Way too much cash - Should it be in bond funds?

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fundseeker
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Way too much cash - Should it be in bond funds?

Post by fundseeker »

We are in our very early 60s and just reached a milestone of $2M net worth, not counting our paid off house and cars. That's the good news. The terrible news is that 58% (~$1.2M) is essentially in cash (which includes the TSP G Fund) doing nothing. Overall, we are very conservatively at 42% stocks, 40% bonds (if the TSP G Fund is considered a bond fund), and 18% (or ~$380k) cash. Ouch!.

My $1.4M TSP has $750k in the G Fund, which the majority here seem to think is better than the F Fund, so I have "0" in the F Fund.

Our Roths total about $300k, and half of that is in money markets, doing nothing! Her old 401k (~$80k) is also about half money market. My new 401K is about $50k, and it is in a bond fund only because the company does not offer any money market funds. And, the return from that bond fund has been relatively great!

Bottom line is that we have ~$1.2M (including the G Fund) earning nothing, and only ~$850k in stocks, either Total Stock Market index or 500 Index funds.

How did this happen? Well, I've been reducing our stocks the past several years expecting a correction and reducing risk, and I've avoided bond funds because I've been reading for years that bonds were not a good place to be. I've also read that the G Fund is essentially a bond fund and as good or better than the F Fund, so I've stuck with the G Fund only. If the G Fund is really a bond fund, then maybe things aren't soooo terrible, meaning that we are 40% bonds right now, 42% stocks, and 18% (or ~$380k) sitting in money markets.

So, would all or most of this money market money be better off in some short or intermediate bond funds? And, should I move some of the G Fund money to the F Fund? I do plan to get our ratio back up to maybe 60/40 over time. Chances are almost all of our investments will be left to our children. Thank you for helping with my problems, which I know could be worse :happy .
SethJane42
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Re: Way too much cash - Should it be in bond funds?

Post by SethJane42 »

I'm a buy low, sell high person. Bond fund share prices are at the high points in their cycles, though a short-term bond fund like VUBFX ( current 30-day SEC yield .84%) have a small range of volatility. You could put money in that and risk losing maybe 1-2% as opposed to an intermediate fund like VFITX (current 30-day SEC yield .27%), which has a volatility range o 12-13%. You could put the money in VFITX today as a lump sum and see the balance go down -12% within a few years.

Many here would say just lump sum the cash into something like VBTLX (total bond market--at the high right now with a volatility range of 12-13%), no matter the share price and sit on it. Again, bond share prices could crash just as easily as they have gone up. And it could take a number of years to regain the principle with dividends.

VUBFX can be used like a holding fund in that you won't trigger the frequent trading rules if you withdraw portions. Doublecheck.

Cash in a money market like VMRXX doesn't earn much, but cash also can be a hedge if the market turns sour again like in March, at which time you can buy some good stocks low with that cash--or stock funds like VOO, VYM, or even a total stock market one . And if the bond funds go into a down cycle, then you can buy low.

So do the math, know your risk tolerance, and make an informed decision. Good luck.
Call_Me_Op
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Re: Way too much cash - Should it be in bond funds?

Post by Call_Me_Op »

fundseeker wrote: Sat Aug 29, 2020 8:28 am We are in our very early 60s and just reached a milestone of $2M net worth, not counting our paid off house and cars. That's the good news. The terrible news is that 58% (~$1.2M) is essentially in cash (which includes the TSP G Fund) doing nothing. Overall, we are very conservatively at 42% stocks, 40% bonds (if the TSP G Fund is considered a bond fund), and 18% (or ~$380k) cash. Ouch!.
Just why is that terrible? Money that you say is "doing nothing" is in fact doing something very important. It is waiting for a time when you may need it because everything else has gone to hell. At a time when bonds offer substantially (in some cases) more risk but not much more return than cash, I think you should re-calibrate how you look at things.

The way you are thinking, in my opinion you run the risk of making a big mistake. Look up Larry Swedroe and "marginal utility of wealth." Here, I have saved you the trouble.

https://buckinghamadvisor.com/how-do-yo ... gh-052813/
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
7eight9
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Re: Way too much cash - Should it be in bond funds?

Post by 7eight9 »

You might want to consider laddering some multi-year guaranteed annuities (MYGAs) in lieu of or in addition to bonds.

Example --- Fixed Annuity Rates for August 2020 ---https://www.blueprintincome.com/fixed-annuities

Rates as high as:

2.30% - 2 year
2.60% - 3 year
2.85% - 4 year
3.45% - 5 year
I guess it all could be much worse. | They could be warming up my hearse.
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geerhardusvos
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Re: Way too much cash - Should it be in bond funds?

Post by geerhardusvos »

fundseeker wrote: Sat Aug 29, 2020 8:28 am We are in our very early 60s and just reached a milestone of $2M net worth, not counting our paid off house and cars. That's the good news. The terrible news is that 58% (~$1.2M) is essentially in cash (which includes the TSP G Fund) doing nothing. Overall, we are very conservatively at 42% stocks, 40% bonds (if the TSP G Fund is considered a bond fund), and 18% (or ~$380k) cash. Ouch!.

My $1.4M TSP has $750k in the G Fund, which the majority here seem to think is better than the F Fund, so I have "0" in the F Fund.

Our Roths total about $300k, and half of that is in money markets, doing nothing! Her old 401k (~$80k) is also about half money market. My new 401K is about $50k, and it is in a bond fund only because the company does not offer any money market funds. And, the return from that bond fund has been relatively great!

Bottom line is that we have ~$1.2M (including the G Fund) earning nothing, and only ~$850k in stocks, either Total Stock Market index or 500 Index funds.

How did this happen? Well, I've been reducing our stocks the past several years expecting a correction and reducing risk, and I've avoided bond funds because I've been reading for years that bonds were not a good place to be. I've also read that the G Fund is essentially a bond fund and as good or better than the F Fund, so I've stuck with the G Fund only. If the G Fund is really a bond fund, then maybe things aren't soooo terrible, meaning that we are 40% bonds right now, 42% stocks, and 18% (or ~$380k) sitting in money markets.

So, would all or most of this money market money be better off in some short or intermediate bond funds? And, should I move some of the G Fund money to the F Fund? I do plan to get our ratio back up to maybe 60/40 over time. Chances are almost all of our investments will be left to our children. Thank you for helping with my problems, which I know could be worse :happy .
My recommendation would just be to immediately invest the cash per your desired allocation
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csmath
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Re: Way too much cash - Should it be in bond funds?

Post by csmath »

SethJane42 wrote: Sat Aug 29, 2020 9:07 am I'm a buy low, sell high person.
Sorry but I stopped reading after the first sentence. How exactly do you know when it is "low" to buy back in and when it is "high" to time your selling? Does everyone know this? Anyone who works at it? Or just you?
SethJane42 wrote: Sat Aug 29, 2020 9:07 am bond share prices could crash just as easily as they have gone up. And it could take a number of years to regain the principle with dividends
Emphasis mine. Or they could just not crash? If they do crash, how low will they crash? Again, I need to know when the water is safe to jump back in.
delamer
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Re: Way too much cash - Should it be in bond funds?

