# Current fixed income investments



## Belguy (May 24, 2010)

All things taken into consideration, which fixed income investments do you currently hold in your portfolio and which fixed income investments, in your judgment, are looking best for 2016?


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## Moneytoo (Mar 26, 2014)

Cash in two checking accounts, cash in People's Trust 1.45% HISA, 4 corporate strip bonds in registered accounts (RRSPs and TFSA) that we plan to hold till maturity. 

Don't hold any bonds ETFs (short-term ones yield about the same as HISA, mid- and long-term are supposed to go down when interest rates go up - don't want to be stuck with them if/when it happens) Watching BMO Mid-Term US IG Corporate Bond Index ETF (ZIC), and considering buying a few more individual bonds (not necessarily strips) 

Was thinking to start a GIC ladder in 2016, but don't see the point to do so below 3%...

What about you?


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## Belguy (May 24, 2010)

I have some of my fixed income in the Renaissance High Interest Savings Account making next to nothing and hold the VSB etf out of concerns for rising interest rates which have been threatened for some time now but which have yet to materialize. XBB or a ladder of GIC' s might have been a better bet.

Currently, fixed income investments act as little more than a ballast in a diversified portfolio not to underplay the importance of that.


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## FI40 (Apr 6, 2015)

I have the majority of my fixed income holdings in VSC - Short term corporate bonds. Since the 40% allocation I currently have to fixed income adds up to more than the value of my RRSP and TFSA (i.e. I completely filled up my RRSP and TFSA with this VSC position), I had to put some fixed income into the taxable account. That's in a 1 year GIC earning 1.75%.

In my mind, the fixed income part of the portfolio should be low risk, and long term bonds seem risky to me at this point due to historically low interest rates. Once rates go up to more normal historic levels, I'd be happy to transition all fixed income holdings to a more blended short and long term bond ETF.


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## Moneytoo (Mar 26, 2014)

FI40 said:


> I have the majority of my fixed income holdings in VSC - Short term corporate bonds. Since the 40% allocation...


Just out of curiosity - is it also the username, Fixed Income 40%?


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## mrPPincer (Nov 21, 2011)

Or possibly Financial Independence by 40?


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## FI40 (Apr 6, 2015)

mrPPincer said:


> Or possibly Financial Independence by 40?


Bingo.


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## Moneytoo (Mar 26, 2014)

Dang - of course..


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## Ag Driver (Dec 13, 2012)

Deleted


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## mrPPincer (Nov 21, 2011)

FI40 said:


> Bingo.


Best of luck man!

(I became semi-retired at 40, but that was after an injury & a separation, no wife & no kids.. just through spending less than I made, though it was always low income.
Still spending less than I make, but I'd pick up more work ofc if I had family)

Just had a quick look at your blog and now I know that FIRE is an acronym for financial independence and early retirement .. I like it, I may use that


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## FI40 (Apr 6, 2015)

mrPPincer said:


> Best of luck man!
> 
> (I became semi-retired at 40, but that was after an injury & a separation, no wife & no kids.. just through spending less than I made, though it was always low income.
> Still spending less than I make, but I'd pick up more work ofc if I had family)
> ...


That's awesome. Yeah I want to FIRE with 3 kids eventually. I think I can do it before 40 but we'll see.

Yes, there is a whole world of FIRE out there on the internets, my blog is probably the smallest one that talks about it!


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## Belguy (May 24, 2010)

I think that my thread may have been hijacked.

Any other thoughts on fixed income investments?

Which fixed income investments are you currently holding in your portfolio?


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## OnlyMyOpinion (Sep 1, 2013)

Strip bonds, laddered, mainly corp but some provincial, investment grade (>BBB), hold to maturity.


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## agent99 (Sep 11, 2013)

Our FI is made up mainly of investment grade corporate bonds, convertible debentures and split preferreds. The latter two have known maturities, so are bond like. A good part of our corporate bond portfolio was bought early on. Don't see much that is attractive these days. Haven't worked out overall FI yield but probably in 4.5% range.


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## james4beach (Nov 15, 2012)

Belguy said:


> which fixed income investments do you currently hold in your portfolio


GIC ladder
Government of Canada bonds (individually held)
High interest savings account
XSH short term bond ETF
SCHO (for USD)



> which fixed income investments, in your judgment, are looking best for 2016?


I think the current dip in prices is a good buying opportunity for more short term bonds. See what I mean on these long term charts of SHY (US) and XSB (Canada)


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## GreatLaker (Mar 23, 2014)

> All things taken into consideration, which fixed income investments do you currently hold in your portfolio


About half in 5 year GIC ladders, 25% in Cdn bond universe (VAB) and 25% in short corporate (VSC). All in RRSP & LIRA.



> which fixed income investments, in your judgment, are looking best for 2016?


