Move from bonds to Money Market,CDs, savings acct, etc.?[UPDATE]

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
rossington
Posts: 773
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by rossington »

inbox788 wrote: Sat Mar 07, 2020 2:50 pm
rossington wrote: Fri Mar 06, 2020 6:14 pm
inbox788 wrote: Fri Mar 06, 2020 5:37 pm
Watty wrote: Fri Mar 06, 2020 5:27 pmThe Vanguard Total Bond market index fund has a duration of 6.2 year so if interest rates go down by 1% you would expect a 6.2% gain. If rates go up by 1% then you would expect a 6.2% loss but you would than be getting paid a higher interest rate and would break even in 6.2% years.

In practice it is more complicated since if short term interest rates go down then that might fuel inflation fears so longer term interest rates might actually go up. Inflation in general complicates this since even if inflation is steady if the inflation rate is higher than an interest rate then you would have a negative real interest rate.
The feds fund rate was about 1% higher a year ago, so that would only suggest a 6% gain, not the 11% we got. Is there a 5% inefficiency that could adjust overnight? Or is something rational that can be attributed to that difference? That's what's puzzling me. I think it's possible the funds rate goes to zero or close to it, so another 1% down, so does that mean BND goes up 6% more? Or maybe that extra 5% is already anticipating that result. Numbers and estimates don't add up for me.
Don't forget that 11%+ average annual return includes reinvested dividends and the increase in share price.
I think the reinvested dividends only accounts for 2%. The dividend yield is about 2.5% per Google Finance and probably falling, 2% at Vanguard. There's still a large gap from something else in the increase in share price that's not accounted by the duration estimate/rule of thumb.

https://investor.vanguard.com/etf/profile/BND

Anyway, currently BND is $88 with feds fund rate at 1-1.25%. If they drop the rate 0.5 to 0.5-.075% later this month, does that mean that BND would rise by 3.1% to $90.73? But even if you're right and wait for the price to go up, the CD rates might go down at the same time.

viewtopic.php?f=10&t=292085&start=500
Don't know how much TBM will rise if rates drop. It will be affected by what investors are willing to value it. But it is guaranteed that after a rate cut new CD rates will go lower. So the average duration of TBM will translate into a higher total return over CD's. due to the existing yields of the underlying assets plus any increase in share price.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
hudson
Posts: 3240
Joined: Fri Apr 06, 2007 9:15 am

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by hudson »

sabtastic wrote: Sat Mar 07, 2020 10:45 am FDIC guarantees CDs, but we all know under the hood that the $$ goes straight into home loans/car loans/business loans/consumer credit.


If we have a period of debt deflation and these banks go bust you will get your $$ back eventually but it might be months.
For the top comment: agree...that could happen. I don't know how likely that is.

For the 2d comment: I thought that in a liquidation, that they paid out in 5 days. It might be different if another credit union takes over. I'm not an expert at all.

https://www.ncua.gov/support-services/c ... quidations

Maybe DM200 could add something?
Last edited by hudson on Sun Mar 08, 2020 7:26 am, edited 1 time in total.
Explorer
Posts: 475
Joined: Thu Oct 13, 2016 7:54 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by Explorer »

I hold bonds (aggregate bond funds, and some risky bond funds too) and I hold cash - each serves different purpose.

Maybe it is just me, I do not confuse between the two - and I gave up market timing on major allocation decisions --- I do nibble on the edges.
User avatar
Topic Author
Watty
Posts: 20679
Joined: Wed Oct 10, 2007 3:55 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by Watty »

mailman781 wrote: Sat Mar 07, 2020 2:40 pm As previously stated many times, as interest rates go down the bond funds share price goes up. So if interest rates continue down and go negative, what will the bond price do then? Surely the price can not still go up.
If you look at an older individual bond that pays 3% then it will become more valuable if the rates on a new bond go down or even negative.
User avatar
ruralavalon
Posts: 19447
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by ruralavalon »

sycamore wrote: Sat Mar 07, 2020 4:22 pm
mailman781 wrote: Sat Mar 07, 2020 2:40 pm As previously stated many times, as interest rates go down the bond funds share price goes up. So if interest rates continue down and go negative, what will the bond price do then? Surely the price can not still go up.
Yes, it can. And don't call me Shirley.
Made me laugh :D
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Startled Cat
Posts: 513
Joined: Thu Apr 03, 2008 8:54 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by Startled Cat »

I think we're getting to the point where it makes sense to reevaluate the traditional role of bonds in asset allocation. With bond yields so low that they are unlikely to generate positive after-tax real returns going forward, the orthodoxy of having a significant fraction of one's asset allocation in bonds may become a relic.

If we look back at this forum in 15 years or so, I think we may see less emphasis on bonds as a core portfolio asset. If bond yields stay near historic lows, the income generated by bonds will be miniscule, and realistic appreciation potential will be quite limited, making bonds relatively unappealing as a long-term investment. If the music stops and capital appreciation no longer contributes to returns, people will get tired of "dead money" in bonds that isn't compensating them for term risk. Alternatively, if yields revert higher, recency bias will push people away from bonds. In the future, model portfolios may be weighted more towards equities, or have a significant cash compontent. Perhaps something like crowdfunded real estate will become more prominent and play a role in typical portfolios.

More and more of the bond market may end up being composed of regulated entities like banks insurance companies, and traders who want to bet on rate movements or hedge equity risk. I think we're already seeing more of the latter given the popularity of leveraged bond ETFs on this forum. I've seen posters comment that they hold these ETFs not for return, but because they think it makes it safer to hold more (leveraged) equities.

