double checking what Vanguard told me re"treasuries" both return and volatility
double checking what Vanguard told me re"treasuries" both return and volatility
I was one the phone yesterday with Vanguard asking about a different issue (an recent bond that has an involuntary call/redemption and asked him if there was something I should be looking at since the Prime money market has fallen off a cliff. He said I should consider short term treasuries which would give a yield of closer to 2% but still have "less volatility". He showed me how to get to the page filters, but I'm not sure what I am looking at nor the possible outcomes. For example, VFISX says short term treasury. ".31%A 30 day, and next column says "1 year 3.29%". Does that mean it is really earning .31% every 30 days? All I know is my credit union rate is currently .005 which is looking good compared to Vanguards prime of .0022. Primary goal is not to use principal, but still earn something. Ironically I earn close to 5.5% from a 40k holding in LEO, but it's 52 week range is much more volatile. I'm talking about 350k in prime. Any help very appreciated.
Re: double checking what Vanguard told me re"treasuries" both return and volatility
Sadly no. The yield you are seeing of 0.31% is for the entire year. The 1 year return was in the past. Current yields for treasuries are very low right now and there is no 2%.capran wrote: ↑Fri Jun 19, 2020 11:26 am I was one the phone yesterday with Vanguard asking about a different issue (an recent bond that has an involuntary call/redemption and asked him if there was something I should be looking at since the Prime money market has fallen off a cliff. He said I should consider short term treasuries which would give a yield of closer to 2% but still have "less volatility". He showed me how to get to the page filters, but I'm not sure what I am looking at nor the possible outcomes. For example, VFISX says short term treasury. ".31%A 30 day, and next column says "1 year 3.29%". Does that mean it is really earning .31% every 30 days? All I know is my credit union rate is currently .005 which is looking good compared to Vanguards prime of .0022. Primary goal is not to use principal, but still earn something. Ironically I earn close to 5.5% from a 40k holding in LEO, but it's 52 week range is much more volatile. I'm talking about 350k in prime. Any help very appreciated.
It sounds like you got a very misinformed Vanguard advisor.
Re: double checking what Vanguard told me re"treasuries" both return and volatility
Ally Bank has 12 month CDs at 1% or no penalty CD for .95 if you’re just looking to park your cash for now.
I had a 12 month CD at 2.75% but it just ended and the renewal rate was 1.1
Nothing is looking good right now
I had a 12 month CD at 2.75% but it just ended and the renewal rate was 1.1
Nothing is looking good right now
Re: double checking what Vanguard told me re"treasuries" both return and volatility
2% and "less" volatility than prime money market? Either he misspoke, you misheard, or this lady/gentleman is sadly ill-prepared to be giving financial advice. Generally there are no options in low risk fixed income right now that are likely to even pace inflation.
Also, you are making a reading mistake. That 3.29% is the year to date return which is the sum of interest paid and increase in NAV as interest rates fall. Recent distribution yield has been on the order of 1.5% but fell to 0.1% for the 5/29/20 dividend payment. In the first half of 2019 dividends were indeed being paid at an annual rate of 2%-3%, and the one year return is 4.79%. If you had invested in long term Treasury fund you could have gotten a one year return to date of 26% even though the SEC yield now is 1.33%.
Also, you are making a reading mistake. That 3.29% is the year to date return which is the sum of interest paid and increase in NAV as interest rates fall. Recent distribution yield has been on the order of 1.5% but fell to 0.1% for the 5/29/20 dividend payment. In the first half of 2019 dividends were indeed being paid at an annual rate of 2%-3%, and the one year return is 4.79%. If you had invested in long term Treasury fund you could have gotten a one year return to date of 26% even though the SEC yield now is 1.33%.
Re: double checking what Vanguard told me re"treasuries" both return and volatility
Those SEC yield numbers are typically annualized rates for the period listed (I believe bond funds generally listed an annualized 30 day SEC yield and money market funds usually lost an annualized 7 day SEC yield). If you check the annotation it should mention that it's an annualized rate.
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chrisdds98
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Re: double checking what Vanguard told me re"treasuries" both return and volatility
Well, thank you all for those comments. They make more sense than the Vanguard person I spoke with. And we had him on speaker phone with permission since we each have an account, and no way we miss heard. He was very specific about a 2% yield, which didn't make any sense given the little bit I know. Guess I'll just have to suck it up with next to nothing in interest. We have a trust set up and it's quite expensive to make changes, so I'm either at the credit union or at Vanguard, although if they allowed a TOD we could consider that since it's a fairly small percentage of assets. I can get .8% at the CU in a one year CD (the last time I looked 2 weeks ago). I imagine more of my high interest bonds will continue to be involuntarily redeemed. In January they called a 35 k bond that was paying 7.125%. Yesterday advised that 40% of a 25k bond that was paying 6.875% is being called before the end of the month. (of course they would do that the day before the tri annual dividend is paid). Oh well, that's the way the cookie crumbles.
Re: double checking what Vanguard told me re"treasuries" both return and volatility
Right. Negative yield means that you are absolutely guaranteed not to keep up with inflation.chrisdds98 wrote: ↑Fri Jun 19, 2020 3:50 pmwouldn't short term tips keep up with inflation? granted they have a negative yield...
But, in the sense you are thinking of it, you would in fact "pace" inflation but with a known offset. It would indeed still make sense to use the TIPS in that context because you know when you start where you stand and the inflation risk is eliminated. But there is a different risk in short bonds, and that is reinvestment risk. You don't know that as those TIPS are renewed that the real rate might drop even lower. It could also go up. That is what risk means.
Re: double checking what Vanguard told me re"treasuries" both return and volatility
Reinvestment risk has stricken with a vengeance. But there is risk in everything, even "safe" fixed income.capran wrote: ↑Fri Jun 19, 2020 4:24 pm Well, thank you all for those comments. They make more sense than the Vanguard person I spoke with. And we had him on speaker phone with permission since we each have an account, and no way we miss heard. He was very specific about a 2% yield, which didn't make any sense given the little bit I know. Guess I'll just have to suck it up with next to nothing in interest. We have a trust set up and it's quite expensive to make changes, so I'm either at the credit union or at Vanguard, although if they allowed a TOD we could consider that since it's a fairly small percentage of assets. I can get .8% at the CU in a one year CD (the last time I looked 2 weeks ago). I imagine more of my high interest bonds will continue to be involuntarily redeemed. In January they called a 35 k bond that was paying 7.125%. Yesterday advised that 40% of a 25k bond that was paying 6.875% is being called before the end of the month. (of course they would do that the day before the tri annual dividend is paid). Oh well, that's the way the cookie crumbles.