Is it time to hold cash instead of Bonds?

[AerialWombat]

But neither you, nor I, can forecast the future.

true, we are only assessing likelihoods... at 0.5% yield for the 10 year, assuming the ultimate downside for rates is near zero, the upside is limited. If rates stay constant you don't get any yield and lose money, if rates go even lower to zero the upside is limited, if rates go up you lose. Those are the only options possible - and none of those are very good.

Rates could go negative. Nobody knows how far. Maybe we'll be at -2.0% in 10 years?

We could also be at +12% in 3 years. No matter how unlikely one may consider it, the reality is that nobody knows.

[Stef]

I mean there are discussions in Switzerland if the SNB will reduce the rate from -0.75% down to -1.00%. Institutional clients are getting loans and mortgages with negative interest. They are getting paid for taking more debt.

What a crazy world! The US might see this as well.

[EnjoyIt]

I moved all the money from an aggregate bond fund to the stable value fund of my 401k, which at least yields over 2% for now. I also chase bank bonuses with money in taxable. It's pretty easy to get over 4% but is not fully passive. For example, I am currently doing a bonus that pays $500 for a 10k deposit for 30 days. That's 60% interest although I won't run it that close to the edge so call it 50% interest. Yes, please.

May I ask:
1) How many bank/brokerage bonuses do you in a year?
2) How many going at one time?
3) Do you close the accounts once done, or do you keep it open for X months?
4) How do you deal with all this at tax time, do you leave the account open long enough to pull in tax info though turbotax or do you close them right away and await for a 1099-int form and put it in manually?

I love the return on these things, but am hesitant on spreading my money out to too many institutions all at once.
Currently I am spread to 6 and thinking that is a lot already
Chase, my base bank
Vanguard my base brokerage
Capital One, just finished a bonus but the account is still open.
Citi Just finished a bonus but keeping cash there for now because their 1.05% is decent enough until I find something better
Ally Brokerage, money must stay there for 300 days total so that will be there till 2021
Merrill Edge/BOA waiting on bonuses with them but will be keeping $100k at ME for status.

[Blue456]

Don’t they simply let you withdraw your remaining balance via ACh after the bonus shows up and then request the account be closed? My plan was just to pull (as opposed to push) the balance back into the CapOne360 account that I originally used to fund the Citi accounts. Would be annoying to have to show face in a branch.

Yeah, you can try that. It would work if you were not dealing with the worst bank in the world.

I have seen reports similar to the following:
1. Hero withdraws his/her/their money.
2. Hero closes account.
3. Villain posts interest to account and reopens it.
4. Villain charges low balance fee because account only has 20 cents in it.
5. Villain charges overdraft fee.
6. Hero goes on with life, blissfully unaware of any problem.

Like I said, you need a plan.

Man that is a classic game for Bank of America. They tried that one on me. I had to close my account with them twice.

[abuss368]

Rates could go negative. Nobody knows how far. Maybe we'll be at -2.0% in 10 years?

Negatives rates are occurring in Europe such as Germany and also Japan.

[whodidntante]

I moved all the money from an aggregate bond fund to the stable value fund of my 401k, which at least yields over 2% for now. I also chase bank bonuses with money in taxable. It's pretty easy to get over 4% but is not fully passive. For example, I am currently doing a bonus that pays $500 for a 10k deposit for 30 days. That's 60% interest although I won't run it that close to the edge so call it 50% interest. Yes, please.

May I ask:
1) How many bank/brokerage bonuses do you in a year?
2) How many going at one time?
3) Do you close the accounts once done, or do you keep it open for X months?
4) How do you deal with all this at tax time, do you leave the account open long enough to pull in tax info though turbotax or do you close them right away and await for a 1099-int form and put it in manually?