Disclaimer: I've been a bond skeptic for my whole investing career, and I've been consistently wrong so far.
patrick
Posts: 1791
Joined: Fri Sep 04, 2009 3:39 am
Location: Mega-City One

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by patrick »

vineviz wrote: Sat Mar 07, 2020 11:57 amSo, for me, the best strategy is to minimize my interest rate and inflation risks by matching my portfolio's interest rate and inflation durations as closely as I can. If I do that successfully, I'm in the lucky position of not caring what happens to interest rates in the future.
That strategy would seems to imply that most people should use only inflation protected bonds. Virtually all future consumption is subject to inflation. I don't have any specifically known nominal expenses even one year into the future. I think very few people have long-term fixed nominal expenses other than mortgage debt, which could simply be prepaid instead of buying bonds to cover it.
desiderium
Posts: 960
Joined: Sat Jan 04, 2014 11:08 am

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by desiderium »

vineviz wrote: Sat Mar 07, 2020 11:57 am
desiderium wrote: Sat Mar 07, 2020 10:58 am Can you specifically address the sentiment that with the 10-year at 0.74%, there should now be asymmetry in outcomes, with much less room for rates to to go down vs go up? Thanks.
I'd be reluctant to rush to the conclusion that there is now "asymmetry in outcomes".

I'm wasn't a very good student of macroeconomics, but my view is that economists had historically assumed (rather than substantiated) a so-called zero nominal lower bound (ZNLB) simply because such low interest rates were rare in modern times. I can definitely imagine scenarios in which inflation could either increase or decrease from here, as well as scenarios in which US economic growth accelerates or decelerates from here.
Thank you for your perspective. This is an example of a assumption (ZNLB) that has recently been proven false in other markets, yet still conditions many of us, perhaps unconsciously, into seeing asymmetry in future outcomes. There are obviously plenty of investors (hedge funds and many others) that use macroeconomic predictions to draw conclusions about symmetry in potential outcomes. One market times at one's own risk.
User avatar
watchnerd
Posts: 5981
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by watchnerd »

patrick wrote: Sun Mar 08, 2020 10:53 am
That strategy would seems to imply that most people should use only inflation protected bonds. Virtually all future consumption is subject to inflation. I don't have any specifically known nominal expenses even one year into the future. I think very few people have long-term fixed nominal expenses other than mortgage debt, which could simply be prepaid instead of buying bonds to cover it.
I hold inflation protected bonds, but only for half of my bond allocation, because my bond allocation is divided between (see signature):

1. High volatility bonds for equity risk parity matching and total returns: long Treasuries

2. Low volatility bonds to match short to intermediate needs: short TIPS, cash equivalents


Cash / MM $ allocation = short TIPS average duration (years) x yearly COL


We have no debt, still in accumulation phase.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP
User avatar
vineviz
Posts: 7831
Joined: Tue May 15, 2018 1:55 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by vineviz »

patrick wrote: Sun Mar 08, 2020 10:53 am
vineviz wrote: Sat Mar 07, 2020 11:57 amSo, for me, the best strategy is to minimize my interest rate and inflation risks by matching my portfolio's interest rate and inflation durations as closely as I can. If I do that successfully, I'm in the lucky position of not caring what happens to interest rates in the future.
That strategy would seems to imply that most people should use only inflation protected bonds.
No, this isn't necessarily an implication of what I wrote. Every investor's expected future consumption pattern is different, and so is their asset/income mix. Some investors might need bond mix that leans heavily on TIPS but others might need little if any.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
patrick
Posts: 1791
Joined: Fri Sep 04, 2009 3:39 am
Location: Mega-City One

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by patrick »

vineviz wrote: Sun Mar 08, 2020 12:02 pm
patrick wrote: Sun Mar 08, 2020 10:53 am
vineviz wrote: Sat Mar 07, 2020 11:57 amSo, for me, the best strategy is to minimize my interest rate and inflation risks by matching my portfolio's interest rate and inflation durations as closely as I can. If I do that successfully, I'm in the lucky position of not caring what happens to interest rates in the future.
That strategy would seems to imply that most people should use only inflation protected bonds.
No, this isn't necessarily an implication of what I wrote. Every investor's expected future consumption pattern is different, and so is their asset/income mix. Some investors might need bond mix that leans heavily on TIPS but others might need little if any.
How could someone's future consumption be immune to inflation? Housing, health care, transportation, manufactured goods, food, and just about anything else a consumer would buy gets included in the inflation rate calculation. The specific spending of a particular person won't precisely match overall inflation, but do you really think assuming you'll face zero inflation is a better estimate than assuming your rate will be average?

Note that just planning to buy less stuff in retirement doesn't mean you are immune to inflation. Rather, it means that your future nominal spending is your present nominal spending adjusted by your decrease in consumption as well as the inflation rate. If the inflation rate is low you might able to come out with no increase (or even a reduction) in nominal spending, but if the inflation rate is high you wouldn't be able to do see without hardship.
inbox788
Posts: 7600
Joined: Thu Mar 15, 2012 5:24 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by inbox788 »

vineviz wrote: Sat Mar 07, 2020 5:46 pm
Jebediah wrote: Sat Mar 07, 2020 10:31 am Correct. It's called expected returns. Expected return of bonds = the coupon. CDs now have higher expected returns at equivalent duration. But they are illiquid. Consider it an illiquidity and hassle premium.
I think I mentioned earlier that this is the case, but it's really only relevant if the duration of the asset (CD or bond) matches the duration of the liability. If the liability is in 10 years, as we were hypothesizing, then the yield on a 5-year CD isn't entirely relevant.

Cash instruments like CDs have an important role in many portfolios, but they don't share all the characteristics of bonds and therefore exchanging from one to the other should be done with full awareness of the many ways that cash instruments are inferior to bonds. Not just the ways they are superior.
What liability timeframe should a 30 year old vs 65 year old use for their retirement funds? And while a 3-6 month emergency fund may be sufficient for a 30 year old, a 65 year old might want 2 years cash. Beyond that, should the risk and duration for bonds also relate to some liability timeframe?

With interest rates so low, it's getting less relevant whether bond returns or CD returns are bigger. We just have to deal with low returns for the forseeable short term future. I get that CD returns might be lower than bonds under some situations, but they're not totally illiquid. Under the right circumstances, it might be worth paying the penalty to get out of the CD. And there is inflation risk, but are there other significant downsides to CDs?

