Money Market Vs Bonds

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trueson1
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Money Market Vs Bonds

Post by trueson1 »

Just a thought, but for tIRA accounts - with the total bond market averaging ~5% over the past 30 years, why not just move bonds to VUSXX (5.29%) or similar cash instruments until interest rates are substantially reduced and bond performance improves. This would substantially reduce bond risk. Now this might only be for a year so - who knows ( maybe should have done this the past 2 years in retrospect).

Thoughts?
coachd50
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Re: Money Market Vs Bonds

Post by coachd50 »

trueson1 wrote: Mon Apr 01, 2024 4:22 pm Just a thought, but for tIRA accounts - with the total bond market averaging ~5% over the past 30 years, why not just move bonds to VUSXX (5.29%) or similar cash instruments until interest rates are substantially reduced and bond performance improves. This would substantially reduce bond risk. Now this might only be for a year so - who knows ( maybe should have done this the past 2 years in retrospect).

Thoughts?
Bond performance? Isn't one aspect of "bond performance" the coupon payments which are based on interest rates?
KlangFool
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Re: Money Market Vs Bonds

Post by KlangFool »

OP,

1) Cash is not bond. MMF is not the same as the bond fund.

2) If you can predict interest rate movement correctly, you should be a bond fund manager.

3) I pay 0.17% per year to the Wellington Fund management to actively manage my stocks and bonds. If you believe that you can actively manage your stock and bond, perhaps you can do it better and lower cost than 0.17% per year.

4) 30% of my portfolio is in the Wellington Fund.

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retired@50
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Re: Money Market Vs Bonds

Post by retired@50 »

trueson1 wrote: Mon Apr 01, 2024 4:22 pm Just a thought, but for tIRA accounts - with the total bond market averaging ~5% over the past 30 years, why not just move bonds to VUSXX (5.29%) or similar cash instruments until interest rates are substantially reduced and bond performance improves. This would substantially reduce bond risk. Now this might only be for a year so - who knows ( maybe should have done this the past 2 years in retrospect).

Thoughts?
If you wait until interest rates are substantially reduced, then the total bond fund share price will have already risen, so you'll have sold your bond fund when the share price is low, then you'll want them back after their price is high.

You have to be holding the bond fund shares during a falling interest rate environment to get the benefit of the falling rates.

Regards,
Last edited by retired@50 on Mon Apr 01, 2024 4:31 pm, edited 1 time in total.
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Johm221122
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Re: Money Market Vs Bonds

Post by Johm221122 »

trueson1 wrote: Mon Apr 01, 2024 4:22 pm interest rates are substantially reduced and bond performance improves.

Thoughts?
Bond funds will PERFORM well as rates drop or with high interest rates

Bond funds do not perform well and have more risk when interest rates drop and are low
aristotelian
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Re: Money Market Vs Bonds

Post by aristotelian »

1) long term bond rates are already pricing in lower rates in the future,

2) if rates rise or decline slower than the market thinks, then staying in cash will come out ahead.

The reason to choose one or the other depends on your goals, timeframe, and risk tolerance, rather than market conditions/predictions.
suemarkp
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Re: Money Market Vs Bonds

Post by suemarkp »

The money market fund doesn't have NAV risk due to rates increasing or decreasing. The yield curve is inverted. It seems to me that the money market is the better place right now as its yield is higher than all the short, intermediate, and long term bonds. I think most people are assuming that the money market rates will fall as the fed lowers rates. Been waiting for those rate cuts for about a year now and it still hasn't happened so my bond funds still suck and the money market has been great. The rate cuts aren't going to be fast, so you have time to pivot. Predictions are a .25 to .5 of a percentage point per rate cut and maybe 3 rate cuts this year. A rate cut of 50 to 75 basis points would put the short term rates about the same as the longer term rates and would perhaps signal it is time to change to a bond fund. I think the wild card is what are the longer term rates going to do as the short term rates drop -- stay the same, go up, or go down (and these also change independent of Fed action)? The abnormal yield curve tells me that the longer term rates will most likely not go down for a while. In a bond fund, you want the rates to be stable (preferred) or decline after you have bought it. If the longer term rates do drop too, then your bond fund will do better. But you never know which way its going to go so you have that additional risk factor with bond funds.

