Total Bond Market to Money Market?

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Riverotter
Posts: 5
Joined: Fri Aug 21, 2015 5:19 pm

Total Bond Market to Money Market?

Post by Riverotter » Fri Mar 20, 2020 2:16 pm

Hi Bogleheads.

Quick question.

Based on people seeking cash, and the bond fund prices going down, I am thinking it may be safer to move my 401k's Total Bond Market Funds (VBTLX) to Vanguard Federal Money Market (VMFXX). VMFXX is the only money market my 401k has access to. Is there any downside to moving funds there for a month or two? I'm not really seeing a downside, other than perhaps losing a few dividends. I don't anticipate the bond fund prices to go up a large amount over the next few months, even with Fed help.

I'm more concerned about retaining my bond balance and I wasn't anticipating it going down with equities. I do realize it's a unique event.

Thank you for any advice you can provide.

bloom2708
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Location: Fargo, ND

Re: Total Bond Market to Money Market?

Post by bloom2708 » Fri Mar 20, 2020 2:21 pm

The downside is too many are doing this. Moving to "cash".

It puts immense pressure on the bond market. The Fed is trying its best to prop up markets.

You have to do what is best for you. Maybe best to just not look for 2 weeks or 4 weeks. Not sure.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words: Whole food, plant based

Conch55
Posts: 306
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Re: Total Bond Market to Money Market?

Post by Conch55 » Fri Mar 20, 2020 2:27 pm

It's a personal choice that we are all facing. As Bogleheads we are not market timers but it can be difficult to live through these times. My plan is to stick with "my plan" which is to trust what got me where I am. Plus, I don't know.

chinner
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Joined: Fri Mar 20, 2020 2:35 pm

Re: Total Bond Market to Money Market?

Post by chinner » Fri Mar 20, 2020 2:38 pm

Just started a new job and had to rollover 2x 401k accounts. Initiated the rollover request on 3/6 and have been on the sideline since. After the rollover(s) I'm gonna park everything in VMFXX for now.
Last edited by chinner on Fri Mar 20, 2020 8:05 pm, edited 1 time in total.

dbr
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Re: Total Bond Market to Money Market?

Post by dbr » Fri Mar 20, 2020 3:53 pm

Riverotter wrote:
Fri Mar 20, 2020 2:16 pm
I don't anticipate the bond fund prices to go up a large amount over the next few months, even with Fed help.

I'm more concerned about retaining my bond balance and I wasn't anticipating it going down with equities. I do realize it's a unique event.
The downside is that bond prices do go up instead of your anticipation and you lose the return. Another downside is that your original assessment that you should be in total bond market is correct and that you are now choosing an inferior asset allocation just because you didn't really understand that something might happen. But for all of that your best long term choice is and should be total bonds. On the other hand, if you really did learn that you should not take risk in bonds, then the damage is done and you have to change. Did you really learn that you should not take risk in bonds? There are very few people who really need to be that careful.

The complication here is whether or not you think you can now time interest rate changes and bond pricing and shift from having a plan to starting out on a project to constantly manipulate your asset allocation trying to anticipate the future. Even being right this time and next time does not mean this is a good idea.

Nowizard
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Re: Total Bond Market to Money Market?

Post by Nowizard » Fri Mar 20, 2020 4:38 pm

Sometimes, we make the most by losing the least. Most would recommend staying the course, but others realize that their risk tolerance has changed. Hopefully, those feeling that are ones who also recognize they have been taking more risk than their circumstances require. There are many situations that can rationally lead to a changed allocation of stocks/bonds, but it is a crisis that may receive the most suggestions of not doing so. However, if one makes the decision to reallocate, the opening comment becomes active. A total bond fund will almost certainly perform better in the long run than a MM. Yes, you may temporarily lose some in a bond fund you would not in a MM, but if you have reduced your overall equity allocation in an ongoing downturn, you will lose less in at least the short-term and, perhaps strike a balance between reducing overall risk without totally cashing out. This approach may be even easier to make in retirement accounts than taxable ones.

Tim

Chaconne
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Re: Total Bond Market to Money Market?

Post by Chaconne » Fri Mar 20, 2020 6:24 pm

I wouldn't use this to support one argument over another, but I was pleasantly surprised today (3/20) to find that my Total Bond Fund did pretty much what it's supposed to do. My balanced fund was -1.10% today and Total Bond was +1.38. I am 0.15% richer today than I was yesterday. Woohoo! On a day the Dow went down more than 900 points. So I'll take today and wait to see what's next!

50ismygoal
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Re: Total Bond Market to Money Market?

Post by 50ismygoal » Fri Mar 20, 2020 6:32 pm

I wrestled with this, only I was in short and intermediate term funds (BSV and BIV), so I compromised and kept half in those funds and the other half in MM. so now my portfolio is 50% stocks, 25% bonds and 25% cash.

stocknoob4111
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Re: Total Bond Market to Money Market?