Anyway, in the current environment, I'm having trouble seeing the upside of bonds. With last years somewhat unexpected upside in the rear view mirror, I'm wondering like OP whether it makes sense to move into CDs and the like. And even if I'm seeing small benefit, I'm probably not going to mainly due to inertia. With rates going negative in Europe and Japan, I don't think that led to unexpected upside, and is there a limit to that upside? I thought the limit for CD is the principal plus interest and for individual bonds based on the discounts and coupons.

https://www.morningstar.com/articles/94 ... -is-better
User avatar
vineviz
Posts: 7831
Joined: Tue May 15, 2018 1:55 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by vineviz »

patrick wrote: Sun Mar 08, 2020 1:24 pm
vineviz wrote: Sun Mar 08, 2020 12:02 pm
patrick wrote: Sun Mar 08, 2020 10:53 am
vineviz wrote: Sat Mar 07, 2020 11:57 amSo, for me, the best strategy is to minimize my interest rate and inflation risks by matching my portfolio's interest rate and inflation durations as closely as I can. If I do that successfully, I'm in the lucky position of not caring what happens to interest rates in the future.
That strategy would seems to imply that most people should use only inflation protected bonds.
No, this isn't necessarily an implication of what I wrote. Every investor's expected future consumption pattern is different, and so is their asset/income mix. Some investors might need bond mix that leans heavily on TIPS but others might need little if any.
How could someone's future consumption be immune to inflation? Housing, health care, transportation, manufactured goods, food, and just about anything else a consumer would buy gets included in the inflation rate calculation. The specific spending of a particular person won't precisely match overall inflation, but do you really think assuming you'll face zero inflation is a better estimate than assuming your rate will be average?
I never said anything about being “immune to inflation” nor did I recommend assuming “zero inflation”. Neither of those things follow from the observation that different people have different degrees of sensitivity to inflation volatility and/or unexpected inflation.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
User avatar
sergeant
Posts: 1612
Joined: Tue Dec 04, 2007 11:13 pm
Location: The Golden State

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by sergeant »

Startled Cat wrote: Sun Mar 08, 2020 10:35 am

Disclaimer: I've been a bond skeptic for my whole investing career, and I've been consistently wrong so far.
Me too. For 35 years I have used a stable value fund instead of bonds for my fixed income. I guesstimate it has cost me about 1-2% a year. I keep thinking interest rates have to go up to 8-9%. :oops:

Most of my fixed income is still in SV at guaranteed 3.75%.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.
User avatar
sergeant
Posts: 1612
Joined: Tue Dec 04, 2007 11:13 pm
Location: The Golden State

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by sergeant »

Watty, which 2020 fund do you have? Vanguard 2020 only has 50% in bonds not 65%.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.
patrick
Posts: 1791
Joined: Fri Sep 04, 2009 3:39 am
Location: Mega-City One

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by patrick »

vineviz wrote: Sun Mar 08, 2020 3:13 pmI never said anything about being “immune to inflation” nor did I recommend assuming “zero inflation”. Neither of those things follow from the observation that different people have different degrees of sensitivity to inflation volatility and/or unexpected inflation.
Then what are you saying? When you say that "different people have different degrees of sensitivity to inflation volatility and/or unexpected inflation" do you only that in a narrow sense, such as some people having 98% of their future expenses subject to inflation but other people only 97%? Or did you mean more broadly to imply that a significant fraction of people have much less inflation exposure?
User avatar
Phineas J. Whoopee
Posts: 9675
Joined: Sun Dec 18, 2011 6:18 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by Phineas J. Whoopee »

hudson wrote: Sun Mar 08, 2020 7:03 am
sabtastic wrote: Sat Mar 07, 2020 10:45 am FDIC guarantees CDs, but we all know under the hood that the $$ goes straight into home loans/car loans/business loans/consumer credit.


If we have a period of debt deflation and these banks go bust you will get your $$ back eventually but it might be months.
For the top comment: agree...that could happen. I don't know how likely that is.

For the 2d comment: I thought that in a liquidation, that they paid out in 5 days. It might be different if another credit union takes over. I'm not an expert at all.

https://www.ncua.gov/support-services/c ... quidations

Maybe DM200 could add something?
With respect to FDIC and NCUA interventions, the institution has assets. It just can't consistently meet its reserve requirements. The assets get sold by the agency taking over, and only the remainder of insured deposits needs to be covered by the insurance. It isn't that the insurance fund has to equal the total of all insured deposits across the US.

Having to wait months or years for insured deposit money is a widely believed conspiracy theory. It makes no sense.

PJW
User avatar
Phineas J. Whoopee
Posts: 9675
Joined: Sun Dec 18, 2011 6:18 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by Phineas J. Whoopee »

mailman781 wrote: Sat Mar 07, 2020 2:40 pm As previously stated many times, as interest rates go down the bond funds share price goes up. So if interest rates continue down and go negative, what will the bond price do then? Surely the price can not still go up.
The problem, and it's not your fault because so many people in the press and even here do it, is thinking of things in terms of interest rates. The correct term is yield, in particular Yield to Maturity, YTM. It's calculated based on the current market price of the securities. Ignoring default risk yields and prices have an inverse mathematical relationship. Tell a person one for a specific security and they can calculate the other.

YTM crossing zero does not change the math. Zero's just another number.

PJW
User avatar
vineviz
Posts: 7831
Joined: Tue May 15, 2018 1:55 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by vineviz »

patrick wrote: Sun Mar 08, 2020 4:19 pm
vineviz wrote: Sun Mar 08, 2020 3:13 pmI never said anything about being “immune to inflation” nor did I recommend assuming “zero inflation”. Neither of those things follow from the observation that different people have different degrees of sensitivity to inflation volatility and/or unexpected inflation.
Then what are you saying? When you say that "different people have different degrees of sensitivity to inflation volatility and/or unexpected inflation" do you only that in a narrow sense, such as some people having 98% of their future expenses subject to inflation but other people only 97%? Or did you mean more broadly to imply that a significant fraction of people have much less inflation exposure?
For some investors, monthly Social Security payments (which are fully indexed to inflation) or a CPI-linked annuity will cover the vast majority - or even all - of their non-discretionary retirement expenses. These investors might have little need to protect against inflation volatility compared to other investors for whom such payments might account for a tiny minority of their non-discretionary expenses.