I love the return on these things, but am hesitant on spreading my money out to too many institutions all at once.
Currently I am spread to 6 and thinking that is a lot already
Chase, my base bank
Vanguard my base brokerage
Capital One, just finished a bonus but the account is still open.
Citi Just finished a bonus but keeping cash there for now because their 1.05% is decent enough until I find something better
Ally Brokerage, money must stay there for 300 days total so that will be there till 2021
Merrill Edge/BOA waiting on bonuses with them but will be keeping $100k at ME for status.

According to my tracking spreadsheet, over the past 16 months, I have completed 36 bonus offers for a payout of $12,200. That's credit card, bank, and brokerage bonuses. It includes some easy to complete but low payout targeted spending offers. I've ramped up a bit lately because some good offers fell in my lap.

I'll generally do any offer that I find worthwhile, at least the best ones for time spent and captal commitment and payout. So how many I do depends mainly on what is out there at the moment. I've never missed a bonus payout because I didn't meet the terms.

I close bank accounts usually within six to 12 months. I'll keep it if it's useful somehow.
I keep credit cards that do not have an annual fee, unless I plan to churn the bonus. Most of them have some sort of useful benefit.
I close brokerage accounts if I plan to churn the bonus. I keep a Fidelity, Merrill Edge, and Interactive Brokers account active due to worthwhile benefits at each. So I don't expect to fully leave those brokers but may do so temporarily if I need the capital to earn a bonus.

I track my tax liability and will self report if anyone fails to send me correct documentation in time. I've had very few issues even with closed accounts. Generally, American banks and brokers do what they are required to do.

[Broken Man 1999]

There is certainly a load of FUD concerning the current low yields on BH's bond funds, so many posts.

Has anyone considered selling shares similar to what some BH's do with their equity funds?

The largest share by far of our bond funds are intermediate and short-term treasury index. And, definitely not much yield.

However, both bond funds have had some good movement in share price as the yield declined. So, if some amount of $$$ must be found somewhere, why not look at your bond funds similar to how some look at their equity funds, that is, total return?.

VSIGX (Intermediate-term Treasury Index Fund) YTD +8.38%*
VSBSX (Short-term Treasury Index Fund) YTD 3.06+%*
* As of 07/31/2020

Now, just to be clear, I am not doing this myself, but perhaps it might be a way for some to consider. Truthfully if I need to do anything it would be buying bonds. However, looking at our current $$$ level of our bond funds, I've pretty much realized we have a very safe base for our portfolio.

Or, for the market timers, no need to sell a little bit of your bond fund(s), sell it all and move into HYSP, cash, gold, bitcoin.....whatever.

Broken Man 1999

[rockstar]

My investment account is not FDIC insured. If I have to carry cash for any length of time, I'm going to buy short term treasuries at auction.

[stocknoob4111]

Rates could go negative. Nobody knows how far. Maybe we'll be at -2.0% in 10 years?

That isn't likely as it would cause severe dysfunction in the banking system.. I'm betting it will not happen here in the US.

VBILX ix still distributing 1.9% however it's rapidly going down each month, if it starts distributing around 1% there is no way I sm going to take 6 years worth of term risk for a 1% yield!!!

[Leif]

VBILX ix still distributing 1.9% however it's rapidly going down each month, if it starts distributing around 1% there is no way I sm going to take 6 years worth of term risk for a 1% yield!!!

And do what? Sell and keep in a money market or HYS? Or buy stock?

HYS is about .8% now. If VBILX is <1% then I guess HYS is perhaps <.5%. At least with HYS you are FDIC insured.

[stocknoob4111]

And do what? Sell and keep in a money market or HYS? Or buy stock?

Sell, lock in gains, keep in cash to avoid term risk, then buy back in when yields go back up. Why exactly would you hold bonds when risk free high yield savings is giving you the same yield?

[Kookaburra]

And do what? Sell and keep in a money market or HYS? Or buy stock?

Sell, lock in gains, keep in cash to avoid term risk, then buy back in when yields go back up. Why exactly would you hold bonds when risk free high yield savings is giving you the same yield?

