Bonds

Municipal Bond Pricing Website

Individuals own ~ 72% of all U.S. municipal debt; individual ownership exceeds any other financial asset class except for U.S. stocks (source: WSJ, June 2014). The website Electronic Municipal Market Access (EMMA), allows investors to compare trade histories of bonds with similar characteristics.

 

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Frontier Funds

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TIPS

S&P Small Cap 600 vs. Russell 2000

There is no standard definition of a small cap stock. The methodology used deciding what stocks are included in a small cap index can result in significant return differences. As of the middle of 2014, The S&P SmallCap outperformed the Russell 2000 for 12 of the last 19 years. The Russell 2000 has been tracking small caps for 30+ years; the S&P SmallCap 600 has been around for 19+ years.

S&P SmallCap 600 vs. Russell 2000

Fees

According to a May 2014 WSJ article, after 30 years, a $200,000 mutual fund investment (8% gross annualized return) grows to $1.4 million after paying the typical mutual fund annual fee of 1.25%. This was the average expense ratio for mutual funds for 2013 (source: Morningstar). The same investment grew to $2.0 million if annualized returns were the same but a 0.04% annual expense ratio (source: ETF.com).

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Leasing vs. Buying a Car

Fundamentally Weighted Bond Index ETFs

A small number of ETFs offer “fundamental” indexing. Virtually all bond indexes assign weights based upon outstanding debt. With fundamental bond indexing, securities are weighted based on measures of the issuers’ financial strength—not the market value of outstanding bonds. Advocates of fundamental bond indexing point out a traditional index (or ETF) could end up overweighting heavy indebted companies, thereby resulting in higher credit risk to investors.

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Ultra-Short Bond Funds

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Charlie Munger

Closed-End Bond Funds

Closed-End  Bond  Funds

Closed-end funds (CEFs) trade on exchanges and almost always trade at a NAV discount or premium. For example, at the end of September 2012, 70% of CEFs traded at premiums; a year later, 89% traded at discounts (67% traded at discounts > 5%). One risk often not considered is the fact may CEFs are leveraged, which can magnify yields, losses, and gains. 

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American Funds

Bill Gross and PIMCO

Despite the beating bond funds suffered in June of 2013, bond investors have still done well over the past 3-10 years, particularly those in the PIMCO Total Return Fund (the company’s flagship mutual fund) and the PIMCO Investment Grade Corporate Bond Fund. In 2010, Bill Gross, PIMCO’s chief money manager, was named best mutual fund manager for the decade by Morningstar.

 

Annualized Returns Through June 24, 2013

 

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Target-Date Funds

Best Period for Bonds

In 1948, the Federal discount rate was 1.3%; by 1981, it was 13.4%. During this extensive period (34 years) of rising interest rates, the annualized returns for bonds was 3.83% (4.5% for 3-month T-bills), 11.00% for the S&P 500. Bond returns are based on total return figures for intermediate-term U.S. government bonds from 1948-1975 and the Barclays Aggregate Bond Index returns from 1976-2011.

 

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Commission-Free ETFs

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