I recently created the GauchoRico Fixed-Income Portfolio, and this post serves as an introduction to the portfolio and its first portfolio update. In the future, I will periodically post Fixed-Income Portfolio updates.
FIXED-INCOME PORTFOLIO INTRODUCTION
In a series of previous posts, I described how my evolving personal circumstances and priorities necessitated changes to how I manage my finances. If you haven’t previously read these posts, it may be helpful to read them before proceeding with this post.
July 2022: When Should the Game Change?
July 2024: How I Changed My Money Game
May 2025: Safe Bucket and Investing for Fixed-Income: What Are the Risks?
At a high level, my assets can be divided into the GauchoRico Growth Stock Portfolio, the GauchoRico Fixed-Income Portfolio, and everything else. This post will zoom in on the Fixed-Income Portfolio, but it’s helpful to understand why I’ve separated and segregated my assets in this way. The table below shows a snapshot of my assets and how I’ve organized them.
| Contents | Goal | |
|---|---|---|
| Growth Stock Portfolio | Publicly-traded Stocks, Investible Cash | Maximize Long-term CAGR |
| Fixed-Income Portfolio | Cash, CDs, Bonds, REITs | Generate Income for Living Expenses |
| Everything Else | Residence(s); Private Equity Investments | No Goal (Not actively managed) |
I actively manage the Growth Stock Portfolio and the Fixed-Income Portfolio, and I’ve completely separated them for three reasons. First, they have completely different goals, and the firewall between them allows me to focus on independently, without being distracted by the goals of the other. Second, separation allows for easier, more accurate, and cleaner performance tracking. This is also beneficial for those who are following along with me on my investment journey. For example, those interested in aggressive growth stock investing can get a focused view into the actions and performance metrics of my Growth Stock Portfolio without distraction from other strategies. Finally, the metrics that I use for each portfolio are unique to that portfolio. For the Growth Stock Portfolio, I care about long-term CAGR, YTD growth, and benchmarking to the S&P 500 index. For the Fixed-Income Portfolio, I care about preserving capital and purchasing power, income generation, and the overall yield on the assets. The Everything Else category currently includes my residence and some equity investments in privately held companies. Since there is no goal for these other assets and they aren’t actively managed, they didn’t fit well into either the Growth Stock Portfolio or the Fixed-Income Portfolio. In addition, I have no further investment decisions to make about these assets and others can’t buy these, so outside observers of my asset-managing efforts shouldn’t be concerned with these assets. I currently have no debt or liabilities on my personal balance sheet, but I’m not adverse to utilizing debt should interest rates become more favorable for borrowers.
FIXED-INCOME PORTFOLIO GOAL
The primary goal of the Fixed-Income Portfolio is to generate interest and dividends, which will be consumed to support my living expenses. My preference is that this income cover all my living expenses in perpetuity. For this reason, capital preservation is also important. There are other methods investors can utilize to provide an income during retirement. There’s no one universal method that’s best, and others may choose an alternative method. For example, some investors estimate the remaining years for which an income will be required (i.e., the common assumption is that after death, no further income will be necessary) and then provide this income through a combination of income generated from investments plus a sale/depletion of assets to supplement the income from interest and dividends. Under such a plan, the assets are usually fully depleted (gone) at the end. I’ve chosen a plan that should work in perpetuity, and, currently, my Fixed-Income Portfolio provides enough income to cover my living expenses. Inflation, an increase in my living expenses, and/or a decline in the Fixed-Income Portfolio after-tax yield could cause the income from the Fixed-Income Portfolio to be insufficient to cover all of my living expenses in the future. In that case, I expect that I would divert more funds from the Growth Stock Portfolio to the Fixed-Income Portfolio.
PERSONAL CIRCUMSTANCES
Personal circumstances will influence and dictate how a fixed-income is allocated and managed. Some people’s circumstances are such that a fixed-income portfolio is unnecessary. Since my circumstances and preferences are unique to me, it’s highly inadvisable for anyone to simply copy my plan or anyone else’s. I hope that this post and future posts about fixed-income achieve insights into the process that I use to assess and value risk and reward and make decisions given those and my unique circumstances. My preferences and decisions will be better understood in the context of my personal circumstances, so I’ll share some of those below.