I'm still bitter about the short term bond fund I started buying back in 2020. It has a duration of 2.5yrs and was yielding about 1.2% back then (which was a bit higher than the money market fund at the time). Now (3+ yrs later), its NAV is still down about 8% from when I bought. The current SEC yield for that fund is 4.67%, but the actual current yields are a bit over 3% and was less in the previous years. I would have been better off in the money market fund for these last 3 years instead of the short term bond fund with a 2.5yr duration. I think it is going to be another year or two until I'm made whole, but "whole" is the original SEC yield which is much less than the yield of the current money market fund. I never thought the yield curve would stay inverted for this long, and it is still inverted.
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anagram
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Re: Money Market Vs Bonds

Post by anagram »

suemarkp wrote: Mon Apr 01, 2024 7:53 pm The money market fund doesn't have NAV risk due to rates increasing or decreasing. The yield curve is inverted. It seems to me that the money market is the better place right now as its yield is higher than all the short, intermediate, and long term bonds. I think most people are assuming that the money market rates will fall as the fed lowers rates. Been waiting for those rate cuts for about a year now and it still hasn't happened so my bond funds still suck and the money market has been great. The rate cuts aren't going to be fast, so you have time to pivot. Predictions are a .25 to .5 of a percentage point per rate cut and maybe 3 rate cuts this year. A rate cut of 50 to 75 basis points would put the short term rates about the same as the longer term rates and would perhaps signal it is time to change to a bond fund. I think the wild card is what are the longer term rates going to do as the short term rates drop -- stay the same, go up, or go down (and these also change independent of Fed action)? The abnormal yield curve tells me that the longer term rates will most likely not go down for a while. In a bond fund, you want the rates to be stable (preferred) or decline after you have bought it. If the longer term rates do drop too, then your bond fund will do better. But you never know which way its going to go so you have that additional risk factor with bond funds.

I'm still bitter about the short term bond fund I started buying back in 2020. It has a duration of 2.5yrs and was yielding about 1.2% back then (which was a bit higher than the money market fund at the time). Now (3+ yrs later), its NAV is still down about 8% from when I bought. The current SEC yield for that fund is 4.67%, but the actual current yields are a bit over 3% and was less in the previous years. I would have been better off in the money market fund for these last 3 years instead of the short term bond fund with a 2.5yr duration. I think it is going to be another year or two until I'm made whole, but "whole" is the original SEC yield which is much less than the yield of the current money market fund. I never thought the yield curve would stay inverted for this long, and it is still inverted.
If it makes you feel better I am more bitter about TBM. Also out of curiosity I ran ST Bond Index through Portfolio Visualizer and if you reinvested dividends the maximum you would have been down during that period was less than 4%. All in all I think it is a very good fund especially during retirement.

I agree the rate cuts are unlikely to be fast and there may be fewer than predicted. Inflation is high and increasing every month so far this year. I am staying put in MM funds for the moment.
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Re: Money Market Vs Bonds

Post by bonesly »

trueson1 wrote: Mon Apr 01, 2024 4:22 pm Just a thought, but for tIRA accounts - with the total bond market averaging ~5% over the past 30 years, why not just move bonds to VUSXX (5.29%) or similar cash instruments until interest rates are substantially reduced and bond performance improves. This would substantially reduce bond risk. Now this might only be for a year so - who knows ( maybe should have done this the past 2 years in retrospect).

Thoughts?
As a short-term move, a MMF paying > Total Bond seems like a no brainer (more return, less risk). That's fine for now, but do not expect MMFs to deliver 5% or more indefinitely, the inverted yield curve will eventually correct and rates will look more like past history.

Nobody knows the future, so despite valid warnings that past performance is no guarantee of future results, it's what we have. This is from the NYU Data Set 1928-2017:
(bonds) 10y T-Notes: 5.2% ± 7.7%
(cash) 3mo T-Bills: 3.4% ± 3.0%

Which would you pick for the long term? Is picking MMFs and then swapping to bonds when they pay more performance chasing and/or market-timing? What does your IPS call for regarding bonds and cash (and stocks)?
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Re: Money Market Vs Bonds

Post by Cash is King »

trueson1 wrote: Mon Apr 01, 2024 4:22 pm Just a thought, but for tIRA accounts - with the total bond market averaging ~5% over the past 30 years, why not just move bonds to VUSXX (5.29%) or similar cash instruments until interest rates are substantially reduced and bond performance improves. This would substantially reduce bond risk. Now this might only be for a year so - who knows ( maybe should have done this the past 2 years in retrospect).

