Cash versus bonds-Why not?

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Scooter57
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Joined: Thu Jan 24, 2013 8:20 am

Re: Cash versus bonds-Why not?

Post by Scooter57 »

Re "briefly" I can't recall exactly, but it wasn't more than 2 mos. I had put a bunch of money into it that I'd taken out of an inherited high expense stock fund doing poorly. I watched it shoot up, which was not what I was used to with muni funds, and then it turned south just as quickly. I took my money out fairly close to what I'd bought in at.

A 6.1 average duration and 2.53% SEC yield looks like too much risk for too little reward. If I'm going to flirt with danger--and interest rate risk--I want to be well compensated for it. I've put a small amount of my FI allocation into PIMIX Pimco Income Fund for that reason. Its yield is higher and its duration shorter, so it should recover more swiftly from rate related NAV drops. I can tolerate market related volatility as I trust markets to recover long term, unlike bond fund NAVs.

I also have a small investment in the Vanguard corporate HY fund. But both are a tiny percent of my FI total.


rkhusky:

The prospectus says 20% of tax exempt HY can be below BBB. You only get a higher yield if the holdings are riskier. Muni risk doesn't attract me because the underlying bonds are not very liquid and not held by institutions. There is always the specter of tax law changes, too.
jimhend1
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Joined: Tue May 28, 2013 5:44 pm

Re: Cash versus bonds-Why not?

Post by jimhend1 »

I searched out this topic because I am getting frustrating questions from wifey I cannot answer. We retired 8mo ago with a 30yr horizon and rolled all 401K/pension money into existing Fidelity IRA account. Now our % allocation and ER's are 29 domestic FSTVX 0.07/26 international FSIVX 0.07/37 Intermediate bond fund FTBFX 0.46.
I am having to explain daily why the bond fund NAV is declining faster than the yield. As of today YTD the bond fund is -0.67. In this environment I do not know how to justify not being in MM fund and at least preserving capital. She is looking at this return and trying to figure our income needs.
john94549
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Joined: Tue Jul 26, 2011 8:50 pm

Re: Cash versus bonds-Why not?

Post by john94549 »

jimhend1 wrote:I searched out this topic because I am getting frustrating questions from wifey I cannot answer. We retired 8mo ago with a 30yr horizon and rolled all 401K/pension money into existing Fidelity IRA account. Now our % allocation and ER's are 29 domestic FSTVX 0.07/26 international FSIVX 0.07/37 Intermediate bond fund FTBFX 0.46.
I am having to explain daily why the bond fund NAV is declining faster than the yield. As of today YTD the bond fund is -0.67. In this environment I do not know how to justify not being in MM fund and at least preserving capital. She is looking at this return and trying to figure our income needs.
You might want to peruse the numerous threads on CDs versus bond funds. Posters "Kevin M" and "tfb" have posted extensively.
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ogd
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Re: Cash versus bonds-Why not?

Post by ogd »

jimhend1 wrote:29 domestic FSTVX 0.07/26 international FSIVX 0.07/37 Intermediate bond fund FTBFX 0.46.
Your portfolio as a whole is doing pretty well, maybe 0.1% down? This is not a day to complain, save that for the -3% days. There will be some of those coming from the equity side of your portfolio.
jimhend1 wrote:I am having to explain daily why the bond fund NAV is declining faster than the yield. As of today YTD the bond fund is -0.67. In this environment I do not know how to justify not being in MM fund and at least preserving capital. She is looking at this return and trying to figure our income needs.
There are two solutions to this problem: 1) stop looking at the fund daily, 2) get a balanced fund which hides the volatility of the components. Unfortunately, Fidelity only has expensive ones (their funds of funds have two layers of expenses AFAIK). A Vanguard example would be VSMGX (same bond alloc as you, less internationals, ER 0.16%), which is up 0.02% today.
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rmelvey
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Re: Cash versus bonds-Why not?

Post by rmelvey »

If you have a 15 year time horizon, your risk free asset is a 15 year inflation protected security. With a shorter duration bond, you are actually exposing yourself to another kind of risk: reinvestment risk. Long bonds are not riskier than short bonds. Risk comes from not matching the duration of your assets with the duration of your liabilities.
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