I’m currently 56 years old and not actively working for an income to support my lifestyle. I have been a digital nomad for the past two years, traveling outside of the United States more than 75% of each year. I recently purchased a home-base residence that’s undergoing a full remodel (not in a livable condition until later this year). Going forward, I plan to travel outside of the U.S. at least 50% of each year. Income for my living expenses comes from investment income and/or the sale of assets, as I’m not working for money. Frequent overseas travel consumes a large portion of my living expenses, in currencies other than the U.S. dollar (USD). Thus, the USD’s strength can affect my purchasing power more so than most, so a depreciating USD is a risk.
The idea of setting up a fixed-income portfolio is relatively new to me. Until recently, virtually all my living expenses were covered by periodic portfolio stock sales or excess cash in my Growth Stock Portfolio. Starting sometime in 2023, the majority of my living expenses were covered with interest on cash. That cash was predominantly invested in short-term government bond money market funds yielding a return roughly equal to the Fed Funds Rate (FFR), which was at 5.25% (low end of the Fed’s 0.25% range band) before the Fed started cutting the FFR. I chose to keep my cash invested in this money market fund for three reasons: 1) 5.25% was a good yield and also higher than longer-duration bond funds, 2) the money market fund is completely liquid, which was important because at the time I was unsure whether I was going to need cash to buy one or more residences, and 3) longer-duration bonds or bond funds have the risk of losing principal value in the event that interest rates fall further; I think interest rates will continue to trend downward. Today, the FFR (low end of the Fed’s 0.25% range band) and the yield on short-term government bond fund is 4.25%.
I do not foresee that I will need to access any cash (other than interest and dividend income) from the assets held in the Fixed-Income Portfolio. Therefore, liquidity and longer-duration requirements are not a factor in my investment decisions for the Fixed-Income Portfolio.
I have enough assets in the Growth Stock Portfolio such that I don’t need to chase higher yields. With this allocation, my living expenses match the income generated from my Fixed-Income Portfolio. Thus, if necessary, I will be able to transfer more funds from the Growth Stock Portfolio to the Fixed-Income Portfolio. Therefore, any risk I’m taking or would take to get higher yields on the assets in the Fixed-Income Portfolio is, in my opinion, balanced against the reward of the higher yield. While I’d like high yields, I also want to preserve the capital in the Fixed-Income Portfolio, so I’m not inclined to chase yield by investing in junk-like assets.
I am a U.S. federal taxpayer in an income tax-free state. Since I am not employed, the sources of income on which I am taxed include short- and long-term realized capital gains and interest and dividends on cash and fixed-income investments. The capital gains from the Growth Stock Portfolio can fluctuate greatly from year to year. For example, there were large realized gains in 2020-2021 and huge realized losses in 2022 that carried forward into 2023-2024.
Again, the above unique circumstances provide some context for my Fixed-Income Portfolio investment decisions. Again, my circumstances influence my decisions which may not be appropriate or optimal for others. For example, muni bonds are U.S. federal tax-exempt, which is a benefit only for U.S. taxpayers.
CREATING THE FIXED-INCOME PORTFOLIO
In the Spring of 2025, I began the process of creating what I now call the GauchoRico Fixed-Income Portfolio. The funds that were predominantly invested in the short-term government bond money market funds and yielding about 4.25% at the time were reinvested into other fixed-income instruments, including CDs, municipal bond EFTs, and overseas fixed-income investments. I currently don’t own any dividend stocks in the Fixed-Income Portfolio, but I’m open to including them in the portfolio in the future. I continued this reallocation process until late June 2025. The table below shows my implementation of the reallocation and my end-of-2025 target allocations. I will provide more details about each category later in this post.
| Category | Pre-March 2025 | June 30, 2025 | 2025 Year-End Target |
|---|---|---|---|
| Short-term Govt Bond Money Market | 100% | 1.6% | 0% |
| CDs (FDIC insured) | 0% | 40.7% | 33% |
| Muni Bond ETFs (Tax-exempt) | 0% | 32.7% | 33% |
| Foreign Fixed-Income | 0% | 25.1% | 33% |
MITIGATING THE RISKS
In late May 2025, I wrote a post outlining the risk I wanted to consider and begin mitigating. It may be helpful to review those risks because they’re highly relevant to my decisions regarding the allocations in the Fixed-Income Portfolio. In setting these allocations, I considered not only the Fixed-Income Portfolio’s goals (providing income for living expenses and preserving capital) but also the following.
