tag:blogger.com,1999:blog-36331026776482509262012-02-07T18:58:16.715-08:00A conservative approach for income seeking investors and retirees utilizing individual bond investments while reducing risk. Click the spreadsheet BONDSHELTER.XLS link below to see bonds, dividend, purchase, and other cumulative history and how this portfolio is performing. Contact: Bondshelter@gmail.comEdward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.comBlogger371100tag:blogger.com,1999:blog-3633102677648250926.post-82751461871604783762012-02-05T09:02:00.000-08:002012-02-07T18:58:16.730-08:00

When the current Bondshelter portfolio was converted to a fixed income vehicle in 2009 it began a process of clawing back from a 25% decline. This would require a 33% increase to get back to even. Even with a prospective 2 to 3% gain this year there is still a significant shortfall and to date is still well below this threshold. Additionally the risks in the fixed income space seem to be getting

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-49245750100374165832012-01-09T18:00:00.000-08:002012-01-09T18:01:30.932-08:00

The Sunday edition of the San Francisco Chronicle lists the 25 most widely held mutual funds. The Vanguard Inflation-Protected (i.e. TIPS) mutual fund - symbol VIPSX was far and away the best performer of 2011 with around a 14% return. The assets in Bondshelter are held in a Vanguard account and, in fact, this was one of the holdings in 2011. However as a "prudent" measure it was decided to

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-13072109287897518822011-12-03T08:49:00.000-08:002011-12-03T08:49:22.042-08:00

Two bonds in the portfolio were subject to the call provision in 2011. The Ford and Verizon bonds were called in. Even with the "make whole" provision the problem is how to redeploy the new cash. Some of this was mentioned in the last post. When the portfolio was first established an 18 month bond with an investment grade ratings could be had yielding 4%. Now Bill Gross in a recent column says

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-29463181165833583582011-11-07T19:50:00.000-08:002011-11-07T19:50:27.108-08:00

In any non-deflationary environment holding cash may feel like a losing proposition. Cash also reduces volatility in a portfolio but that too seems like a self-defeating tactic. Currently the Bondshelter portfolio is 10% cash. However cash as an asset allocation has a place. The better way to view holding this is for some set of future opportunities that will present themselves at an unexpected

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-14908350473787380412011-10-10T16:44:00.000-07:002011-10-10T16:44:36.591-07:00

The Bondshelter portfolio is composed of 7 types of bonds which are 65% of the total. There are 13 separate stocks, etf's, or fund-like securities comprising 30% and finally 5% is currently in cash. It would be expected that the volatility of such a composition should be less due to the dividends and interest generated. In fact the portfolio has decreased in value by 5% since market highs in

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-69343017733154979892011-09-12T14:16:00.000-07:002011-09-12T14:21:49.918-07:00

At this time the 10 year U.S. treasury bond is currently yielding under 2%. The rates for these securities are at 60 year lows. Among the reasons cited are the discord in Europe and the flight to safety as well as the stagnant economy. Some have called  the U.S. treasury market the greatest bubble of all time. And bull markets tend to have their greatest run near the end. Recently Kathy A Jones

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-28174455506253350862011-08-08T16:30:00.000-07:002011-08-08T16:37:21.931-07:00

As this post is being written, today marked a one trillion dollar loss of investor money in global stock markets. Also the many pessimistic scenarios for the bond market which have been in the press and on this site look distant as safe money seeks bonds including the much maligned treasuries. However in a low yield world reliable dividend income is the goal. This category of infrastructure

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-41190013872728373432011-07-11T20:46:00.000-07:002011-07-11T20:46:22.643-07:00

In a low yield world investors have been pouring money into high-yield or junk bonds and junk bond funds. These have been out-performing investment grade bonds and have been stand-outs in the bond market for the last several years.The question is whether this is still a sector worth pursuing. As always there are different viewpoints. A Reuters article from June 3rd is entitled " IFR-High-yield

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-56877749132842775132011-06-06T13:07:00.000-07:002011-06-06T13:07:58.147-07:00

