# Fixed income investments



## MrMatt (Dec 21, 2011)

What are people doing with their Fixed income portion these days?
I've got lots of dividends etc that should be swept up into something, what are your thoughts on smaller ($500-2k) investments inside registered plans?

I'm really just wondering what is "best", which I think boils down to low fees at this point.


----------



## Spudd (Oct 11, 2011)

For those little sweep-up amounts, my suggestion is use a mutual fund HISA or money market. No fees to buy/sell and they pay a little. Once the little amounts have added up to something bigger, it can be moved to its final destination, whatever that may be.


----------



## like_to_retire (Oct 9, 2016)

MrMatt said:


> What are people doing with their Fixed income portion these days?



Same as I've always done with the cash that is continually thrown off my portfolio. 

I add to my 5 year GIC ladders if their asset allocation is low, or I add to my equities if their allocation is low.

With respect to the equities, since I maintain an equal sector percentage system, then I add to the stocks that are the lowest in the lowest sector.

Simple stuff. Buy low! 

ltr


----------



## Jimmy (May 19, 2017)

ZST-L BMO ultra st bond etf yields about .9 % after fees. It is accumulating so no div.


----------



## jargey3000 (Jan 25, 2011)

_ZST-L BMO ultra st bond etf yields about .9 % after fees. It is accumulating so no div. _

what are the best HISA rates these days?


----------



## agent99 (Sep 11, 2013)

I was using the BMO HISAs in our registered accounts, but the interest rates are so low now, I don't bother. Cash is fine! When it builds to a reasonable amount, a bond or GIC may mature and I just add it to those funds when buying new bond/GIC or Pfd.

At one time, I would buy additional units in a monthly dividend mutual fund (no fees). But these days, I am avoiding additional equity.

Mostly we are only talking about pennies anyway


----------



## james4beach (Nov 15, 2012)

MrMatt said:


> What are people doing with their Fixed income portion these days?
> I've got lots of dividends etc that should be swept up into something, what are your thoughts on smaller ($500-2k) investments inside registered plans?


Curious, why are you not doing a DRIP inside the registered accounts? That would prevent cash from building up, avoiding cash drag.

Regarding your question:
If you're talking about your actual fixed income allocation (e.g. the 40% in 60/40), then assuming you are a long term investor, that should be in something like XBB, VAB, ZAG which are the go-to bond funds at rock bottom fees. The fixed income inside my RRSP and TFSA is 100% XBB.

If you just mean residual cash sitting around, then I think you should ask: what is the eventual plan for this cash? That will affect your choice.

For me, any residual cash in my registered plans will get invested into one of my main investment assets (stocks, bonds, gold) so it really doesn't matter if a few hundred bucks cash sits around for a few months, until I'm able to reinvest or rebalance.


----------



## AltaRed (Jun 8, 2009)

I would suggest cash amounts of <5% of account value really can't add any value to the account, whether 0.2% or 1% interest. Leave it as cash or just use the brokerage's HISA to make you feel better collecting a few coins of interest each month.


----------



## james4beach (Nov 15, 2012)

AltaRed said:


> I would suggest cash amounts of <5% of account value really can't add any value to the account, whether 0.2% or 1% interest. Leave it as cash or just use the brokerage's HISA to make you feel better collecting a few coins of interest each month.


Another trick with stray cash is to use mutual funds like the e-series index funds, or other mutual funds. That would let you buy even small amounts. For example if you choose a reasonable 60/40 balanced fund (for this purpose I've used BMO Monthly Income D Series) this would probably be similar to what most couch potato investors do with ETFs.

So perhaps you end up with a few hundred $ in the mutual fund. Later, when it's time for rebalancing, or you have larger $ amounts, you can shuffle it back into ETFs or whatever you prefer.

Just make sure you don't sell within the penalty period for early redemption.


----------



## AltaRed (Jun 8, 2009)

james4beach said:


> Another trick with stray cash is to use mutual funds like the e-series index funds, or other mutual funds. That would let you buy even small amounts. For example if you choose a reasonable 60/40 balanced fund (for this purpose I've used BMO Monthly Income D Series) this would probably be similar to what most couch potato investors do with ETFs.
> 
> So perhaps you end up with a few hundred $ in the mutual fund. Later, when it's time for rebalancing, or you have larger $ amounts, you can shuffle it back into ETFs or whatever you prefer.
> 
> Just make sure you don't sell within the penalty period for early redemption.