Interest Rate Risk
Interest rate risk refers to how future changes in interest rates can affect an investor’s yield. As previously mentioned, the FFR is down 1% from its recent peak. The FFR tracks closely with yields on short-duration debt. On the other hand, yields on long-duration debt is tied to the market’s expectation of future yields. I believe it’s highly likely that on the short end (short-duration yields) will keep trending downward. This would happen if the Fed further cuts the FFR. The lower rates fall, the more difficult it becomes to get higher yields on fixed-income investments. To mitigate interest rate risk, I chose to shift more of my Fixed-Income Portfolio into longer-duration assets. Specifically, I moved funds from a short-term government money market fund into CDs and municipal bond ETFs.
Purchasing Power Risk
Reduction of purchasing power can result from inflation or currency devaluation. I haven’t specifically mitigated inflation risk in the Fixed-Income Portfolio, but some of my other assets provide some protection against inflation. My residence and the assets in the GauchoRico Growth Stock Portfolio provide some protection against inflation.
The USD’s value is at risk of deterioration, which would reduce my purchasing power when I’m traveling and spending abroad. What could cause the USD to lose value relative to other currencies? I believe that there are several forces that could affect the USD. The U.S. has the benefit of having the world’s reserve currency, meaning that most (>50%) of the world’s trade is settled in the USD, therefore, other countries need to keep USDs in reserve to settle trade inflows and outflows. In order to maintain the status of reserve currency, the USD needs to continue to be stable with low inflation in the United States. The U.S. also needs a stable government with strong investor rights and a fair and just justice system. Some of the institutions that were previously considered rock solid have now come into question. Some investors, including myself, have begun to diversify away from the U.S. Furthermore, since the United States has its own central bank, it can print additional money, but if it prints too much then the USD’s value will fall. The U.S. has a large fiscal deficit which adds to its large and growing debt. The higher the debt, the more interest payments on that debt crowds out spending on discretionary and non-discretionary government budget items. However, since the government doesn’t have an appetite to decrease spending or raise taxes, there is now crowding out by interest on the debt. Instead, the government intends to continue to borrow more. Long-term, the only ways that the budget can get more balanced (i.e., lower deficits) include 1) reduce spending, 2) raise revenue (i.e., taxes), or 3) devalue the currency. Since #1 and #2 aren’t being implemented, #3 becomes the likely outcome, meaning the USD would be worth less relative to other currencies. Action that I’ve taken is to move some of my investments overseas. I’ll discuss where I looked for overseas investments and how I made those investments below.
ALTERNATIVES TO THE USD
This past Spring, I decided that I didn’t want all of my assets denominated in the USD. The following were important considerations for choosing another currency for some of my fixed-income assets:
- Stable government with stable currency
- Currency not pegged to the USD
- Strong system of law and order
- Strong protections for investors
- Low debt-to-GDP ratio with good fiscal responsibility
- Peaceful relations with other countries
- Good selection of fixed-income investments
My shortlist of countries included Switzerland, Singapore, and Norway. I ruled out Norway because the Norwegian krone (NOK) tends to move together with the price of oil, making the currency more volatile than I’d like. Switzerland remains a strong candidate for future investments, but, for now, I passed on Switzerland because I didn’t find any investments that I wanted to make. I’d probably settle for either dividend stocks or real estate investments because Switzerland’s low interest rate makes buying bonds in Switzerland not a good option for me. Singapore has more investment choices with higher yields.
The Singapore dollar (SGD) is somewhat unique because it’s not free floating but it’s also not pegged to any one currency, but rather to a basket of currencies. This isn’t completely ideal because the SGD is not completely disjointed from the issues of the currencies to which it’s pegged. In order to avoid speculators from speculating on the SGD, Singapore doesn’t disclose the composition or weightings of the currency basket. Speculators could then make the SGD less stable. Also, Singapore can change the weightings of the currencies that the SGD is tracking. Singapore has stated that the basket composition has to do with the monetary size of the trading relationships that Singapore has with other countries. The chart below shows Singapore’s major trading partners (imports and exports of merchandise trade) for 2024:
The merchandise trade from the above chart can also be expressed in percentage terms:
Based on Singapore’s diversified mix of merchandise trading partners, it’s clear that Singapore’s trade is not overly reliant on any single country: no one country has more than 13.2% of Singapore’s total merchandise trade.
