switch bonds to money mkt?

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miket29
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switch bonds to money mkt?

Post by miket29 » Mon Oct 22, 2018 2:41 pm

I read an article in the NYT today that says money market yields are now around 2% and that the yield is attractive compared to bond funds. The article is at https://www.nytimes.com/2018/10/12/busi ... sh-in.html
“The boost in yield you get from owning intermediate- and longer-term bonds is very, very low, and you are taking a lot more risk,” said Michael Fredericks, head of income investing for the BlackRock Multi-Asset Strategies group. That it’s now possible to earn something on shorter-term investments “changes the calculus a lot in the way you think about things,” Mr. Fredericks said.
As I near retirement my portfolio has a sizeable bond component, largely in intermediate but some in short term bonds. I'm hesitant to start trading, I've been more of a buy-and-hold investor rather than trying to time market swings. But does it make sense to shift some or a great deal of the bonds into a money market account and then switch back when rates are higher? The money is in a rollover account so there would be no tax implications of a switch.

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vineviz
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Re: switch bonds to money mkt?

Post by vineviz » Mon Oct 22, 2018 2:52 pm

miket29 wrote:
Mon Oct 22, 2018 2:41 pm
But does it make sense to shift some or a great deal of the bonds into a money market account and then switch back when rates are higher? The money is in a rollover account so there would be no tax implications of a switch.
No, this does not make sense. Ignore the pundits, and stay the course with your buy-and-hold strategy.

Let's assume that by "nearing retirement" you are 60 years old and plan to retire at age 65.

That means that the FIRST withdrawal from your retirement portfolio is five years away and the AVERAGE of all your expected withdrawals is something like 25 or 30 years away. Most of your bonds should still be in intermediate or long-term bonds (maybe 2/3 nominal bonds and 1/3 TIPS).

If you're not yet retired, no more than 20-25% of your bond allocation needs to be in short-term bonds and NONE of it should be in a money market account.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Taylor Larimore
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Re: switch bonds to money mkt?

Post by Taylor Larimore » Mon Oct 22, 2018 3:11 pm

miket29 wrote:
Mon Oct 22, 2018 2:41 pm
I read an article in the NYT today that says money market yields are now around 2% and that the yield is attractive compared to bond funds. The article is at https://www.nytimes.com/2018/10/12/busi ... sh-in.html
“The boost in yield you get from owning intermediate- and longer-term bonds is very, very low, and you are taking a lot more risk,” said Michael Fredericks, head of income investing for the BlackRock Multi-Asset Strategies group. That it’s now possible to earn something on shorter-term investments “changes the calculus a lot in the way you think about things,” Mr. Fredericks said.
As I near retirement my portfolio has a sizeable bond component, largely in intermediate but some in short term bonds. I'm hesitant to start trading, I've been more of a buy-and-hold investor rather than trying to time market swings. But does it make sense to shift some or a great deal of the bonds into a money market account and then switch back when rates are higher? The money is in a rollover account so there would be no tax implications of a switch.
miket29:

You should decide whether you are going to stay-the-course as Mr. Bogle recommends, or whether you are going to exchange securities (market-timing) every time you read an article recommending one security or another.

I have held Vanguard Total Bond Market since 1986 (now the world's largest bond fund and for good reasons). I love its broad diversification -- the only "free-lunch" in investing.
Stay the course. No matter what happens, stick to your program. I've said "Stay the course" a thousand times, and I meant it every time. It is the most important single piece of investment wisdom I can give to you. -- Jack Bogle in "Common Sense on Mutual Funds"
Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

cyclist
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Re: switch bonds to money mkt?

Post by cyclist » Tue Oct 23, 2018 8:39 am

vineviz wrote:
Mon Oct 22, 2018 2:52 pm
If you're not yet retired, no more than 20-25% of your bond allocation needs to be in short-term bonds and NONE of it should be in a money market account.
And for those of us on the cusp of retiring...?

J295
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Re: switch bonds to money mkt?

Post by J295 » Tue Oct 23, 2018 9:01 am

Develop an IPS… Stick to it… Do life

Pursuant to our IPS, our “cash and fixed” includes BND, TIPS fund, Ibonds, Floating rate fund, CDs, money market.

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vineviz
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Re: switch bonds to money mkt?

Post by vineviz » Tue Oct 23, 2018 9:33 am

cyclist wrote:
Tue Oct 23, 2018 8:39 am
vineviz wrote:
Mon Oct 22, 2018 2:52 pm
If you're not yet retired, no more than 20-25% of your bond allocation needs to be in short-term bonds and NONE of it should be in a money market account.
And for those of us on the cusp of retiring...?
I've worked out a glide path for the bond allocation of a sample retiring investor, which illustrates MY approach to this. I'll leave it up to others to evaluate whether it suits their needs or not. It's a bit more conservative than I'd probably approach this for myself (the bond duration is shorter than the investor's time horizon, for instance), but I think it's a good middle-of-the road take on things and might serve as discussion point.

Image

In this illustration I've used the total bond market index fund as much as possible which, because it contains a good amount of short-term bonds already, obviates the need to hold more than three bond funds at once. In this scenario you'd hold a core of both TBM and TIPS for most of retirement, supplementing with either long-term bonds (before retirement) or short-term bonds (after retirement begins) to manage interest rate risk.

This graph reflects just the bond portion of your retirement portfolio, but it does assume that equities are still making up between 40% and 75% of your portfolio during this time. If you held less in stocks you might need to hold more in TIPS to offset inflation risk. Also if your inflation-adjusted non-portfolio income (e.g. pensions, social security) add up to less than 25% of your retirement income you might also want more TIPS.

Also, you probably want to have 1 or 2 years of withdrawals in a true cash account (e.g. money market fund, high-interest savings, or CDs) but I treat those as being OUTSIDE the investment portfolio personally.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

TBillT
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Re: switch bonds to money mkt?

Post by TBillT » Tue Oct 23, 2018 10:10 am

Well, to some degree (as far as OP orig question).
Some of my bond funds were substitutes for money market funds/CDs which were paying zero for the last 10 years or so.
So those funds I have started to change over.

Some others of my bonds/funds (longer term bonds) are for buy and hold and to balance off market risk. Those include actual bonds, not just funds. Those I am holding but return is not great lately obviously.

michaeljc70
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Re: switch bonds to money mkt?

Post by michaeljc70 » Tue Oct 23, 2018 10:38 am

Compare what US bond funds returned around the last crisis compared to money market accounts. MMs have no principal upside. Of course, they generally have no principal downside either.

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ruralavalon
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Re: switch bonds to money mkt?

Post by ruralavalon » Tue Oct 23, 2018 11:19 am

miket29 wrote:
Mon Oct 22, 2018 2:41 pm
As I near retirement my portfolio has a sizeable bond component, largely in intermediate but some in short term bonds. I'm hesitant to start trading, I've been more of a buy-and-hold investor rather than trying to time market swings. But does it make sense to shift some or a great deal of the bonds into a money market account and then switch back when rates are higher? The money is in a rollover account so there would be no tax implications of a switch.
No.

Stick with an intermediate-term bond fund.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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