To Buy or Not to Buy?

Investing Strategies Bonds & Fixed Income Investments
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The yields currently offered in the bond market aren’t those of 20 years ago when it was possible to buy a solid double-BB and get a YTM of 12% or better, and sometimes as much as 28%. (Buy Xerox’s 8’s of '27 at 34, have the bond go to par a couple of years later, and then get called in '17. That was easy, serious money.)

Today, with the Fed-Treasury cartel wanting to keep the stock price bubble fully inflated, bond yields have taken a hit. If an investor wants even a lowly 6% from bonds, he/she has to go pretty far out on the yield-curve or dangerously low on the credit-quality scale.

My thought is this. If one buys a bond that matures after one’s life has likely ended, the bond will provide a current income stream to its present owner, but not the return of capital. One’s heirs will collect that nominal capital whose purchasing-power will have been eroded by inflation, which is probably running closer to 6%, not the Fed’s putative 2% target. Thus, if a 30-year bond is bought today, par will have just 17% of the purchasing power it has today. (The impact of inflation is the reciprocal of the inflation rate raised by a power equal to the holding period.)

The math of inflation aside, spending present purchasing-power to buy a modest income stream isn’t the best of ideas. It’s trading elephants for rabbits, at least from the point of one’s heirs. OTOH, rolling T-bills, while reasonable safe, also doesn’t offer much a gain even with their exemption from state taxes. So, what to do?

Covered call ETFs have been attracting a lot of attention. But like most of Wall Street’s gimmicks, the persons making the best money are the sellers of them, not the buyers, as can be seen when total returns are charted, not just the fat yields. (There are some exceptions. But for the most part, share price erosion outweighs the divs received, and better money could have been made by trading the underlying directly instead of a derivative of the underlying.)

I like the bond market. For 20 years, it was more than kind to me, and my engagement with it is the reason that having a more than sufficient retirement income isn’t a worry, and I’m still running a sizable bond portfolio that keeps getting whittled down by calls and maturities. So, the question I ask myself is, “Do I step away from bonds, or do I re-engage?” Trolling the bond offering lists shares a lot with trolling the stock offering lists. But it’s also a far easier, buy-and-forget game that deserves more of my attention and capital than I’m currently giving to it.

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no pun intended, I’m sure

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Your gift for earning outsized returns from bonds is far superior to the meager bond returns that I have received. That said, I would like to share my approach with you, since your key concern seems to be inflation protected spending, and you rightly recognize that relying on yields alone is risky in today’s market. That said, this is not investing advice.

My approach is this: a fairly well-diversified investment-grade bond ladder, with each year’s maturing principal rungs a bit larger than the prior year’s, based on an inflation estimate. So say I expect to need $5,000 per month to cover 2026’s costs. I’ll have $60,000 in face value of investment grade bonds projected to mature in 2026. Then, if I’m using a 6% inflation projection, I’d have $64,000 projected to mature in 2027. (6% inflation would make the target $63,600, but since most bonds are sold in $1,000 increments, I round up….)

The bonds mature, and as they do, they convert to cash, shrinking the length of the bond ladder. Future rungs on the bond ladder are filled from the bond interest payments, stock dividends, rolled options premiums, any unspent funds from the previously maturing bonds, and ‘gain harvesting’ from other investments.

My targeted bond ladder length is 5 years, with a +/- 2 years flexibility window that recognizes that I need reasonable returns from elsewhere in the portfolio to keep the bond ladder fed without jeopardizing longer term prospects. Thanks to outsized past investment returns elsewhere in the portfolio, my bond ladder currently stretches just past 7 years in length. I am still working and not yet living off my bond ladder, but I did harvest maturing bonds from it to help pay for solar panels for my house earlier this year.

Investment returns are never guaranteed, though, even from investment grade bonds. That’s why:

  • I plan to maintain an emergency fund of at least 3 months of expenses in cash,
  • the typical spending plan calls for only spending the maturing principal,
  • I use inflation projections higher than the 3% often quoted historical long-term rate,
  • there’s flexibility in the length of the ladder, and
  • I have other cash generating investments like dividend stocks and a theta-generating focused options strategy.

Between those factors, a lot has to go wrong, for a long time, before things get unbearable. And yes, I am exposed to an end-of-civilization event, but I figure if that comes to pass, I’ll probably be facing bigger problems.

Aside from the investment part, a key is keeping core costs down. That is a big part of why I bought the solar panels. Electricity prices have been spiking lately, and as long as the AI boom demands more electricity, that trend may continue. Those panels were sized to cover roughly 100% of my home’s usage, plus local driving for two plug-in hybrid cars. With the federal tax incentive, I am estimating a 6% 30-year ROI on the panels, assuming electricity rates increase by 3% annualized. (The panels are warrantied for 30 years.)

