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How to Allocate for Yield for Bond Investments


Simba
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I have some bond investment allocation, but not sure how to properly invest this amount.

 

- I can put this amount in a corporate bond fund, but it does not earn much yield.

- I can put this amount in a savings account, but now it's even worse.

- I can allocate this to equities, but then this defeats the purpose.

 

Thus far, I've allocated a bit to high yield bonds, but obviously this is like 10% of my bond allocation as it has equity like volatility in a downturn (otherwise would put more).

 

Thoughts? 

Edited by Simba
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11 hours ago, Simba said:

I have some bond investment allocation, but not sure how to properly invest this amount.

 

I can put this amount in a corporate bond fund, but it does not earn much yield. I can put this amount in a savings account, but now it's even worse.

I can allocate this to equities, but then this defeats the purpose.

 

Thus far, I've allocated a bit to high yield bonds, but obviously this is like 10% of my bond allocation as it has equity like volatility in a downturn (otherwise would put more).

 

Thoughts? 

If it's your 401K account, looking for Stable Value fund

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14 hours ago, Simba said:

I have some bond investment allocation, but not sure how to properly invest this amount.

 

- I can put this amount in a corporate bond fund, but it does not earn much yield.

- I can put this amount in a savings account, but now it's even worse.

- I can allocate this to equities, but then this defeats the purpose.

 

Thus far, I've allocated a bit to high yield bonds, but obviously this is like 10% of my bond allocation as it has equity like volatility in a downturn (otherwise would put more).

 

Thoughts? 

 

What is the purpose of this bond allocation? To reduce volatility? If you're younger side and just starting career, there are very little reasons to even hold bonds. 

 

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10 minutes ago, fareastwarriors said:

 

What is the purpose of this bond allocation? To reduce volatility? If you're younger side and just starting career, there are very little reasons to even hold bonds. 

 

Ya you and I definitely agree on this. Take that whole "textbook allocation" they say to put in bonds and just buy RE with a 30 year fixed! 1/3 stocks, 1/3 bonds. 1/3 RE should really just be 50/50 or in my case 70/30 RE/stocks. 

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1 hour ago, fareastwarriors said:

 

What is the purpose of this bond allocation? To reduce volatility? If you're younger side and just starting career, there are very little reasons to even hold bonds. 

 

 

It's 6-month emergency fund (through the March 2020 crash I realized I needed a minimum cash and couldn't tolerate volatility of 100% equities) + some cash for a down payment for RE in the next 12 months. The 6-month emergency fund, I'm OK yielding savings account yield (e.g. 1%).

 

I do realize cash has been a drag on investment returns especially with the SPX approaching 4400.

 

I'm willing to sell the RE downpayment portion at a -10% loss if need be. I also figure I could always apply for margin if the market did turn south and needed to sell for the RE Downpayment.

 

I know they say don't invest your down payment, but it's such a drag on returns. Which is why I'm looking for lower volatility / lower return scenarios.

 

 

 

 

Edited by Simba
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I'd just keep it in cash if you need the money in <12 months.

 

I'd buy I savings bonds if you need it in 12+ months. $20K/couple. if you're young and putting more than $20K/year in something w/ a 0% real return, then you either are saving a shit ton or being too conservative. 

 

cash       0% yield, 100% liquid

i bonds   0% REAL deferred pre-tax yield, liquid after 1 year w/ a penalty in years 1-5

 

 

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42 minutes ago, Simba said:

 

It's 6-month emergency fund (through the March 2020 crash I realized I needed a minimum cash and couldn't tolerate volatility of 100% equities) + some cash for a down payment for RE in the next 12 months. The 6-month emergency fund, I'm OK yielding savings account yield (e.g. 1%).

 

I do realize cash has been a drag on investment returns especially with the SPX approaching 4400.

 

I'm willing to sell the RE downpayment portion at a -10% loss if need be. I also figure I could always apply for margin if the market did turn south and needed to sell for the RE Downpayment.

 

I know they say don't invest your down payment, but it's such a drag on returns. Which is why I'm looking for lower volatility / lower return scenarios.

 

 

 

 

 

For emergency fund/down payment, then I say just keep it in cash (like your online savings account). I'll would also turn on margin in your brokerage account. Even if you don't plan on using it, it can act like a small "emergency fund."

 

Holding taxable bond fund in a taxable account is just not worth it especially at our current rates. 

 

 

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Maybe opportunistic...who knows. But PSTH looks like a pretty good cash alternative with the above mentioned situation in mind. Im closing on a new property in about a month and pulled half the down payment from non core stuff and chucked it there. Rest I'll borrow from IB at 1%. 

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16 minutes ago, Gregmal said:

Maybe opportunistic...who knows. But PSTH looks like a pretty good cash alternative with the above mentioned situation in mind. Im closing on a new property in about a month and pulled half the down payment from non core stuff and chucked it there. Rest I'll borrow from IB at 1%. 

Hmm ya certainly looks interesting, especially with the price trading close to $20.00

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