FNBGX vs. individual bonds at Fidelity

Discussion of the Bond portion of the Permanent Portfolio

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foglifter
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FNBGX vs. individual bonds at Fidelity

Post by foglifter » Mon Mar 18, 2019 1:34 pm

I didn't want to inject my newbie questions into the great thread about purchasing bonds at Fidelity started by pmward. I need to invest a 5-figure chunk of money I recently transferred from TDA to my new shiny Fidelity HSA account. My goal is to buy LTTs and my first thought was to go with FNBGX, which seems like a good option with a 0.03% ER. But then I read the above-mentioned thread and felt like I should at least consider the direct bond purchase option. Buying a fund certainly looks like a simpler option, especially now that the recently slashed ER beats most other LTT funds and ETFs.

Any thoughts/recommendations from my fellow bond experts?
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Re: FNBGX vs. individual bonds at Fidelity

Post by pmward » Mon Mar 18, 2019 1:44 pm

The only red flag I see is this "Normally investing at least 80% of assets in securities included in the Bloomberg Barclays U.S. Long Treasury Index."

That being said, it should work fine. But I've found purchasing and selling bonds at fidelity is no more difficult than purchasing and selling a mutual fund. They even issue them in shares where you can sell in $1000 increments to make rebalancing easy. The only drawback is that you can only take part in auction 1x per month for 30 year treasuries at the moment. It looks like the next round is April 4th. But you can also purchase 30 treasuries via trade any day.
Last edited by pmward on Mon Mar 18, 2019 1:51 pm, edited 2 times in total.
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Re: FNBGX vs. individual bonds at Fidelity

Post by pugchief » Mon Mar 18, 2019 1:47 pm

I own some FNBGX. At .03 it's almost free, and way easier that dealing with individual bonds.
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Re: FNBGX vs. individual bonds at Fidelity

Post by jhogue » Mon Mar 18, 2019 3:32 pm

I like buying LLTs directly, but I also own the ETF “TLT” (ER = 0.15%) in a smaller tax deferred account.

FNBX (ER = 0.03%) looks dirt cheap in comparison to TLT, now that Fidelity slashed the ER in line with their current advertising program. That said, there is nothing that I know of that prevents Fidelity from raising those ER’s in the future.

As pmward notes, Fidelity is implicitly reserving the right to lower the fund composition to 80% LTTs. However, their current fund composition is 99.16% U.S. Treasurys. I think we can reasonably assume Fidelity inserted this verbiage so they can manage the fund’s internal cash flow in case of a sudden influx or exit from the fund by shareholders. That is—at most-- a yellow rather than a red flag to me.

Holding LLTs inside of a tax deferred account like an HSA is inherently more tax efficient because of the certainty of constant interest payments spun off from your holdings, regardless of which form you own. Owning a fund also means that you should not have to periodically monitor your holdings to sell LTTs that are now less than 20 years to maturity and purchase new 30 T bonds to replace them. (The fund manager will do that).

If owning the fund is easier for you than direct purchase, then I think you should do that and you should do fine. At some point in the future, you may feel confident enough to try some direct purchases. It is pretty simple to do and, similar to owning physical gold, there is nothing quite like the feeling of removing one more barrier between you and your investments.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: FNBGX vs. individual bonds at Fidelity

Post by pmward » Mon Mar 18, 2019 4:46 pm

What would really be nice at Fidelity, would be a treasury money market with less than a .4% fee :o
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Re: FNBGX vs. individual bonds at Fidelity

Post by jhogue » Mon Mar 18, 2019 6:58 pm

I agree. It would be nice to have a cheaper TMMF from Fidelity.

That said, anybody who has a Fidelity money market account should understand that this is a highly profitable business for the privately-held company. By one estimate, Fidelity, which is now the largest manager of money market funds in the world, annually makes about $650 million in revenue from its money market funds alone. It has also exercised its financial muscle to do battle with the SEC over reform of the industry in the wake of the Great Recession.