Have not thought about it, and try not to predict the market.


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## james4beach (Nov 15, 2012)

GreatLaker said:


> About half in 5 year GIC ladders, 25% in Cdn bond universe (VAB) and 25% in short corporate (VSC).


We think alike. I took a look, and VSC and XSH are virtually identical in composition and credit quality.


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## Belguy (May 24, 2010)

Thanks to everyone for your input. I will probably go the short corporate bond etf route.


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## FI40 (Apr 6, 2015)

Belguy said:


> Thanks to everyone for your input. I will probably go the short corporate bond etf route.


Cool. Sorry to hijack!


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## mrPPincer (Nov 21, 2011)

Belguy said:


> I think that my thread may have been hijacked.


^Apologies Belguy, think of it as a very brief side-track, nobody was intending to de-rail your thread 
___


Belguy said:


> Which fixed income investments are you currently holding in your portfolio?


^I'm currently chasing the non-registered HISA perpetual promos (getting 3% in the Tangerine deal until the end of the year).
I didn't mention it earlier in the thread because I knew that wasn't the type of stategy you were looking for, and as well I've already mentioned it elsewhere previously.
___


Belguy said:


> Any other thoughts on fixed income investments?


^I'm intrigued by the vanguard offering, VSC, after reading this thread, could be a good place-holder for FI in my TFSA in the next year while I wait for a decent correction in equity.


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## Belguy (May 24, 2010)

I am leaning towards VSC as well.


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## GreatLaker (Mar 23, 2014)

GreatLaker said:


> About half in 5 year GIC ladders, 25% in Cdn bond universe (VAB) and 25% in short corporate (VSC). All in RRSP & LIRA.





james4beach said:


> We think alike. I took a look, and VSC and XSH are virtually identical in composition and credit quality.


james, I remember your posts on XSH. I looked at XSH when I bought VSC, but don't recall why I chose VSC instead. XSH has some maple bonds, but I did not see anything on the iShares site identifying which bonds were maple and which are domestic issues - maybe you just have to look at the issuer.

I found choosing fixed income to be harder than equities. Getting close to retirement so am concerned about the duration of VAB/XBB if rates rise. VSC lessens the duration but the YTM is similar to VAB. With VSC holding only corporate bonds there is some increase in risk that may manifest itself if there is a prolonged economic recession, but with all investment grade bonds I think that risk is low.


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## FI40 (Apr 6, 2015)

GreatLaker said:


> With VSC holding only corporate bonds there is some increase in risk that may manifest itself if there is a prolonged economic recession, but with all investment grade bonds I think that risk is low.


+1, that was my reasoning too.


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## james4beach (Nov 15, 2012)

When I compare VSC and XSH, I like XSH better due to the longer track record. It also appears to have higher performance, by looking at stockcharts.com which does take into account distributions paid out. I'm seeing a slightly higher total return with XSH.

I'm not entirely familiar with the maple bond component. Maybe this is something I should understand better.

We should all be concerned about some growing turmoil in credit markets. In particular, low grade bonds (junk bonds) have been getting beat up really badly. Lenders are also tightening their lending in the corporate space. The hope is that high grade / investment grade corporate bonds would be immune to this, but only time will tell.

I'm certainly hoping that investment grade bonds (and A grade corps) stay immune to the credit market problems.


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## AltaRed (Jun 8, 2009)

There have been a number of articles/columns over the past year or two about concerns of liquidity in the corporate bond market. Generally speaking, institutions supposedly are holding less and less corporate bonds, with more of the corporate market held by ETFs, retail investors and the like. That could result in a major liquidity crisis if there was a rush to the exits. There has even been some government digging around wondering if the ETF market makers have the ability to withstand a run on corporate bond ETF units. Liquidity risk may thus be way more significant than the credit risk of the corporate issuer itself. No idea what the right answer is. Only know a crisis of this sort has not come to pass yet. But we know what happened in '08-09 with 'other' paper.

For that reason, I decided to dump ZCM about mid-summer. Issuer default is something I understand, not so much the potential for a liquidity crisis. The likes of VSC might be better. At least duration is short enough to unwind a crisis in 2-5 years.


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## Soils4Peace (Mar 14, 2010)

If I had a high FI allocation I would go with equal parts VAB, VSC, ZRR. 

At my 7% allocation it's just VAB with some scraps in TDB909. The other 93% is corporate enough.


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## james4beach (Nov 15, 2012)

AltaRed, I share your concern. Even during the 2008 financial crisis, there were high grade corporate bond ETFs that occasionally had as much as 4% discount to NAV.

Liquidly traded corp bond ETFs give the perception that the corp bond market is liquid. As you point out, liquidity is not that great. So there's a fantasy here with ETF liquidity that could play out very badly if there is heavy redemption.