Fair enough if the plan is to put those funds to work in the equity market eventually (albeit why not DRIP in that case?). I had the impression the question was focused on Fixed Income options.


----------



## james4beach (Nov 15, 2012)

AltaRed said:


> Fair enough if the plan is to put those funds to work in the equity market eventually (albeit why not DRIP in that case?). I had the impression the question was focused on Fixed Income options.


I was confused by the original question, since he's talking about cash dividend payments. I would think the easiest solution is to DRIP them so that any distributions stay inside the original investments.


----------



## MrMatt (Dec 21, 2011)

Well not everything is DRIP able.
I am a huge fan of efunds, I think I'll see what the HISA options are at BMO &BNS.
I agree that for small amounts, it's no big deal, but once you get a few $k it's a few bucks a year, and why leave money on the table?


----------



## AltaRed (Jun 8, 2009)

MrMatt said:


> Well not everything is DRIP able.
> I am a huge fan of efunds, I think I'll see what the HISA options are at BMO &BNS.
> I agree that for small amounts, it's no big deal, but once you get a few $k it's a few bucks a year, and why leave money on the table?


BMO is AAT770 (CAD) and BNS is DYN 5000 (CAD) Both likely at 0.2-0.25%

Other options include the CIBC MMFs with slightly better rates (maybe solely due to duration lag). Example: I use CIB483 for USD. All of these have minimum initial investments of about the $1k range (I think). Using these versus 'nothing' is simply a 'feel good' exercise.

Added: Just checked BMO IL. Under Trading Tab | Bonds & GICs | High Interest offerings.... ATT770 is 0.25% and initial minimum is $1k


----------



## MrMatt (Dec 21, 2011)

AltaRed said:


> BMO is AAT770 (CAD) and BNS is DYN 5000 (CAD) Both likely at 0.2-0.25%
> 
> Other options include the CIBC MMFs with slightly better rates (maybe solely due to duration lag). Example: I use CIB483 for USD. All of these have minimum initial investments of about the $1k range (I think). Using these versus 'nothing' is simply a 'feel good' exercise.


Yes it is. I'll likely let it build up a bit higher and just shuffle into VAB..
Comparing VAB,XBB and ZAG, why does VAB seem to have slightly higher returns?


----------



## AltaRed (Jun 8, 2009)

You would have to look at the specific index each ETF uses and thus the underlying mix of holdings (gov't vs corporate, credit rating mix in corporate bonds, and duration)..

From 2018 Moneysense Comparison VAB has 80% gov't bonds vs 70% for the others. With the Mar 2020 dive in corporate bonds, XBB and ZAG would now be under performing. Longer term though, the ETFs with slightly higher corporate bonds would normally yield higher, albeit with slightly higher risk..Moneysense 2019 and Moneysense 2020 seem to like both ZAG and VAB.


----------



## agent99 (Sep 11, 2013)

MrMatt said:


> Yes it is. I'll likely let it build up a bit higher and just shuffle into VAB..
> Comparing VAB,XBB and ZAG, why does VAB seem to have slightly higher returns?


Be careful of what you referred to as "returns". Those funds are exchange traded and Total Returns could be anything, including negative.


----------



## james4beach (Nov 15, 2012)

MrMatt said:


> Yes it is. I'll likely let it build up a bit higher and just shuffle into VAB..
> Comparing VAB,XBB and ZAG, why does VAB seem to have slightly higher returns?


You've got to look at total returns (same as with stocks). Morningstar is a good place to look because it provides tables of returns assuming reinvestment of all distributions = Total Return.

The 5 year annual returns according to Morningstar are
VAB 3.97%
ZAG 4.03%
XBB 4.05%

So they're all about the same.

And 10 year returns for the ETFs that go that far back:
ZAG 4.33%
XBB 4.38%


----------



## AltaRed (Jun 8, 2009)

These numbers are also skewed by the collapse in the yield curve this year, specifically since February. Just look at the VAB YTD total return of 7.2% which is predominately capital appreciation (12 trailing yield of 2.32%). If the OP intends to sweep cash into this long term, then all is well. If it is meant to be a temporary hold pending re-investment in equities in a year or so, VAB could very well have a negative total return by this time next year.

Anyone buying bond ETFs at the current time is likely buying high. I say likely because who knows how low the yield curve can actually go... to zero?