You could be waiting a looooong time.

[EnjoyIt]

And do what? Sell and keep in a money market or HYS? Or buy stock?

Sell, lock in gains, keep in cash to avoid term risk, then buy back in when yields go back up. Why exactly would you hold bonds when risk free high yield savings is giving you the same yield?

That’s what people said a few years back when rates were low and the commentary was the only direction they can go was up. As you are aware all those experts were wrong and rates went down to where they are right now.

My point being. Know one knows nothing.

[Leif]

And do what? Sell and keep in a money market or HYS? Or buy stock?

Sell, lock in gains, keep in cash to avoid term risk, then buy back in when yields go back up. Why exactly would you hold bonds when risk free high yield savings is giving you the same yield?

In my experience the rates are not the same. Vanguard TBM, for example, is yielding higher than HYS.

I hold my bonds in a brokerage account. I cannot get HYS there. I would need to sell, split up my account to a bank, and buy HYS. In the meantime rates could continue to drop and I would not get a NAV increase, but my HYS rate would drop. If instead I keep the cash in a MM I could get 0.01%.

These intermediate term bonds are long term savings for me. I hope rates go up. Then I could get a decent yield. But if not I can wait it out. At least inflation is low.

[Noobvestor]

And do what? Sell and keep in a money market or HYS? Or buy stock?

Sell, lock in gains, keep in cash to avoid term risk, then buy back in when yields go back up. Why exactly would you hold bonds when risk free high yield savings is giving you the same yield?

When I was young, I made some money ... we're talking high school here, but four figures was big for me! And clever me, I looked at the yield curve (I didn't even know it was called that back then!) and spotted diminishing returns for going longer than around a year. IIRC, the rate was around 6%/year. And I thought I was so clever, keeping things short because going long didn't offer much more. Of course, in hindsight, if I'd locked into long-term bonds at 6% in the '90s I'd be feeling pretty good about it right about now. So I went short-term because the longer-term rates were pretty similar, and now in hindsight I think back in horror at what I could have done with that money. Point being: you never know where yields are going next.

[LarryCarell]

I ve decided to invest in Vanguard Short-Term Corporate Bond ETF (VCSH) instead of Vanguard Total Bond Market ETF (BND) for the moment, to avoid interest rate risks. What do you think about that decision?

[JaneyLH]

I just moved my spending money for the next year out of Capital One when it went to .8%. I purchased seven no-penalty 8 month CDs at Marcus at the 1.1% AARP rate. I was already an AARP member but it only costs $12 to join.

[toocold]

I don't consider it as cash vs bonds. I think the better question is what's the target average duration and risk profile of your fixed income portfolio. I did reduce my duration this year by holding my funds in MM/savings accounts.

[000]

In my experience the rates are not the same. Vanguard TBM, for example, is yielding higher than HYS.

I hold my bonds in a brokerage account. I cannot get HYS there. I would need to sell, split up my account to a bank, and buy HYS. In the meantime rates could continue to drop and I would not get a NAV increase, but my HYS rate would drop. If instead I keep the cash in a MM I could get 0.01%.

These intermediate term bonds are long term savings for me. I hope rates go up. Then I could get a decent yield. But if not I can wait it out. At least inflation is low.

ACH takes <= 3 days.

[MikeG62]

I just moved my spending money for the next year out of Capital One when it went to .8%. I purchased seven no-penalty 8 month CDs at Marcus at the 1.1% AARP rate. I was already an AARP member but it only costs $12 to join.

I'll be opening several in the next day or two myself as a temporary place to put cash freeing up from a maturing CD at the end of this month.

[Sandtrap]

Which has the greater loss of value over 10 years/
Cash due to inflation?
Vanguard Total Bond?

j

[grabiner]

Which has the greater loss of value over 10 years/
Cash due to inflation?
Vanguard Total Bond?

j

Inflation will affect both equally, so the real question is which will have a higher return over 10 years, and thus will have a lower underperformance relative to inflation.