Some investors are in professionals (or hobby occupations) that will allow them to generate some amount of income during their "retirement years" based on their human capital, which typically has an inflation beta of >0. Other investors will earn nothing from their human capital after "retirement".

Some investors will have withdrawal rates so low that the expected "investment horizon" of their portfolio extends well past their certain death. If such investors held bonds at all in their portfolio they might rationally choose zero-coupon nominal Treasury bonds as their only bond holdings solely for their diversification benefits.

The list goes on: significant real estate holdings coupled with long-duration fixed-rate mortgages, a portfolio allocation to real assets (farmland, gold, etc.), and so forth.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
mailman781
Posts: 54
Joined: Fri Dec 07, 2018 3:38 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by mailman781 »

sycamore wrote: Sat Mar 07, 2020 4:22 pm
mailman781 wrote: Sat Mar 07, 2020 2:40 pm As previously stated many times, as interest rates go down the bond funds share price goes up. So if interest rates continue down and go negative, what will the bond price do then? Surely the price can not still go up.
Yes, it can. And don't call me Shirley.
Okay, I wont call you Shirley. I never have and never will.
1130Super
Posts: 523
Joined: Thu Nov 07, 2019 8:59 am
Location: Minnesota

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by 1130Super »

moneyman11 wrote: Fri Mar 06, 2020 11:44 am If 10 year treasury goes to zero, the rates on your money markets, savings accounts, and CDs won’t be far behind.

The 2008-2015 experience showed us that nimble retail investors had an edge over the big guys if they were willing to move money around chasing bank bonuses and short term teaser rate offerings. It is a hassle though, and if most of your money is in a 401k, it may well be impossible.
Or if treasuries go below 0
Northern Flicker
Posts: 6503
Joined: Fri Apr 10, 2015 12:29 am

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by Northern Flicker »

The Austrian govt recently auctioned a 100-yr bond that the market absorbed at 0.48%.
Risk is not a guarantor of return.
Pikel
Posts: 183
Joined: Sat Jan 04, 2020 9:55 am

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by Pikel »

The 30 year rate is pretty crazy. Lower than any point in history including 2009-2015 when fed funds rate was at 0%. I don't totally get it.

I think overall it is not a good idea to make any decisions while there is so much much volatility. Hopefully the VIX will be back below 20 by the summer. Maybe postpone decisions till then.
patrick
Posts: 1791
Joined: Fri Sep 04, 2009 3:39 am
Location: Mega-City One

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by patrick »

vineviz wrote: Sun Mar 08, 2020 4:37 pm For some investors, monthly Social Security payments (which are fully indexed to inflation) or a CPI-linked annuity will cover the vast majority - or even all - of their non-discretionary retirement expenses. These investors might have little need to protect against inflation volatility compared to other investors for whom such payments might account for a tiny minority of their non-discretionary expenses.

Some investors are in professionals (or hobby occupations) that will allow them to generate some amount of income during their "retirement years" based on their human capital, which typically has an inflation beta of >0. Other investors will earn nothing from their human capital after "retirement".

Some investors will have withdrawal rates so low that the expected "investment horizon" of their portfolio extends well past their certain death. If such investors held bonds at all in their portfolio they might rationally choose zero-coupon nominal Treasury bonds as their only bond holdings solely for their diversification benefits.

The list goes on: significant real estate holdings coupled with long-duration fixed-rate mortgages, a portfolio allocation to real assets (farmland, gold, etc.), and so forth.
Even if you only rely on savings for discretionary expenses, those expenses are subject to inflation too. If Social Security (or something else inflation linked) already covers all the non-discretionary expenses, you are still subject to inflation risk in terms of how much real purchasing power you have toward discretionary expenses. At best their discretionary nature makes you more willing to accept the risk (but presumably would make you more willing to accept other financial risks too).

If you are going to leave a bequest, then your heirs are subject to inflation risk impairing the purchasing power of what they inherit. Perhaps it's worth taking that risk for diversification reasons but the risk is still there.
User avatar
Topic Author
Watty
Posts: 20679
Joined: Wed Oct 10, 2007 3:55 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by Watty »

sergeant wrote: Sun Mar 08, 2020 4:03 pm Watty, which 2020 fund do you have? Vanguard 2020 only has 50% in bonds not 65%.
That was a typo on the prior post that I fixed, I have the 2015 fund since I retired in 2015.

https://investor.vanguard.com/mutual-fu ... olio/vtxvx

When you look at the Portfolio & Management tab it says 35.70% stocks and 64.30% bonds as if 1/31/2020.

One odd thing is that on the overview tab in the text it says "The 2015 fund invests in 5 Vanguard index funds, holding approximately 45% of assets in stocks and 55% in bonds. " which I would assume is just out of date.