See:

https://www.bostonglobe.com/news/politi ... story.html
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: FNBGX vs. individual bonds at Fidelity

Post by foglifter » Mon Mar 18, 2019 7:40 pm

pmward wrote:
Mon Mar 18, 2019 4:46 pm
What would really be nice at Fidelity, would be a treasury money market with less than a .4% fee :o
Yeah, Fidelity's MM fund ERs are high. I'm currently using FDLXX (Treasury only MM) in both taxable and HSA (and for California my HSA account is taxable >:( ). The yield is comparable to Ally's 2.20% after accounting for the state tax exemption.
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Re: FNBGX vs. individual bonds at Fidelity

Post by foglifter » Mon Mar 18, 2019 7:48 pm

pmward wrote:
Mon Mar 18, 2019 1:44 pm
The only drawback is that you can only take part in auction 1x per month for 30 year treasuries at the moment. It looks like the next round is April 4th. But you can also purchase 30 treasuries via trade any day.
I was curious: how efficient/liquid is the Treasuries market? Do I need to worry about bid/ask spread like with stocks? Do I use limit orders?

Also, what are the pros of buying at the auction? I assume there is no bid/ask spread?
"Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep in reserve."
- Talmud
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Re: FNBGX vs. individual bonds at Fidelity

Post by jacksonM » Tue Mar 19, 2019 6:48 am

I used bond funds when I first started out with the PP because it seemed simpler at the time. Now buying bonds direct on Fidelity appeals much more to my striving for simplicity in my old age. It's a very easy thing to do on Fidelity and since I only re-balance once a year I never have to do it more often than that. With a fund you never really know what's going on but whatever it is you are paying a fee for someone else to manage it. Also, I like seeing the interest payments show up in my accounts. It gives them a little boost two times a year.
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Re: FNBGX vs. individual bonds at Fidelity

Post by pmward » Tue Mar 19, 2019 8:58 am

foglifter wrote:
Mon Mar 18, 2019 7:48 pm
pmward wrote:
Mon Mar 18, 2019 1:44 pm
The only drawback is that you can only take part in auction 1x per month for 30 year treasuries at the moment. It looks like the next round is April 4th. But you can also purchase 30 treasuries via trade any day.
I was curious: how efficient/liquid is the Treasuries market? Do I need to worry about bid/ask spread like with stocks? Do I use limit orders?

Also, what are the pros of buying at the auction? I assume there is no bid/ask spread?
The U.S. treasury market is the largest and most liquid market in the entire world. That being said, I've yet to trade bonds on the platform. I've just purchased from auction. I do know that at auction they give you the bonds in $1000 increments so even if you do a big purchase you can sell them off in smaller pieces to rebalance, so you're not stuck with a 50k bond if you do a 50k purchase.
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Re: FNBGX vs. individual bonds at Fidelity

Post by jhogue » Wed Mar 20, 2019 9:17 am

foglifter:

1. Fidelity's secondary Treasury market is so liquid you can watch the yield changes by 0.01% increments in real time on their pop-out chart for bond yields.Try it some time. It is free.

2. There is a bid/ask spread for buying/selling Treasurys. That's how Fidelity makes money on its automated trades. It varies with each security and is displayed on the selection chart. I think my last one year T bill had a 0.03% spread-- less than the ER for many bond funds.

3. You always have the option to use a limit order for a secondary market purchase. I don't bother because using the "fill-or-kill" option lets me see the trade executed at once and the spreads are routinely so small.

Re-reading my draft of this post makes me sound like I am a salesman or booster for Fidelity-- I am not. They have won my business by providing superior service with their brokerage computerized platform; in-person phone service; and network of walk-in offices. I have used all three. To keep my business in the future, they will have to keep reducing prices and improving services--which are not always perfect. Others are certainly welcome to chime in with their own experiences.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: FNBGX vs. individual bonds at Fidelity

Post by thisisallen » Wed Mar 20, 2019 10:17 am

Is it correct to think FNBGX and TLT are the same? Today, 11:15 and TLT is up yet FNBGX is down. ??

Also, if you have bonds at Fidelity on auto roll then Fidelity will buy the new bond at the next auction.
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