Is anybody using BND as a way to park cash?

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Topic Author
Christian NY
Posts: 66
Joined: Fri Apr 14, 2017 3:46 pm

Is anybody using BND as a way to park cash?

Post by Christian NY »

I have some reserves in a money market bank account which these days pays almost nothing.
I don't have anything set up that automatically add funds to my portfolio, I kinda like to save some money ($50-100k) and then invest.
I was thinking about this and I was wondering if anybody here is using BND as a way to park cash? I realize you need to be fairly confident in your future and work situation but isn't it better than have it simply sit in a bank account?
It seems like the way BND is set up you can't really lose much? And on rare occasions when it does go down, stocks do so well that if you really need some money you could sell some stocks. Please correct me if I am wrong.
And yes, I do of course realize that it's down so far for 2017.
Also, I would be very interested in alternatives. Someone mentioned preferred AT&T stock paying 5% interest, could this be another alternative? Thanks!
BND:
2016 2.54%
2015 0.49%
2014 5.87%
2013 –2.11%
2012 3.99%
2011 7.86%
2010 6.25%
2009 3.46%
2008 7.50%
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Is anybody using BND as a way to park cash?

Post by dbr »

For you holding money in BND would probably be fine. I would take exception with the concept that this amounts to "parking cash." I don't know what you mean by that but a total bond fund of intermediate duration is certainly not the same thing as cash. I doubt most people use BND to "park cash" in the usual sense of the word, but I am reading into your post that you don't really mean cash anyway.

Putting money of the sort you describe into a single stock such as AT&T would be idiotic, meaning the chance and degree of losing money would be an order of magnitude greater than in BND and that there is also a non-zero chance of losing all the money forever.
radiowave
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Re: Is anybody using BND as a way to park cash?

Post by radiowave »

Are you aware of online high yield savings accounts? Some common ones are: Ally, American Express, Discover, Synchrony. Ally currently has an 11 month 1.50% CD non penalty withdrawal ($25k minimum). FDIC insured to $250k per person. If you just want to "park cash" that would probably be the best first option.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page
gmc4h232
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Joined: Wed Jan 27, 2016 7:11 am

Re: Is anybody using BND as a way to park cash?

Post by gmc4h232 »

I just got done moving a chunk of money from Ally into Vanguard's Short Term Investment Grade Bond fund to accomplish exactly what you're talking about. This fund has a shorter average duration than BND, which in theory reduces the interest rate risk. The key is to hold in a tax advantaged account.

You may find this link helpful:
https://www.bogleheads.org/wiki/Placing ... ed_account
lack_ey
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Joined: Wed Nov 19, 2014 10:55 pm

Re: Is anybody using BND as a way to park cash?

Post by lack_ey »

okay, BND = Vanguard Total Bond Market ETF (using Bloomberg Barclays U.S. Aggregate Float Adjusted Index)

First of all, maybe you're using the wrong banks. You can readily get better rates if you look around.

Bonds aren't really a cash substitute. An intermediate-term fund (on average) is not near-cash either. But at least both are a lot closer than a single, undiversified preferred stock might be.

We've had a pretty strong run of declining rates (other than the 2013 hiccup, some movement like the end of 2015) and then some declining credit spreads overall since the financial crisis, all of which are making BND look more consistent than it should normally be. The even older returns also leave that impression if you look at nominal returns and forget that yields used to be higher—for example a 5% loss in principal with 6% in coupons would be a positive year, but a 5% loss in principal with today's ~2.5% coupons would be a negative year. You're also not capturing a lot of intra-year losses quoting calendar-year returns.

We've also had a decade and a half of pretty diverging stock and (safe) bond performance. Even during this period you can't strongly count on stocks and bonds to go in opposite ways. In general that's completely not true at many points.

In any case it's unclear whether you actually need something close to cash. If all this is definitely earmarked to long-term investments anyway, what should you really care about volatility in the short term before this is allocated to what it's supposed to be? Without further information I will just say that if you're looking for a suitable ETF, something like Vanguard Short-Term Bond Index Fund ETF (BSV) may be closer to what you want.
Topic Author
Christian NY
Posts: 66
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Re: Is anybody using BND as a way to park cash?