Post by delamer »

I am not a bond person. I have a higher allocation to stocks than would be typical for my age/circumstances and the rest of my portfolio is almost all in cash.

There have been analyses that a 75/25 stock/cash portfolio is very similar — over the long run — to a 60/40 stock/bond portfolio.

Here’s one: https://awealthofcommonsense.com/2015/0 ... portfolio/

While the heavier stock portfolio is more volatile, I think that is outweighed psychologically by knowing that you have a chunk of assets (the cash) that will never change value. For instance, bonds were down during the Great Recession just like stocks, although by a much smaller amount.

In your situation, especially given that you you expect your kids to inherit most of your portfolio, I’d up the stock allocation and keep the rest in cash (whuch includes the G fund). You can search for a higher return for your money market funds; once you get to $100,000+ , there will be options like jumbo CDs.
rich126
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Re: Way too much cash - Should it be in bond funds?

Post by rich126 »

Would it have been to have all that money in the market, yes but you can't change the past. Unlike others here, I'm a big believer that if you are patient buying opportunities always come. You might have to wait for a while but like in March when the markets dropped 20-30% to 2017 levels, there will come another opportunity.

You can hedge your bets and put some in now and wait. You can add it all now (personally I would only do that if I was younger). Or you can continue to wait and risk the market will go higher.

Personally I think we have bubbles in most markets and the future will be rough but that is only my opinion.

A bigger question is, is the inactivity or loss of gains affecting your ability to live day to day? If not, then I don't think it is a big deal. My biggest mistakes have always been thinking "geez, I must be wrong" and decide to buy in just when things were peaking and regret not listening to what I thought was right.

I honestly wouldn't tell you what is right since I don't know you and your financial situation and even if I did, I rather see people make their own decisions.
SethJane42
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Re: Way too much cash - Should it be in bond funds?

Post by SethJane42 »

csmath wrote: Sat Aug 29, 2020 10:29 am
SethJane42 wrote: Sat Aug 29, 2020 9:07 am I'm a buy low, sell high person.
Sorry but I stopped reading after the first sentence. How exactly do you know when it is "low" to buy back in and when it is "high" to time your selling? Does everyone know this? Anyone who works at it? Or just you?
SethJane42 wrote: Sat Aug 29, 2020 9:07 am bond share prices could crash just as easily as they have gone up. And it could take a number of years to regain the principle with dividends
Emphasis mine. Or they could just not crash? If they do crash, how low will they crash? Again, I need to know when the water is safe to jump back in.
Intelligence, vetting, eyeballs, and hard work can make one aware of what stock or fund is actually expensive or inexpensive at a particular time. Study the chart of eg VFITX, and it should be obvious bonds are cyclical. Most bond funds are at all-time highs and I can guarantee you that within a few years that they will drop at least half way back or lower in price. Better to buy into bond funds when they are on down-cycles.
Impatience
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Re: Way too much cash - Should it be in bond funds?

Post by Impatience »

What’s all this talk about studying charts? Just invest it at your preexisting asset allocation - or, invest half and keep half in money market / savings. Doing just half is a great and simple compromise.
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BogleFanGal
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Re: Way too much cash - Should it be in bond funds?

Post by BogleFanGal »

Call_Me_Op wrote: Sat Aug 29, 2020 9:21 am
fundseeker wrote: Sat Aug 29, 2020 8:28 am We are in our very early 60s and just reached a milestone of $2M net worth, not counting our paid off house and cars. That's the good news. The terrible news is that 58% (~$1.2M) is essentially in cash (which includes the TSP G Fund) doing nothing. Overall, we are very conservatively at 42% stocks, 40% bonds (if the TSP G Fund is considered a bond fund), and 18% (or ~$380k) cash. Ouch!.
Just why is that terrible? Money that you say is "doing nothing" is in fact doing something very important. It is waiting for a time when you may need it because everything else has gone to hell. At a time when bonds offer substantially (in some cases) more risk but not much more return than cash, I think you should re-calibrate how you look at things.

The way you are thinking, in my opinion you run the risk of making a big mistake. Look up Larry Swedroe and "marginal utility of wealth." Here, I have saved you the trouble.

https://buckinghamadvisor.com/how-do-yo ... gh-052813/
My thoughts exactly. For those in late 50s, 60s and beyond, priority one is stability and safety - with enough in stocks for growth. Every portfolio dollar can't be tasked with generating growth and income - unless you're willing to take on a lot more risk - and possibly sleepless nights. But I've never been one that believes preserving an inheritance for someone else is remotely more important than ensuring strong stability and quality of life for the person who earned and saved the funds first. So there's that.
Last edited by BogleFanGal on Sat Aug 29, 2020 11:01 am, edited 1 time in total.
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csmath
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Re: Way too much cash - Should it be in bond funds?

Post by csmath »

SethJane42 wrote: Sat Aug 29, 2020 10:48 am Intelligence, vetting, eyeballs, and hard work can make one aware of what stock or fund is actually expensive or inexpensive at a particular time.
I believe that you believe this is true. I however, do not. There are plenty of intelligent people who work very hard at determining whether assets are under or over priced compared to how the market will value them. There are a billion posts on Bogleheads.org refuting the fact that it is that easy. A lot of people get lucky though and think they have some sort of "secret sauce" until they lose big. What percentage of fund managers are "intelligent, have eyeballs, vet companies, and work hard? How many of them beat the market consistently? I'm sure someone here has a past post/thread handy that hashes this out.
retiredjg
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Re: Way too much cash - Should it be in bond funds?

Post by retiredjg »

Way too much cash - Should it be in bond funds?
It appears to get to your "eventual" desired allocation of 60% stocks and 40% bonds, you need to invest the cash in stocks, not bonds.

It does not matter whether you use all G fund or all F fund or a combination of the two - because either will do the job that your bond allocation is intended to do. The F fund will pay you more than the G fund and will dip more in bad times. The G fund will pay you less but is very solid in the bad times.

The G fund has a higher yield for the risk taken (essentially no risk) so that is why it is considered "better". But it is not "better" if you want a more yield from your bond allocation. That's why I use both.
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Mountain Doc
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Re: Way too much cash - Should it be in bond funds?

Post by Mountain Doc »

SethJane42 wrote: Sat Aug 29, 2020 10:48 am Most bond funds are at all-time highs and I can guarantee you that within a few years that they will drop at least half way back or lower in price.
Guarantee... not a word you see very often on Bogleheads. Is that a money back guarantee? :P
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ruralavalon
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Re: Way too much cash - Should it be in bond funds?

Post by ruralavalon »

fundseeker wrote: Sat Aug 29, 2020 8:28 am We are in our very early 60s and just reached a milestone of $2M net worth, not counting our paid off house and cars. That's the good news. The terrible news is that 58% (~$1.2M) is essentially in cash (which includes the TSP G Fund) doing nothing. Overall, we are very conservatively at 42% stocks, 40% bonds (if the TSP G Fund is considered a bond fund), and 18% (or ~$380k) cash. Ouch!.

My $1.4M TSP has $750k in the G Fund, which the majority here seem to think is better than the F Fund, so I have "0" in the F Fund.