----------



## like_to_retire (Oct 9, 2016)

AltaRed said:


> Anyone buying bond ETFs at the current time is likely buying high. I say likely because who knows how low the yield curve can actually go... to zero?


Couldn't agree more.

So much talk about this. Crazy talk.

ltr


----------



## james4beach (Nov 15, 2012)

I would only buy the bond funds if the intention is a long term (minimum 10 or 20 year) holding. Whether the price falls in the next few months or years should not be a concern.

If it's a long term time horizon, you should put the cash into the bond fund without thinking too hard about the timing. It's just about impossible to time these things. Bond funds _will_ be volatile, and will have negative returns over short periods. But over the long term, funds like VAB are virtually guaranteed to beat cash returns.

It's no different than stocks. If you're supposed to have a stock allocation, then you should deploy your money into stocks as soon as you have the money. This isn't to get a positive return in the next months, it's to benefit from the 20+ year performance.

Same for bonds. If you're supposed to have a bond allocation, deploy the cash into bonds without trying to time your entry.


----------



## james4beach (Nov 15, 2012)

AltaRed said:


> Anyone buying bond ETFs at the current time is likely buying high. I say likely because who knows how low the yield curve can actually go... to zero?


We don't know if it's too high. Bond funds will continue performing well from today going forward, in any of these scenarios:

(a) interest rates stay low and don't do much from here
(b) interest rates _very gradually_ creep higher
(c) interest rates stay low and the yield curve steepens
(d) interest rates fall further, to zero or negative

Everyone focuses on case (d) but that is not the only situation in which bond funds do well. Even if interest rates gradually move higher, bond funds will do well. And people don't seem to understand that the yield curve steepening (c) would be tremendously good for bond funds. They start rolling every maturing bonds into progressively better yields.

For all we know, this could be an excellent entry point into VAB. This could even be the best entry point for the rest of your life... we have no idea.


----------



## Topo (Aug 31, 2019)

MrMatt said:


> Well not everything is DRIP able.


Some banks (such as BNS) allow synthetic DRIPs, where you can set them up so that the brokerage will automatically buy additional (whole) shares when the dividends come in. Not a bad option for registered accounts.


----------



## Topo (Aug 31, 2019)

james4beach said:


> I would only buy the bond funds if the intention is a long term (minimum 10 or 20 year) holding. Whether the price falls in the next few months or years should not be a concern.
> 
> If it's a long term time horizon, you should put the cash into the bond fund without thinking too hard about the timing. It's just about impossible to time these things. Bond funds _will_ be volatile, and will have negative returns over short periods. But over the long term, funds like VAB are virtually guaranteed to beat cash returns.
> 
> ...


I agree with your comments. It's the totality of the portfolio that matters. If stocks go down for the next decade, an investor is supposed to rebalance into stocks, happy to buy low and setting themselves up for the next "glorious" decade of returns (think about buying stocks in March 2003 or 2009). Same goes for bonds. The investor is supposed to rebalance into them and buy more when interest rates rise (and prices fall) until prices reverse course. Unless we never see 0 interest rates again, they will be "buying low and selling high." Isn't that all we strive for?


----------



## AltaRed (Jun 8, 2009)

james4beach said:


> We don't know if it's too high. Bond funds will continue performing well from today going forward, in any of these scenarios:
> 
> (a) interest rates stay low and don't do much from here
> (b) interest rates _very gradually_ creep higher
> ...


In the case of a), there is no return, perhaps 1-2% yield
In the case of b), likely the only real sweet spot...gradual rising of the yield curve
In the case of c), headwinds on VAB total return
In the case of d), a short term boost to total return

One just has to look at the price history of VAB to see that it is priced near all time highs. This is okay if this is a long term hold of duration or longer. We don't know what the OP's intent is. If it is only to hold fixed income for a short period of time such as months, I'd suggest there is more than a 50% probability of a negative total return.

The OP needs to clarify intent...which is what I am attempting to address... not the merits of bond ETF investing in and of itself.


----------



## :) lonewolf (Feb 9, 2020)

Bloomergs barclays U.S aggregate Corporate duration is @ a record 8.6 Bond duration is a measure of how sensitive bond prices are to interest rates. Never before has it been so dangerous to hold bonds since they are now most sensitive to a rise in interest rates.