Thoughts?
Good question, and why I dislike one size fits all. People think they should own bonds but have no idea why other than they read it on BH's or some other website.
sunrider6
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Re: Money Market Vs Bonds

Post by sunrider6 »

retired@50 wrote: Mon Apr 01, 2024 4:30 pm
trueson1 wrote: Mon Apr 01, 2024 4:22 pm Just a thought, but for tIRA accounts - with the total bond market averaging ~5% over the past 30 years, why not just move bonds to VUSXX (5.29%) or similar cash instruments until interest rates are substantially reduced and bond performance improves. This would substantially reduce bond risk. Now this might only be for a year so - who knows ( maybe should have done this the past 2 years in retrospect).

Thoughts?
If you wait until interest rates are substantially reduced, then the total bond fund share price will have already risen, so you'll have sold your bond fund when the share price is low, then you'll want them back after their price is high.

You have to be holding the bond fund shares during a falling interest rate environment to get the benefit of the falling rates.

Regards,
+1
A bond fund is basically a bond ladder that somebody (who has more time and knows more than me) manages for me. By the time interest rates on your MMF drop, you'll have missed out on being able to "lock in the higher rates" on the bonds that already exist in the bond fund. You are then (1) only able to "lock in" the lower current rates and (2) have to pay a premium for the bonds that were bought when rates were higher (i.e. they will cost you more than their face value and you missed out of the NAV bond fund price appreciation).

The one "bond fund" that is excepted from this is TSP G ... but that's because of its unique, non-marketable bonds that only exist there.
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Re: Money Market Vs Bonds

Post by suemarkp »

sunrider6 wrote: Mon Apr 01, 2024 9:34 pm
retired@50 wrote: Mon Apr 01, 2024 4:30 pm
If you wait until interest rates are substantially reduced, then the total bond fund share price will have already risen, so you'll have sold your bond fund when the share price is low, then you'll want them back after their price is high.

You have to be holding the bond fund shares during a falling interest rate environment to get the benefit of the falling rates.

Regards,
+1
A bond fund is basically a bond ladder that somebody (who has more time and knows more than me) manages for me. By the time interest rates on your MMF drop, you'll have missed out on being able to "lock in the higher rates" on the bonds that already exist in the bond fund. You are then (1) only able to "lock in" the lower current rates and (2) have to pay a premium for the bonds that were bought when rates were higher (i.e. they will cost you more than their face value and you missed out of the NAV bond fund price appreciation).
In normal times I'd agree. But with an inverted yield curve, you don't know what will happen. The bond fund rates could stay the same while the MMF drops. Or they could increase to normalize the yield curve more quickly. Or they could all drop and the yield curve stays inverted.

To me, getting a NAV increase in a bond fund is gravy. I buy it for the yield and duration and hope the rates stay the same. If I own it, I may take advantage of capital gains or losses, but I'd rather the interest rate stay the same and not muck with the NAV which can have long time ramifications.
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sunrider6
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Re: Money Market Vs Bonds

Post by sunrider6 »

suemarkp wrote: Mon Apr 01, 2024 11:01 pm In normal times I'd agree. But with an inverted yield curve, you don't know what will happen. The bond fund rates could stay the same while the MMF drops. Or they could increase to normalize the yield curve more quickly. Or they could all drop and the yield curve stays inverted.

To me, getting a NAV increase in a bond fund is gravy. I buy it for the yield and duration and hope the rates stay the same. If I own it, I may take advantage of capital gains or losses, but I'd rather the interest rate stay the same and not muck with the NAV which can have long time ramifications.
Thanks for pointing out the wonky ways that the yield curve could move that would make the bond price unpredictable.

My rejoinder is that, the expectations about what interest rates will do in the future is priced into the current rates. The market right now expects that rates will fall and thus (so long as you have an investment horizon >= the duration of the bond fund), it is better to "lock in" the longer term yield that might be lower now but (is expected to be) higher relative to the alternative in the future. If you just go with the MM that has the best yield now, then the market expects this will leave you forced to re-invest at a lower rate in the future, and (if you hold those bonds long enough) this makes it worthwhile to go with the longer term for the better overall return.