Overall, I’m comfortable with both the SGD as well as the investment opportunities available in Singapore. As of 30Jun 2025, I’ve converted 25.1% of the Fixed-Income Portfolio’s assets into the SGD. I’ve chosen to invest the SGD in Singapore REITs that are traded on the Singapore stock exchange (SGX). I’ll share more details about these investments below.
SINGAPORE REITs
REITs offered more yield than bonds or dividend stocks. There are quite a few REITs that can be purchased on the SGX. I elected to purchase several REITs after considering a number of factors:
- Real estate investments predominantly in Singapore or Asia Pacific (with no exposure to the U.S.)
- Trailing 12-month distribution yield
- Loan-to-value (LTV): note; Singapore REITs cap the LTV at 50%
- Occupancy rate and average length remaining on lease
- Percentage of loans locked in at fixed rates
- Interest covering ratio
Based on the above, I bought the REITS in the table below. The figures in the table are as of each REITs last published annual report (31Dec or 31Mar).
| REIT Ticker | TTM Yield | LTV | Occupancy Rate | Avg Lease Expiry | Rate Locked | Interest Coverage Ratio | Allocation of REITs | Allocation of Fixed-Income Port |
|---|---|---|---|---|---|---|---|---|
| A7RU | 9.8% | N/A | N/A | N/A | 1% | N/A | 15.0% | 3.7% |
| C38U | 5.1% | 39% | 97% | 3.3 yrs | 81% | 3.1x | 21.9% | 5.5% |
| CY6U | 6.9% | 39% | 95% | 67% longer than 1 yr | 73% | 2.6x | 14.4% | 3.6% |
| K71U | 6.5% | 41% | 98% | 4.7 yrs | 69% | 2.5x | 21.9% | 5.5% |
| O5RU | 7.3% | 33% | 98% | 4.4 yrs | 75% | 4.1x | 26.8% | 6.7% |
In general, I consider A7RU and CY6U higher risk than the other three REITs, so I’ve kept their allocations lower. However, they have good yields to compensate for this extra risk.
A7RU owns and continues to purchase infrastructure assets in Singapore (23% of assets), Australia/New Zealand (28% of assets), Saudi Arabia (24% of assets), and Europe (18% of assets) as opposed to traditional real estate that’s owned and managed by the other four REITs. A7RU owns power-generating assets like solar and wind farms, gas pipelines, desalination plants, water treatment facilities, oil & gas storage facilities, a bus network for transportation, and other assets. These assets provide essential infrastructure, so income from them should be stable. Unlike the other REITs, A7RU doesn’t have any significant debt locked in beyond five years. In summary, A7RU’s yield is the highest to compensate for these additional risks.
CY6U owns primarily real estate in India. The properties include business parks, data centers, IT parks, and logistics properties. Growth in India is much higher than in other countries, but the Indian rupee (INR) isn’t as stable as the SGD, so there are some currency risk associated with CY6U. In addition, if the INR depreciates against the SGD, then the valuation of CY6U’s Indian properties decreases, resulting in pressure on the LTV of the REIT. The maximum LTV is 50% so a weakening INR would increasingly limit CY6U’s ability to use leverage to invest in additional properties. CY6U engages in hedging to mitigate fluctuations in the currency exchange rate.
The other REITs (C38U, K71U, and O5RU) own and manage real estate predominantly in Singapore and Australia. In addition to providing a good yield and providing a home for fixed-income assets outside the U.S. and the USD, these REITs offered both an acceptable mix of yield and growth as well as solid financial and operating metrics (i.e., to mitigate or manage the risks).
Singapore REITs have two downsides for U.S. investors. First, dividend income from the REITs is taxable as ordinary income, and there’s no QBI or qualified treatment that can be available for investors in U.S. REITs. Second, there are additional complexities (i.e., may require filing a Form 8621 or Form 8938 for each foreign REIT owned) for filing U.S. tax returns. Overall, I found enough benefit to accept these downsides.
