Park cash in short-term bond fund?

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Park cash in short-term bond fund?

Postby StophJS » Sat Dec 22, 2012 4:37 am

Can anyone come up with any reason not to simply park cash in a short term bond fund as opposed to a savings account? Obviously it means a bit more effort at tax time, but it seems an extremely safe way to get a decent yield on savings without tying it up and subjecting it to significant NAV volatility.
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Re: Park cash in short-term bond fund?

Postby z3r0c00l » Sat Dec 22, 2012 8:26 am

Is this E fund money? If it is investing money, put it into your already set asset allocation. If it is E fund money, put it into a CD (ally etc.) so it is truly safe.
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Re: Park cash in short-term bond fund?

Postby Tigermoose » Sat Dec 22, 2012 8:30 am

I-bonds are good for a segment of your emergency fund. Just remember, that I-bonds aren't redeemable for the 1st year. And there is a limit to how much you can buy in a year -- $10k per social security number I believe.
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Re: Park cash in short-term bond fund?

Postby livesoft » Sat Dec 22, 2012 8:52 am

I use short-term bond funds for investing, but I am not sure what you mean by "park cash". I use a checking account to park cash for a week or two before I pay my credit card bills.

If you do not expect to spend this money within the next couple of months and you would not be bothered by a loss of say 1% in that time period, then by all means use a short-term bond fund.

Some folks are extremely bothered by volatility and could not do this.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Park cash in short-term bond fund?

Postby john94549 » Sat Dec 22, 2012 10:16 am

I've never used a CD to park "cash" (ready-access funds), although I have used VFSTX and a garden-variety savings account (mine yields a paltry 0.8%), as well as VMMXX. I think of cash as stuff in my wallet or the ATM machine.
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Re: Park cash in short-term bond fund?

Postby eddiejov55 » Sat Dec 22, 2012 10:50 am

I use Vanguard tax-exempt bond to park my short term reserves. If you are bothered by a few small drops then just boost your reserves a bit to give you some cushion.
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Re: Park cash in short-term bond fund?

Postby tfb » Sat Dec 22, 2012 11:43 am

StophJS wrote:Can anyone come up with any reason not to simply park cash in a short term bond fund as opposed to a savings account? Obviously it means a bit more effort at tax time, but it seems an extremely safe way to get a decent yield on savings without tying it up and subjecting it to significant NAV volatility.

Yes, because they are ways to get the same yield without the NAV volatility.
Harry Sit, taking a break from the forums.
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Re: Park cash in short-term bond fund?

Postby livesoft » Sat Dec 22, 2012 11:45 am

Is it worth the volatility to get a possible better total return than the same yield elsewhere? It has been in the past.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Park cash in short-term bond fund?

Postby bUU » Sat Dec 22, 2012 11:49 am

I cannot see tying up e-fund cash for a year to earn another $150 in interest on it. Interest rates are too darned low, and therefore the difference between high-interest checking and a CD costs less than one trip to Bed Bath and Beyond.
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Re: Park cash in short-term bond fund?

Postby MN Finance » Sat Dec 22, 2012 11:51 am

I agree that if you can't loose any money, then it needs to stay in something very safe. I keep $5K cash in my sock drawer. But if someone is willing to take some risk, then you can certainly do something else. I keep 12 mos EF in higher yield bonds. If I need the cash for a job loss (which has happened), I'm perfectly willing to risk a short term loss for the longer term gain on the money
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Re: Park cash in short-term bond fund?

Postby epilnk » Sat Dec 22, 2012 2:15 pm

Because it is not cash. I keep a small amount of cash in a money market account, and a backup reserve in a short muni account. Because we voted ourselves a tax increase in November, I need to send some of that to the state and I prefer to do that by years' end. When I went to sell some yesterday the fund had dropped into the red. A very small loss, but a loss nonetheless - I can't say the bond fund is outperforming the money market.
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Re: Park cash in short-term bond fund?

Postby jbh42 » Sat Dec 22, 2012 2:25 pm

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Re: Park cash in short-term bond fund?