Our Roths total about $300k, and half of that is in money markets, doing nothing! Her old 401k (~$80k) is also about half money market. My new 401K is about $50k, and it is in a bond fund only because the company does not offer any money market funds. And, the return from that bond fund has been relatively great!

Bottom line is that we have ~$1.2M (including the G Fund) earning nothing, and only ~$850k in stocks, either Total Stock Market index or 500 Index funds.

How did this happen? Well, I've been reducing our stocks the past several years expecting a correction and reducing risk, and I've avoided bond funds because I've been reading for years that bonds were not a good place to be. I've also read that the G Fund is essentially a bond fund and as good or better than the F Fund, so I've stuck with the G Fund only. If the G Fund is really a bond fund, then maybe things aren't soooo terrible, meaning that we are 40% bonds right now, 42% stocks, and 18% (or ~$380k) sitting in money markets.

So, would all or most of this money market money be better off in some short or intermediate bond funds? And, should I move some of the G Fund money to the F Fund? I do plan to get our ratio back up to maybe 60/40 over time. Chances are almost all of our investments will be left to our children. Thank you for helping with my problems, which I know could be worse :happy .
Are you retired? If not, about how long to expected retirement? Will either one or both of you have a substantial pension in addition to Social Security? If so, then how much?

What funds are offered in each 401k plan? Please give fund names, tickers and expense ratios. (I can't offer ideas on funds to use without knowing what the choices are.)

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post),it helps a lot if all of your information is in one place.

First decide on a desired asset allocation, meaning stock/fixed income mix. At age 60 somewhere in the range 60/40 to 40/60 might be reasonable. In my opinion a lot depends on the pension issue. Rick Ferri suggests 30/70 stock/fixed income as the default for retirees. Forbes (2/6/2015), "The Center of Gravity for Retirees".

In my opinion the G Fund like a bond fund or money market fund, counts as part of a fixed income allocation. The G Fund combines features of both a Treasury bond fund and a money market fund. "The G Fund offers the opportunity to earn rates of interest similar to those of long-term Government securities but without any risk of loss of principal." Wiki article, G Fund.

If I read your post correctly you have about:
$820k (41%) stocks;
$50k (3%) bond funds;
$750k (38%) G Fund; and
$380k (18%) money market funds.
In my opinion (even if you decide to stay with a 40/60 stock/fixed income allocation) it would be better long-term to have more in a good bond fund, and less in G Fund and money market funds.

I you want a 60/40 stock/fixed income asset allocation then your cash and Fund needs to move to a stock fund.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
sunshinenc
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Re: Way too much cash - Should it be in bond funds?

Post by sunshinenc »

With all respects, just curious -

when I see some previous post mentioning that "bond return will go down in the future", are we trying to predict the future return, which is against the principle of BH?
cowbman
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Re: Way too much cash - Should it be in bond funds?

Post by cowbman »

I'd look to online savings accounts. Those are paying 1% with essentially no risk
retiredjg
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Re: Way too much cash - Should it be in bond funds?

Post by retiredjg »

sunshinenc wrote: Sat Aug 29, 2020 11:30 am With all respects, just curious -

when I see some previous post mentioning that "bond return will go down in the future", are we trying to predict the future return, which is against the principle of BH?
It would be. Is is possible people are talking about the value of the fund going down instead of the return?

That statement is definitely true any time interest rates go up. Of course, nobody knows when interest rates will go up, but it is pretty much a certainty that they will go up and down as time passes.
SethJane42
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Re: Way too much cash - Should it be in bond funds?

Post by SethJane42 »

csmath wrote: Sat Aug 29, 2020 11:01 am
SethJane42 wrote: Sat Aug 29, 2020 10:48 am Intelligence, vetting, eyeballs, and hard work can make one aware of what stock or fund is actually expensive or inexpensive at a particular time.
I believe that you believe this is true. I however, do not. There are plenty of intelligent people who work very hard at determining whether assets are under or over priced compared to how the market will value them. There are a billion posts on Bogleheads.org refuting the fact that it is that easy. A lot of people get lucky though and think they have some sort of "secret sauce" until they lose big. What percentage of fund managers are "intelligent, have eyeballs, vet companies, and work hard? How many of them beat the market consistently? I'm sure someone here has a past post/thread handy that hashes this out.
All reality unfolds within a field of probabilities. The markets are not separate from reality or personal experience, or this field of probabilities. Vetting, research, education, experience, hard work, and action affects and changes the probable futures one will experience.
Doctor Rhythm
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Re: Way too much cash - Should it be in bond funds?

Post by Doctor Rhythm »

csmath wrote: Sat Aug 29, 2020 11:01 am
SethJane42 wrote: Sat Aug 29, 2020 10:48 am Intelligence, vetting, eyeballs, and hard work can make one aware of what stock or fund is actually expensive or inexpensive at a particular time.
I believe that you believe this is true. I however, do not. There are plenty of intelligent people who work very hard at determining whether assets are under or over priced compared to how the market will value them. There are a billion posts on Bogleheads.org refuting the fact that it is that easy. A lot of people get lucky though and think they have some sort of "secret sauce" until they lose big. What percentage of fund managers are "intelligent, have eyeballs, vet companies, and work hard? How many of them beat the market consistently? I'm sure someone here has a past post/thread handy that hashes this out.
This.

If someone wants to claim that intelligence and hard work can lead to beating the market, they should provide empiric evidence. Active managers study this stuff 50 hours per week. They have relevant education, training, degrees and certifications. They have staff that assists them with research. They have access to economists, industry consultants, and mathematicians. When you’re getting your kids ready for school, they are on a corporate earnings call, ready to buy or sell their stake.

And still they can’t do better than a passive fund or benchmark:

SPIVA - S & P Index Versus Active

Trying to beat or successfully time the market is an exercise in trying hard to be lucky. Again, if someone has evidence (not anecdotes) that you’re more likely than not to succeed in this endeavor, please share it.
dbr
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Re: Way too much cash - Should it be in bond funds?

Post by dbr »

sunshinenc wrote: Sat Aug 29, 2020 11:30 am With all respects, just curious -

when I see some previous post mentioning that "bond return will go down in the future", are we trying to predict the future return, which is against the principle of BH?
Pretty much yes trying to predict future return.

But lets be a little more technical about return and about value/price/worth. Return is the change in value of the investment relative to the beginning of the period for which the change is measured. By convention that always includes any dividends, interest, or capital gains distributions as if they were reinvested (the price chart of a share is not exactly the same thing). So "bond returns go down" means the return is getting less. That could be from 5% to 4% or from 1% to -1%. So, as long as the return is positive, the value of the investment is increasing, and if the return becomes negative the value of the investment is decreasing.

All of this is just a mathematical formula, so you can just as well say that if the market drives the price of bonds down then that loss, offset by any intervening distributions, could result in a negative return for that period. That might mean the return went down, but it can also happen that if the loss of value is less than it was in a period before that the return has gone up, for example from -5% to -3% or something.

One comment, often misunderstood, is that in technical finance risk is defined as how much returns are varying. A risky investment could have highly variable returns which nevertheless are always positive. That would mean this risky investment does not actually ever lose money. It is probably unusual that any investment priced on a market never loses money, but one should always be specific whether one is talking about returns or about value (or share price) of an investment. Note a return of -100% means all the money is lost and normally does not recover.