Post by Christian NY »

dbr wrote: Wed Aug 23, 2017 7:23 pm For you holding money in BND would probably be fine. I would take exception with the concept that this amounts to "parking cash." I don't know what you mean by that but a total bond fund of intermediate duration is certainly not the same thing as cash. I doubt most people use BND to "park cash" in the usual sense of the word, but I am reading into your post that you don't really mean cash anyway.

Putting money of the sort you describe into a single stock such as AT&T would be idiotic, meaning the chance and degree of losing money would be an order of magnitude greater than in BND and that there is also a non-zero chance of losing all the money forever.
Hi again! Thanks for your reply! Yes, maybe I didn't use the right terminology, I mean an alternative to keeping reserves in a bank account. My actual portfolio is fully formed at this point with everything automatically reinvested.
Of course I did not mean buy AT&T stock with all available money. I meant perhaps 10 "preferred" stocks like AT&T paying high dividends for 50% of the reserve and BND for the other 50% of the reserves.
dbr
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Re: Is anybody using BND as a way to park cash?

Post by dbr »

Christian NY wrote: Wed Aug 23, 2017 7:41 pm
dbr wrote: Wed Aug 23, 2017 7:23 pm For you holding money in BND would probably be fine. I would take exception with the concept that this amounts to "parking cash." I don't know what you mean by that but a total bond fund of intermediate duration is certainly not the same thing as cash. I doubt most people use BND to "park cash" in the usual sense of the word, but I am reading into your post that you don't really mean cash anyway.

Putting money of the sort you describe into a single stock such as AT&T would be idiotic, meaning the chance and degree of losing money would be an order of magnitude greater than in BND and that there is also a non-zero chance of losing all the money forever.
Hi again! Thanks for your reply! Yes, maybe I didn't use the right terminology, I mean an alternative to keeping reserves in a bank account. My actual portfolio is fully formed at this point with everything automatically reinvested.
Of course I did not mean buy AT&T stock with all available money. I meant perhaps 10 "preferred" stocks like AT&T paying high dividends for 50% of the reserve and BND for the other 50% of the reserves.
If you really mean preferred stocks rather than common stocks, you should probably read Larry Swedroe's book on Alternative Investments to see why you would not do that. If you mean by "preferred" large company high dividend paying stocks you should look up the many blog and other articles Larry has posted about investing for dividends for why that probably doesn't make sense even on it's own terms. If you really are thinking of shifting money that is cash or bonds to stocks then you should start studying up on the basics of asset allocation and the characteristics of different kind of assets before you do it. Larry Swedroe's books are good and so is Rick Ferri. To be blunt, if bonds are not at all cash, then stocks are really, really, really not cash and you are probably starting to make a big mistake.
Topic Author
Christian NY
Posts: 66
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Re: Is anybody using BND as a way to park cash?

Post by Christian NY »

gmc4h232 wrote: Wed Aug 23, 2017 7:29 pm I just got done moving a chunk of money from Ally into Vanguard's Short Term Investment Grade Bond fund to accomplish exactly what you're talking about. This fund has a shorter average duration than BND, which in theory reduces the interest rate risk. The key is to hold in a tax advantaged account.

You may find this link helpful:
https://www.bogleheads.org/wiki/Placing ... ed_account
Thanks, very useful info. Just want to make sure, are you talking about VFSUX? Looking at performance, except 2008 it has never gone negative. Also it appears that there is a strong inverse relationship between stocks and this fund...14% return for 2009!
mega317
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Re: Is anybody using BND as a way to park cash?

Post by mega317 »

Christian NY wrote: Wed Aug 23, 2017 7:41 pm I mean an alternative to keeping reserves in a bank account.
Literally anything you can think of is an alternative, but different alternatives will be appropriate for different goals. You haven't told us your goal. The best I can infer from your post is that you're talking about 50-100k you typically keep in cash before "investing" which I will assume is according to a defined plan. I would just go ahead and invest the money as it comes in rather than spend this effort looking for a different intermediate step.
Topic Author
Christian NY
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Re: Is anybody using BND as a way to park cash?