Of the bonds it is;

35.2% total (US) bond
15.2% total international bond
13.9% Short term TIPS

I have always be lukewarm about the international bonds and there have been a lot of threads about that.
The international bond fund has a yield of 0.34% and a duration of 8.3 years so I don't see how it has much upside but lots of possible downside if interest rates go up.
pascalwager
Posts: 1868
Joined: Mon Oct 31, 2011 8:36 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by pascalwager »

watchnerd wrote: Sun Mar 08, 2020 11:28 am
patrick wrote: Sun Mar 08, 2020 10:53 am
That strategy would seems to imply that most people should use only inflation protected bonds. Virtually all future consumption is subject to inflation. I don't have any specifically known nominal expenses even one year into the future. I think very few people have long-term fixed nominal expenses other than mortgage debt, which could simply be prepaid instead of buying bonds to cover it.
I hold inflation protected bonds, but only for half of my bond allocation, because my bond allocation is divided between (see signature):

1. High volatility bonds for equity risk parity matching and total returns: long Treasuries

2. Low volatility bonds to match short to intermediate needs: short TIPS, cash equivalents


Cash / MM $ allocation = short TIPS average duration (years) x yearly COL


We have no debt, still in accumulation phase.
I'm confused about the actual function of the cash/ST TIPS. I don't see how it can be specifically tied to "short-to-intermediate needs" when it's a fixed part (15%) of the overall portfolio. If you make withdrawals from cash, then you need to eventually rebalance back into cash from stocks and LTT; so all the cash is really doing is lowering the overall duration (probably something like eight or nine years) of the entire portfolio fixed income and overall portfolio volatility.
User avatar
vineviz
Posts: 7831
Joined: Tue May 15, 2018 1:55 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by vineviz »

patrick wrote: Sun Mar 08, 2020 5:26 pm Even if you only rely on savings for discretionary expenses, those expenses are subject to inflation too.
Yes, but discretionary expenses are - by definition - not liabilities because they are, well, discretionary: based on their cost and utility, you can choose to make the expenditure, not make the expenditure, substitute some other good or service, etc.

That doesn't mean, as I think I already said, that the investor can automatically ignore inflation with respect to discretionary spending nor should they assume a "zero inflation rate" as I think you mentioned earlier. It just means that discretionary expenses differ from non-discretionary expenses in the way they respond to unexpected inflation. Most non-discretionary expenses will have an inflation beta of 1 (the only major exception that comes to mind is a fixed rate residential mortgage), but discretionary expenses will have an inflation beta of <1.

Listen, all I claimed is that investors who face inflation risk should take steps to protect against it (or at least plan for a way to manage it) and cash instruments like CDs, money market funds, savings accounts, etc. probably aren't terribly effective at doing this.

That does NOT mean that I think every investor should exclusively own TIPS in their bond allocation. My observation that every investor has different circumstances, and should tailor their portfolio to those circumstances to the degree they can feasibly and reasonably do so, didn't strike me as a particular controversial observation.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
User avatar
watchnerd
Posts: 5981
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by watchnerd »

pascalwager wrote: Sun Mar 08, 2020 6:13 pm

I'm confused about the actual function of the cash/ST TIPS. I don't see how it can be specifically tied to "short-to-intermediate needs" when it's a fixed part (15%) of the overall portfolio. If you make withdrawals from cash, then you need to eventually rebalance back into cash from stocks and LTT; so all the cash is really doing is lowering the overall duration (probably something like eight or nine years) of the entire portfolio fixed income and overall portfolio volatility.
It gives optionality on taking short vs long gains in a taxable account.

And, yes, it lowers the duration, too.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP
hudson
Posts: 3240
Joined: Fri Apr 06, 2007 9:15 am

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by hudson »

vineviz wrote: Sun Mar 08, 2020 6:35 pm every investor has different circumstances, and should tailor their portfolio to those circumstances to the degree they can feasibly and reasonably do so
YES!!!
patrick
Posts: 1791
Joined: Fri Sep 04, 2009 3:39 am
Location: Mega-City One

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by patrick »

vineviz wrote: Sun Mar 08, 2020 6:35 pmListen, all I claimed is that investors who face inflation risk should take steps to protect against it (or at least plan for a way to manage it) and cash instruments like CDs, money market funds, savings accounts, etc. probably aren't terribly effective at doing this.
Long-term nominal bonds probably aren't terribly effective at doing this either.
That does NOT mean that I think every investor should exclusively own TIPS in their bond allocation. My observation that every investor has different circumstances, and should tailor their portfolio to those circumstances to the degree they can feasibly and reasonably do so, didn't strike me as a particular controversial observation.
Not controversial by itself. But if you have decided in the course of tailoring your portfolio to your circumstances that you want to protect against interest rate risk by matching your portfolio duration with your investment horizon, why retain the inflation risk by using nominal bonds?
September
Posts: 109
Joined: Tue Nov 11, 2008 10:40 am

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by September »

A related question is should one sell the bond fund (VWLTX) to pay off mortgage at 2.875%? VWLTX reached new highon 3/6/2020? Thanks
User avatar
watchnerd
Posts: 5981
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by watchnerd »

September wrote: Sun Mar 08, 2020 8:47 pm A related question is should one sell the bond fund (VWLTX) to pay off mortgage at 2.875%? VWLTX reached new highon 3/6/2020? Thanks
Dude, that's a thread unto itself.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP
User avatar
vineviz
Posts: 7831
Joined: Tue May 15, 2018 1:55 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by vineviz »

patrick wrote: Sun Mar 08, 2020 8:22 pm But if you have decided in the course of tailoring your portfolio to your circumstances that you want to protect against interest rate risk by matching your portfolio duration with your investment horizon, why retain the inflation risk by using nominal bonds?
I suppose this is a rhetorical question and possibly a bit of a strawman, since I don't think I ever suggested that anyone who faces risk from unexpected inflation should avoid managing that risk. Thankfully, there are both long-term nominal bonds AND long-term inflation-linked bonds available from the US Treasury.

I'm not aware of any inflation-linked 30-year CDs.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
hudson
Posts: 3240
Joined: Fri Apr 06, 2007 9:15 am

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by hudson »

September wrote: Sun Mar 08, 2020 8:47 pm A related question is should one sell the bond fund (VWLTX) to pay off mortgage at 2.875%? VWLTX reached new highon 3/6/2020? Thanks
I agree with Watchnerd that you should consider starting a new discussion.
I really like being debt free, but there have been times where that didn't work. For someone to advise you on that, more details are needed. It's also sweet that VWLTX has gone up so much; I can see where you would want to lock in those gains. There are capital gains to consider.

