Fixed Income Investment Portfolios
- Stable high income
- Much higher returns than bank savings
- Consistent outperformance over even the best total return bond funds
- Safer investments than stocks
What: model portfolios investing in best total return bond mutual funds -- click to see/hide details
Every month, these portfolios select one bond mutual fund with the highest momentum (return) score to invest.
The candidate funds must pass some stringent tests: they should be total return bond funds or intermediate-term bond funds that are managed by managers who have won a Morningstar’s Manager of the Year award, or they are some excellent (low-cost index) municipal bond funds.
The portfolios only invest in no-load and NTF (No Transaction Fee) mutual funds. Since various brokerages offer different no-load and NTF funds, these portfolios are brokerage specific.
Live since 2010.
The following is the list of candidate funds used in the portfolio customized for Schwab:
How: we send you monthly rebalance emails and you make trades in your brokerage accounts --- click to see/hide details
- You open an account in a major brokerage such as Schwab, Fidelity, Vanguard, Merrill Edge, or Etrade.
- At the end of a month, we send emails or notifications to you on possible rebalance needed. You then make buy/sell trades (rebalances) on the first day of the next month.
- Rest easy: on average, you only need to rebalance two or three times every year.
Results: consistent outperformance over best total return bond funds --- click to see/hide details
- Much better returns than bank savings
- Consistently better than even the best total return bond funds such as PIMCO total return bonds and DoubleLine total return bonds for more than 10 years and counting
- Even outperformed stocks (S&P 500) since 2000 in terms of annualized returns
Latest returns of model portfolios, click on portfolio names for more details
AR: Annualized Return. VBMFX: Vanguard total bond index fund. PTTAX: PIMCO total return bond fund. DLTNX: DoubleLine total return bond fund. These three funds are for benchmark purposes.
Past 10-Year Total Return Chart
Suitable: Retirees, Income Investors, Conservative Investors, Savers --- click to see/hide details
- These portfolios can serve as the fixed income portion of an investor’s overall investment portfolio.
- They are suitable for capital needed within 2 to 10 years.
- If you have a specific target date to need the capital, you can also consider fixed maturity bond ETF ladders. See this newsletter.
Fixed income ETF model portfolio
The bond ETF model portfolio employs fund momentum strategy to select a top performing bond ETF every month. The portfolio avoids risky bond ETFs during a financial downturn. The candidate ETFs in this portfolio include the following ultra-low cost index bond ETFs and some total return bond ETFs:
|Asset Class||Ticker/Portfolio Name|
|Intermediate Bonds||BND (Vanguard Total Bond Market ETF)|
|Total Return Bonds||BOND (PIMCO Total Return Active ETF)|
|Total Return Bonds||TOTL (SPDR® DoubleLine Total Return Tact ETF)|
|Total Return Bonds||FBND (Fidelity Total Bond ETF)|
|Intermediate Corp Bonds||VCIT (Vanguard Intermediate-Term Corp Bd ETF)|
|National Municipal Bonds (Tax-Exempt)||MUB (iShares National AMT-Free Muni Bond)|
|High Yield Municipal Bonds (Tax Exempt)||HYD (Market Vectors® High-Yield Municipal ETF)|
|Intermediate Treasury Bonds||IEI (iShares 3-7 Year Treasury Bond)|
|Intermediate Term Mortgage Back Bonds||VMBS (Vanguard Mortgage-Backed Securities ETF)|
Pros and Cons
- Ultra low cost: the ETFs in the portfolios are of some lowest expense ratios, even compared with their index mutual fund counterparts.
- Highly liquid: the ETFs have adequate daily volume to avoid too much trading friction.
- No trading restrictions: though the portfolios don’t trade frequently, unlike mutual funds that usually can impose 3 month limits (depending on brokerages), ETFs have no minimum holding period restrictions. It gives more flexibility and a peace of mind.
- Daily fluctuation pricing: this can be viewed as a flexibility or an added concern: unlike mutual funds, investors do need to care about trading prices. In general, we recommend to make rebalance trades, first sells and then buys at least 30 minutes after market opens.
- Premium/discount: the NAV (Native Asset Value or the actual value of underlying holdings in an ETF) can be different from the market price of the ETF. Though in general, for broad base index ETFs like BND, premium/discount gaps could be small and disappear quickly.
Latest performance of fixed income ETF portfolio
AR: Annualized Return. VBMFX: Vanguard total bond index fund. PTTAX: PIMCO total return bond fund. DLTNX: DoubleLine total return bond fund. These three funds are for benchmark purpose.
Past 5-Year Total Return Chart
- June 3, 2013: Total Return Bond Fund Portfolios For Major Brokerages
- August 28, 2017: Total Return Bond Fund Portfolios: Where Do They Fit?
- April 15, 2019: The Importance Of Fixed Income Returns For Retirement Spending
- January 27, 2020: Investment Landscape For Retirees And Would-be Retirees: Fixed Income
- July 27, 2020: Total Return Bond Funds Update
- August 24, 2020: Target Maturity Bond ETFs For Short Term Cash
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