Importantly, though, that ROI comes in the form of lowered expenses. Between (local) gas for two cars and electricity for the house, it’s a big chunk of money no longer needed to cover costs, without affecting our lifestyle.

Regards,

-Chuck

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Chuck,

Much thanks for sharing your approach for using bonds to provide living expenses. Others might benefit from hearing what you’ve done, though I doubt it, because your approach requires huge amounts of capital, far more than the “average investor” has. You’ve seen the numbers, right? Something like half of all households don’t have enough savings to buy a new set of tires, much less replace a roof, and the average portfolio of those retiring is a tiny $40k or so.

Totally agree with you that “investing” doesn’t mean buying stocks. Investing means making decisions --financial and otherwise-- that have a reasonable likelihood of providing a benefit in excess of their costs/risks/effort. E.g., the most obvious --and most underappreciated-- investments are a sensible diet and daily exercise, not just because healthy people have fewer medical expenses than their neglectful peers, but because they are also more likely to make better decisions about all aspects of their life.

As far as laddering bonds go, I think it is an expensive waste of time and money. Where to buy on the yield-curve and on the credit-quality scale depends on the opportunities the market is offering, not on some simplistic plan based on convenience and predictability.

Also, I think you have a naïve view of “investment grade”. There’s a world of diff between a triple-AAA credit and a triple-BBB, though both are considered “invest-grade”, and within the triple-BBBs, there’s a world of diff between Baa1/BBB+ and Baa3/BBB-, the latter of which really are just junk bonds, pretending to be credit-worthy credits. In short, though Baa3/BBB- is considered ‘invest-grade’ and a double BB is considered ‘spec-grade’, the far less riskier, far more profitable bet, is to buy the double-BB, which isn’t pretending to be something it clearly isn’t

The approach to bond investing I use borrows some ideas from Ben Graham and divides the bond world into three tranches: ‘defensive’, ‘enterprising’, and ‘speculative’, where I allocate bets among them using a 3:2:1 scheme (or similar) such that I gain exposure to higher-yielding credits but not to the extent that my portfolio is likely to suffer a series of unrecoverable events. In other words, if some of my holdings aren’t in Ch 11, I’m being far too timid. If lot of them are, then I’m being reckless and need to up my due-diligence and decrease my position sizes.

Said another way, a would-be investor in bonds is nothing but a comparison shopper, trying to answer this question, “Am I being paid enough for the risks I am assuming?”, where the two most obvious risks are default and inflation. In the case of corporate bonds, the research question is that of estimating whether better money --on a risk-adjusted basis-- would be made from buying the debt or buying the common, not that I haven’t done things like going long the debt and short the common.

Note: ‘Call risk’ isn’t a “risk” as much as it an opportunity. Hence, I tend to run very long average maturities but don’t fuss with concepts like ‘duration’ and ‘convexity’.

Again, thanks for posting.

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PAY DAY on Friday’s

Covered call ETFs have been attracting a lot of attention.

Currently collect about 54 checks every Friday earning about 11 K a week, over 45K a month, goal is to earn 84 K per month before retiring for good with the power of compounding, compounding.

Collect checks daily as a suggested starter kit.

Monday - BLOX

Tuesday - HOOW

Wednesday- WPAY

Thursday - ULTY

Friday - NVDY

Quill -

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Quill,

Thanks for jumping in and for making a pitch for covered call ETFs. I need to take another look at them as being possible substitutes for long dated bonds, especially now that so many of them are offering weekly divs.

Here’s a chart of one I own that’s doing well for me. (Note: the price bars have divs paid backed into them.)

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At the core, it’s based on some pretty vanilla and standard principles, if you back out the options part. Let’s do some math that assumes "fairly average” behavior and that the money is in retirement accounts to simplify the tax discussion.

Let’s start by presuming $40,000 of income needs in year 1 and a 5% inflation rate. The 5 year bond ladder would require $223,000 of bonds ($40,000, $42,000, $45,000, $47,000, and $49,000), and $10,000 in cash for the 3 month emergency fund, for a total fixed income portion of $233,000.

The 4% rule has recently been updated to the 4.7% rule. Using the 4.7% rule as a guide, that $40,000 of income would require a nest egg of $851,063.83 . If $233,000 is in fixed income, that leaves $618,063.83 – or roughly 72% available for more aggressive investments like stocks.