Also when financial people talk about investments being correlated they are talking about the returns being correlated and not about the prices being correlated.
dbr
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Re: Way too much cash - Should it be in bond funds?

Post by dbr »

Doctor Rhythm wrote: Sat Aug 29, 2020 11:46 am
Trying to beat or successfully time the market is an exercise in trying hard to be lucky. Again, if someone has evidence (not anecdotes) that you’re more likely than not to succeed in this endeavor, please share it.
You aren't going to quarrel with this man are you: https://www.bing.com/videos/search?q=th ... &FORM=VIRE
Doctor Rhythm
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Re: Way too much cash - Should it be in bond funds?

Post by Doctor Rhythm »

dbr wrote: Sat Aug 29, 2020 11:58 am
Doctor Rhythm wrote: Sat Aug 29, 2020 11:46 am
Trying to beat or successfully time the market is an exercise in trying hard to be lucky. Again, if someone has evidence (not anecdotes) that you’re more likely than not to succeed in this endeavor, please share it.
You aren't going to quarrel with this man are you: https://www.bing.com/videos/search?q=th ... &FORM=VIRE
A classic from my childhood. We used to do parodies of those commercials as well as When E. F. Hutton speaks
dbr
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Re: Way too much cash - Should it be in bond funds?

Post by dbr »

Doctor Rhythm wrote: Sat Aug 29, 2020 12:11 pm
dbr wrote: Sat Aug 29, 2020 11:58 am
Doctor Rhythm wrote: Sat Aug 29, 2020 11:46 am
Trying to beat or successfully time the market is an exercise in trying hard to be lucky. Again, if someone has evidence (not anecdotes) that you’re more likely than not to succeed in this endeavor, please share it.
You aren't going to quarrel with this man are you: https://www.bing.com/videos/search?q=th ... &FORM=VIRE
A classic from my childhood. We used to do parodies of those commercials as well as When E. F. Hutton speaks
Classics! But, you know, this is just where the damage is done. It took a lot for Mr. Bogle and a few others to get past this and the damage for the most part still goes on unabated.
finite_difference
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Re: Way too much cash - Should it be in bond funds?

Post by finite_difference »

The G Fund is better than holding cash.

I would go 50/50, convert cash to G Fund, and buy total stock market, total international, or total world in your Roth if needed.

Then you can DCA to 60/40 if that’s your eventual asset allocation. But 50/50 is good if you’re on the fence about stocks and bonds.

There’s also nothing wrong with the F Fund. You could do 50/50 G and F. But my philosophy would be to use the security of the G Fund to take a bit more risk on your AA. So I think a 50/50 or 60/40 asset allocation with 50% or 40% in G to be safer than if the bonds part were in the F fund or Vanguard Total Bond.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
nix4me
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Re: Way too much cash - Should it be in bond funds?

Post by nix4me »

7eight9 wrote: Sat Aug 29, 2020 9:43 am You might want to consider laddering some multi-year guaranteed annuities (MYGAs) in lieu of or in addition to bonds.

Example --- Fixed Annuity Rates for August 2020 ---https://www.blueprintincome.com/fixed-annuities

Rates as high as:

2.30% - 2 year
2.60% - 3 year
2.85% - 4 year
3.45% - 5 year
Whatever you do, don’t do this, please. Thank you.
zeep
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Re: Way too much cash - Should it be in bond funds?

Post by zeep »

nix4me wrote: Sat Aug 29, 2020 3:02 pm
7eight9 wrote: Sat Aug 29, 2020 9:43 am You might want to consider laddering some multi-year guaranteed annuities (MYGAs) in lieu of or in addition to bonds.

Example --- Fixed Annuity Rates for August 2020 ---https://www.blueprintincome.com/fixed-annuities

Rates as high as:

2.30% - 2 year
2.60% - 3 year
2.85% - 4 year
3.45% - 5 year
Whatever you do, don’t do this, please. Thank you.
Chuckled when I read this. I have been seeing a lot of references to MYGs on the board lately. Is there a good one-stop primer on MYGAs? I'd like to understand them better -- the good, the bad and the perhaps ugly.
shavenyak
Posts: 42
Joined: Sun Dec 03, 2017 1:06 pm

Re: Way too much cash - Should it be in bond funds?

Post by shavenyak »

retiredjg wrote: Sat Aug 29, 2020 11:03 am
Way too much cash - Should it be in bond funds?
It appears to get to your "eventual" desired allocation of 60% stocks and 40% bonds, you need to invest the cash in stocks, not bonds....
Given what you said, I think retiredjg cut to the heart of the matter about the "need to invest in stocks, not bonds" to reach your desired allocation. So is the real issue a psychological one; i.e., not wanting to invest your cash in a stock fund at the moment while the S&P continues on such a dizzying run upward? Of course hesitating would be market timing for what appears to be a long-term investment but it would understandable to want to instead talk about bonds at the moment.
jello_nailer
Posts: 371
Joined: Sun Apr 07, 2019 10:20 pm

Re: Way too much cash - Should it be in bond funds?

Post by jello_nailer »

Call_Me_Op wrote: Sat Aug 29, 2020 9:21 am
fundseeker wrote: Sat Aug 29, 2020 8:28 am We are in our very early 60s and just reached a milestone of $2M net worth, not counting our paid off house and cars. That's the good news. The terrible news is that 58% (~$1.2M) is essentially in cash (which includes the TSP G Fund) doing nothing. Overall, we are very conservatively at 42% stocks, 40% bonds (if the TSP G Fund is considered a bond fund), and 18% (or ~$380k) cash. Ouch!.
Just why is that terrible? Money that you say is "doing nothing" is in fact doing something very important. It is waiting for a time when you may need it because everything else has gone to hell. At a time when bonds offer substantially (in some cases) more risk but not much more return than cash, I think you should re-calibrate how you look at things.

The way you are thinking, in my opinion you run the risk of making a big mistake. Look up Larry Swedroe and "marginal utility of wealth." Here, I have saved you the trouble.

https://buckinghamadvisor.com/how-do-yo ... gh-052813/
I like this post ^
We need a "like button"
JBTX
Posts: 7547
Joined: Wed Jul 26, 2017 12:46 pm

Re: Way too much cash - Should it be in bond funds?

Post by JBTX »

At 42% stocks you are at the old rule of thumb of 100 minus your age in stocks. This is conservative by most accounts but not unreasonable if you are a conservative investor. Don't get caught up in the hype of all those who have decided to go with heavy stock allocations in retirement. You don't have a big problem here if any at all.
7eight9
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Joined: Fri May 17, 2019 7:11 pm

Re: Way too much cash - Should it be in bond funds?

Post by 7eight9 »

zeep wrote: Sat Aug 29, 2020 3:17 pm
nix4me wrote: Sat Aug 29, 2020 3:02 pm
7eight9 wrote: Sat Aug 29, 2020 9:43 am You might want to consider laddering some multi-year guaranteed annuities (MYGAs) in lieu of or in addition to bonds.

