OK, I am all for simplicity and if your way works, then I am all for it.That seems like a more complex and difficult to understand way to get off the perpetually rolling ladder that is the fund (if that's what it is intended to do).If you want to spend in years 6-10, just buy a 5.5 year zero 5.5 years before the spending for the amount of spending you anticipate. So maybe buy a 5.5 year now with 20% of amount the fund, and in subsequent years do similar (25% next year, 33% the year after, then 50% then 100%) [1/years of spending remaining obviously].Sure, if you want to spend all the money in year 5.5, buy the single bond that matures then. You're matching your cash flow plans and the duration of the fund.
However, if I want to spend a portion of the money in each of the next 10 years, not sure how I'm gonna do that in years 6-10 after the 5.5 year has matured? I'd want to buy bonds maturing in each year, duration will initially be the same. It diverges after because that's now what I want. I'd like to do this by spending the proceeds of each bond that the fund holds as it matures, in order do so I buy the same bonds and let them mature.
Or if you have $100k in BND today (duration 6 years), and you want $20k in spending 6 years from now, you could sell $16,090 of BND and buy US Treasury STRIP 0% 08/15/2030 912833XY1. It's price is 80.45200, so it only takes $16,090 now to get $20k on 08/15/2030. Of course, that $4000 discount will be taxed along the way as if you were receiving dividends so that need to be kept in mind.
I am not sure why you think it is a problem to simply sell 100% of the hypothetical fund that holds 1-10 year treasuries and buy those same treasuries that mature over the next 10 years, if my plan is to spend about 10% of the money in each of those 10 years?
However, I don't know of any such hypothetical fund. I mean if I look at something like iShares 7-10 Year Treasury Bond ETF, and needed spending in 7-10 years. I wouldn't know how to do it. Do I buy 25% each of the 7, 8, 9 and 10 year maturity?
As an approximation, perhaps you can. However, the duration for that fund is only 7.25 yrs. So to me, the spending in year 9 and 10 don't exactly match. Which may or may not matter in real life and probably only matters in the extreme (super low or high rates). Still, it holds 36% of 5-7 year maturities and 74% of 7-10 year. So it's not readily clear to me what to do.
How about Vanguard Int Term Treasury VSIGX which follows the Bloomberg US Treasury 3-10 Year Bond Index? It holds 4% 1-3 year, 54% 3-5 year, 12% 5-7 year and 30% 7-10 year. What do you buy?
For me it's easier to say it has a 5 year duration and buy zero coupons such that the weighted average is 5 years (if you wanted to separate the fund and do it all at once) or buy a zero coupon five years in advance of the spending and do the same the next year.
Statistics: Posted by typical.investor — Wed Sep 04, 2024 8:53 pm — Replies 68 — Views 7827