----------



## MrMatt (Dec 21, 2011)

AltaRed said:


> The OP needs to clarify intent...which is what I am attempting to address... not the merits of bond ETF investing in and of itself.


I'm getting older and want to start increasing my fixed income position. Using dividends is an "easy" way to do that, instead of going and explicitly rebalancing.


----------



## like_to_retire (Oct 9, 2016)

MrMatt said:


> I'm getting older and want to start increasing my fixed income position. Using dividends is an "easy" way to do that,


But dividends aren't fixed income.

ltr


----------



## AltaRed (Jun 8, 2009)

MrMatt said:


> I'm getting older and want to start increasing my fixed income position. Using dividends is an "easy" way to do that, instead of going and explicitly rebalancing.


As LTR says, dividend are not fixed income. They are simply investment income off an equity asset which is volatile. But I don't think you actually mean that literally. I am interpreting your statement to mean that using investment income you receive, e.g. dividends, to exclusively re-invest into fixed income is a way to increase your FI allocation.

If you truly want to increase your fixed income assets, and this is a long term objective of 10 years or more, consider buying a bond ETF like VAB in $2k tranches to keep commission costs down, or start building a 5 year GIC ladder, $5k at a time. Invest in a new 5 year GIC every time you have $5k available (I mention $5k because that is normally the minimum investment for GICs at a discount brokerage). After 5 years of investing in new GICs, you will have a fully operation GIC ladder and the original GIC you invested in 5 years ago is maturing and ready for re-investment in a new 5 year GIC. 

If you are looking short term, less than 10 years, then a short term bond ETF or a 5 year GIC ladder is likely your best options. My fixed income allocation is about 50% short term bond/GIC ladder (registered) and 50% HISA mostly at EQ Bank (non-registered). At this point in time, my bond/GIC ladder is yielding 3% and my HISA 2%, but the yield on my bond/GIC ladder will decline as bonds/GICs mature and have to be re-invested at lower rates. EQ Bank is likely to lower its HISA rate pretty soon (all the online banks/CUs are doing that).


----------



## hfp75 (Mar 15, 2018)

My bond allocation is broken down 50/50 between long and short - CLF and ZFL/ZPL. 

I would agree that holding long bonds right now is a risk, if rates rise, but I don't feel the economy is stable enough to even contemplate such a move. Thus I feel holding long bonds is reasonable.

Depending on COVID this fall and economic growth, I might marginalize the duration, but I also think that things could get worse & if they do there will be either negative rates or more QE. 

Our 30+ year trend is lower rates and until someone can give a compelling position why that will change, I have a level of comfort believing that while rates may rise a bit, overall our society is addicted to and demands ever lower rates.

If you think that the duration on CLF is 2.5 yrs and ZFL is 20, I am sitting on an ~11 yr average duration.... VAB is probably 8-9 yr duration so my exposure is, in reality, not much different.

If I felt that inflation were going to arrive in the short term 6 mo or less I would probably sell my long bonds......

Also, I might be swayed to decrease my duration if the long end of the curve were to start steepening.... I can lengthen my duration later....

FYI, if you have a 5 yr GIC ladder running, you are 'basically' the same as CLF..... only differences being that my unit values do fluctuate, but mine offers better liquidity if needed. I'd also argue that smaller CUs that offer good rates that people are consuming have a mild risk of insolvency, and that risk increases in provinces that have inflated RE values.

You cant tell me that most of these 2% HISA and 2%+ GICs are not simply supporting MBS. Stable today but way different risk factors than short term govt bonds.... at least the govt can print me my money. Its a 0.5% sacrafice for peace of mind right now in tumultuous times.

* Having said all that I am using Hubert for their HISA @ 2% for a short duration cash position ($45-50k). I am watchful of markets though.


----------



## MrMatt (Dec 21, 2011)

like_to_retire said:


> But dividends aren't fixed income.
> 
> ltr


I know. I'm taking the dividends and investing them in fixed income.

"What are people doing with their Fixed income portion these days?
I've got lots of dividends etc that should be swept up into something,..."

Maybe that's not the clearest wording, but what I'm thinking is that if I take my dividends, and put them into fixed income, that's a simple way to slowly increase my fixed income allocation, without engaging in an explicit re-balancing exercise.