Post by stocknoob4111 » Fri Mar 20, 2020 7:32 pm

bloom2708 wrote:
Fri Mar 20, 2020 2:21 pm
It puts immense pressure on the bond market.
People are selling their bond funds because they have realized that the AAA investment grade debt that they thought was "SAFE" is actually closer to non performant Junk teetering on the brink of default and has been misrated by the ratings agencies. Without going into the discussions about the morality of these things it represents more risk than was formerly thought.

OP, I am also thinking about what to do but I don't want to make an impulse decision without more research so I am holding off at the moment.

bloom2708
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Location: Fargo, ND

Re: Total Bond Market to Money Market?

Post by bloom2708 » Fri Mar 20, 2020 7:38 pm

stocknoob4111 wrote:
Fri Mar 20, 2020 7:32 pm
bloom2708 wrote:
Fri Mar 20, 2020 2:21 pm
It puts immense pressure on the bond market.
People are selling their bond funds because they have realized that the AAA investment grade debt that they thought was "SAFE" is actually closer to non performant Junk teetering on the brink of default and has been misrated by the ratings agencies. Without going into the discussions about the morality of these things it represents more risk than was formerly thought.

OP, I am also thinking about what to do but I don't want to make an impulse decision without more research so I am holding off at the moment.
There is risk because many businesses across the globe are at a stand still. Certainly unforeseen. Making re-payment suspect. All corporate bonds are "junk" if the companies can't repay. There are more sellers than buyers which is adding to the process.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words: Whole food, plant based

stocknoob4111
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Joined: Sun Jan 07, 2018 12:52 pm

Re: Total Bond Market to Money Market?

Post by stocknoob4111 » Fri Mar 20, 2020 7:42 pm

bloom2708 wrote:
Fri Mar 20, 2020 7:38 pm
All corporate bonds are "junk" if the companies can't repay. There are more sellers than buyers which is adding to the process.
Which is why companies need to have some cash reserves, analogous to an individual's Emergency Fund that they can use to temporarily service their debt payments. Instead companies have over levered and engaged in corporate buybacks juicing up their equity prices instead.

I am going to make a strategic decision if I want to dump all my bonds on Monday.... I have some gains since I bought them in 2018. It's simply to derisk and I don't want my bond portfolio to have equity type risk. I will re-invest in pure Treasuries... I understand interest rate risk but the corporate bond market is a black box to me, I have no idea what is going on there.

chuckb84
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Location: New Mexico

Re: Total Bond Market to Money Market?

Post by chuckb84 » Fri Mar 20, 2020 7:52 pm

I think this is another form of market timing. Treasuries and money markets look good now, but how about in 3 months?

I know VBTLX is down since the start of the crisis, but up 1.38% today....

MnD
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Re: Total Bond Market to Money Market?

Post by MnD » Fri Mar 20, 2020 8:06 pm

Investment grade bond funds with significant interest and credit risk have been vastly oversold on this board as being "for safety".
In times of turmoil they can move significantly, albeit not nearly as severely as equities.
Credit risk can show itself and move in the same negative direction as equities.

Under normal conditions cash yields less than bonds with credit and interest risk for a very good reason.
Maybe a positive is that people will stop dismissing the risk of bonds and embrace reality.
No advice here - making major moves in where your fixed income is located in a crisis could work out - or could be making bad worse.

People need a plan for equity _and_ fixed income that is grounded in reality.
And then don't throw it out the window when things gets "interesting".
Best wishes to all :beer
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.

Chaconne
Posts: 188
Joined: Sat Dec 15, 2007 4:18 pm

Re: Total Bond Market to Money Market?

Post by Chaconne » Fri Mar 20, 2020 8:12 pm

chuckb84 wrote:
Fri Mar 20, 2020 7:52 pm
I think this is another form of market timing. Treasuries and money markets look good now, but how about in 3 months?

I know VBTLX is down since the start of the crisis, but up 1.38% today....
Yes, Chuck. VBTLX is the reason I gained .15% on a day the Dow lost 900+ points. That's what it's for. It doesn't always work out that way, but I'm good with it over the long term.

J295
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Joined: Sun Jan 01, 2012 11:40 pm

Re: Total Bond Market to Money Market?

Post by J295 » Fri Mar 20, 2020 8:35 pm

Many posters have been anti-bonds for five years and longer… Postulating a variety of reasons, one of which has been interest rates can’t go any lower… Check out the return for BND over longer time horizons… We could be at the end of the positive run for bonds, or not… No one really knows.

Moreover, your decision doesn’t have to be all or nothing… You can have a combination of non-equity investments. Such as BND, tips, I bonds, CDs, short term bonds, long-term bonds, money market funds. Floating rate fund are also available, although they are a riskier non-equity asset.

ubermax
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Location: Connecticut

Re: Total Bond Market to Money Market?

Post by ubermax » Sat Mar 21, 2020 7:52 am

Riverotter wrote:
Fri Mar 20, 2020 2:16 pm
Hi Bogleheads.

Quick question.