The bond fund has more risk, which is why the answer is not known. But investors expect to be rewarded for taking that risk, so the bond fund is likely to outperform cash. It might not, if a lot of corporate bonds default, or if interest rates rise faster than investors are expecting.

If you want a guaranteed return relative to inflation, you can buy I-Bonds and hold them for 10 years, or buy 10-year TIPS. At the moment, the guaranteed return is negative, because the TIPS have negative yields, and the I-Bond has a zero yield but cannot be held in an IRA and thus will lose value to taxes.

[Leif]

Just read this at Jonathan Clements at Humble dollar website.

4. Hold your nose and buy Treasurys. It isn’t easy to suggest buying government bonds when 10-year Treasury notes are yielding just 0.6%. But the past two bear markets—this year’s decline and 2007-09—offer an unequivocal lesson: If you want something that’ll prop up your portfolio when share prices are in the dumps, Treasurys are a top choice.

They may offer skimpy yields and you’ll lose money over the long haul, once inflation and taxes are figured in. But you should think of that as the price you pay for portfolio insurance. When the world looks darkest, your Treasurys should shine brightly, offering not only solace, but also something to sell if you need cash from your portfolio.

Think Like Eeyore

[whodidntante]

Sadly - it’s down to 0.8% now.

Citi is still at 1.05%. (It only applies in certain areas, I think places with no citi branches.)

Citibank also offers a $400 bonus on a $15000 deposit x 60 days with no direct deposit required. We opened two accounts last month. The interest was something trivial though, so we’ll bail out after the bonus materializes.

I just completed this bonus. It went fine for me. People seem to have various complaints about Citi. I just went in assuming they are the worst bank in the world. Low expectations are the key to happiness.

Currently executing a scheme to rescue my 10k (avoid fees) and close the account without visiting a branch. This has been easy at every bank I've dealt with except for a few regionals, but with Citi, you need a plan.

Don’t they simply let you withdraw your remaining balance via ACh after the bonus shows up and then request the account be closed? My plan was just to pull (as opposed to push) the balance back into the CapOne360 account that I originally used to fund the Citi accounts. Would be annoying to have to show face in a branch.

I have successfully closed the account.

Here is what I did was:
0. Drawdown my balances to 10k to avoid fees.
1. Call to convert my interest checking account to a non-interest bearing one. The chat person or successful Turing test could not do it.
2. Move all the money in savings to checking, leaving $0 in savings and 10k in checking.
3. Wait for the interest to post, which happens at the close of a statement cycle.
4. Withdraw all the money, leaving $0 in everything. I used an ACH pull from an outside account.
5. Wait for the transaction to go from pending to posted.
6. Use secure message to close the account.
7. Verify both accounts are closed by logging in the next day.

I will check again next month just to make sure. With most banks steps 4-6 are sufficient. Maybe it is with Citi, too. But data points say otherwise.

[Noobvestor]

Citi is still at 1.05%. (It only applies in certain areas, I think places with no citi branches.)

Citibank also offers a $400 bonus on a $15000 deposit x 60 days with no direct deposit required. We opened two accounts last month. The interest was something trivial though, so we’ll bail out after the bonus materializes.

I just completed this bonus. It went fine for me. People seem to have various complaints about Citi. I just went in assuming they are the worst bank in the world. Low expectations are the key to happiness.

Currently executing a scheme to rescue my 10k (avoid fees) and close the account without visiting a branch. This has been easy at every bank I've dealt with except for a few regionals, but with Citi, you need a plan.

Don’t they simply let you withdraw your remaining balance via ACh after the bonus shows up and then request the account be closed? My plan was just to pull (as opposed to push) the balance back into the CapOne360 account that I originally used to fund the Citi accounts. Would be annoying to have to show face in a branch.

I have successfully closed the account.