----------



## like_to_retire (Oct 9, 2016)

OK, I misunderstood. As long as you don't need the income from the dividends it's a good way to get cash to increase your allocation to fixed income.

ltr


----------



## Topo (Aug 31, 2019)

MrMatt said:


> I know. I'm taking the dividends and investing them in fixed income.
> 
> "What are people doing with their Fixed income portion these days?
> I've got lots of dividends etc that should be swept up into something,..."
> ...


If I were to do it and the dividends were small amounts (less than a couple of thousand dollars), I would sweep them into a low fee bond mutual fund (e-series for example). Larger amounts, I would buy a government (or broad) bond fund with it. You may however be able to get a better yield with a GIC ladder if you are willing to set one up and maintain it.


----------



## james4beach (Nov 15, 2012)

MrMatt said:


> I know. I'm taking the dividends and investing them in fixed income.
> . . .
> Maybe that's not the clearest wording, but what I'm thinking is that if I take my dividends, and put them into fixed income, that's a simple way to slowly increase my fixed income allocation, without engaging in an explicit re-balancing exercise.


Now I understand. You should use a low fee bond mutual fund (like e-series TDB909) and check that it has a small enough minimum purchase $ amount for your needs. I think TDB909 allows purchases as small as $100.

I've done this in the past as well and it's very convenient. It means that even if a few dollars appears, you can immediately roll it into your bond allocation without worrying about trade fees. Make sure you check the 'automatically reinvest' box on the mutual fund, of course.

Then, once the accumulated size becomes large enough, sell the mutual fund units and move the money into a bond ETF like VAB, XBB. In the mean time, it's perfectly fine holding the mutual fund.

If you use e-series, just make sure you hold a minium of 30 days to not get dinged with a minimum holding / early redemption penalty.


----------



## MrMatt (Dec 21, 2011)

james4beach said:


> Now I understand. You should use a low fee bond mutual fund (like e-series TDB909) and check that it has a small enough minimum purchase $ amount for your needs. I think TDB909 allows purchases as small as $100.
> 
> I've done this in the past as well and it's very convenient. It means that even if a few dollars appears, you can immediately roll it into your bond allocation without worrying about trade fees. Make sure you check the 'automatically reinvest' box on the mutual fund, of course.
> 
> ...


Unfortunately my registered investments aren't at TD today.


----------



## james4beach (Nov 15, 2012)

MrMatt said:


> Unfortunately my registered investments aren't at TD today.


You could use other bond mutual funds too... which brokerage? People here would know what's available.


----------



## MrMatt (Dec 21, 2011)

james4beach said:


> You could use other bond mutual funds too... which brokerage? People here would know what's available.


BNS & BMO


----------



## AltaRed (Jun 8, 2009)

IIRC, TD re-structured their TD e-funds to be available at many discount brokerages. It is just a question of whether BNS or BMO actually carry them. I've never 'tested' a potential purchase at either brokerage.


----------



## AbleEng (May 9, 2021)

Fascinating discussion. Just what I was thinking about. Sincere thanks to you all.


----------



## Numbersman61 (Jan 26, 2015)

Although rate reset preferred shares are not recognized as fixed income securities , I have invested in them instead of bonds. The allocation of the current value of my financial assets is: 10% high interest savings, 36% rate reset preferred shares, 54% equities. One has to be careful of the rate reset dates; in my case, most of these shares reset in 2023 and 2024.


----------



## hfp75 (Mar 15, 2018)

Well from last summer 15 months ago, I have cut my duration but am still holding bonds... my allocation is :

40% clf
40% zag/hbb
20% zpr/hyi/xhy - depending on acct.

As long as Powell is doing his QE and buying HY I am ok with this allocation. I watch him closely for the time to depart from HY - it is coming close...

If HY doesnt have a price floor by the Fed there could be losses there IMHO. So, when I feel tapering is close - bye bye HY.... into zst..... its super short and safe.

I dont know what will happen with all this reflation, inflation, deflation. Lots of good economists are making great points in all directions. I dont need to lose as Powell cuts out 120+ billion from the economy.

The overnight rate will stay as is until after the QE has been discontinued.

If the Fed is not buying HY - holding what they have, but not buying, will the risk premium return and will that rising rate drop NAV ?

Thoughts ?


----------



## Covariance (Oct 20, 2020)

hfp75 said:


> Well from last summer 15 months ago, I have cut my duration but am still holding bonds... my allocation is :
> 
> 40% clf
> 40% zag/hbb
> ...


I see it as you do and monitor accordingly.


----------