Example --- Fixed Annuity Rates for August 2020 ---https://www.blueprintincome.com/fixed-annuities

Rates as high as:

2.30% - 2 year
2.60% - 3 year
2.85% - 4 year
3.45% - 5 year
Whatever you do, don’t do this, please. Thank you.
Chuckled when I read this. I have been seeing a lot of references to MYGs on the board lately. Is there a good one-stop primer on MYGAs? I'd like to understand them better -- the good, the bad and the perhaps ugly.
This should get you started:

Multi-Year Guaranteed Annuity (MYGA) --- https://www.annuity.org/annuities/types ... t%20return.

MYGAs can be an excellent relatively risk-free fixed income investment. Unfortunately a lot of people see the word "annuity" and automatically assume that it is a bad investment. There are "bad" annuities and there are also "good" annuities. MYGAs fall into the latter category.
I guess it all could be much worse. | They could be warming up my hearse.
nix4me
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Re: Way too much cash - Should it be in bond funds?

Post by nix4me »

7eight9 wrote: Sat Aug 29, 2020 8:35 pm
zeep wrote: Sat Aug 29, 2020 3:17 pm
nix4me wrote: Sat Aug 29, 2020 3:02 pm
7eight9 wrote: Sat Aug 29, 2020 9:43 am You might want to consider laddering some multi-year guaranteed annuities (MYGAs) in lieu of or in addition to bonds.

Example --- Fixed Annuity Rates for August 2020 ---https://www.blueprintincome.com/fixed-annuities

Rates as high as:

2.30% - 2 year
2.60% - 3 year
2.85% - 4 year
3.45% - 5 year
Whatever you do, don’t do this, please. Thank you.
Chuckled when I read this. I have been seeing a lot of references to MYGs on the board lately. Is there a good one-stop primer on MYGAs? I'd like to understand them better -- the good, the bad and the perhaps ugly.
This should get you started:

Multi-Year Guaranteed Annuity (MYGA) --- https://www.annuity.org/annuities/types ... t%20return.

MYGAs can be an excellent relatively risk-free fixed income investment. Unfortunately a lot of people see the word "annuity" and automatically assume that it is a bad investment. There are "bad" annuities and there are also "good" annuities. MYGAs fall into the latter category.
Stay away. DO NOT invest in insurance products, invest in investments.
sycamore
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Re: Way too much cash - Should it be in bond funds?

Post by sycamore »

zeep wrote: Sat Aug 29, 2020 3:17 pm ...
Chuckled when I read this. I have been seeing a lot of references to MYGs on the board lately. Is there a good one-stop primer on MYGAs? I'd like to understand them better -- the good, the bad and the perhaps ugly.
In addition to what 7eight9 wrote, there are some previous threads discussing the pros and cons.
viewtopic.php?f=1&t=313935
viewtopic.php?t=317033
dave1054
Posts: 194
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Re: Way too much cash - Should it be in bond funds?

Post by dave1054 »

delamer wrote: Sat Aug 29, 2020 10:33 am I am not a bond person. I have a higher allocation to stocks than would be typical for my age/circumstances and the rest of my portfolio is almost all in cash.

There have been analyses that a 75/25 stock/cash portfolio is very similar — over the long run — to a 60/40 stock/bond portfolio.

Here’s one: https://awealthofcommonsense.com/2015/0 ... portfolio/

While the heavier stock portfolio is more volatile, I think that is outweighed psychologically by knowing that you have a chunk of assets (the cash) that will never change value. For instance, bonds were down during the Great Recession just like stocks, although by a much smaller amount.

In your situation, especially given that you you expect your kids to inherit most of your portfolio, I’d up the stock allocation and keep the rest in cash (whuch includes the G fund). You can search for a higher return for your money market funds; once you get to $100,000+ , there will be options like jumbo CDs.
Thanks for the article. Very interesting. I just don’t understand most Bogleheads loyalty to bonds. Yes, history favors a balanced portfolio of stocks and bonds, but stock and bond returns look to the future, not the past. Isn’t the risk/reward of bonds today much riskier than history suggests. Please Bogleheads, explain where I am wrong substituting cash for bonds.
Topic Author
fundseeker
Posts: 924
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Re: Way too much cash - Should it be in bond funds?

Post by fundseeker »

SethJane42 wrote: Sat Aug 29, 2020 9:07 am I'm a buy low, sell high person. Bond fund share prices are at the high points in their cycles, though a short-term bond fund like VUBFX ( current 30-day SEC yield .84%) have a small range of volatility. You could put money in that and risk losing maybe 1-2% as opposed to an intermediate fund like VFITX (current 30-day SEC yield .27%), which has a volatility range o 12-13%. You could put the money in VFITX today as a lump sum and see the balance go down -12% within a few years.

Many here would say just lump sum the cash into something like VBTLX (total bond market--at the high right now with a volatility range of 12-13%), no matter the share price and sit on it. Again, bond share prices could crash just as easily as they have gone up. And it could take a number of years to regain the principle with dividends.

VUBFX can be used like a holding fund in that you won't trigger the frequent trading rules if you withdraw portions. Doublecheck.

Cash in a money market like VMRXX doesn't earn much, but cash also can be a hedge if the market turns sour again like in March, at which time you can buy some good stocks low with that cash--or stock funds like VOO, VYM, or even a total stock market one . And if the bond funds go into a down cycle, then you can buy low.

So do the math, know your risk tolerance, and make an informed decision. Good luck.
Thank you! I've looked at the other options at Vanguard but the marginal increase in the return did not seem significant enough to take the risk. But, I'll give it more thought.

As far as buying low, fortunately I did add about $100k in my stock index funds in the Spring, so that worked out well. And I'll definitely take another such opportunity to increase my stock allocation even more. Thanks again!
Elysium
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Re: Way too much cash - Should it be in bond funds?

Post by Elysium »

fundseeker wrote: Sat Aug 29, 2020 8:28 am I've been reducing our stocks the past several years expecting a correction and reducing risk, and I've avoided bond funds because I've been reading for years that bonds were not a good place to be.
Okay, so this is what happened, you expected stocks to go down and kept the exposure low fearing large drawdowns, it didn't happen. You should be happy that what you feared didn't happen. While you may have missed out on the gains, this is not something to worry about now.

Coming to bonds, it appears you were listening to nonsense like this:
SethJane42 wrote: Sat Aug 29, 2020 9:07 am Bond fund share prices are at the high points in their cycles, though a short-term bond fund like VUBFX ( current 30-day SEC yield .84%) have a small range of volatility. You could put money in that and risk losing maybe 1-2% as opposed to an intermediate fund like VFITX (current 30-day SEC yield .27%), which has a volatility range o 12-13%. You could put the money in VFITX today as a lump sum and see the balance go down -12% within a few years.
There is no shortage for uninformed advice like this on this forum, the only difference is they don't stand the scrutiny here. But sometimes people have no patience to keep responding to ignorance and don't bother responding to it. There is always a risk someone reading it then may get wrong information.
fundseeker wrote: Sat Aug 29, 2020 8:28 am So, would all or most of this money market money be better off in some short or intermediate bond funds?
Yes. You are better off investing in an intermediate term bond fund. While no one can predict what may happen next year or two, in the next decade and beyond they are more than likely to do better than short-term bonds and cash. As for which one, there are many to chose from and almost any low cost medium quality interm-term bond fund will fit the bill. While Total Bond Index is always a good choice, you may want to consider Vanguard Interm-Term Investment Grade (VFIDX) for it's slightly higher yield. Since your portfolio is ultra-conservative you can afford the slightly higher risks presented by the corporate bonds in this fund. It does have a fair amount of Treasuries to balance things out. I would expect a fund like VFIDX to provide slightly above inflation over the next decade, no more, while you may lose to inflation with Cash/CD/MMF.
Last edited by Elysium on Sun Aug 30, 2020 7:20 am, edited 5 times in total.
Topic Author
fundseeker
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Re: Way too much cash - Should it be in bond funds?

