and do not want to manage ladders.
Where is the best place to keep your money if you are a follower of William Bernstein: “If You’ve Won the Game, Stop Playing” and you are 80 years old?
OK, I am not completely sold on these products, but I also have not read any coverage in Humble Dollar about them. They are unfortunately named iShares iBonds (I think there’s another version called BulletShares by Invesco). They are built for laddering bonds. For example, IBDV targets Dec. 2030 maturity with Investment Grade Corporate bonds. You can also use US Treasuries, US TIPS, Municipals and High Yield baskets. IBDV has a 0.10% net expense ratio with 668 bond holdings. Current NAV is about 21.82 and the target NAV is approximately 25 in Dec. 2030. This target NAV is the same for all iShares iBonds. The large basket of bonds protects against any one bond defaulting. Interest payments occur throughout the life of the bond (monthly?).
In principle, one could readily build a ladder knowing what the expected maturity payout is and when it is. ETFs and Mutual Funds have this constantly moving payout date as bonds fall into and out of their target windows. This has been my greatest source of heart burn (e.g. 2022 capital loss) with bond baskets. Choosing bonds, other than US government issued, is a tricky business – not one I wish to learn. The net expense ratio is quite reasonable.
Does anyone have any first hand experience with these instruments?
Thanks for reminding me about the iShares iBonds. I have considered discussing them with our fee only financial advisor in the near future in an amount to cover what I expect will be a small shortfall in covering our basic expenses not covered by our delayed Social Security and pension income
Don’t forget I-Bonds for set and forget longer term bond purchases. There are purchase limits imposed annually on individuals. These