Assuming your investment horizon is at least the duration of the bond / bond fund, then investing in a MM fund thinking that it is preferable to a longer term bond (fund) is making a bet that interest rates will do something unexpected that the market is not already expecting/priced in.

And a technical point - "expect" has at least two meanings which may sometimes be confused. A normal sense meaning something like "prediction about what will happen" and a more technical statistical meaning where the weighted average of all possible outcomes (weighted by their likelihood).

Of course if the OP has a short term need for the money, then it makes sense to do a MM. And if the OP is very risk averse to principal loss, then do a MM. But if the OP is looking for the better expected return on a longer-term bond investment MM is probably not the best option.
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trueson1
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Re: Money Market Vs Bonds

Post by trueson1 »

Thanks Everyone for the input!

One additional question. What would the impact be if I have all bond assets in VBIAX, which is primarily medium duration bonds?
KlangFool
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Re: Money Market Vs Bonds

Post by KlangFool »

trueson1 wrote: Tue Apr 02, 2024 8:25 am Thanks Everyone for the input!

One additional question. What would the impact be if I have all bond assets in VBIAX, which is primarily medium duration bonds?
Why would you not keep it in VBTLX -> Total Bond Market Index Fund?

If you want to do something different than the default choice, please make sure that you know why are you doing this.

I know that I know nothing. Hence, for me, it is either VBTLX (passive index) or VWELX (Wellington Fund) active management by professional.

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Re: Money Market Vs Bonds

Post by Johm221122 »

trueson1 wrote: Tue Apr 02, 2024 8:25 am Thanks Everyone for the input!

One additional question. What would the impact be if I have all bond assets in VBIAX, which is primarily medium duration bonds?
What fund is VBIAX?
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Re: Money Market Vs Bonds

Post by retired@50 »

trueson1 wrote: Tue Apr 02, 2024 8:25 am Thanks Everyone for the input!

One additional question. What would the impact be if I have all bond assets in VBIAX, which is primarily medium duration bonds?
Using VBIAX to hold your bonds is fine.

Since it's a 60% stock / 40% bond fund, and the bond portion follows the Bloomberg U.S. Aggregate Float Adjusted Index it's basically like holding VBTLX.

Just figure your bond amount is 40% of the total dollars in VBIAX.

Regards,
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Re: Money Market Vs Bonds

Post by rkhusky »

suemarkp wrote: Mon Apr 01, 2024 7:53 pm I never thought the yield curve would stay inverted for this long, and it is still inverted.
Timing the bond market is just as difficult as timing the stock market. Best to buy stocks and bonds according to your long term goals and forget about jumping back and forth between different types of bonds or between different types of stocks or between stocks and bonds.
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Re: Money Market Vs Bonds

Post by rkhusky »

trueson1 wrote: Tue Apr 02, 2024 8:25 am Thanks Everyone for the input!

One additional question. What would the impact be if I have all bond assets in VBIAX, which is primarily medium duration bonds?
In a tax-advantaged account, it’s fine. But not usually recommended in a taxable account. And don’t forget that it’s not equivalent to a bond fund.
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Re: Money Market Vs Bonds

Post by anagram »

sunrider6 wrote: Tue Apr 02, 2024 7:29 am
suemarkp wrote: Mon Apr 01, 2024 11:01 pm In normal times I'd agree. But with an inverted yield curve, you don't know what will happen. The bond fund rates could stay the same while the MMF drops. Or they could increase to normalize the yield curve more quickly. Or they could all drop and the yield curve stays inverted.

To me, getting a NAV increase in a bond fund is gravy. I buy it for the yield and duration and hope the rates stay the same. If I own it, I may take advantage of capital gains or losses, but I'd rather the interest rate stay the same and not muck with the NAV which can have long time ramifications.
Thanks for pointing out the wonky ways that the yield curve could move that would make the bond price unpredictable.

My rejoinder is that, the expectations about what interest rates will do in the future is priced into the current rates. The market right now expects that rates will fall and thus (so long as you have an investment horizon >= the duration of the bond fund), it is better to "lock in" the longer term yield that might be lower now but (is expected to be) higher relative to the alternative in the future. If you just go with the MM that has the best yield now, then the market expects this will leave you forced to re-invest at a lower rate in the future, and (if you hold those bonds long enough) this makes it worthwhile to go with the longer term for the better overall return.

