My current preferences of funds for retirement income portfolios are shown in the two charts below. I do also have several oil and gas trusts and one oil and gas infrastructure fund, all of which are paying 8% or more annually.
I also have small residual pieces of Vanguard's Energy Fund (VGENX) and Precious Metals and Mining Fund (VGPMX) and the Rydex Managed Futures fund (RYMFX) which is a long/short rules-based fund with about 50% in physical commodities and 50% in Treasury's and currencies. RYMFX can be independently long or short in each of the commodity sectors and in each of the non-commodity sectors. These and the oil and gas trusts mentioned above are only about 5% of total assets. Gold metal is about 10% right now.
The rest is in income funds. In taxable accounts the largest parts by far are in Vanguard's Limited Term Municipal fund (VMLUX) and Short Term Municipal Fund (VWSUX), not shown here. They pay much better than the municipal money market funds, and have an average duration of only 1.85 years.
Loomis Sayles Bond (LSBDX) Fund is the core income fund in tax-deferred funds with smaller, but still significant positions, in Vanguard's GNMA Fund (VFIJX) and Short Term Federal fund. The last two serve similarly to the muni funds above as a far better place than money market funds but are fairly short in duration risk. Since LSBDX primarily invests in investment grade corporate bonds, it has a "quasi-stock" quality in that it rises somewhat in price during stock bull markets and falls somewhat, but far less than stocks do, in stock bear markets. It currently pays about 7.25% annually.
HSTRX and PAAIX give a broad exposure to several other varieties of bond and other strategies, often called "alternative" or hedge fund-like strategies. They are both managed by astute people. HSTRX has a bit more price or capital gain return and PAAIX more in cash. One could substitute PRRIX or VIPSX, both TIPS funds, if one prefers index funds instead of managed funds. Both HSTRX and PAAIX have used TIPS for some considerable part of their portfolios. One could use PAUIX which identical to PAAIX but with an optional a mandate to borrow and to take short positions in stocks. I prefer to use HSGFX instead which is a more conservative way to do that. PAUIX is a fund of funds with two layers of management and operating expense, totaling nearly 2.5% per year, including borrowing costs. If you use any PIMCO funds try to buy the institutional funds which are available through major mutual fund "supermarkets" like Charles Schwab, Fidelity, TD Ameritrade, or Vanguard/Pershing. The expense rates are far lower than for the retail versions, as are the minimums for initial purchase.
HSGFX is usually classified as a "long/short" multicap fund, but it never shorts stocks. Instead it picks the best value stocks it can find and then hedges that portfolio variably depending upon Hussman's read of market and value conditions. You can see how well HSGFX did from 2000 to 2004. From 2000 to 2003 HSGFX was fully hedged short the major indexes and long value mid caps. This was a good choice for two reasons: indexes went down while mid caps, and especially value mid caps, went up relative to the indexes. From early 2003 to early 2004 HSGFX was only slightly hedged and captured most of the bullish gains of stocks. Thereafter they have tended to be more fully hedged as they felt most stocks were over valued and that the market not as strong. As you can see from the charts, their total return profile resembles that of an intermediate term bond fund from April 2004 to March 2008. So one will sit through dull periods with HSGFX when momentum investing is king. But as a retiree one is willing to accept such dullness and give up the risk of losing 10-20% in an exciting down year like 2008.
This first chart shows the period since the debut of PAAIX in my FastTrack data base (late 2002), and the second is from the debut of HSGFX in the same data base (late 2000). Bear in mind that "Ann" means annualized total return with all dividends reinvested for the entire period of the chart. Also recall that these are just my own personal thoughts about my own investing IN retirement. They may not be appropriate for all retirees, and are certainly not appropriate for people form 25 to 50 years of age, unless they are extremely risk averse. In any case I am a private investor only and not an investment adviser.
Recent Comments