1. If you buy a bond fund and interest rates rise, the principle value of your holding will drop but you will eventually be rewarded by the higher yield. Interest rates have to go up with a lot of momentum before you will really suffer from rising interest rates.
2. You have to look at the yield curve. Right now a 7 year treasury yields 2.09%, a 30 year 2.89. Most people would view they are not being fairly compensated for going out to the long end of the curve.
3. That is good question, how risky are they? In general junk bonds tend to be as risky as stocks. If things go south they can drop in value very quickly.
4. http://www.investopedia.com/terms/s/secyield.asp.
The SEC yield allows you to see what the monthly dividend should be. The YTD return would be a total return figure.
5. Take the SEC yield, divide by 12 and multiply by your investment. That should get you in the ballpark.
6. If you want a guarantee, buy a CD. ATT has traded in a narrow range but do not underestimate the price risk you are taking by investing in a stock.

Market is taking a dump

Thanks for the detailed reply. This is extremely helpful.

Yeah, I certainly understand the risks associated with principal but I believe I'm in a spot now where I won't need to dip into principal (well, never say never). So, I'm basically trying to ensure a somewhat steady and reasonably decent income for retirement. All of my 401k is currently in stocks but I just got a windfall and I'm looking at bonds (funds).

Thanks again!

This is a reasonably tough time to try to live off bond or dividend income. I will point out one more option. Vanguard has a managed payout fund. This is in no way a bond fund, it is 60% stocks, 12% bonds, and 18% "Alternative" investments, so it is not risk free.

"The Managed Payout Fund is designed to give you regular monthly payouts that can help you manage a portion of your retirement expenses. The fund is intended to supplement your other sources of retirement income.

The Managed Payout Fund targets an annual distribution rate of 4%. To accomplish this, the fund’s portfolio managers aim to adjust the fund’s overall asset allocation over time with an emphasis on sustaining its monthly payouts, keeping pace with inflation, and preserving capital over the long term."

Some of the payout may be a return of principle, and the payout could drop if the market goes bad, but it is a tool in the toolbox. *

*Do your due diligence. I am not responsible for any investment losses and am not a paid spokesman for Vanguard. Past results are no guarantee of future returns. I am not currently invested in this fund but may use it for a portion of my portfolio when I retire.

I've looked at those managed funds. I'm just not sure I want to go that route. Maybe I'm just stubborn and want to manage it myself. I dunno,

My current portfolio is a mix of high yield stock funds and individual stocks. I'm getting right around 4% from those right now. Well, I sort of struggle with that number because if the share values go up, that 4% number goes down. But, aorn it's pretty close to 4%.

I decided to lock my windfall into Vanguard High Yield corporate fund. It's paying right around 5.5%. The fee is .13%. I feel comfortable with this decision.

Again, thanks for your help.

I'd be pretty uncomfortable putting a windfall into the High Yield Corporate Fund a.k.a Junk Bonds over any kind of long term. That might be fine if you can deal with HUGE variance.

Why pick that instead of something like a 60/40 or 40/60 all in one fund? That's probably where I would personally go with a windfall.

Edit: Just read your previous post now that this thread isn't a mess. If you are leaving 401k in equity and just putting windfall into bonds, then that might totally change my suggestion, but that would depend on the relative amounts of these two things and your risk tolerance/goals.

Are you retired now and drawing an income, or preparing for the time you will be?

Agree with what jalex said - the way you've worded this statement kind of implies to me you don't appreciate the level of risk involved.

I'd personally be looking at something like Wellesley:

https://personal.vanguard.com/us/fun...FundIntExt=INT

Vanguard has other funds that go either more conservative or aggressive than this, but this is a great conservative option with a long history.

Yeah, I am leaving the 401k in dividend paying stocks and funds.

I am preparing for retirement. I'm almost 60. I'm trying to retire within a year to 4 years. I would like to try to get by on income alone until social security kicks in but I'm not sure when I want to draw it. I am also considering semi-retirement - part time job.

Well, I get that there is risk. But is it really THAT much riskier than stocks? It's a fund that can spread the risk? I mean, if it all falls apart, we are all in deep doo-doo, right? Wouldn't matter where the money is.

Yeah, I went for this because a) Already have a lot in other places and B) windfall - found money

But, I hear what you guys are saying.

Fair enough, taking income now makes sense if you are retiring imminently. Its probably not riskier than stocks (although I haven't checked how low down the rating spectrum that fund is), and if you're have other stock funds you have a more balanced split anyway.

Main reason for saying was that you sounded focused on the 5% yield and maybe weren't aware this sort of fund could lose 40% in value in a bad scenario. Sounds like you are aware and are better prepared for retirement than most though, so best of luck.

Biggerboat, there are a lot of people who want income that buy individual bonds. I'm not sure if that strategy would be a good fit for you, but it is another option out there.

Yeah, that's where I start getting nervous. My assumption is that vanguard can spread the risk pretty well due to volume. I wouldn't feel comfortable that I would make a good choices. And I think I would get overwhelmed trying to sort through all of that. I just don't know enough to feel good about that strategy.

I have a question about diversification.

At what point does it stop mattering? For example, is X$ spread over 500 stocks diversified enough? 3,500? 8,000? 100???

As the great philosopher-investor D.V. Patton once said, "Eight is Enough."

Dick Van Patten is an actor and Eight is Enough is a TV show...

Apparently it's 20?

That was supposed to go unnoticed. Regardless, math is math.

They would be correct if stocks weren't silly buggers that have serial correlation and other statistical anomalies. Since there is momentum/trend in individual stocks (rather than it being a random walk with drift), their results are wrong.

This was a problem before being super-de-duper diversified actually cost money. It costs less than 0.1% to be super diversified nowadays. It used to be much more expensive.

This article is terrible, lol.

Just buy index funds.

What's wrong with it?


That's a totally different question.

Bolded is idiotic. No decent financial adviser would agree with any of this.

Any argument that 20 stocks leaves potential for 'bigger gainers' while not providing the same exposure to the risk of 'bigger losers' is stupid.

The use of a Buffett quote in this way is clearly out of context in a vacuum when you consider what he advises for basically everyone. He certainly would not advise people to 'buy 20 stocks'...even though Berkshire is certainly picking and choosing.

Diversification is good, period. Having exposure to the entire market is good, because it guarantees a market return. Buffett himself tells individual investors to buy a S&P500 fund.



Not really. 95% of investors should just buy index funds. Costs are insanely low and diversification is extremely high. The #1 goal in investing for retirement is to not face risk of ruin / risk of missing out on steady compounding returns.

Fair enough - the way the conclusion is worded dumb, the rest of the article doesn't really come to that conclusion though - it just says the marginal gains past 20 are much smaller.

I don't think the argument is necessarily wrong though, just the way they've put it is dumb. From the POV of an active manager, picks number 21-40 say aren't going to be as good as picks 1-20, and if they're just being added for diversification then that could be bad.

Agreed, but it's a totally different point on active v passive and the costs involved.

On the subject of fixed vs variable mortgages, should variable mortgages basically always be better on average (i.e. assuming you don't have particular insight about the future of interest rates) since you are taking on risk that the bank isn't taking? Or do banks consider fixed mortgages risky as well in the event that interest rates rise?

Define better. ARM borrowers are compensated for higher risk with an initial teaser rate period.

Better as in lower expected rate over the duration of the mortgage (assume the borrower is risk neutral).