This blog has made the case that ownership of individual bonds represents a better strategy than owning bond funds due to the stock-like characteristics that open-ended vehicles with no date-certain maturity comprise. However there are circumstances where fixed income investors who want bond exposure might consider certain categories. For the retail investor purchasing individual bonds can be

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-75492152710834894302011-05-09T18:47:00.000-07:002011-05-09T18:53:15.343-07:00

"The largest rate hikes in history". That is the provocative thesis of noted money manager and bond authority Marilyn Cohen. The suggestion of a nuclear winter in bonds, though extreme, is still another cautionary note. In this article she makes the case. “Investors should keep a substantial amount of cash on hand during the nuclear winter to take advantage of the opportunities that inevitably

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-38850232765726369642011-04-10T18:29:00.000-07:002011-04-10T18:29:56.257-07:00

In the two years since the portfolio was restructured as a  fixed-income vehicle how has it done? Overall, a respectable  8.9% per year uncompounded return. This of course pales with most stock returns and especially gold, silver, and energy today. However the discipline here is return of capital as well as reliable return on capital. Whereas this was initially comprised solely of individual

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-47199397442740127482011-03-06T12:43:00.000-08:002011-03-06T12:43:27.175-08:00

The Hartford Life bonds matured and the question is what to do with the cash. With investment grade corporates currently yielding barely 5% through 2015 and with 2 junk bonds in the portfolio already there is no compelling case for bonds at the moment. Cash pays nothing. Perhaps Consuelo Mack, a noted financial commentator, said it best in her February 17 Wealthtrack(.com) newsletter - "The

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-77083759195103660362011-02-07T12:47:00.000-08:002011-02-07T12:47:59.797-08:00

The crescendo of war drums for the end of the bond bull market if not a bond market collapse keeps growing. Marilyn Cohen in a recent Forbes article proposes that bond buyers take credit risk over interest rate risk. The whiff of inflation is in the air. Other commentators argue that the aging population is still risk averse to securities given their recent experience and will be attracted to the

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-3711941473924418472011-01-09T14:29:00.000-08:002011-01-09T14:29:22.436-08:00

Despite last month's post on Preferred Shares both AEB and MET.PRA have been removed from the portfolio. The two reasons for this are the general nature of price volatility and opportunity cost. The return for less than a year's holdings after commissions was 5% for Aegon and 8% for the Met Life. The determination was made that preferreds, in general, have too much price movement. The rationale

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-61697055209328509372010-12-06T20:20:00.000-08:002010-12-06T20:22:53.934-08:00

The November 29th, 2010 edition of Barron's magazine offered 9 alternatives for investors seeking a 5 to 7% supplemental yield. Not one of the recommendations involved preferred stocks. Obviously this class of asset may not appeal to everyone yet it can provide some additional depth to a fixed income portfolio. The Motley Fool has a useful primer on this class. The idea in adding preferreds is

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-80353311108509875312010-11-06T08:38:00.000-07:002010-11-06T08:38:51.365-07:00

A principle tenet of the Federal Reserve is to steer a course between the extremes of deflation and inflation although some minor inflation is generally desirable. Can the central bank steer this middle course or can inflation ignite? Though hyperinflation is something associated with third world countries or Germany in the twenties there appears to be a growing number of voices that

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-10655721756983771922010-10-10T18:11:00.000-07:002010-10-10T18:11:23.274-07:00

This well turned-phrase was coined by bond maven Marilyn Cohen of Envision Management Capital in this CNBC article. What Ms. Cohen is cautioning is that investors have been indiscriminately pouring money into bond funds. As has been posted previously bond funds are not individual bonds. Buy and hold which has been infamously unworkable in the stock market can work in relation to bonds if

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-90393689661973679072010-09-06T17:55:00.000-07:002010-09-06T18:04:34.076-07:00

It seems like comparing the current bond market, especially U.S. Treasuries, to the late 1990's tech stock bubble is the theme du jour. Perhaps the best example of this was the August 18th, 2010 Wall Street Journal column by Wharton professor Jeremy Siegel and Jeremy Schwartz. This article has prompted vigorous rebuttals. The opposing arguments are either for a Japanese style deflation or