Post by Christian NY »

lack_ey wrote: Wed Aug 23, 2017 7:34 pm okay, BND = Vanguard Total Bond Market ETF (using Bloomberg Barclays U.S. Aggregate Float Adjusted Index)

The even older returns also leave that impression if you look at nominal returns and forget that yields used to be higher—for example a 5% loss in principal with 6% in coupons would be a positive year, but a 5% loss in principal with today's ~2.5% coupons would be a negative year. You're also not capturing a lot of intra-year losses quoting calendar-year returns.
May I ask a really silly question? If I never sell BND, does the price really matter that much? I realize this argument cannot be made with stocks because 1)you count much less on dividends and more on price appreciation and 2) As I get older I reduce the stock portion, which means sell, so the price is the important factor.
With something like BND, can I make the argument that I won't sell but rather buy more and more of it as I get older and rebalance every year and therefore it's the coupon that matters and not the price?
inbox788
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Re: Is anybody using BND as a way to park cash?

Post by inbox788 »

dbr wrote: Wed Aug 23, 2017 7:23 pmPutting money of the sort you describe into a single stock such as AT&T would be idiotic, meaning the chance and degree of losing money would be an order of magnitude greater than in BND and that there is also a non-zero chance of losing all the money forever.
OP, NO to preferred stocks and NO to individual stock risk. If you want higher risk/return, invest in stock funds. If you want relative safer investment, but still carries risk, invest in bond funds. Only safe cash like holdings are in things like FDIC insured savings and CD account.

I didn't come across any preferred stock for ATT that was yielding 5%, but the current dividend is around 5% and if I'm reading this correctly, their longer term bonds are also yielding almost 5%. Assuming ATT doesn't go bankrupt (agree, probably not zero), then if you believe the stock price will go up when you sell, you might as well buy the stock. If you think the stock price will remain the same or go down, then the bond is safer.
http://quicktake.morningstar.com/stockn ... x?symbol=t
This is a strange example to me, and I'm left wondering what the market is saying about their future expectations. I'm guessing it's stock isn't expected to go up by much. Comparatively, AAPL stock yields 1.58% dividend while their bonds report Apple 2.4% | Maturity:2023.

https://www.cbsnews.com/news/why-you-sh ... ed-stocks/

How long are you parking the cash for? What is the use? Matching your timeframe to the duration of the bond fund has been suggested here before.
https://www.bogleheads.org/wiki/Matching_strategy
Last edited by inbox788 on Wed Aug 23, 2017 8:25 pm, edited 1 time in total.
The Wizard
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Re: Is anybody using BND as a way to park cash?

Post by The Wizard »

I actually used VBILX, intermediate term bond, to accumulate funds for a new vehicle purchase two years ago.
It worked OK but in retrospect, I didn't like paying income tax on the ordinary dividends.

I am now "saving" for my next new vehicle in total stock market, VTSAX, and will deal with principal fluctuations as needed...
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whodidntante
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Re: Is anybody using BND as a way to park cash?

Post by whodidntante »

Christian NY wrote: Wed Aug 23, 2017 8:21 pm
May I ask a really silly question? If I never sell BND, does the price really matter that much? I realize this argument cannot be made with stocks because 1)you count much less on dividends and more on price appreciation and 2) As I get older I reduce the stock portion, which means sell, so the price is the important factor.
With something like BND, can I make the argument that I won't sell but rather buy more and more of it as I get older and rebalance every year and therefore it's the coupon that matters and not the price?
Some rationalize it that way. But paper losses are real losses, just without the tax deduction.
Iliketoridemybike
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Re: Is anybody using BND as a way to park cash?

Post by Iliketoridemybike »

I use AGG.
itstoomuch
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Re: Is anybody using BND as a way to park cash?