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## FI40 (Apr 6, 2015)

AltaRed said:


> There have been a number of articles/columns over the past year or two about concerns of liquidity in the corporate bond market. Generally speaking, institutions supposedly are holding less and less corporate bonds, with more of the corporate market held by ETFs, retail investors and the like. That could result in a major liquidity crisis if there was a rush to the exits. There has even been some government digging around wondering if the ETF market makers have the ability to withstand a run on corporate bond ETF units. Liquidity risk may thus be way more significant than the credit risk of the corporate issuer itself. No idea what the right answer is. Only know a crisis of this sort has not come to pass yet. But we know what happened in '08-09 with 'other' paper.
> 
> For that reason, I decided to dump ZCM about mid-summer. Issuer default is something I understand, not so much the potential for a liquidity crisis. The likes of VSC might be better. At least duration is short enough to unwind a crisis in 2-5 years.


Well that makes me feel a bit worried. Would you be able to share some of those articles?


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## AltaRed (Jun 8, 2009)

They were just things that popped up from time to time earlier this year. I suggest if you google things like 'corporate bond liquidity' or 'are corporate bond etfs safe' or similar, you will get some links. Maybe even some links in a thread here somewhere or FWF if you do a search. I know that at the time I bailed from ZCM in my TFSA, I had read enough to feel uncomfortable. 

Indeed, what I actually did was to switch my ZCM holdings into REITs on the premise that:
1) Certain (rental) REITS may be no more volatile in market price than medium term corporate bonds
2) I would be getting paid more in straight income with (rental) REITS, i.e. an average 5-7% return vs about 3-3.5% with a medium term corporate bond ETF.

Recognizing REITs are equities and corporate bonds are different asset classes, but a well run conservative rental REIT like CAR.UN, BEI.UN, CSH.UN with relatively low payouts pay solid distributions.

Added: And recognizing REITs will behave a little differently than corporate bond ETFs when interest rates increase, i.e. a medium term corporate bond ETF will initially go down until its duration of 5-7 years recovers in value where a REIT "may" take longer depending on the ability of a REIT to raise rents and/or its aggregated average mortgage term. May be a wash.


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## FI40 (Apr 6, 2015)

This came up in my googling:

https://www.vanguardcanada.ca/advis...esting/bond-market-liquidity-tlor.htm?lang=en


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## AltaRed (Jun 8, 2009)

And also....

http://business.financialpost.com/i...rty-about-to-end-for-canadian-corporate-bonds

https://www.blackrock.com/ca/instit...ca.pdf?locale=en_CA&siteEntryPassthrough=true

http://business.financialpost.com/i...rty-about-to-end-for-canadian-corporate-bonds

It is up to each individual to assess the risk of a potential flood to the exits if bond yield curve took a sharp uptick in the 5-10 yr range. Those with a long term hold probably can ride it out provided they do not panic if/when there might be considerable volatility in corporate bond ETF pricing.


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## Jets99 (Aug 26, 2011)

My 40% of fixed income holdings breaks down like this:

*12%* in Steinbach Credit Union (holding long):
Regular Savings	less than $100,000	interest rate 1.60%
Regular Savings	$100,000 - $250,000	interest rate 1.65%

*10%* GICs averaging 2%

*1.5% *in CBO	ISHRS 1-5Y LADD CP BD ETF
*1.5%* in XBB	ISHARES CDN UNIV BOND ETF

*7%* in various HISA accounts for future moves, mostly better fixed income choices.

*8%* in a variety of laddered Preferreds yielding overall average 5.5%. Technically perhaps not fixed income but I will hold long term and likely continue to hold after resets. And will likely be adding considering levels they have dropped to.


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## FI40 (Apr 6, 2015)

AltaRed said:


> And also....
> 
> http://business.financialpost.com/i...rty-about-to-end-for-canadian-corporate-bonds
> 
> ...


Absolutely. Thanks for the links (although the first and third are the same).


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## mrPPincer (Nov 21, 2011)

^Thanks guys for your thoughts & links to the write-ups re high-grade corporate bond ETFs risks.

I don't think I'd have a problem holding them long term but my idea is to eventually get more equity into the HISA, so there's a chance I'd be holding short-term, in which case fluctuations due to interest rate change, or threats of, could hurt.

I might stick with the non-registered HISA promos in the new year after all. 
At least HISAs are guaranteed to not lose money, and they're currently paying similar or better than what high-quality bonds are paying.

Best maybe to not risk getting stuck with falling bond prices just when it's time to scoop up some equity in the TFSA.
I'll have a good chunk of HISA room in 2016 due to moving some out this year, but that doesn't mean it all has to go in on January 1st; I'll try to be patient and wait for the deals, & maybe do in-kind transfers on low days.

It's good to mull this stuff over before-hand; so thanks to Belguy for the timely start of this thread


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