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-5401487573449256162010-08-08T18:24:00.000-07:002010-08-08T18:24:11.792-07:00

The classic structure to model a bond portfolio is to ladder the maturities. Favoring the possibility of inflation this is further refined here at this blog by keeping the maturities relatively short. But what if the outcome is not inflation but rather deflation? Barbells are one way to structure uncertainty. Barbells split bond maturities into 50% short and 50% long. A recent Wall Street Journal

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-38984371687645549082010-07-07T18:29:00.000-07:002010-07-09T14:03:22.389-07:00

Numerous economists and fixed income managers have been expecting inflation to appear in the form of higher interest rates. Yet inflation is nowhere to be seen at the moment. Jim Jubak, a popular financial web commentator on MSN Money had an article on this entitled For investors, the future is on hold. Investors will have to cope with the dilemna of investing appropriately while waiting. Again

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-58067847793256010042010-06-16T22:01:00.000-07:002010-06-16T22:06:43.728-07:00

Picture yourself in a dinghy. You are the investor. Underneath the water looms a giant shark ready to swallow your boat. The shark’s name is inflation. Your advisor sits on the life guard tower ready to rescue you. He says run from bonds because inflation will gobble up your boat. But what is offered instead? Suggestions to purchase preferred stock and floating rate bank participation loans open

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com1tag:blogger.com,1999:blog-3633102677648250926.post-85577086007389374212010-06-06T16:39:00.000-07:002010-06-07T16:06:40.122-07:00

When a mainstream publication like Money magazine makes the statement that there is a bubble in bonds note should be taken of this. In the June, 2010 issue there is an explanation of how to avoid falling prey to the current bond bubble. There are a number of suggestions for investor protection including high yield, preferred, and international bonds. One additional category is floating-rate bank

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-68579862801653819752010-05-08T08:13:00.000-07:002010-05-08T08:13:56.401-07:00

Lehmann's recent column in Forbes shows a change of tactics for the veteran income-focused maven. The worry now is not merely inflation but of significantly accelerating inflation. Whether hyper-inflation should transpire or not the best time to buy insurance is before a fire. Taking to heart his suggestions in the article (Read here) the strategy is to add adjustable, floating-rate preferred

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-19787044543499723612010-04-11T10:05:00.000-07:002010-04-11T10:05:30.642-07:00

From Bill Gross and his warning on bonds to numerous industry pundits and money managers there is an increasing chorus that a bear market in bonds may be in the offing. This recent CNBC article is just one of many of a growing crescendo. If and probably when inflation takes hold this may cause the strategy to shift for this portfolio by including other types of income investments. Stay tuned.

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-23402802917741665472010-03-13T09:22:00.000-08:002010-03-22T10:37:29.454-07:00

Bond funds are not generally recommended for the reasons specified previously (see January 12 post - Bond Funds Are Not Bonds). A bond etf has characteristics that make it doubly dicey. As Matt Hougan, managing director of ETF analytics for Index Publications says. "The corporate bond market is notoriously illiquid [and yet ETFs require liquidity] -- it's a square peg in a round hole." Although

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-57987100917574453362010-02-06T10:08:00.000-08:002010-02-06T12:40:53.219-08:00

The PPL bonds were sold on January 19, 2010 for a total 9.214% profit over 248 days including interest paid during holding, interest accrued (payable to seller), capital gains, and taking commissions into account as well. The intention is not to derive a profit per se but rather shorten the time horizon for the portfolio which now encompasses 2010 - 2015. There is a growing consensus that

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-7949304430895336282010-01-12T19:29:00.000-08:002010-01-12T19:44:35.195-08:00

One of the purposes of investing in individual bonds is to minimize volatility. Barring default or early redemption by the issuer bonds provide return of principal at par or face value (this may be more or less than the purchase in the secondary market) and a reliable stream of dividends. Bond funds lack the two principals of a fixed return and an end date as they are generally open ended. As

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-17768553499597434952009-12-15T07:15:00.000-08:002010-01-12T19:28:42.336-08:00

In a bid to slightly goose the 5 1/2 % portfolio average a junk bond was added. The case for high yield is made here. However the maturity is deliberately kept short and the investment quality is just below "investment" grade. A 2012 Tesoro 6.250% bond was added to the mix. The portfolio now consists of 11 separate bonds ranging from 2010 to 2016.