Post by itstoomuch »

Held and Holding high cash in Discretionary for past 10 months. We were/are buying a retirement/rental home.
YMMV
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
mega317
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Re: Is anybody using BND as a way to park cash?

Post by mega317 »

So you're talking about buying and holding? I am either not following you or the scope of the question is changing. In that case BND could be a great choice depending on your circumstances. Many use that (or the mutual fund equivalent) as the only bond holding in the portfolio.

Maybe you should post your whole situation like this
viewtopic.php?t=6212
to get some coherent advice.
venkman
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Re: Is anybody using BND as a way to park cash?

Post by venkman »

Christian NY wrote: Wed Aug 23, 2017 8:21 pm May I ask a really silly question? If I never sell BND, does the price really matter that much? I realize this argument cannot be made with stocks because 1)you count much less on dividends and more on price appreciation and 2) As I get older I reduce the stock portion, which means sell, so the price is the important factor.
With something like BND, can I make the argument that I won't sell but rather buy more and more of it as I get older and rebalance every year and therefore it's the coupon that matters and not the price?
For bonds, most of the return you get over the long term comes from income. If you plan to hold a bond fund forever, you WANT interest rates to go up. You'll take a current loss of principal, but you'll more than make up for it with increased yields over time.

VBMFX (Investor shares version of BND) started in Dec 1986 at a share price of $10. In the 30 years since, the lowest the share price has ever dropped to is $8.92, and the highest is $11.23 (based on the Morningstar price chart I'm looking at). That's a range of about 23% that the price has fluctuated in over 3 decades. The total cumulative return over that time has been about 500% (using PV numbers, Jan 1987 - Jul 2017). CAGR was 6.03%, with a Stdev of 3.85%. The max drawdown was -5.87% in 1987, and it had fully recovered by Jan 1988.

Assuming your tax bracket isn't too high, I think BND is a good choice for money you MAY need at some point down the road, but don't have any definite plans for. I'd be perfectly okay keeping an emergency fund in it (funded at 105%).
JBTX
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Re: Is anybody using BND as a way to park cash?

Post by JBTX »

Christian NY wrote: Wed Aug 23, 2017 7:15 pm I have some reserves in a money market bank account which these days pays almost nothing.
I don't have anything set up that automatically add funds to my portfolio, I kinda like to save some money ($50-100k) and then invest.
I was thinking about this and I was wondering if anybody here is using BND as a way to park cash? I realize you need to be fairly confident in your future and work situation but isn't it better than have it simply sit in a bank account?
It seems like the way BND is set up you can't really lose much? And on rare occasions when it does go down, stocks do so well that if you really need some money you could sell some stocks. Please correct me if I am wrong.
And yes, I do of course realize that it's down so far for 2017.
Also, I would be very interested in alternatives. Someone mentioned preferred AT&T stock paying 5% interest, could this be another alternative? Thanks!
BND:
2016 2.54%
2015 0.49%
2014 5.87%
2013 –2.11%
2012 3.99%
2011 7.86%
2010 6.25%
2009 3.46%
2008 7.50%
BND will be fine. As long as interest rates never go back up. If you are confident about that, then have at it.

Ibonds will match inflation, and are currently 2% per year. You can only put in $10K per year if single, $20K per year if married.
Topic Author
Christian NY
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Re: Is anybody using BND as a way to park cash?

Post by Christian NY »

JBTX wrote: Wed Aug 23, 2017 10:14 pm
Christian NY wrote: Wed Aug 23, 2017 7:15 pm I have some reserves in a money market bank account which these days pays almost nothing.
I don't have anything set up that automatically add funds to my portfolio, I kinda like to save some money ($50-100k) and then invest.
I was thinking about this and I was wondering if anybody here is using BND as a way to park cash? I realize you need to be fairly confident in your future and work situation but isn't it better than have it simply sit in a bank account?
It seems like the way BND is set up you can't really lose much? And on rare occasions when it does go down, stocks do so well that if you really need some money you could sell some stocks. Please correct me if I am wrong.
And yes, I do of course realize that it's down so far for 2017.
Also, I would be very interested in alternatives. Someone mentioned preferred AT&T stock paying 5% interest, could this be another alternative? Thanks!
BND:
2016 2.54%
2015 0.49%
2014 5.87%
2013 –2.11%
2012 3.99%
2011 7.86%
2010 6.25%
2009 3.46%
2008 7.50%
BND will be fine. As long as interest rates never go back up. If you are confident about that, then have at it.