To summarize, I’ve invested about a quarter of the Fixed-Income Portfolio’s assets in Singapore REITs. I intend to further increase my allocation of the total Fixed-Income Portfolio’s assets to foreign fixed-income investments. When I report the portfolio’s allocations, I will use my cost basis for the value of the REITs rather than marking the value to the exchange rate and/or to the REIT’s unit prices on the SGX. However, I may periodically, perhaps at the end of each year, make adjustments for the USD/SGD exchange rate and the change in the REITs’ unit prices on the SGX.
The expected blended yield, based on the TTM dividends, for all Singapore REITs in the Fixed-Income Portfolio is 7.0%.
CERTIFICATES OF DEPOSITS (CDs)
In March 2025, I began shifting funds from short-term government bond money market funds into short-term CDs (3-month duration). The rates on the CDs were similar to or a little higher than the rate on the short-term government bond money market funds. To mitigate interest rate risk, I began buying 5-year CDs to lock in yield for longer. I bought both CDs with call protection and CDs with no call protection. I’ve found that CDs with the call protection pay about 0.25% lower yield than those without. As of 30Jun 2025, the CDs in the Fixed-Income Portfolio comprised 40.7% of the portfolio, and they were all purchased with either a 5-year or 10-year term. CDs without call protection are vulnerable to being called back by the issuing bank. Thus, should interest rates drop, the bank will likely refund the principal, leaving the investor with the cash that could only be reinvested at a lower rate.
CDs can come with FDIC insurance, assuming the issuing bank is an FDIC member bank. In the case that the issuing bank becomes insolvent, the principal and accrued interest of the CD is guaranteed by the U.S. Federal government up to $250,000 per issuing bank per account holder.
I purchased all the CDs in May 2025. The call protected 5-year CDs comprise 16% of the Fixed-Income Portfolio; these CDs yield between 4.2% and 4.25%. The portfolio also has 16.3% in 5-year CDs (without call protection) yielding between 4.35% and 4.45%. Finally, the portfolio contains an 8.3% allocation in 10-year CDs (without call protection) with a 4.5% yield. Again, the CDs without call protection are vulnerable to interest rate risk should the bank(s) call them in; in this case, reinvestment into other fixed-income assets would likely produce lower yields.
MUNICIPAL BONDS
An important advantage of investing in municipal bonds is their tax-exempt status for investors subject to U.S. federal tax. Municipal bonds are issued by local municipalities for various government projects that must be funded over multiple years due to the high cost of the projects relative to the government’s annual budget. For example, such projects might include new schools or large infrastructure projects such as a new airport. Approval to issue municipal bonds must usually be granted by voters in a local election.
The credit rating companies, such as S&P Global ratings and Moody’s, provide credit ratings on individual municipal bonds. These ratings are typically used by investors to estimate the risk of default. I choose not to devote my time and effort to evaluating individual bonds. Instead, I opted to buy ETFs that contain thousands of individual municipal bonds. In choosing the ETFs, I focused on a few criteria shown below.
- Avoid short-duration bonds to lock in yield for longer
- High after-tax yield with consideration for default risk
- Exempt from U.S. federal tax
- Low expense ratio
I elected to purchase two bond ETFs: Vanguard Tax-Exempt Bond Index Fund (VTEB) and Vaneck High Yield Muni ETF (HYD). The Fixed-Income Portfolio contains a 23.4% allocation of VTEB and a 9.3% allocation of HYD.
| ETF | Yield (TTM) | Tax-Exempt | Credit Rating | Holdings | Expense Ratio | Duration | Allocation |
|---|---|---|---|---|---|---|---|
| VTEB | 3.3% | Yes | 18% AAA 81% Inv Grade | 9740 | 0.03% | 62.5% long-term | 23.3% |
| HYD | 4.4% | Yes | 39% inv grade 25% high yield | 1649 | 0.32% | 80.6% long-term | 9.3% |
VTEB contains muni bonds with lower default risk. HYD provides a higher yield but with higher default risk. The yields are not taxed, but an equivalent pre-tax yield would depend on an investor’s marginal federal taxation rate. For example, a 3.3% yield on a tax-exempt bond is equivalent to a 4.3% yielding (24% tax rate) non-exempt bond or a 5.1% yielding (35% tax rate) non-exempt bond.
