Bonds or Money Market?

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DKD
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Bonds or Money Market?

Post by DKD » Wed Nov 22, 2017 10:07 pm

With the poor performance of the bond market in past few years, and the low interest rates, what are people's thoughts on shifting from bonds to money markets? This balances the portfolio in a similar manner as stocks/bonds (stocks/money market), providing about the same return, while minimizing downside risk of increasing interest rates. Thoughts?

sambb
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Re: Bonds or Money Market?

Post by sambb » Wed Nov 22, 2017 10:11 pm

my intermed tax exempt bond fund is up > 4% year to date, which is over 5.5% tax equivalent yield.
Dont see why i would cosinder MM

DKD
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Re: Bonds or Money Market?

Post by DKD » Wed Nov 22, 2017 10:20 pm

sambb wrote:
Wed Nov 22, 2017 10:11 pm
my intermed tax exempt bond fund is up > 4% year to date, which is over 5.5% tax equivalent yield.
Dont see why i would cosinder MM

Which fund is that exactly?

billfromct
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Re: Bonds or Money Market?

Post by billfromct » Wed Nov 22, 2017 10:55 pm

Depends when you need the money & the duration of the bond fund or funds.

In my rollover IRA, which I will start RMDs in the next year or so, my bond allocation is 40% of the total. It is short term (2.5 year duration; 40% of my bond allocation) & intermediate term (5.5 year duration; 60% of my bond allocation) which will cover about 10 years of IRA withdrawals.

I have 10 years to ride out any bond market fluctuations as interest rates rise. I think short/intermediate term bonds will out perform MM funds over the next 10 or so years. If bond funds don't out perform MM funds over the next 10 years, we're in trouble.

bill

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dwickenh
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Re: Bonds or Money Market?

Post by dwickenh » Wed Nov 22, 2017 11:07 pm

If stocks go south, a good high quality bond fund will usually appreciate beyond its yield in time. A MM fund will stay with the yield and not provide any positive ballast past the yield. At least that is what has happened in the past.......
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

jalbert
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Re: Bonds or Money Market?

Post by jalbert » Thu Nov 23, 2017 12:53 am

DKD wrote:
Wed Nov 22, 2017 10:07 pm
With the poor performance of the bond market in past few years, and the low interest rates, what are people's thoughts on shifting from bonds to money markets? This balances the portfolio in a similar manner as stocks/bonds (stocks/money market), providing about the same return, while minimizing downside risk of increasing interest rates. Thoughts?
VBTLX = total US bond index fund
VMFXX = federal money market fund
Comparing 3-yr performance
Risk is not a guarantor of return.

3funder
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Re: Bonds or Money Market?

Post by 3funder » Thu Nov 23, 2017 7:26 am

When will you need the money?

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ruralavalon
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Re: Bonds or Money Market?

Post by ruralavalon » Thu Nov 23, 2017 7:42 am

DKD wrote:
Wed Nov 22, 2017 10:07 pm
With the poor performance of the bond market in past few years, and the low interest rates, what are people's thoughts on shifting from bonds to money markets? This balances the portfolio in a similar manner as stocks/bonds (stocks/money market), providing about the same return, while minimizing downside risk of increasing interest rates. Thoughts?
We use Vanguard Intermediate-term Bond Index Fund Admiral Shares (VBILX), total return is 4.01% year to date, 3.71% last 12 months, 2.90% last 3 years, and 2.31% last 5 years.

I would not say that there has been "poor performance of the bond market in [the] past few years". I see no advantage to using a money market fund instead.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

dbr
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Re: Bonds or Money Market?

Post by dbr » Thu Nov 23, 2017 9:39 am

For an investor with a few hundred 000's in a portfolio and maybe a 50/50 asset allocation holding $100,000-$500,000 in a money market fund would be ludicrous. Somebody with $50,000 to their name might well keep all of that in a money market though a savings account would probably be more sensible. A guy with $10M might indeed have a couple hundred thousand in a money market for various reasons, but I would be sure he would not abandon bonds for money market funds. Maybe you could be more specific what you have in mind.

Call_Me_Op
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Re: Bonds or Money Market?

Post by Call_Me_Op » Thu Nov 23, 2017 9:46 am

Rather than money market funds, I would favor high-quality short-term bonds. I do not see the big advantage of the stable NAV and I think it actually introduces new risks.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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jhfenton
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Re: Bonds or Money Market?

Post by jhfenton » Thu Nov 23, 2017 10:05 am

sambb wrote:
Wed Nov 22, 2017 10:11 pm
my intermed tax exempt bond fund is up > 4% year to date, which is over 5.5% tax equivalent yield.
Dont see why i would cosinder MM
Agreed. My five bond funds have returned between 2.01% (Vg Inter Govt Bd Indx) and 5.33% (Vg Inter Corp Bd Indx) YTD:

VICSX 5.33%
VOHIX 5.24% (Vg OH LT TE)
PTTRX 5.07% (Pimco Total Return Inst in 401(k))
VSCSX 2.42% (Vg Short Corp Bd Indx)
VSIGX 2.01%

The three-year averages range from 1.68% (VSIGX) to 4.03% (VICSX) (or 3.84% tax-exempt for VOHIX).

So I also reject the premise of the original question. What have folks made over three years sitting in money markets? For two years of it, they made virtually nothing. The last year, less than 1%.

DKD
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Re: Bonds or Money Market?

Post by DKD » Thu Nov 23, 2017 10:10 am

ruralavalon wrote:
Thu Nov 23, 2017 7:42 am
DKD wrote:
Wed Nov 22, 2017 10:07 pm
We use Vanguard Intermediate-term Bond Index Fund Admiral Shares (VBILX), total return is 4.01% year to date, 3.71% last 12 months, 2.90% last 3 years, and 2.31% last 5 years.
I'm not sure where you're seeing the performance data you're showing above. Here's what I see for VBILX

1 Year -0.58%
3 years +3.26%
5 years +2.32%

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jhfenton
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Re: Bonds or Money Market?

Post by jhfenton » Thu Nov 23, 2017 10:13 am

DKD wrote:
Thu Nov 23, 2017 10:10 am
ruralavalon wrote:
Thu Nov 23, 2017 7:42 am
DKD wrote:
Wed Nov 22, 2017 10:07 pm
We use Vanguard Intermediate-term Bond Index Fund Admiral Shares (VBILX), total return is 4.01% year to date, 3.71% last 12 months, 2.90% last 3 years, and 2.31% last 5 years.
I'm not sure where you're seeing the performance data you're showing above. Here's what I see for VBILX

1 Year -0.58%
3 years +3.26%
5 years +2.32%
ruralavalon's are correct, according to M*.

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welderwannabe
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Re: Bonds or Money Market?

Post by welderwannabe » Fri Nov 24, 2017 9:11 pm

I swung my short term tax exempt money over to the municipal money market at Vanguard a while ago. I left my Intermediate term fund as is.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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