If you owe a few thousand on your mortgage, go for it. If you owe much more, maybe start a new discussion.
DetroitRick
Posts: 839
Joined: Wed Mar 23, 2016 9:28 am
Location: SE Michigan

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by DetroitRick »

I'm also in retirement and have weighed those types of positioning moves many times. But for most of my fixed income portfolio, I just don't do it. Really for two very simple reasons - the exact role that I want fixed income to play in my portfolio (I only keep around 30% of portfolio in fixed income and cash anyway), and my demonstrated inability (evidenced constantly over the past decade) to predict intermediate and long-term interest rates.

So in my case, I stick with my choice of primarily actively-managed intermediate bond funds of modest duration and low cost (plus some TIPs ETF's). I keep a sufficiently high fixed income position to cover withdrawal needs for a certain number of years and leave it at that. I'm simply not convinced that money market, cd, or savings rates can give me a better return over the long-run. Plus, I'm not that concerned with opportunity cost for this piece of my portfolio either, and have only modest concerns about unexpected inflation. So all-in-all, this approach is what works for me.

Now there is a slice of my cash and fixed income where I will chase yield. I do this in narrow sense - where I have high expectations of short-term withdrawals. For that piece, I fluidly move between money market funds, CD's (1 to 3 years, typically), online savings accounts and individual Treasuries (6 months to 3 years typically). For example, since the beginning of the year, I've quit renewing my short-term US Treasuries and have increased positions in money market funds and online savings. At this moment, I'm considering sale of some of those Treasuries too. Yes, I'm chasing yield on the short end of the curve. There is no real work involved, and it just takes a few mouse clicks after all. Plus, I can also be wrong in doing this without a material impact to my overall portfolio. When I'm right, it's free and easy money. But for most of my fixed income, no.
hudson
Posts: 3240
Joined: Fri Apr 06, 2007 9:15 am

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by hudson »

DetroitRick wrote: Mon Mar 09, 2020 10:26 am my demonstrated inability (evidenced constantly over the past decade) to predict intermediate and long-term interest rates.
My predictions are just as "good".

I stick with my choice of primarily actively-managed intermediate bond funds of modest duration and low cost (plus some TIPs ETF's). I use the same criteria...almost always Vanguard products. If I own a fund with a low SEC Yield and a noticeably higher Distribution Yield, I'll look at the history of the distributions and try to predict future distributions. I don't think that's the same as predicting interest rates because I'm working with information on bonds that are already held by the fund. I compare my future prediction with the best available five year CD. Taking into consideration, capital gains, if the CD is a better deal, I'll go with the CD.

I'm simply not convinced that money market, cd, or savings rates can give me a better return over the long-run.
As I said above, I compare rates and go with the highest available rate.

Now there is a slice of my cash and fixed income where I will chase yield.
I do the same thing but with all fixed income.
User avatar
Topic Author
Watty
Posts: 20679
Joined: Wed Oct 10, 2007 3:55 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by Watty »

I wanted to give an update about what I decided to do.

My Vanguard Target Retirement 2015 fund had this asset allocation on 1/31/20

Vanguard Total Bond Market II Index Fund Investor Shares** 35.20%
Vanguard Total Stock Market Index Fund Investor Shares 21.50%
Vanguard Total International Bond Index Fund Investor Shares 15.20%
Vanguard Total International Stock Index Fund Investor Shares 14.20%
Vanguard Short-Term Inflation-Protected Securities Index Fund 13.90%

In looking into it the bond funds had these yields and durations.

Total Bond 1.88% 6.2 years duration, 18.2% of it Baa
Total International Bond 0.19% 8.3 years duration and 27% of it was rated Baa
Short-Term Inflation-Protected Securities -0.15% (not including inflation) 2.7 years duration

On Monday when the stock market tanked so badly the total bond fund was down even though treasury interest rates were down which should have tended to increased bund mutual fund interest rates.

The fall of the BND ETF version of the total bond fund was discussed in this thread.
viewtopic.php?f=10&t=306466&start=50

A major reason for it being down seems to be that the corporate bonds did badly which was another risk factor that I was not considering.

I had not realized that the Total International Bond fund had not gotten down to almost a 0% yield and that 27% of it was rated Baa. With a duration of 8.3 years to me that seems like there is a lot of risk that I was not getting paid to take. It had performed very well over the last year but I decided that it was not something that felt comfortable keeping especially with the Coronavirus causing major problems.

The total bond fund has also done very well over the last year but at the current levels I cannot see a lot of upside to it and between the interest rate risk and the risk in corporate bonds I decided I also did not want to hold those.

The Short-Term Inflation-Protected Securities were harder to figure out and with the small negative yield they would not quite keep up with inflation. The short 2.7 year duration would be a lot better than the other two bond funds.

At this point I knew that I wanted to move the money, especially from the international bond Index fund.

My money is in an IRA and Vanguard so that meant that moving the money to a insured saving account was not easily doable.

That left these options;

1) A money market fund that would be paying in the ballpark of 1.5%.

2) CDs would pay 1% or less unless I got one for 5 years or more.
https://personal.vanguard.com/us/FixedIncomeHome

3) A short term bond fund. I looked at several of the Vanguard short term bond funds but I was not sure how much risk there was for the ones with corporate bonds because in addition to outright defaults there could be credit rating downgrades.

I ended up deciding to use the Vanguard Short-Term Inflation-Protected Securities Index Fund that my target date fund was already in. Part of my reasoning for this is that if the Coronavirus causes supply shortages or lots of federal stimulus then that could cause some unexpected inflation. I also liked that I was technically still keeping the money in bonds so that I was at least in part still following the "stay the course" mantra.

Anyway I moved my money from the 2015 fund to this asset allocation.

Vanguard Total Stock Market Index Fund Investor Shares 22%
Vanguard Total International Stock Index Fund Investor Shares 14%
Vanguard Short-Term Inflation-Protected Securities Index Fund 64%

Basically I just moved the money from Total Bonds and Total International Bonds to the short term TIPS fund.

For some reason the Vanguard web site was not allowing me to use fractional percentages when I moved the money so I just rounded them to the nearest percentage.