Post by fundseeker »

Call_Me_Op wrote: Sat Aug 29, 2020 9:21 am
fundseeker wrote: Sat Aug 29, 2020 8:28 am We are in our very early 60s and just reached a milestone of $2M net worth, not counting our paid off house and cars. That's the good news. The terrible news is that 58% (~$1.2M) is essentially in cash (which includes the TSP G Fund) doing nothing. Overall, we are very conservatively at 42% stocks, 40% bonds (if the TSP G Fund is considered a bond fund), and 18% (or ~$380k) cash. Ouch!.
Just why is that terrible? Money that you say is "doing nothing" is in fact doing something very important. It is waiting for a time when you may need it because everything else has gone to hell. At a time when bonds offer substantially (in some cases) more risk but not much more return than cash, I think you should re-calibrate how you look at things.

The way you are thinking, in my opinion you run the risk of making a big mistake. Look up Larry Swedroe and "marginal utility of wealth." Here, I have saved you the trouble.

https://buckinghamadvisor.com/how-do-yo ... gh-052813/
Thank you, especially for not making me feel worse about being so conservative. The article does give me food for thought. I will definitely not be doing anything crazy by taking too much risk. I'm not even a fan of lump summing, though many here believe that is to an investor's detriment. Thanks!
Topic Author
fundseeker
Posts: 924
Joined: Mon Dec 24, 2007 9:02 am

Re: Way too much cash - Should it be in bond funds?

Post by fundseeker »

delamer wrote: Sat Aug 29, 2020 10:33 am I am not a bond person. I have a higher allocation to stocks than would be typical for my age/circumstances and the rest of my portfolio is almost all in cash.

There have been analyses that a 75/25 stock/cash portfolio is very similar — over the long run — to a 60/40 stock/bond portfolio.

Here’s one: https://awealthofcommonsense.com/2015/0 ... portfolio/

While the heavier stock portfolio is more volatile, I think that is outweighed psychologically by knowing that you have a chunk of assets (the cash) that will never change value. For instance, bonds were down during the Great Recession just like stocks, although by a much smaller amount.

In your situation, especially given that you you expect your kids to inherit most of your portfolio, I’d up the stock allocation and keep the rest in cash (whuch includes the G fund). You can search for a higher return for your money market funds; once you get to $100,000+ , there will be options like jumbo CDs.
Glad to hear that others see some pluses to having a lot of cash. I agree that I need to get my stock allocation back up at least to 60%, and I plan to begin work on that soon. I doubt we will have another event like last Spring (when I did add $100k to my stock funds), but I believe more buying opportunities are coming. As for jumbo CDs, right not I have too many little pots of money to get up to $100k+, so maybe I will merge them into one account for that purpose. Thanks!
Topic Author
fundseeker
Posts: 924
Joined: Mon Dec 24, 2007 9:02 am

Re: Way too much cash - Should it be in bond funds?

Post by fundseeker »

rich126 wrote: Sat Aug 29, 2020 10:41 am Would it have been to have all that money in the market, yes but you can't change the past. Unlike others here, I'm a big believer that if you are patient buying opportunities always come. You might have to wait for a while but like in March when the markets dropped 20-30% to 2017 levels, there will come another opportunity.

You can hedge your bets and put some in now and wait. You can add it all now (personally I would only do that if I was younger). Or you can continue to wait and risk the market will go higher.

Personally I think we have bubbles in most markets and the future will be rough but that is only my opinion.

A bigger question is, is the inactivity or loss of gains affecting your ability to live day to day? If not, then I don't think it is a big deal. My biggest mistakes have always been thinking "geez, I must be wrong" and decide to buy in just when things were peaking and regret not listening to what I thought was right.

I honestly wouldn't tell you what is right since I don't know you and your financial situation and even if I did, I rather see people make their own decisions.
Thank you! Yeah, having been 100% stocks would definitely have been great. And like most, it is the times when the market is reaching new peaks that I get this regret. But last Spring, I was feeling pretty good about my conservative position.

I agree that some buying opportunities are coming and I plan to add to my stock funds then. I too have made mistakes that stick in my head, such as lump summing just before the housing crisis, so I won't be doing anything too risky. Thanks again!
Topic Author
fundseeker
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Re: Way too much cash - Should it be in bond funds?

Post by fundseeker »

retiredjg wrote: Sat Aug 29, 2020 11:03 am
Way too much cash - Should it be in bond funds?
It appears to get to your "eventual" desired allocation of 60% stocks and 40% bonds, you need to invest the cash in stocks, not bonds.

It does not matter whether you use all G fund or all F fund or a combination of the two - because either will do the job that your bond allocation is intended to do. The F fund will pay you more than the G fund and will dip more in bad times. The G fund will pay you less but is very solid in the bad times.

The G fund has a higher yield for the risk taken (essentially no risk) so that is why it is considered "better". But it is not "better" if you want a more yield from your bond allocation. That's why I use both.
Yes, I do need to increase the stocks and will do so in time, and I should probably put some portion of the G Fund money into the F Fund, especially with my long time horizon. I used to have some in F, but talked myself out of having any there and moved it to G. Thanks!
Topic Author
fundseeker
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Re: Way too much cash - Should it be in bond funds?

Post by fundseeker »

finite_difference wrote: Sat Aug 29, 2020 12:26 pm The G Fund is better than holding cash.

I would go 50/50, convert cash to G Fund, and buy total stock market, total international, or total world in your Roth if needed.

Then you can DCA to 60/40 if that’s your eventual asset allocation. But 50/50 is good if you’re on the fence about stocks and bonds.

There’s also nothing wrong with the F Fund. You could do 50/50 G and F. But my philosophy would be to use the security of the G Fund to take a bit more risk on your AA. So I think a 50/50 or 60/40 asset allocation with 50% or 40% in G to be safer than if the bonds part were in the F fund or Vanguard Total Bond.
Well said! I definitely should increase the stock allocations in my Roths to get the full benefit from them, i.e., no taxes on growth. I will focus on that as I return to probably a 60/40 allocation. Thanks!
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fundseeker
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Re: Way too much cash - Should it be in bond funds?

Post by fundseeker »

JBTX wrote: Sat Aug 29, 2020 4:14 pm At 42% stocks you are at the old rule of thumb of 100 minus your age in stocks. This is conservative by most accounts but not unreasonable if you are a conservative investor. Don't get caught up in the hype of all those who have decided to go with heavy stock allocations in retirement. You don't have a big problem here if any at all.
Thanks for responding that it's not a big problem, and in pointing that out about my age in stocks. Yeah, I am definitely in the conservative category, which I seem to regret more often than I should, with the market doing what it has done for the past decade or so.
Olemiss540
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Re: Way too much cash - Should it be in bond funds?

