Better returns than savings account.

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SmyleBogle
Posts: 3
Joined: Mon Nov 04, 2019 3:24 pm

Better returns than savings account.

Post by SmyleBogle » Sat Nov 16, 2019 6:22 pm

I have greater than 100K sitting in Savings Account which gives me 1.85% annual return :(

I was considering putting it in a bond for now.

https://personal.vanguard.com/us/funds/ ... undId=0028

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Would YTD for bonds be same as mutual funds or stocks .... if I had invested $$ amount last year, I would have gotten 19.14% for past year and I would be able to sell/buy bonds without any restriction (waiting for 15, 30 day before selling it)? I understand past performance is not a guarantee than future returns.

I understand its not good to time the market, but current market high's are too much for me to enter. What other alternative sources of investment would you recommend that gives better returns than savings account.

I am okay with not touching this money for 6 to 12 months.

livesoft
Posts: 68679
Joined: Thu Mar 01, 2007 8:00 pm

Re: Better returns than savings account.

Post by livesoft » Sat Nov 16, 2019 6:30 pm

What did you do 22 months ago when the stock market was about where it is today?

One cannot predict the short and intermediate futures of equity funds nor bond funds, so selecting a bond fund because it did well recently is probably something called "performance chasing." And performance after a 20% drop that marks a bottom tends to look rather stellar.

What are your goals for this money? That might help you decide what you should really be doing.

As for not touching this money for 6 to 12 months, that's not a real goal specification because you could have plenty of other money that you could be touching if you really wanted to.
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MotoTrojan
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Joined: Wed Feb 01, 2017 8:39 pm

Re: Better returns than savings account.

Post by MotoTrojan » Sat Nov 16, 2019 6:57 pm

Bonds are also at historic highs. Stick with your bank until you learn how bonds work.

SEC yield is the best forward looking bond return proxy; about 10x less than what you cited for most funds, not far from your bank account (which implies that the bank may go down).

Duration is best proxy for interest rate sensitivity and down side risk. Good estimate for NAV fluctuations up or down is 1% per year of duration; so if BND’s yield goes up 1% you’d expect something like a 6% loss (my guess at the duration).

Trader Joe
Posts: 1289
Joined: Fri Apr 25, 2014 6:38 pm

Re: Better returns than savings account.

Post by Trader Joe » Sat Nov 16, 2019 7:28 pm

SmyleBogle wrote:
Sat Nov 16, 2019 6:22 pm
I have greater than 100K sitting in Savings Account which gives me 1.85% annual return :(

I was considering putting it in a bond for now.

https://personal.vanguard.com/us/funds/ ... undId=0028

Image

Would YTD for bonds be same as mutual funds or stocks .... if I had invested $$ amount last year, I would have gotten 19.14% for past year and I would be able to sell/buy bonds without any restriction (waiting for 15, 30 day before selling it)? I understand past performance is not a guarantee than future returns.

I understand its not good to time the market, but current market high's are too much for me to enter. What other alternative sources of investment would you recommend that gives better returns than savings account.

I am okay with not touching this money for 6 to 12 months.
Welcome to the forum. I use VMMXX and I am very happy.

delamer
Posts: 9344
Joined: Tue Feb 08, 2011 6:13 pm

Re: Better returns than savings account.

Post by delamer » Sat Nov 16, 2019 7:59 pm

If you really might spend some of this money within the next year, then leave it where it is.

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nisiprius
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Re: Better returns than savings account.

Post by nisiprius » Sat Nov 16, 2019 8:30 pm

Don't expect magic. Bank accounts are virtually riskless. You are not likely to get much more return without taking risk. Taking risk is fine, but it is important to be sure that you personally understand the nature and amount of the risk you are taking.

Vanguard assigns a "risk potential" classification to its funds. For VWESX, Vanguard says:
Risk level 3 (moderate)
Vanguard funds classified as moderate are subject to a moderate degree of fluctuation in share prices. In general, such funds may be appropriate for investors who have a relatively long-term investment horizon (more than 5 years).
You say "I am okay with not touching this money for 6 to 12 months."
Vanguard is saying VWESX "may be appropriate for investors who have a relatively long-term investment horizon (more than 5 years)."

I can't tell you whether or not to take the risk, but I can show you some statistics for what would have happened in the past if you had invested $10,000 for a year in VWESX. For comparison, VMMXX is the Vanguard Prime Money Market Fund. For example, you can see that although, as a statistical average, you'd have earned $375 more in VWESX, 35% of the time you would have made less money than in VMMXX, and 14% of the time you would actually have lost money.

VWESX: Vanguard Long-Term Investment-Grade
8/1975 - 6/2019; 527 months total
(limited by range of available data for VMMXX)

Length of holding period: 12 months
Total number of overlapping 12-month periods: 516
Average number of dollars earned in 12 months on a $10,000 investment: $875.62
Average CAGR (annualized rate of return) of those 516 12-month periods: 8.76%
Standard deviation (σ) of single-month returns, annualized): 8.10%

Frequency of underperformance:
Number of periods in which VWESX made less than VMMXX: 184/516 = 35.7%
Number of periods in which VWESX lost money: 75/516 = 14.5%
Number of periods in which VWESX failed to keep up with inflation: 153/516 = 29.7%

Average amount of underperformance in the times where it occurred:
Versus VMMXX over those 184 loss periods: -$566.15
Dollar loss: -$400.28
Real loss (inflation-corrected): -$584.56

Worst single 12-month performance:
Compared to VMMXX, 4/1979 - 3/1980: -$2109.95
Dollar loss: -$1550.75
Real loss (inflation-corrected): -$2400.90

Reward for taking that risk:
Additional return above VMMXX, averaged over 12-month periods: +$375.06
Return in dollars: +$875.62
Real return above inflation: +$512.43

Here's the worst that happened. During this period of time, VWESX lost about $900 while VMMXX was making $1,100.
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Now, in contrast, Vanguard is suggesting a holding period of five years. Over five-year periods:
Frequency of underperformance:
Number of periods in which VWESX made less than VMMXX: 62/468 = 13.2%
Number of periods in which VWESX lost money: 0/468 = 0.0%
Number of periods in which VWESX failed to keep up with inflation: 42/468 = 9.0%

So, even over periods of five years, sometimes VWESX made less money than VMMXX, but it never lost money in any five-year period.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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