More cash instead of bonds

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teddytimtam
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More cash instead of bonds

Post by teddytimtam » Tue Aug 14, 2018 8:14 am

With 2+% money markets are available nowadays; does anyone hold more cash instead of bonds?

What are the pros/cons of doing so?

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oldcomputerguy
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Re: More cash instead of bonds

Post by oldcomputerguy » Tue Aug 14, 2018 8:21 am

I don't. FSITX (Fidelity's total bond fund) is paying 2.7% right now, so I'm leaving it alone and letting it compound.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

Call_Me_Op
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Re: More cash instead of bonds

Post by Call_Me_Op » Tue Aug 14, 2018 8:41 am

teddytimtam wrote:
Tue Aug 14, 2018 8:14 am
With 2+% money markets are available nowadays; does anyone hold more cash instead of bonds?

What are the pros/cons of doing so?
You are likely leaving money on the table as long as you do not need the funds right away. There is no sin in doing that, but that's the price you would likely pay.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

glock19
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Re: More cash instead of bonds

Post by glock19 » Tue Aug 14, 2018 8:50 am

FSITX shows 30 day SEC yield of 3.09%. Duration is 5.93 years.

One year treasuries are yielding 2.5%, one year duration, and good liquidity.

Seems like in a rising interest rate environment, the negative 59 basis point spread might not be that bad. Personally I have chose to shorter the maturity on all my fixed income holdings.

gmaynardkrebs
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Re: More cash instead of bonds

Post by gmaynardkrebs » Tue Aug 14, 2018 8:51 am

teddytimtam wrote:
Tue Aug 14, 2018 8:14 am
With 2+% money markets are available nowadays; does anyone hold more cash instead of bonds?

What are the pros/cons of doing so?
More cash than bonds in a retirement portfolio doesn't make a lot of sense, but we have a fair number of people here who say they are staying on the short to intermediate side of duration because the rates on longer term bonds aren't much higher. I favor matching duration to your future liabilities regardless, but staying short, or even in cash, could pay off if longer term interest rates rise more than is already priced in. However, if there is a recession, holders of long term bonds would likely come out ahead. It's really up to you.

DrivingFun
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Re: More cash instead of bonds

Post by DrivingFun » Tue Aug 14, 2018 8:56 am

Intermediate Tax Except is paying about 2.5%, I guess that's about 1% more considering taxes. Whether that's worth the risk, I don't know. I also don't know what that spread will look like in a year, as interest rates continue to rise.

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ruralavalon
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Re: More cash instead of bonds

Post by ruralavalon » Tue Aug 14, 2018 11:58 am

teddytimtam wrote:
Tue Aug 14, 2018 8:14 am
With 2+% money markets are available nowadays; does anyone hold more cash instead of bonds?

What are the pros/cons of doing so?
No, we still hold our fixed income allocation in Vanguard Intermediate-term Bond Index Fund Admiral Shares (VBILX), current SEC Yield = 3.37%, average effective duration = 6.36 years. This is in my rollover IRA.

I do feel that Vanguard Prime Money Market Fund (VMMXX) current SEC Yield = 2.06% is becoming plausible as a fixed income investment.
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TLB
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Re: More cash instead of bonds

Post by TLB » Tue Aug 14, 2018 12:54 pm

I’m in a holding stage until I can figure out how to buy individual Muni Funds. Most of my money in taxable accounts are.

VMMXX Prime MM
VUSXX Treasury MM
VCTXX Ca. Muni MM

mega317
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Re: More cash instead of bonds

Post by mega317 » Tue Aug 14, 2018 12:56 pm

There is nothing particularly wrong with taking less risk and accepting lower returns. But if you are unhappy with the risk level in your portfolio, the thing to address is the stock/bond ratio.

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whodidntante
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Re: More cash instead of bonds

Post by whodidntante » Tue Aug 14, 2018 12:58 pm

I have shortened duration by allocating half to a stable value fund.

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Earl Lemongrab
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Re: More cash instead of bonds

Post by Earl Lemongrab » Tue Aug 14, 2018 2:55 pm

When I set up my portfolio in 2007, I decided on 50/50 bond index fund and stable value. I don't see any reason to change. A core principle of my IPS is that I have no talent for timing markets. That includes bonds.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

FritzW
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Re: More cash instead of bonds

Post by FritzW » Tue Aug 14, 2018 8:44 pm

For those replies from people owning FSITX, I know what the current yield is, but actual return YTD is -1.24%. Yield seems to have been completely overtaken by actual performance. I'm not sure how to justify owning this instead of 1-year T-Bills, for example.

mega317
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Re: More cash instead of bonds

Post by mega317 » Tue Aug 14, 2018 11:45 pm

A T-bill can lose value as well. Let's say you buy at 2.4% today. In 52 weeks you will have made ~$24. But if rates rise and tomorrow one can buy at 5%, then one could make ~$50 in 52 weeks a 1 day. You couldn't resell your bill for anything near what you paid because it is now worth less, almost exactly $26 less. You lost about 2.6%. Obviously this is an exaggerated example but such is with all bonds and fixed income of any duration. Just because you're not trying to sell your bond, or bill, or CD, doesn't make it immune to rising rates. A bond fund just shows these changes more visibly in real time.

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Earl Lemongrab
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Re: More cash instead of bonds

Post by Earl Lemongrab » Wed Aug 15, 2018 12:01 am

FritzW wrote:
Tue Aug 14, 2018 8:44 pm
For those replies from people owning FSITX, I know what the current yield is, but actual return YTD is -1.24%. Yield seems to have been completely overtaken by actual performance. I'm not sure how to justify owning this instead of 1-year T-Bills, for example.
But that's already happened. It tells you nothing about what will happen. The SEC yield is the best determiner. That doesn't mean it's accurate. If you think about it, the drop in bond fund share value really makes that a more attractive investment for new money. The shares are cheaper and have a higher yield than earlier in the year.

The best idea is to have an asset allocation that you stick to. Don't try to outguess the market. There are people who get paid to do it who aren't very successful.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

smectym
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Re: More cash instead of bonds

Post by smectym » Wed Aug 15, 2018 12:06 am

Keeping in mind the concept of RAR (Risk Adjusted Return), when you can get 2.6% on a 2-year note, I’d suggest that is a superior RAR to 2.8% on a 10-yr, to say nothing of 3.1% or whatever on the 30-year. Short duration treasuries are the right play, period. “Stay the Course” on long bonds if you must; however, in light of the current yield curve, consider that you may not be properly compensated for the risk you’re taking on.

And if the investor seeks maximum liquidity and a stable $1.00 share price then a treasury money market fund is a perfectly sensible solution. Nominally zero risk and now, for a change, a nominally non-zero yield: go for it.

Smectym

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peterinjapan
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Re: More cash instead of bonds

Post by peterinjapan » Wed Aug 15, 2018 1:33 am

I'll chime in with the Fidelity Brokered CDs page. 2.8% for 2 year, it works for me.

Info https://fixedincome.fidelity.com/ftgw/f ... -new-issue

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