Postby livesoft » Sat Dec 22, 2012 2:36 pm

MN Finance wrote:I agree that if you can't loose any money, then it needs to stay in something very safe. I keep $5K cash in my sock drawer.

Wow! That certainly is not very safe. What if your cash runs away with some of your socks?! My socks keep disappearing all the time. I certainly wouldn't want to let my cash disappear the same way.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Park cash in short-term bond fund?

Postby Grt2bOutdoors » Sun Dec 23, 2012 12:25 pm

MN Finance wrote:I agree that if you can't loose any money, then it needs to stay in something very safe. I keep $5K cash in my sock drawer. But if someone is willing to take some risk, then you can certainly do something else. I keep 12 mos EF in higher yield bonds. If I need the cash for a job loss (which has happened), I'm perfectly willing to risk a short term loss for the longer term gain on the money


If your monthly expenses are $20K, then a weeks worth of cash is no biggie. If your monthly expenses are $2K - then that is much too much to keep lying around.
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Re: Park cash in short-term bond fund?

Postby Grt2bOutdoors » Sun Dec 23, 2012 12:26 pm

livesoft wrote:
MN Finance wrote:I agree that if you can't loose any money, then it needs to stay in something very safe. I keep $5K cash in my sock drawer.

Wow! That certainly is not very safe. What if your cash runs away with some of your socks?! My socks keep disappearing all the time. I certainly wouldn't want to let my cash disappear the same way.


Check the washing machine or the dryer.
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Re: Park cash in short-term bond fund?

Postby STC » Sun Dec 23, 2012 12:29 pm

I use iBonds for my cash needs beyond checking / credit cards. I love them!
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Re: Park cash in short-term bond fund?

Postby epilnk » Sun Dec 23, 2012 3:28 pm

Grt2bOutdoors wrote:
livesoft wrote:
MN Finance wrote:I agree that if you can't loose any money, then it needs to stay in something very safe. I keep $5K cash in my sock drawer.

Wow! That certainly is not very safe. What if your cash runs away with some of your socks?! My socks keep disappearing all the time. I certainly wouldn't want to let my cash disappear the same way.


Check the washing machine or the dryer.

Or the lint filter. If the lint takes on the hue of greenbacks you're in trouble.
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Re: Park cash in short-term bond fund?

Postby Dandy » Mon Dec 24, 2012 11:19 am

The yield on short term bonds is not very good and contain some risk. You can find comparable yields with on line bank FDIC vehicles with no risk. You can surely go to short term bonds but don't get too upset if they take a short term hit when interest rates rise. If you are in it for a intermediate or longer term there should be no problem. VG short term index is about .50% yield and short term investment grade 1.15% vs some on line banks that have savings, money markets and CDS that are higher and safer than short term index and the CDs are higher than and safer than the short term investment grade. Hey not a major difference that will put you into a new tax bracket but "no" risk to your investment. When interest rate rise you can move money from safe to short term bonds and get a getter return for you risk.
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Re: Park cash in short-term bond fund?

Postby Call_Me_Op » Mon Dec 24, 2012 11:26 am

StophJS wrote:Can anyone come up with any reason not to simply park cash in a short term bond fund as opposed to a savings account? Obviously it means a bit more effort at tax time, but it seems an extremely safe way to get a decent yield on savings without tying it up and subjecting it to significant NAV volatility.


I can think of one reason - you may lose money.
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Re: Park cash in short-term bond fund?

Postby john94549 » Tue Dec 25, 2012 3:41 am

Moving right along, ready-access funds (aka emergency funds, or stuff you really, truly, don't want to risk) historically has been in short-term bond funds, very short-term CDs, or garden-variety savings accounts. As we all now know, short-term Fixed-Income products, by-and-large, have a negative real rate of return (which, simply stated, means they earn less than inflation).

That said, folks over 59 1/2 with IRA CDs can do a bit better. PenFed has the best rates, with Northwest FCU and StateFarmBank lagging. To say the least, not a fan of bond funds these days.