By the principles, the $40,000 of income needs will come from maturing bonds. To keep the bond ladder whole, the account needs to buy $52,000 of bonds for the next year. To keep the emergency fund whole, the cash buffer needs to increase by $500. That’s a total of $52,500 that needs to be reinvested to keep things whole.

According to my broker, ‘A’ rated corporate bonds currently yield between 3.8% and 4.4% in durations between 3 months and 5-years. For the sake of making the math easy, we’ll use a flat 4% rate across the bond ladder. at 4%. $223,000 would throw off $8,920 of income. Bankrate currently says high yield savings accounts can currently generate 4% as well – so that’s another $400 on the $10,000 emergency fund. SPY – an easily investable S&P 500 index ETF – looks like it currently has a yield of just over 1%. That’s another $6,180 in income generated from the portfolio.

Adding it all up, that’s $15,500 of the $52,500 generated from portfolio income alone, leaving $37,000 that needs to be generated from growth in the stock portfolio. That’s roughly 6% growth, which is not out of line with historical long-term trends. Of course, past performance is no guarantee of future results, but it does suggest the plan looks reasonable.

The goal I believe we are both trying to achieve is to cover expenses from investment income. I’d love to understand your approach and how it can provide better/more reliable income at comparable or less risk. I would love to learn a better approach to meeting that goal.

The example shared above uses ‘A’ rated interest rates, although I am willing to invest in ‘BBB’ quality bonds where the underlying issuer looks reasonable. The bond that matured in my portfolio yesterday was CUSIP 064159HB5, issued by The Bank of Nova Scotia (Scotiabank). It’s one of Canada’s largest banks, and the big banks in the Canadian banking industry are generally considered very well capitalized.

My general practice is to filter by maturity date and investment grade status, sort by “yield to worst” in descending order, and then pick the first issuer that meets both my diversification and my quality checks. There’s probably a better way to do it, but thus far, this approach has worked well enough.

I’d love to understand your approach to discerning which companies in Chapter 11 bankruptcy protection have bonds worth investing in. I could see how that could be lucrative, but I don’t understand the mechanics or thought process well enough. I’m open to learning, though…

Regards,

-Chuck

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Chuck,

Again, much thanks for your thoughtful, evidenced reply. Now the discussion is beginning to become interesting and worthwhile.

Suggestion: we need to start a new thread that devotes itself to the topic of how someone unfamiliar with bond investing might break into the “game”, and I don’t use that term likely. Bond investing --like all investing, actually-- is just a matter of estimating the odds vs the payoffs.

After market close, I’ll put something together that begins at the beginning, namely, with savings accounts at one’s local bank, such as one’s parents might have set up for a child to whom they wanted to teach the basics of investing.

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Chuck,

Permit me to respond to some of your numbers in your reply to my previous post. “Using the 4.7% rule as a guide, that $40,000 of income would require a nest egg of $851,063 .”

$851k? You gotta be kidding.

Yeah, I’m now dealing with a multiple of that in my own portfolio after starting from a base of just $4k. But I’ve been in the investing/trading game a long, long time, and I’ve also been very, very lucky. That doesn’t describe the “average investor” who has tiny money to work with and even tinier skills.

That’s the person I’m interested in helping, not the well-healed who hang out at TMF. Fortunately, them with tiny money no longer have to deal with the problems us older persons did, such as abusive commissions and the scarcity of data. But some advantages have also been taken away from them, such as DB pensions, which were once all a single-wage family needed to retire quite comfortably.

In the present investing environment, do bonds have a role to play as the younger generation tries to build wealth? Peter Lynch used to argue “No”, and his reasoning was solid. But also, his solution wasn’t a “one size fits all” solution, because such a thing doesn’t exist. From roughly 1999 until a couple years ago, I ran an all-bonds portfolio that did quite well, allowing me to triple my money after I retired, which is why I regard the 4% (or the 4.7% rule) as MPT nonsense. Every would-be investor is unique in his/her means, needs, abilities, skills, opportunities, and obligations. What matters is their finding a path that works for them – and that lets them sleep at night. LOL

For me, that path was bonds. For others, their path might be futures or currencies or options or stocks or real estate. There are more ways to pull money out of markets than there are investors to exploit them, and the really good ways aren’t found in books or chat forums, but in the trenches of actual investing/trading by a person who says to her or himself, “What I was told is nonsense. That’s not how markets work.”

“Caminate, no hay camino. Se hace camino al andar’”

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Chuck,

You wrote, “I’d love to understand your approach to discerning which companies in Chapter 11 bankruptcy protection have bonds worth investing in.”