Here is what I did was:
0. Drawdown my balances to 10k to avoid fees.
1. Call to convert my interest checking account to a non-interest bearing one. The chat person or successful Turing test could not do it.
2. Move all the money in savings to checking, leaving $0 in savings and 10k in checking.
3. Wait for the interest to post, which happens at the close of a statement cycle.
4. Withdraw all the money, leaving $0 in everything. I used an ACH pull from an outside account.
5. Wait for the transaction to go from pending to posted.
6. Use secure message to close the account.
7. Verify both accounts are closed by logging in the next day.

I will check again next month just to make sure. With most banks steps 4-6 are sufficient. Maybe it is with Citi, too. But data points say otherwise.

Out of curiosity, have you calculated your hourly return on time spent juggling all of this? It might well depend on your income and/or how you want to spend your free time, but my napkin math suggests these kinds of plays will never add up to much on dollars-per-hour basis.

[Always passive]

Why no mention of TIPS? If interest go up, is typically because of inflation. And if this is the case, TIPS will benefit. I think TIPS may return more than cash, although given that all bonds have negative real interests, you will get less than inflation.
Here is a quote from https://marketrealist.com/2015/05/impac ... s-on-tips/

"If inflation falls, income will likely decline, as would the principal payment at maturity (though you can never get back less than the original par value at which the bond was issued). TIPS are one of the few asset classes that directly pays an investor for realized inflation, making them attractive during periods of rising inflation. This compensation is the same for all TIPS securities. For this reason, investors who believe interest rates might fall often prefer longer maturity TIPS, while those who believe that rates will rise may want shorter maturity TIPS."

[whodidntante]

Citibank also offers a $400 bonus on a $15000 deposit x 60 days with no direct deposit required. We opened two accounts last month. The interest was something trivial though, so we’ll bail out after the bonus materializes.

I just completed this bonus. It went fine for me. People seem to have various complaints about Citi. I just went in assuming they are the worst bank in the world. Low expectations are the key to happiness.

Currently executing a scheme to rescue my 10k (avoid fees) and close the account without visiting a branch. This has been easy at every bank I've dealt with except for a few regionals, but with Citi, you need a plan.

Don’t they simply let you withdraw your remaining balance via ACh after the bonus shows up and then request the account be closed? My plan was just to pull (as opposed to push) the balance back into the CapOne360 account that I originally used to fund the Citi accounts. Would be annoying to have to show face in a branch.

I have successfully closed the account.

Here is what I did was:
0. Drawdown my balances to 10k to avoid fees.
1. Call to convert my interest checking account to a non-interest bearing one. The chat person or successful Turing test could not do it.
2. Move all the money in savings to checking, leaving $0 in savings and 10k in checking.
3. Wait for the interest to post, which happens at the close of a statement cycle.
4. Withdraw all the money, leaving $0 in everything. I used an ACH pull from an outside account.
5. Wait for the transaction to go from pending to posted.
6. Use secure message to close the account.
7. Verify both accounts are closed by logging in the next day.

I will check again next month just to make sure. With most banks steps 4-6 are sufficient. Maybe it is with Citi, too. But data points say otherwise.

Out of curiosity, have you calculated your hourly return on time spent juggling all of this? It might well depend on your income and/or how you want to spend your free time, but my napkin math suggests these kinds of plays will never add up to much on dollars-per-hour basis.

My hourly rate is fine, definitely worthwhile. I would scale it up without question if there were more good deals available. Citi is absolutely not representative of a typical bonus. As I said before, assume Citi is the worst bank in the world.

The main time consuming point in this game is unavoidable interactions with customer service, especially if I need to call or visit a branch. But that is pretty rare, fortunately. There are two regional banks that offer fantastic bonuses that I churn, but the downside is I have to open and close the accounts in person. I've learned to make an appointment so I don't have to wait for someone. I mostly tell them what I need done then I sit there and talk to them about issues of the day while they complain about how slow the system is today.

The electronic steps I am proficient at. It would take more time to accurately record my time than to do the steps.