The GauchoRico Fixed-Income Portfolio is relatively new. The first Fixed-Income Portfolio Update introduced the portfolio, described its goals in the context of my personal circumstances, and provided the details on its construction and allocations. If you haven’t read that post yet, it would be useful to read it before continuing on with this post. Below are some additional posts that you might also find worthwhile:
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?
June 2025: 2025-06-30 Fixed-Income Portfolio Update
FIXED-INCOME PORTFOLIO WITHIN TOTAL ASSETS
At a high level, my assets can be divided into the GauchoRico Growth Stock Portfolio, the GauchoRico Fixed-Income Portfolio, Cryptocurrency-related assets, and everything else. Since the end of Q2 2025, the only change to how I organize my asset buckets is that I’ve added Cryptocurrency for the first time in my investing journey. The main purposes for adding crypto assets to my overall allocation mix are a) another hedge against US dollar (and fiat currency in general) devaluation, and b) expected appreciation of these assets as cryptocurrencies go mainstream in the wake of digitization and tokenization of assets. We have seen a wave of both broad acceptance of cryptocurrencies and regulatory actions that will benefit cryptocurrency adoption and utilization. My target allocation for my cryptocurrency investments was set at 5% of my total wealth. This target was reached quickly after my investments in early July. My primary investment in the Crypto Bucket is BMNR. Even though BMNR is a publicly traded stock, I think it’s different from the assets in my Growth Stock Portfolio; therefore, I’ve excluded Crypto from the Growth Stock Portfolio in order to preserve a pure portfolio of growth stocks.
| Contents | Goal | |
|---|---|---|
| Growth Stock Portfolio | Publicly traded Stocks, Investible Cash | Maximize Long-term CAGR |
| Fixed-Income Portfolio | Cash, CDs, Bonds, REITs, Private Credit, Dividend Stocks | Generate Income for Living Expenses; Capital Preservation |
| Crypto | Crypto | Hedge against fiat currency devaluation; return |
| Everything Else | Residence(s); Private Equity Investments | No Goal (Not actively managed) |
As of 31Oct 2025, the allocations in each of the above buckets were as follows:
Growth Stock Portfolio: 51.9%
Fixed-Income Portfolio: 25.2%
Crypto: 4.3%
Everything Else: 18.6%
CHANGES TO THE FIXED-INCOME PORTFOLIO
I’ve made two major changes to the Fixed-Income Portfolio since 30Jun: 1) sold all the CDs (Certificates of Deposit) to buy into two private credit funds (also referred to as Business Development Companies, or BDCs), and 2) sold the muni bond ETFs (HYD and VTEB) to reallocate these funds into a professionally managed muni bond portfolio. I’ll explain my decisions below.
| Category | Pre-March 2025 | June 30, 2025 | October 31, 2025 | 2025 Year-End Target |
|---|---|---|---|---|
| Short-term Govt Bond Money Market | 100% | 1.6% | 0.3% | 0% |
| CDs (FDIC insured) | 0% | 40.7% | 0% | 0% |
| Private Credit | 0% | 0% | 38.1% | 33% |
| Muni Bond ETFs (Tax-exempt) | 0% | 32.7% | 0% | 0% |
| Muni Bond Portfolio (Managed) | 0% | 30.9% | 33% | |
| Foreign Fixed-Income | 0% | 25.1% | 30.7% | 33% |
SELLING CDs to BUY PRIVATE CREDIT FUNDS
The CDs were yielding between 4.2% and 4.5%, but about 60% of them had no call protection. I was expecting the CDs without call protection to be called away soon. The CDs with call protection were yielding 4.2% to 4.25%. These rates are okay given my expectation that interest rates will likely continue to fall toward 3% (for the Fed Funds Rate) over the next year or so.
I only recently learned about investments in the private credit space. Private credit funds (also called BDCs or business development companies) raise capital and then lend out those funds as loans to private companies (i.e., usually companies, which are small- or medium-sized businesses that aren’t traded on any public stock exchange). Typically, these loans are floating-rate loans with about a +6% premium over SOFR (Secured Overnight Financing Rate, which replaced LIBOR as the primary U.S. dollar benchmark rate in 2023). Thus, the companies are paying the lender >10% interest rate with SOFR at ~4.2%. The BDCs are often leveraged, which will amplify returns on the upside and losses on the downside, but the funds usually charge a hefty management fee of 1.25% plus participation in the fund’s returns. Overall, the BDCs will pay distributions in the ballpark of SOFR +6%. Clearly, I was attracted to BDCs for the much better yield compared to other fixed-income investments such as the CDs I sold. Do BDCs come with extra risk, as the yields are even higher than so-called junk bonds? Let’s look at the risks.
Risks at the individual loan level: BDCs are lenders, and as such they will be subject to the typical risks of any lender. Assessing the creditworthiness of companies to which the BDC will lend is vitally important. The seniority of the loan isl also be important in the event of a bankruptcy; BDC funds that issue loans that are predominantly in first position mitigate some bankruptcy risk. Should a bankruptcy occur and the BDC ends up owning the assets or the entire company, the acquired assets must eventually be monetized. In this case, the BDC fund’s parent company’s expertise and ability to manage this process will be important.