Assuming your investment horizon is at least the duration of the bond / bond fund, then investing in a MM fund thinking that it is preferable to a longer term bond (fund) is making a bet that interest rates will do something unexpected that the market is not already expecting/priced in.

And a technical point - "expect" has at least two meanings which may sometimes be confused. A normal sense meaning something like "prediction about what will happen" and a more technical statistical meaning where the weighted average of all possible outcomes (weighted by their likelihood).

Of course if the OP has a short term need for the money, then it makes sense to do a MM. And if the OP is very risk averse to principal loss, then do a MM. But if the OP is looking for the better expected return on a longer-term bond investment MM is probably not the best option.
The statement that the market has priced in expectations about what interest rates will do in the future sounds really reassuring, except the market has been wrong quite a few times recently.
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Re: Money Market Vs Bonds

Post by sunrider6 »

anagram wrote: Tue Apr 02, 2024 10:04 am The statement that the market has priced in expectations about what interest rates will do in the future sounds really reassuring, except the market has been wrong quite a few times recently.
100% … but I’m even less confident in my ability to do better. YMMV.

Making a best, risk informed, guess based on available information does not mean “know the future” for sure.
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Re: Money Market Vs Bonds

Post by TBillT »

Some agency bonds and MMF are state tax free, which helps. I might move more into Fidelity Treasury ONLY MMF for this reason. Some of course munis are US tax free.
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Re: Money Market Vs Bonds

Post by Van »

An alternative that has not been mentioned is CDs or Treasuries held to maturity.
Except for a couple of losers that I am holding onto until after interest rates drop, I have given up on bond funds. The great majority of my fixed income is divided between CDs/Treasuries and a municipal bond money market fund. The CDs/Treasuries have maturities ranging from May of this year until July of 2027.
sunrider6
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Re: Money Market Vs Bonds

Post by sunrider6 »

Van wrote: Tue Apr 02, 2024 1:08 pm An alternative that has not been mentioned is CDs or Treasuries held to maturity.
Except for a couple of losers that I am holding onto until after interest rates drop, I have given up on bond funds. The great majority of my fixed income is divided between CDs/Treasuries and a municipal bond money market fund. The CDs/Treasuries have maturities ranging from May of this year until July of 2027.
This is an option if your primary goal is to avoid a nominal loss of principal value.

But there are some details to consider.
What do you do with the interest / coupon payments on those bonds or the principal you get back at maturity?

How do you rebalance if you are overweight on bonds?
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Re: Money Market Vs Bonds

Post by muffins14 »

trueson1 wrote: Mon Apr 01, 2024 4:22 pm Just a thought, but for tIRA accounts - with the total bond market averaging ~5% over the past 30 years, why not just move bonds to VUSXX (5.29%) or similar cash instruments until interest rates are substantially reduced and bond performance improves. This would substantially reduce bond risk. Now this might only be for a year so - who knows ( maybe should have done this the past 2 years in retrospect).

Thoughts?
2 years from now total bond could be yielding 5% and money market could be yielding 1%

what then?
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Re: Money Market Vs Bonds

Post by placeholder »

Right now I hold about half of my fixed income in money market but that is in lieu of the stable value fund in my 401k with the remainder in the bond index fund as before and when rates between the svf and the mm cross I will rearrange things to go back to a similar allocation as before.
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Re: Money Market Vs Bonds

Post by GreenLawn »

suemarkp wrote: Mon Apr 01, 2024 7:53 pm The money market fund doesn't have NAV risk due to rates increasing or decreasing. The yield curve is inverted. It seems to me that the money market is the better place right now as its yield is higher than all the short, intermediate, and long term bonds. I think most people are assuming that the money market rates will fall as the fed lowers rates. Been waiting for those rate cuts for about a year now and it still hasn't happened so my bond funds still suck and the money market has been great. The rate cuts aren't going to be fast, so you have time to pivot. Predictions are a .25 to .5 of a percentage point per rate cut and maybe 3 rate cuts this year. A rate cut of 50 to 75 basis points would put the short term rates about the same as the longer term rates and would perhaps signal it is time to change to a bond fund. I think the wild card is what are the longer term rates going to do as the short term rates drop -- stay the same, go up, or go down (and these also change independent of Fed action)? The abnormal yield curve tells me that the longer term rates will most likely not go down for a while. In a bond fund, you want the rates to be stable (preferred) or decline after you have bought it. If the longer term rates do drop too, then your bond fund will do better. But you never know which way its going to go so you have that additional risk factor with bond funds.