The other big question that came up in this thread is how will I know that it is time to move back to a more conventional Target Date Fund or total bond index fund. That is still a really good question. I am hoping(more like wishful thinking) that by this fall the Coronavirus will history and the politics will settle down. I hope to be able to move back to a target date fund by the end of the year but I may choose to use one that does not have international bonds in it.

A few things to note;

1) I did not really change my asset allocation, I just changed which types of bonds I was using.

2) This was in reaction to some of the interest rates approaching zero, not the stock market drop. I kept my stock asset allocation the same and I will periodically rebalance.

3) I am not saying that this is what you should do. My situation may be different than yours since in the next few years I will be starting Social Security, likely converting a modest pension to a lump sum, and redeeming some old high interest I-bonds as they mature. When it comes down to it I am just some random guy on the internet so you need to make your own decisions about what you should do.
clip651
Posts: 745
Joined: Thu Oct 02, 2014 11:02 am

Re: Move from bonds to Money Market,CDs, savings acct, etc.?[UPDATE]

Post by clip651 »

Interesting post, Watty, sounds like you have a good plan for your personal situation.

Just curious, did you consider any of the treasury funds (short or intermediate) as an option? The older relative I help has been comfortable with intermediate treasury fund in place of total bond (thus avoiding corporate bonds, for better or worse), in addition to high yield savings accounts and money market funds for shorter term needs. I don't claim to know the best path forward at all. The low rates do make fixed income investing challenging for retired folks.

cj
User avatar
Topic Author
Watty
Posts: 20679
Joined: Wed Oct 10, 2007 3:55 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?[UPDATE]

Post by Watty »

clip651 wrote: Wed Mar 11, 2020 12:38 pm Interesting post, Watty, sounds like you have a good plan for your personal situation.

Just curious, did you consider any of the treasury funds (short or intermediate) as an option? The older relative I help has been comfortable with intermediate treasury fund in place of total bond (thus avoiding corporate bonds, for better or worse), in addition to high yield savings accounts and money market funds for shorter term needs. I don't claim to know the best path forward at all. The low rates do make fixed income investing challenging for retired folks.

cj

I was in sort of different situation since I was mainly just looking for some place to park my money for hopefully less than a year. The intermediate would have had too long a for me since that would be hurt if interest rates go up.

I looked at the short term treasury but the yields were so low that they were not worth the inflation risk to me. One nice thing about TIPS is that if there is deflation then they will still pay their full amount when they mature.

My second choice would have been just to use a money market fund but since I already had a short term TIPS fund in my target date fund I figured it would be less of a change. I also considered splitting the money between a money market fund and the short term TIPS fund but that added more complexity for no clear reason.
klaus14
Posts: 490
Joined: Sun Nov 25, 2018 7:43 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by klaus14 »

vineviz wrote: Fri Mar 06, 2020 9:31 pm
patrick wrote: Fri Mar 06, 2020 9:06 pm There is no particular reason to assume interest rates will stay where they are. They could move in either direction. Absent a special ability to see into the bond market's future, current interest rates are all we know.
Focusing solely on current rates is only appropriate if you're matching your asset duration with your investment horizon.

If you're buying a 5-year CD to fund (nominal) expenses you'll incur in precisely 5-years, then you're right.

Otherwise, it's unwise assume (absent a crystal ball) that the CDs will beat bonds over the length of the investment horizon but you DO know that you're taking on more interest rate risk and inflation risk with the CDs.
i don't understand the last part. 5y treasury is yielding 0.7%, 5y CD is 2%. why would i want the former? (assuming i don't need the liquidity)
35% US, 20 ExUS Dev, 10% EM, 10% EM Bonds, 10% Gold, 10% EDV, 5% I/EE Bonds. 50% value tilt in stocks.
smectym
Posts: 845
Joined: Thu May 26, 2011 5:07 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?[UPDATE]

Post by smectym »

Watty wrote: Fri Mar 06, 2020 10:47 am I posted an update about what I decided to do at the end of this thread.


I am retired and very much an advocate of using target date funds or a simple three fund portfolio.

In watching the current markets I am not too concerned about my stock index funds because even though they are not performing well they are basically doing what they do and big dips or bear markets are to be expected.

What concerns me is they way interest rates have dropped so much. As interest rates dropped the bond index funds have gone up as I would have expected but with interest rates so low I do not see that they have much room left to go up if rates drop further. As I type this the 10 year treasury is has a yield of about 0.75% so even if it goes to zero or slightly negative there is little upside left. Eventually rates will likely start going up again or if they don't then they would stay near zero for a long time. There seems to be a lot of risk with little chance of getting much reward.

I am thinking about moving away from the bond index funds and basically parking that money in some other sort of fixed income investment like a money market fund, CDs, or savings accounts.

My basic plan has always been to just "stay the course" no matter what but I am having a hard time seeing why it makes sense to stay in bonds right now. As rates get to be near zero maybe it really is "different this time."

Any suggestions about why I should keep my money in bond index funds?
hudson
Posts: 3240
Joined: Fri Apr 06, 2007 9:15 am

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by hudson »

klaus14 wrote: Sun Mar 15, 2020 3:25 am
vineviz wrote: Fri Mar 06, 2020 9:31 pm
patrick wrote: Fri Mar 06, 2020 9:06 pm There is no particular reason to assume interest rates will stay where they are. They could move in either direction. Absent a special ability to see into the bond market's future, current interest rates are all we know.
Focusing solely on current rates is only appropriate if you're matching your asset duration with your investment horizon.

If you're buying a 5-year CD to fund (nominal) expenses you'll incur in precisely 5-years, then you're right.

Otherwise, it's unwise assume (absent a crystal ball) that the CDs will beat bonds over the length of the investment horizon but you DO know that you're taking on more interest rate risk and inflation risk with the CDs.
i don't understand the last part. 5y treasury is yielding 0.7%, 5y CD is 2%. why would i want the former? (assuming i don't need the liquidity)
I wouldn't want the former; I'd go with the CD.