Risks at the loan portfolio level: The size of the portfolio (i.e., number of loans on the books) will determine the impact on the overall fund of a small number of bankruptcies. A larger loan portfolio will also enable better diversification across sectors of the economy. The BDC’s leverage (debt-to-equity ratio) is another aspect of risk. Finally, a BDC with redemption restrictions can prevent a mass exodus of capital, helping to maintain prudent leverage levels and enabling the fund to take advantage of lending opportunities.
Reasons a business would borrow from a BDC: The floating interest rate on loans taken by companies is quite high, currently around 10%. Prior to investing in the BDCs, I pondered why a company would opt to take a loan from a BDC at such a high rate. There are several reasons. First, banks have reduced such lending so BDCs have filled this void. Second, BDCs can move quickly in providing a loan; companies may require funds quickly in some cases such as acquisitions. Third, BDCs can offer confidentiality with respect to the loan. Fourth, companies may prefer to work with a single lender. Fifth, BDCs keep the loans that they make on the books, so companies don’t need to be concerned about their loan being resold to one or multiple creditors. Sixth, BDCs may be more willing to show flexibility than a traditional bank. Finally, huge companies like Blackstone have negotiated very favorable rates or discounts on all sorts of business services, such as car rental or hotel room rates; these benefits, which can amount to millions of dollars in savings, get extended to the company that takes a loan from the BDC.
Limited liquidity: BDCs typically limit redemptions from their funds. This is necessary because their loan portfolio is leveraged and not liquid. Liquidity for an investor in a BDC fund might be on the order of 5% per quarter. Investors in BDCs should be prepared to have very limited ability to withdraw their principal investment. I’ve only invested funds that I will not need to access.
SELLING MUNI BOND ETFs to BUY MANAGED MUNIs
I sold the two municipal bond ETFs: VTEB and HYD. VTEB was yielding a net 3.7% (after expenses), but only 80% of the bonds were investment grade. HYD, a high-yield muni bond fund, was yielding about 4.3% but only 40% of the bonds were investment grade. After meeting with a bond fund manager, who buys bonds in larger quantities to get better pricing, I learned that this manager can buy a handful of muni bonds with better credit ratings and still achieve a better yield than I was receiving from the ETFs. In addition, the manager has a team that does due diligence on each bond issue; this is a skill that I do not have and have no interest in developing. Net of this manager’s fee (total fee is 0.35% per year), my average annual yield on the six muni bonds is 4.25% (tax-exempt). The maturity dates are between 2040 and 2045. The Moody’s ratings are Aa2. Making this switch was an easy decision because I’m getting higher yield with better quality (lower risk) bonds.
SINGAPORE REITs
In my last Fixed-Income Portfolio Update, I discussed my selection criteria for choosing the Singapore REITs for the portfolio. In the meantime, I added one REIT: AJBU, Keppel Data Center REIT. This REIT has a lower yield than the other five REITs, but I expect the yield to grow faster than the others.
FIXED-INCOME PORTFOLIO COMPOSITION
The Fixed-Income Portfolio now includes BDCs (Private Credit), municipal bonds, and Singapore REITs. As shown in the table below, the portfolio has a pre-tax blended yield of 7.10%, 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 after-tax yields on the muni bond investments. After considering the muni tax benefit at the 35% federal tax bracket, the portfolio’s blended yield is 7.87%
| Ticker | Type | Allocation | Yield | Yield (24% tax) | Yield (35% tax) |
|---|---|---|---|---|---|
| Money Market cash | Money Market | 0.3% | 4.0% | 4.0% | 4.0% |
| BCRED (Blackstone) | Private Credit | 26.5% | 9.6% | 9.6% | 9.6% |
| TCAP (Twin Brook) | Private Credit | 11.6% | 9.7% | 9.7% | 9.7% |
| Muni Bond Portfolio | Muni Bonds | 30.9% | 4.25% | 5.59% | 6.54% |
| A7RU | SGX REIT | 4.2% | 9.8% | 9.8% | 9.8% |
| AJBU | SGX REIT | 3.8% | 4.5% | 4.5% | 4.5% |
| C38U | SGX REIT | 5.1% | 5.1% | 5.1% | 5.1% |
| CY6U | SGX REIT | 3.9% | 6.9% | 6.9% | 6.9% |
| K71U | SGX REIT | 6.3% | 5.5% | 5.5% | 5.5% |
| O5RU | SGX REIT | 7.3% | 6.7% | 6.7% | 6.7% |
| BLENDED PRE-TAX YIELD | 7.10% | 7.55% | 7.87% |
The yields for the Blackstone and Twin Brook BDCs are estimates; as the Fed changes the Fed Funds Rate, the SOFR, BCRED, and TCAP yields will adjust accordingly. I haven’t adjusted the Singapore REITs yields for the REITs’ changes in unit prices; their yields still reflect my cost basis at the exchange rate (USD to SGD) that I received before investing. Since the REITs have appreciated since my purchases, their true yields (based on current prices) will be lower.
SUMMARY
The GauchoRico Fixed-Income Portfolio was created during Q2 2025 and was recently modified as described in detail in this post. The portfolio’s goals are to produce income for living expenses and to preserve capital. As of 31Oct, the portfolio’s composition is where I’d like it to be. I don’t expect to make any major changes during the remainder of 2025.
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.