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-45964236062352912572009-11-15T09:46:00.001-08:002009-11-15T14:43:02.031-08:00

Taxable municipal bonds may seem like something of an oxymoron given the publicized after-tax benefits of this class of asset but these taxables can likewise have a place in an investor's bond portfolio. Yields are competitive with corporate bonds and they offer diversity and a significant measure of security as their default rate is historically very low. This lengthy Bond Investor article

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-11472800698549124002009-10-14T10:24:00.000-07:002009-10-15T12:47:03.534-07:00

Some corporate and government bonds/notes can be purchased without paying a commission. This ehow article explains this in more detail. Of course this only makes sense if these new issue bonds potentially fit the appropriate profile in terms of maturity, ratings, industry, coupon yield, and so on. One source which was used to purchase two bonds thus far for this portfolio were made based on the

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-80342006747287111522009-09-15T11:57:00.000-07:002009-09-15T15:33:52.337-07:00

The 2017 PPG bonds bought on May 15th were sold on September 1st for $105.15 per bond plus $234.90 accrued interest. This is a capital gain of 6.92% for 100 days holding period including commission. The money has been redeployed into a shorter maturity bond (see BONDSHELTER.XLS). Why? In the May 15th post concerning Joe Light's article in Money Magazine the suggestion is to create a minimum

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-55070455329910590372009-08-16T10:23:00.000-07:002009-08-20T07:35:46.556-07:00

Currently the agreement is that inflation is waiting to take off. Richard Lehmann, the Forbes bond columnist and inspiration for this blog, has recommended shortening maturities to 5 years given the near term risk of inflation. View video here. However consider that if deflation and a strong dollar should emerge as the dominant trends a portfolio such as this could play a stronger position in an

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-31197738121432116562009-07-20T17:34:00.000-07:002009-07-20T17:45:25.203-07:00

The accepted argument is that "over the long term" (say 10 years at a minimum) stocks consistently outperform bonds. There will be additional posts potentially refuting this proposition. However a case can be made that the riskiness of stocks is under-appreciated and that long-term planning and a reliance on the "average" long-term return may not be sufficiently real to justify an outsized bet.

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-69882947816132539112009-06-15T13:43:00.001-07:002009-06-17T08:16:06.585-07:00

Eventually any asset accumulation strategy will need to serve investors' ultimate purposes. Without having to liquidate an entire portfolio or surrender what may be a desired growth model the financial consultants at assetdedication.com have created a strategic and tactical approach to funding desired objectives. These financial planners have devised a technique for carefully using staged bond

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-73667089687992042672009-05-15T12:32:00.000-07:002009-08-20T07:36:49.140-07:00

Build your portfolio with individual bonds. The March, 2009 edition of the magazine features an article by Joe Light that makes the case for an all bond portfolio. The on-line article can be found HERE. Readers may want to track down the paper copy as it illustrates a laddered 10 bond portfolio and specific bond issues which the link does not. When a mainstream publication like Money Magazine

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-75521035527451186482009-04-19T11:48:00.000-07:002009-04-28T11:17:13.162-07:00

The title of the book by Hildy and Stan Richelson says it all. The authors make the case that investors should never invest money in the stock market or bond funds. In the matter of the former they argue, rather presciently given the first printing is 2002, that stocks seldom deliver the promised returns even accounting for a ten year holding period. The average investor buys and sells

Edward Kierklohttp://www.blogger.com/profile/07660578069192819786noreply@blogger.com0tag:blogger.com,1999:blog-3633102677648250926.post-44953675989288094802009-04-15T09:01:00.000-07:002009-05-06T13:05:21.995-07:00

With apologies to Sandra Lee of the Food Network this approach is sophisticated yet simple and elegant. Bonds risks include interest, inflation, default, downgrade, and reinvestment. BONDSHELTER.XLS is comprised of individual bonds which are laddered - meaning maturing at different times. Individual bonds when held to maturity do not have interest rate risk which bond funds do since the inventory

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