Based on people seeking cash, and the bond fund prices going down, I am thinking it may be safer to move my 401k's Total Bond Market Funds (VBTLX) to Vanguard Federal Money Market (VMFXX). VMFXX is the only money market my 401k has access to. Is there any downside to moving funds there for a month or two? I'm not really seeing a downside, other than perhaps losing a few dividends. I don't anticipate the bond fund prices to go up a large amount over the next few months, even with Fed help.

I'm more concerned about retaining my bond balance and I wasn't anticipating it going down with equities. I do realize it's a unique event.

Thank you for any advice you can provide.
I think it's a good question , during the past year a strong bond market offset dips in stock funds pretty well and then around March 6th things got ugly , bonds and stocks dove together and tax exempt bond funds as well , a surprise for me , in 2008 we moved everything to MM that Fall & got back in the following Fall , late getting out but not too bad getting back in , but DW and I were 12 years younger - now we're retired and there's less time for catch-up but we pulled out 100% again - I know , stay the course , stick with your allocation or re-balance , etc. etc. but I don't believe that's the right approach for everyone , fear is a factor in decisions and it's hard to predict when the economy both domestic and international will rebound - and so we have to be on the sidelines for a month , uncertain future , will have to see ??

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Phineas J. Whoopee
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Re: Total Bond Market to Money Market?

Post by Phineas J. Whoopee » Sat Mar 21, 2020 4:56 pm

ubermax wrote:
Sat Mar 21, 2020 7:52 am
Riverotter wrote:
Fri Mar 20, 2020 2:16 pm
Hi Bogleheads.

Quick question.

Based on people seeking cash, and the bond fund prices going down, I am thinking it may be safer to move my 401k's Total Bond Market Funds (VBTLX) to Vanguard Federal Money Market (VMFXX). VMFXX is the only money market my 401k has access to. Is there any downside to moving funds there for a month or two? I'm not really seeing a downside, other than perhaps losing a few dividends. I don't anticipate the bond fund prices to go up a large amount over the next few months, even with Fed help.

I'm more concerned about retaining my bond balance and I wasn't anticipating it going down with equities. I do realize it's a unique event.

Thank you for any advice you can provide.
I think it's a good question , during the past year a strong bond market offset dips in stock funds pretty well and then around March 6th things got ugly , bonds and stocks dove together and tax exempt bond funds as well , a surprise for me , in 2008 we moved everything to MM that Fall & got back in the following Fall , late getting out but not too bad getting back in , but DW and I were 12 years younger - now we're retired and there's less time for catch-up but we pulled out 100% again - I know , stay the course , stick with your allocation or re-balance , etc. etc. but I don't believe that's the right approach for everyone , fear is a factor in decisions and it's hard to predict when the economy both domestic and international will rebound - and so we have to be on the sidelines for a month , uncertain future , will have to see ??
If you have to you have to. Just don't expect to reliably extract higher returns by doing it. Most likely they will be lower. Yours might be an exceptional case, of course.

PJW

Topic Author
Riverotter
Posts: 5
Joined: Fri Aug 21, 2015 5:19 pm

Re: Total Bond Market to Money Market?

Post by Riverotter » Thu Mar 26, 2020 4:57 pm

Thank you all very much for your help.

I decided to pull out of bonds for a bit.

I feel like I've failed you, but it was breaking my head that bonds were going down with equities. It was making me feel like I need to learn a lot more about the actual risk of bonds.

Again, you guys rock. I am very thankful for your opinions! :sharebeer

Dominic
Posts: 257
Joined: Sat Jul 02, 2016 11:36 am

Re: Total Bond Market to Money Market?

Post by Dominic » Thu Mar 26, 2020 5:29 pm

Two problems with this move, in my opinion:
- The yield on cash right now is very, very low. Yields are higher on longer term bonds. With no rate changes, a bond fund such as total bond market will perform better.
- If things get worse, Treasury yields will probably decrease further. This will increase the value of government-backed bonds (TBM is ~50% Treasuries, ~20% government agency bonds). This should help offset stock losses. (The caveat is that the reverse is true: when things improve, and yields rise, TBM will lose some value. But your stocks should offset those losses. Additionally, credit spreads should fall, meaning that the corporate bond slice of TBM should help somewhat.)

UpperNwGuy
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Re: Total Bond Market to Money Market?

Post by UpperNwGuy » Thu Mar 26, 2020 5:54 pm

Riverotter wrote:
Fri Mar 20, 2020 2:16 pm
Hi Bogleheads.

Quick question.

Based on people seeking cash, and the bond fund prices going down, I am thinking it may be safer to move my 401k's Total Bond Market Funds (VBTLX) to Vanguard Federal Money Market (VMFXX). VMFXX is the only money market my 401k has access to. Is there any downside to moving funds there for a month or two? I'm not really seeing a downside, other than perhaps losing a few dividends. I don't anticipate the bond fund prices to go up a large amount over the next few months, even with Fed help.

I'm more concerned about retaining my bond balance and I wasn't anticipating it going down with equities. I do realize it's a unique event.

Thank you for any advice you can provide.
Have you checked the yields on VMFXX? They're very very low. Why would you put your money there?

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