You misunderstood what I said. What you described is what Marty Whitman called 'deep value investing", and he writes about it in his book. What I did was something else. My insight was this:

Bonds are puts, and my job as a Ben Graham-style investor was to find and buy those that were under-priced.

That often enough meant that an issue I owned went into Ch 11 whose workouts varied from being made whole to losing all. But as long as my net across a basket of holdings was significantly better than doing the conventional things other bond investors were doing, I was wining the game, and on my own terms.

That bonds are puts was an insight that Schwab’s SW regional mgr for high-net worth investors confirmed in an interview I wrangled with him. In those days, I wasn’t even low net-worth, just a guy who had stumbled his way into the bond market and who had found a niche within it. “You get it,” he said to me. “You really get it” when I explained him what I was doing. His secretary had allowed me ten minutes of time, and she kept popping her head in to say other clients were waiting. But Tom would wave her off, and we’d keep talking until it really did become obvious we had to stop.

In a different context, Jack Schwager makes the same point in his books on Market Wizards with its chapters detailing how one trader went broke using the same method another had parlayed into multi millions. The method itself doesn’t matter. The trader her or himself doesn’t matter (AI not withstanding). It’s the felicitous marriage of the two that matters, and that comes from taking risks, from making mistakes, and then learning from them.

In short, investing can’t be taught, but it can be learned, and today’s markets are far more accessible than they’ve even been, but also, not as predictable, which means that conventional approaches won’t yield the gains they once did.

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re: GDXY

I collect Divi checks as well as Swing Trade GDXY for some pocket change.

Since February 2025, the 20 over 200 emas produced a winner. Waiting for the 20 EMA to cross back over the 200 EMA to make a huge profit.

Or

On top of that, there were 6 successful trades as posted at each top label box after selling at the Finish Line using the Horse Racing analogy. There are only two (2) rules to trade by.

re: WPAY

As they say, " You’re in good hands, " owning WPAY as a fund-of-funds earning more money than owning and playing around with bonds.
You can’t go wrong getting paid on Wednesdays.

The Roundhill WeeklyPay Universe ETF (WPAY) is an exchange-traded fund that is based on the Roundhill WeeklyPay Universe index. The fund is a fund-of-funds that tracks an equal-weighted index of all WeeklyPay single-stock ETFs offered by Roundhill. It aims for fluctuating weekly distribution payments based on its constituents’ distributions. WPAY was launched on September 4, 2025 and is issued by Roundhill.

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QUILL – A poor church mouse, scratching for a living as a Swing Trader..

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Quill,

You’re cheating with your chart of GDXY, which hasn’t been trading long enough to plot a 200 EMA. Hence, there was no triggering x-over. You are just guessing that an x-over would have occurred. So let’s modify the slower EMA and make it a 150 day. Now we do get a x-over.

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So, save that chart setup as a template and apply it to other stocks, such as your beloved COST. Now what do you see? Some nerve racking drawdowns, which is the problem with using long period MAs. You’re late getting into a trade and late getting out.

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Who typically uses long period MAs as trading signals? The institutions,. Why? Because they are typically taking large positions worth millions of dollars, not buying a couple of shares as might be a small investor and they can’t move quickly. So they move massively. The small investor, OTOH, can be nimble.

Now, step back a bit and think about the macros of our present market. By every measure, most stocks are over-priced and totally disconnected with economic reality except this one, the Fed’s continuing stream of nearly free money. When the party ends, --and it will- and the punch bowl is taken away, the insitutionals are going to get clobbered, yet again, as has happened many times before. E.g., by how much was the "average stock investor --retail or insitutional- -down by at the end of 2008? Somewhere around (-40%), right? But not them who ran tighter stops and/or used faster MA x-overs.

Admittedly, there is no one right or wrong answer here. Some people tolerate well massive drawdowns. Some don’t, with me being one of them. Hence, you’ll never convince me that using 20/200 x-overs is A Good Idea no matter that you can find an occasional chart where they seem to have worked well. E.g, try using that pair to time getting into and out of USO. That chart is a total mess. Chop. Chop. Chop. Or chart the $US with that pair and then compare the results that might have been obtained by using ‘price’ crossing a EMA20. (Way better, right?)

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So two things are going on. One is the selection of signals. The other is the universe to which they are applied. Some tradables lend themselves to easy trading where nearly any set of signals would produce gains. Other tradables are very prickly. Almost nothing works with them. It takes a lot of experimenting with indicators and buy/sell rules before one finds what one is comfortable with using when real money is on the line at the hard, right-hand edge of the chart, not just hypothetical examples drawn from the past.

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