I agree with patrick and vineviz that there are unknown risks with CDs. Those are unpredictable, and I have no control over either.
I focus on current rates because those rates are real; I have control over choosing the current rate. I can't control inflation or interest rate risk. I'll take the best available and deal with it. If inflation and interest rates go bad, I'll just adjust the sails and move on.
For me, five year or maybe 7 year CDs work. I don't worry with my investment horizon (20 years to age 92?)....but I do keep funds in a mutual fund for liquidity.
Therefore, for me on March 15, 2020, CDs are the choice. Only on March 15, 2025 will we know what the best choice was.
50/50
Posts: 61
Joined: Wed Mar 13, 2019 9:16 am

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by 50/50 »

hudson wrote: Sun Mar 15, 2020 5:53 am
klaus14 wrote: Sun Mar 15, 2020 3:25 am
vineviz wrote: Fri Mar 06, 2020 9:31 pm
patrick wrote: Fri Mar 06, 2020 9:06 pm There is no particular reason to assume interest rates will stay where they are. They could move in either direction. Absent a special ability to see into the bond market's future, current interest rates are all we know.
Focusing solely on current rates is only appropriate if you're matching your asset duration with your investment horizon.

If you're buying a 5-year CD to fund (nominal) expenses you'll incur in precisely 5-years, then you're right.

Otherwise, it's unwise assume (absent a crystal ball) that the CDs will beat bonds over the length of the investment horizon but you DO know that you're taking on more interest rate risk and inflation risk with the CDs.
i don't understand the last part. 5y treasury is yielding 0.7%, 5y CD is 2%. why would i want the former? (assuming i don't need the liquidity)
I wouldn't want the former; I'd go with the CD.

I agree with patrick and vineviz that there are unknown risks with CDs. Those are unpredictable, and I have no control over either.
I focus on current rates because those rates are real; I have control over choosing the current rate. I can't control inflation or interest rate risk. I'll take the best available and deal with it. If inflation and interest rates go bad, I'll just adjust the sails and move on.
For me, five year or maybe 7 year CDs work. I don't worry with my investment horizon (20 years to age 92?)....but I do keep funds in a mutual fund for liquidity.
Therefore, for me on March 15, 2020, CDs are the choice. Only on March 15, 2025 will we know what the best choice was.
Hudson, I agree with you totally. CD's are my plan and I'm sticking to it. My CD ladder has been generating income every day with no dips.
jimkinny
Posts: 1435
Joined: Sun Mar 14, 2010 1:51 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?[UPDATE]

Post by jimkinny »

Watty, It hasn't made much sense to me for about 10 years to hold Treasuries, directly or in an index fund, when one can get CDs that generally double the rate of a similar term Treasury.
I am not really concerned about liquidity. I do hold some of Vanguard's investment grade bond fund and although I am not happy about its recently decline in NAV, it behaved about the way I expected, so far at least. The CD's are a blessing.
hudson
Posts: 3240
Joined: Fri Apr 06, 2007 9:15 am

Re: Move from bonds to Money Market,CDs, savings acct, etc.?

Post by hudson »

50/50 wrote: Sun Mar 15, 2020 8:34 am Hudson, I agree with you totally. CD's are my plan and I'm sticking to it. My CD ladder has been generating income every day with no dips.
50/50,

I haven't done a CD ladder; my CDs just happened; when money became available, I bought a 5-7 year CD. I didn't want to ladder because that would have given me a lower interest rate.
I'm not committed to CDs; if something else comes along that's as safe or almost, I'll change horses. (after maturity)

VWIUX, an intermediate muni, can sometimes beat a CD...after taxes IF you look at distribution yield. VWIUX is a notch or two less safe than a CD. VWIUX's dividend per share has been declining lately, so I take that into account. Anyone considering VWIUX needs to do their homework.

Is there a safer muni fund than VWIUX? Yes Baird's BMBIX.
User avatar
Sandi_k
Posts: 1469
Joined: Sat May 16, 2015 11:55 am
Location: SF Bay Area

Re: Move from bonds to Money Market,CDs, savings acct, etc.?[UPDATE]

Post by Sandi_k »

What about something like FGMNX - Ginnie Mae funds - in comparison to BND or TIPS?
hudson
Posts: 3240
Joined: Fri Apr 06, 2007 9:15 am

Re: Move from bonds to Money Market,CDs, savings acct, etc.?[UPDATE]

Post by hudson »

Sandi_k wrote: Sun Mar 15, 2020 1:58 pm What about something like FGMNX - Ginnie Mae funds - in comparison to BND or TIPS?
I'm not a great expert on GNMA funds...but I looked it up.

The expense ratio is .45%. I would want something under .10.
Fidelity's site says that it's 95.5% US Government bonds. Your principal would be safe.

Vanguard's GNMA admiral fund has a .11 expense ratio. It's rated Vanguard Risk Potential 2.
That would be OK for me for a lesser holding.
User avatar
anon_investor
Posts: 3496
Joined: Mon Jun 03, 2019 1:43 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?[UPDATE]

Post by anon_investor »

With this latest rate cut, I think I am going to have to get $20k (me+spouse), instead of my planned $10k of I Bonds before May...
User avatar
Topic Author
Watty
Posts: 20679
Joined: Wed Oct 10, 2007 3:55 pm

Re: Move from bonds to Money Market,CDs, savings acct, etc.?[UPDATE]

Post by Watty »

Sandi_k wrote: Sun Mar 15, 2020 1:58 pm What about something like FGMNX - Ginnie Mae funds - in comparison to BND or TIPS?
Thanks for the suggestion but part of the reason that I went with the short term TIPS fund that it would protect against unexpected inflation. With all the crazy stuff that is going on and the rate cut tonight inflation it is impossible to predict. In the works if there is deflation then TIPS will still pay their face amount when they mature.

I don't think that there is really a good alternative right now and at least for me a short term TIPS fund seemed the safest without going to a money market fund.
Post Reply