Post by Olemiss540 »

I would not plan to "glide" to an AA "when you think it's a good time". To me that says you believe 60/40 is too risky now, so you may be better off just picking a lower risk AA and sticking with it forever. 50/50 would be perfectly fine for a life long asset allocation.

Keep in mind, with your intent to pass these investments along to your heirs eventually, you probably want your Roth account to hold zero bonds and all stock to enable the maximum growth potential possible. Hold your bonds in your pretax accounts.

It amazes me every time the market makes a run, the amount of folks spouting that bonds are for fools. Also the number of folks concerned with a bond's NAV price and a "bond bubble" show a lack of understand with regards to how bond premiums are returned to their buyer. NAV price fluxuation is unimportant if you hold the fund through its average duration. You get your premium back through monthly payments that occur regardless of the NAV price of the bond fund.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
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fundseeker
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Re: Way too much cash - Should it be in bond funds?

Post by fundseeker »

ruralavalon wrote: Sat Aug 29, 2020 11:21 am
fundseeker wrote: Sat Aug 29, 2020 8:28 am We are in our very early 60s and just reached a milestone of $2M net worth, not counting our paid off house and cars. That's the good news. The terrible news is that 58% (~$1.2M) is essentially in cash (which includes the TSP G Fund) doing nothing. Overall, we are very conservatively at 42% stocks, 40% bonds (if the TSP G Fund is considered a bond fund), and 18% (or ~$380k) cash. Ouch!.

My $1.4M TSP has $750k in the G Fund, which the majority here seem to think is better than the F Fund, so I have "0" in the F Fund.

Our Roths total about $300k, and half of that is in money markets, doing nothing! Her old 401k (~$80k) is also about half money market. My new 401K is about $50k, and it is in a bond fund only because the company does not offer any money market funds. And, the return from that bond fund has been relatively great!

Bottom line is that we have ~$1.2M (including the G Fund) earning nothing, and only ~$850k in stocks, either Total Stock Market index or 500 Index funds.

How did this happen? Well, I've been reducing our stocks the past several years expecting a correction and reducing risk, and I've avoided bond funds because I've been reading for years that bonds were not a good place to be. I've also read that the G Fund is essentially a bond fund and as good or better than the F Fund, so I've stuck with the G Fund only. If the G Fund is really a bond fund, then maybe things aren't soooo terrible, meaning that we are 40% bonds right now, 42% stocks, and 18% (or ~$380k) sitting in money markets.

So, would all or most of this money market money be better off in some short or intermediate bond funds? And, should I move some of the G Fund money to the F Fund? I do plan to get our ratio back up to maybe 60/40 over time. Chances are almost all of our investments will be left to our children. Thank you for helping with my problems, which I know could be worse :happy .
Are you retired? If not, about how long to expected retirement? Will either one or both of you have a substantial pension in addition to Social Security? If so, then how much?

What funds are offered in each 401k plan? Please give fund names, tickers and expense ratios. (I can't offer ideas on funds to use without knowing what the choices are.)

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post),it helps a lot if all of your information is in one place.

First decide on a desired asset allocation, meaning stock/fixed income mix. At age 60 somewhere in the range 60/40 to 40/60 might be reasonable. In my opinion a lot depends on the pension issue. Rick Ferri suggests 30/70 stock/fixed income as the default for retirees. Forbes (2/6/2015), "The Center of Gravity for Retirees".

In my opinion the G Fund like a bond fund or money market fund, counts as part of a fixed income allocation. The G Fund combines features of both a Treasury bond fund and a money market fund. "The G Fund offers the opportunity to earn rates of interest similar to those of long-term Government securities but without any risk of loss of principal." Wiki article, G Fund.

If I read your post correctly you have about:
$820k (41%) stocks;
$50k (3%) bond funds;
$750k (38%) G Fund; and
$380k (18%) money market funds.
In my opinion (even if you decide to stay with a 40/60 stock/fixed income allocation) it would be better long-term to have more in a good bond fund, and less in G Fund and money market funds.

I you want a 60/40 stock/fixed income asset allocation then your cash and Fund needs to move to a stock fund.
ruralavalon,

Thank you for your response and assistance. Since so many have already responded, I will add some information here instead of at the top.

Retired Fed with $60k pension, but still working for a few more years at least.
Expected SSA of $68k at 70
RMDs at 72? Probably $50k or more (I have not checked the analyzer in a while)

The Big Picture (All percentages are of the overall $2M for investing)
Stock Funds - 42% - $850k
Bond Funds (including the G Fund) - 39% - $800k
Money Markets or cash - 19% - $350k

Details
Tax Deferred
TSP (70% of overall investments at $2M)
G - 38%
F - 0
C - 22%
S - 8%
I - 2%

Her old 401k (4% of overall)
- Fido Total Stock Market Index - 2%
- Fido MM - 2%

His new 401k (2% of overall)
Principal - Total Bond Index - 2%

Inherited IRA (1% of overall)
- VG Prime MM - 1%

Non-taxable - Roths
His (7% of overall)
- VG Total Stock Mkt Index- 3%
- VG Prime MM - 4%

Her's (8% of overall)
- Fido 500 Index - 4%
- Fido MM - 4%

Taxable Accounts
Taxable Accounts (8% of overall)
- Just cash or MMs - 8%

I hope this provides enough information, and I appreciate your time. Thank you!
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ruralavalon
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Re: Way too much cash - Should it be in bond funds?

Post by ruralavalon »

With the substantial pension in addition to Social Security, and since "[c]hances are almost all of our investments will be left to our children", an asset allocation 60/40 stocks/fixed income is certainly reasonable, in my opinion.

If you have decided on that asset allocation for the long-term, then go ahead and make the switch all at once. I see no benefit in staying any longer at an asset allocation that you don't want, and see no benefit in stringing out the process of changing.

Don't make an asset allocation decision based on any opinion about current market conditions, invest for the long-term. For what it's worth, we are both 75, retired, no pension or annuity, with a 50/50 asset allocation.

Currently just 42% is in stocks. To achieve that 60% in stocks you could:
1) move the 8% cash in the taxable accounts to a very tax-efficient total stock market index fund;
2) move 4% cash in her Roth IRA to Fidelity 500 Index Fund and 4% cash in his Roth IRA to Vanguard Total Stock Market Index Fund; and
3) in her old 401k move the 2% cash to Fidelity Total Stock Market Index Fund.

I believe it's okay to use the G Fund as a very safe fixed income investment. If you want more of a true bond fund, in the TSP you could just switch half of the G Fund to the F Fund.
Last edited by ruralavalon on Sun Aug 30, 2020 10:10 am, edited 1 time in total.
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Luckywon
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Re: Way too much cash - Should it be in bond funds?

Post by Luckywon »

SethJane42 wrote: Sat Aug 29, 2020 10:48 am Intelligence, vetting, eyeballs, and hard work can make one aware of what stock or fund is actually expensive or inexpensive at a particular time.
The insight that this is a fallacy for the individual investor, and even almost all professionals, is literally the essence of John Bogle's life's work.