FIXED-INCOME PORTFOLIO COMPOSITION
The Fixed-Income Portfolio now includes CDs, municipal bonds, and Singapore REITs. As shown in the table below, the portfolio has a blended yield of 4.75%, but this yield assumes no tax benefit for holding the lower yielding tax-exempt muni bonds. I’ve added columns for marginal income tax rates of 24% and 35%, which push up the effective pre-tax yields on the muni bond ETF investments.
| Ticker | Type | Allocation | Yield | Pre-Yield (24% tax) | Pre-Yield (35% tax) |
|---|---|---|---|---|---|
| Money Market cash | Money Market | 1.6% | 4.0% | 4.0% | 4.0% |
| CDs | 5-year (CP) | 16.0% | 4.2% | 4.2% | 4.2% |
| CDs | 5-year | 16.3% | 4.4% | 4.4% | 4.4% |
| CDs | 10-year | 8.3% | 4.5% | 4.5% | 4.5% |
| VTEB | Muni | 23.4% | 3.3% | 4.3% | 5.0% |
| HYD | Muni | 9.3% | 4.4% | 5.8% | 6.8% |
| A7RU | SGX REIT | 3.8% | 9.8% | 9.8% | 9.8% |
| C38U | SGX REIT | 5.5% | 5.1% | 5.1% | 5.1% |
| CY6U | SGX REIT | 3.6% | 6.9% | 6.9% | 6.9% |
| K71U | SGX REIT | 5.5% | 5.5% | 5.5% | 5.5% |
| O5RU | SGX REIT | 6.7% | 6.7% | 6.7% | 6.7% |
| BLENDED PRE-TAX YIELD | 4.75% | 5.13% | 5.39% |
The yields for the municipal bond ETFs are calculated using the ETF investments’ cost basis. The yields for the Singapore REITs use each REIT’s cost basis and the average currency exchange rate received for converting USD into SGD, which was 1.2901. As of 30Jun, the NAVs for the muni ETFs are still similar to my cost basis. However, as of 30Jun, the prices for most of the Singapore REITs have appreciated since I purchased them; this appreciation isn’t reflected in the yields in the above table. Similarly, as of 30Jun, the SGD has appreciated slightly against the USD; this appreciation isn’t reflected in the yields shown in the above table. Finally, I’m using the TTM (trailing twelve months) cash distributions to calculate the yields in the table; the actual cash distributions for 2025 may be higher or lower than those of 2024.
SUMMARY
The GauchoRico Fixed-Income Portfolio was created during the past several months. Its goals are to produce income for living expenses and to preserve capital. As of 30Jun, the portfolio is comprised of 5-year and 10-year CDs (40.7% of assets), muni bond ETFs (32.7% of assets), Singapore REITs (25.1% of assets), and short-term government bond money market funds (1.7% of assets). More than half of the CDs are not call protected, so yields on those CDs aren’t guaranteed should interest rates in the U.S. decline. If any of these CDs get called back by the issuing banks, the funds would need to be reinvested in other fixed-income assets.
Going forward, I expect to continue adding funds to the Singapore REITs given the attractive yields and my preference for continuing to diversify away from the USD. I’m targeting an eventual allocation of 33% to Singapore REITs, so if some of the CDs get called away, I may reinvest those funds into more Singapore REITs. I may also research income-producing assets, including bonds, real estate, and dividend stocks, in other countries.
The Fixed-Income Portfolio currently covers or almost covers my living expenses. However, I have noticed significant inflation in some of my large expense categories. Specifically, the cost of dining out has more than doubled since the pandemic. As a digital nomad for the past two years, I have been dining out for virtually all of my meals. The cost of healthcare increased by about 20% in 2025 over 2024. Should future lifestyle decisions further increase my living expenses and should yield on the Fixed-Income Portfolio decrease, I may divert additional funds from the GauchoRico Growth Stock Portfolio to the Fixed-Income Portfolio.
I intend to periodically post Fixed-Income Portfolio updates, perhaps 1-3 times per year.
The opinions, thoughts, analyses, stock selections, portfolio allocations, and other content is freely shared by GauchoRico. This information should not be taken as recommendations or advice. GauchoRico does not make recommendations and does not offer financial advice. Each person/investor is responsible for making and owning their own decisions, financial and otherwise.