Ibonds will match inflation, and are currently 2% per year. You can only put in $10K per year if single, $20K per year if married.
JBTX, sorry I still don't get it... you said:
"As long as interest rates never go back up. If you are confident about that, then have at it."
If I *NEVER* sell it...wouldn't it be better if interest rates go up? I realize that as interest rates go up the price of share goes down but if I never sell and keep buying more (due to getting older-reallocation) isn't it good if rates go up? If there's something I am not seeing clearly, please let me know!
mega317
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Re: Is anybody using BND as a way to park cash?

Post by mega317 »

If you will "*NEVER* sell" you should buy stocks. Or have we moved from advice to theory?
David Scubadiver
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Re: Is anybody using BND as a way to park cash?

Post by David Scubadiver »

Your premise seems to be based on the fact that you will always buy more because you are getting older. That will not be the case, however, if you have an asset allocation in mind, and it becomes out of balance. If stocks drop, presumably you will in fact sell BND so you can get back to whatever allocation you favor.
JBTX
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Re: Is anybody using BND as a way to park cash?

Post by JBTX »

Christian NY wrote: Fri Aug 25, 2017 2:10 pm
JBTX wrote: Wed Aug 23, 2017 10:14 pm
Christian NY wrote: Wed Aug 23, 2017 7:15 pm I have some reserves in a money market bank account which these days pays almost nothing.
I don't have anything set up that automatically add funds to my portfolio, I kinda like to save some money ($50-100k) and then invest.
I was thinking about this and I was wondering if anybody here is using BND as a way to park cash? I realize you need to be fairly confident in your future and work situation but isn't it better than have it simply sit in a bank account?
It seems like the way BND is set up you can't really lose much? And on rare occasions when it does go down, stocks do so well that if you really need some money you could sell some stocks. Please correct me if I am wrong.
And yes, I do of course realize that it's down so far for 2017.
Also, I would be very interested in alternatives. Someone mentioned preferred AT&T stock paying 5% interest, could this be another alternative? Thanks!
BND:
2016 2.54%
2015 0.49%
2014 5.87%
2013 –2.11%
2012 3.99%
2011 7.86%
2010 6.25%
2009 3.46%
2008 7.50%
BND will be fine. As long as interest rates never go back up. If you are confident about that, then have at it.

Ibonds will match inflation, and are currently 2% per year. You can only put in $10K per year if single, $20K per year if married.
JBTX, sorry I still don't get it... you said:
"As long as interest rates never go back up. If you are confident about that, then have at it."
If I *NEVER* sell it...wouldn't it be better if interest rates go up? I realize that as interest rates go up the price of share goes down but if I never sell and keep buying more (due to getting older-reallocation) isn't it good if rates go up? If there's something I am not seeing clearly, please let me know!
The duration of that fund is about 6 years.

If you don't mind temporarily losing money if interest rates go up, then sure park cash there.

I tend to assume parking cash implies trying to preserve principal. But if you can stand to lose 10-15% of value worst case scenario then fine.
petulant
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Re: Is anybody using BND as a way to park cash?

Post by petulant »

Consider shopping online for CDs or using the brokered CDs in a Vanguard brokerage account. You have the option to withdraw principal with a minor penalty, and you can structure maturity to the next time you will invest a large sum.
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welderwannabe
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Re: Is anybody using BND as a way to park cash?

Post by welderwannabe »

BND has a yield of 2.35% right now. With 2 year brokered CDs going for 1.75%, and 5 years at 2.40%, it is really hard for me to get excited about BND. It wouldn't be where I would 'park cash'.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.
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