I see you have deleted more than half of your posts on this forum and substituted the phrase "deleted-I was wrong". You should do the same with the post above.
Last edited by Luckywon on Sun Aug 30, 2020 10:17 am, edited 1 time in total.
SethJane42
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Re: Way too much cash - Should it be in bond funds?

Post by SethJane42 »

Elysium wrote: Sun Aug 30, 2020 7:10 am
Coming to bonds, it appears you were listening to nonsense like this:
SethJane42 wrote: Sat Aug 29, 2020 9:07 am Bond fund share prices are at the high points in their cycles, though a short-term bond fund like VUBFX ( current 30-day SEC yield .84%) have a small range of volatility. You could put money in that and risk losing maybe 1-2% as opposed to an intermediate fund like VFITX (current 30-day SEC yield .27%), which has a volatility range o 12-13%. You could put the money in VFITX today as a lump sum and see the balance go down -12% within a few years.
There is no shortage for uninformed advice like this on this forum, the only difference is they don't stand the scrutiny here. But sometimes people have no patience to keep responding to ignorance and don't bother responding to it. There is always a risk someone reading it then may get wrong information.
Why was the information I shared nonsense? Is not VFITX (Risk level 2 at Vanguard) more risky than VUBFX (Risk Level 1)? Is it not possible that OP could lump sum that amount in VFITX and see it lose -12% in the next few years? Looking at the historical numbers of this fund shows a -15% drop in 1993-94, -7% in 1996, -12% in 1998, -13% from 2002-2006, -13% from 2011-2018. It's currently on an up cycle since 2018 at about +15%, with a downswing lately. This is the history of VFITX and it shows the range of its volatility. One can look at VUBFX, which earns a good dividend and is more flexible, and see the range of volatility and risk factor is much lower than VFITX. Different bond funds have different risk levels. Based on the history of VFITX, it's probable that if you come in when the fund is in the 12.00 range, that eventually it'll be down in the 10-11.00 range within 2-4 years. And of course this could all shift higher, with higher highs and higher lows, as has been the trend. The lows in this fund have risen about 22% over 24 years, or about .009% a year. How is any of this nonsense? Should none of this be taken into account and the OP just blindly lump sum all that cash at what is highly probable the peak of a recent high cycle?
SethJane42
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Re: Way too much cash - Should it be in bond funds?

Post by SethJane42 »

Luckywon wrote: Sun Aug 30, 2020 10:07 am
SethJane42 wrote: Sat Aug 29, 2020 10:48 am Intelligence, vetting, eyeballs, and hard work can make one aware of what stock or fund is actually expensive or inexpensive at a particular time.
The insight that this is a fallacy for the individual investor, and even almost all professionals, is literally the essence of John Bogle's life's work.

I see you have deleted more than half of your posts on this forum and substituted the phrase "deleted-I was wrong". You should do the same with the post above.
Thanks for the unfriendly advice. Remember that orthodox thinking and strict adherence to a belief system often cuts one off from many possible paths of creativity and enrichment in life. I've done the work, I've been creative in my investing, and my portfolio has outperformed the S&P and total market fund by miles. Not only that, I've had a lot of fun. There are many facets to the self, and it would be folly for me to just buy into the belief that all is needed is to not think, not vet, not take a risk, and to just invest in the total stock and bond funds. Just toe that line and lump sum then put money in every month. That's all anyone should do or has to do. Again, there are many facets to the self, and they can be used to affect the probable futures one experiences. A person who chooses and acts according to an orthodox set of beliefs will experience one set of probable futures while someone who doesn't will experience another set. I think its fine if someone wants to be orthodox and be a two or three funder. I don't feel superior as you do to me, as it is obvious from your words. Nor would I ask you to leave my fun investing forum if you starting getting all two-fundy on everyone's butt. I believe we can coexist. Especially since I'm very conservative with a large portion of my portfolio and follow the Vanguard way of long-term investing, except for a small portion in my Roth that I use for short-term plays in stock shares in good companies for fun and recreation and actually a lot of profit (as I'm not afraid to sell too soon). I actually make a decent living doing this, without touching derivatives or shorting. Just buy a good company that makes increasingly good net profits when its in a downtrend, and sell when it goes back up. Those 1-5% wins really add up.

So, perhaps, you could be write friendlier things and maybe consider that because you believe it that it doesn't make it true. That because you believe the orthodox Bogleheadian way is the only way, that maybe it isn't.
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PicassoSparks
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Re: Way too much cash - Should it be in bond funds?

Post by PicassoSparks »

fundseeker wrote: Sun Aug 30, 2020 7:11 am Thank you, especially for not making me feel worse about being so conservative. The article does give me food for thought. I will definitely not be doing anything crazy by taking too much risk. I'm not even a fan of lump summing, though many here believe that is to an investor's detriment. Thanks!
According to a Vanguard study, 2/3 of the time lump sum outperforms; 1/3 of the time dollar cost averaging outperforms. DCA also does exactly the job it is hired to do: dampen volatility. Which is to say, it narrows the band of possible outcomes. In your case, you have accomplished a lot of the job that we ask risk to do by saving very successfully. I think it’s fine and wise to not take on unnecessary risk. You don’t need to squeeze every possible drop of expected return out of your portfolio because your saving rate has allowed your wealth to grow. The thing you need to figure out is how much money you expect to need and how much you’d like to have and use that to inform your asset allocation adjustments.

Unfortunately for all of us, since the past decade has seen such fantastic returns, the expected returns for the coming decade are lower than the historic average whether we go stocks or bonds. There is still a very wide range of possible futures including more outperformance or significant losses and no one can say for sure what will come. So you’ll want to keep a pretty conservative asset allocation for the money you expect to spend soon and a more risky asset allocation for money you expect to not need for a decade or two. You still have a lot road ahead of you.
Elysium
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Re: Way too much cash - Should it be in bond funds?

Post by Elysium »

SethJane42 wrote: Sun Aug 30, 2020 10:17 am Why was the information I shared nonsense? Is not VFITX (Risk level 2 at Vanguard) more risky than VUBFX (Risk Level 1)? Is it not possible that OP could lump sum that amount in VFITX and see it lose -12% in the next few years? Looking at the historical numbers of this fund shows a -15% drop in 1993-94, -7% in 1996, -12% in 1998, -13% from 2002-2006, -13% from 2011-2018. It's currently on an up cycle since 2018 at about +15%, with a downswing lately. This is the history of VFITX and it shows the range of its volatility.
See rolling returns, VFITX 1992-2020:

Image

Focus on the low returns. Anything is possible in a 1 year period. No one should invest money they need in 1 year in an Interm-Term or Short-Term Bond. Anything beyond 3 to 5 years can be in an Interm-Term Bond fund.

Image

Source
Blue=3 year rolling, Red=5 year rolling

Rolling returns for 3 year and 5 year periods for the time you quoted shows nothing like a -12% loss. Stop trying to spread misinformation. What you are trying to do is bet on interest rates, which no one can pull off successfully. That said there is no shortage for that lately, however, even the experts who have tried this all have failed and there is no doubt future will be any different when it comes to speculating on rates.
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