Feel free to PM me.
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Re: Park cash in short-term bond fund?

Postby Bud » Tue Dec 25, 2012 8:56 am

Prime Money Market yields .04% so on $10,000 a person earns $4/year (without compounding)
Short Term Bond Index yields .51% so on $10,000 a person earns $51/year.

The ST Bond Index has very little volatility. Is the shift worth the trouble to you personally? If the value is $100,000 or $1,000,000 that also could affect the decision. For me, I would not consider it worth the trouble if the value is less than $10,000. Just my 2 cents....
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Re: Park cash in short-term bond fund?

Postby sscritic » Tue Dec 25, 2012 9:17 am

I used to use Short-term Investment-Grade as a checking account back when it had a different name (it used to have corporate in the title*). The fun part was writing on the check which particular shares you were selling so you could use specific ID at tax time.

[One of the above two sentences is a joke.]

* Found it: Short Term Corporate Portfolio of the Fixed Income Securities Fund

P.S. Why does Vanguard make it so hard to find the old names of funds? It's like they want to erase history, so when they change the name of the fund, they leave no traces behind.

Ah, I did find a trace. Fund number 39 is still fund number 39, but you had to know that Short Term Corporate Portfolio was fund number 39. The name is gone, but the number lives on. Maybe the SEC has a trace; I am sure they do.
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Re: Park cash in short-term bond fund?

Postby john94549 » Tue Dec 25, 2012 10:52 am

Short-term fixed-income is a major yawn these days. Keep no more than you must therein.

Even those with CD ladders, going out rolling with five-year CDs, it's still numbingly pathetic.

I mean, think like a sixth-grader. You have a Benjamin, a hundred bucks. WOW! You could plop it in a five-year CD and earn (if you're lucky) $2 per year, compounded. Yuck.
Last edited by john94549 on Tue Dec 25, 2012 11:02 am, edited 1 time in total.
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Re: Park cash in short-term bond fund?

Postby livesoft » Tue Dec 25, 2012 11:01 am

john94549 wrote:Short-term fixed-income is a major yawn these days. Keep no more than you must therein.

Even those with CD ladders, going out rolling with five-year CDs, it's still numbingly pathetic.

I'm yawning about this year's 5.3% total return of the Vanguard short-term corporate bond index fund. I seriously doubt if that can be repeated in 2013.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Park cash in short-term bond fund?

Postby john94549 » Tue Dec 25, 2012 11:06 am

livesoft wrote:I'm yawning about this year's 5.3% total return of the Vanguard short-term corporate bond index fund. I seriously doubt if that can be repeated in 2013.


Agree, which is why I booked green when I could.
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Re: Park cash in short-term bond fund?

Postby Index Fan » Tue Dec 25, 2012 11:20 am

StophJS wrote:Can anyone come up with any reason not to simply park cash in a short term bond fund as opposed to a savings account?


I use the Short Term Bond Index as an interest-bearing 'checking account' these days.
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Re: Park cash in short-term bond fund?

Postby john94549 » Tue Dec 25, 2012 11:33 am

I use Alliant CU as my primary savings/checking. I keep my ready-access funds in their garden-variety savings account (0.8%) until needed. Then, with the click of a mouse, the funds are transferred to checking. It's basically an interest-bearing checking account, like the good old days. I do not regard "rewards checking" in the same vein, due to the many hoops.
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Re: Park cash in short-term bond fund?

Postby BlueEars » Tue Dec 25, 2012 5:47 pm

Another of the many ways to deal with cash needs:

1) I rebalance when equities move 1% above the AA. This provides much of the cash needs as on average this happens about 4 times per year (backtested).
2) Our actual cash is currently in a Rewards Checking account.
3) The next level up in our bond holdings (in terms of duration) is currently Short Term Investment Grade. I keep around 1 year of expenses here.

If stocks decline then #1 doesn't lead to cash replenishment. In that case #3 is likely to be the source and ST IG is likely to go up if stocks decline -- but obviously this does not happen all of the time.
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