I'm still bitter about the short term bond fund I started buying back in 2020. It has a duration of 2.5yrs and was yielding about 1.2% back then (which was a bit higher than the money market fund at the time). Now (3+ yrs later), its NAV is still down about 8% from when I bought. The current SEC yield for that fund is 4.67%, but the actual current yields are a bit over 3% and was less in the previous years. I would have been better off in the money market fund for these last 3 years instead of the short term bond fund with a 2.5yr duration. I think it is going to be another year or two until I'm made whole, but "whole" is the original SEC yield which is much less than the yield of the current money market fund. I never thought the yield curve would stay inverted for this long, and it is still inverted.
I bought BIV in 2020 so probably am doing even worse than you as it's an intermediate length bond fund. Bond funds are not a safe investment, if safe is defined as not losing money. I'd be down thousands of dollars if I cashed out my BIV today. Currently I'm using I-bonds and MMF as a replacement. Not willing to risk losing money again on my fixed income.

I consider life too uncertain to gamble I'll be around long enough to wait for the bond(s) to mature or for the bond fund to actually make money instead of losing money. Or perhaps a life scenario will emerge where I want the money now, even if my life expectancy isn't curtailed.
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Re: Money Market Vs Bonds

Post by coachd50 »

GreenLawn wrote: Tue Apr 02, 2024 11:19 pm
suemarkp wrote: Mon Apr 01, 2024 7:53 pm The money market fund doesn't have NAV risk due to rates increasing or decreasing. The yield curve is inverted. It seems to me that the money market is the better place right now as its yield is higher than all the short, intermediate, and long term bonds. I think most people are assuming that the money market rates will fall as the fed lowers rates. Been waiting for those rate cuts for about a year now and it still hasn't happened so my bond funds still suck and the money market has been great. The rate cuts aren't going to be fast, so you have time to pivot. Predictions are a .25 to .5 of a percentage point per rate cut and maybe 3 rate cuts this year. A rate cut of 50 to 75 basis points would put the short term rates about the same as the longer term rates and would perhaps signal it is time to change to a bond fund. I think the wild card is what are the longer term rates going to do as the short term rates drop -- stay the same, go up, or go down (and these also change independent of Fed action)? The abnormal yield curve tells me that the longer term rates will most likely not go down for a while. In a bond fund, you want the rates to be stable (preferred) or decline after you have bought it. If the longer term rates do drop too, then your bond fund will do better. But you never know which way its going to go so you have that additional risk factor with bond funds.

I'm still bitter about the short term bond fund I started buying back in 2020. It has a duration of 2.5yrs and was yielding about 1.2% back then (which was a bit higher than the money market fund at the time). Now (3+ yrs later), its NAV is still down about 8% from when I bought. The current SEC yield for that fund is 4.67%, but the actual current yields are a bit over 3% and was less in the previous years. I would have been better off in the money market fund for these last 3 years instead of the short term bond fund with a 2.5yr duration. I think it is going to be another year or two until I'm made whole, but "whole" is the original SEC yield which is much less than the yield of the current money market fund. I never thought the yield curve would stay inverted for this long, and it is still inverted.
I bought BIV in 2020 so probably am doing even worse than you as it's an intermediate length bond fund. Bond funds are not a safe investment, if safe is defined as not losing money. I'd be down thousands of dollars if I cashed out my BIV today. Currently I'm using I-bonds and MMF as a replacement. Not willing to risk losing money again on my fixed income.

I consider life too uncertain to gamble I'll be around long enough to wait for the bond(s) to mature or for the bond fund to actually make money instead of losing money. Or perhaps a life scenario will emerge where I want the money now, even if my life expectancy isn't curtailed.
While personal finance is indeed personal, and an individual’s situation dictates their decisions, I do wonder if your thoughts (and many others who have posted similar things) would be different if the yield curve was in a normal upward sloping shape. In other words, would people be thinking differently if MMF and T bills were paying 2% but intermediate were paying 5.5%.
GreenLawn
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Re: Money Market Vs Bonds

Post by GreenLawn »

coachd50 wrote: Wed Apr 03, 2024 6:26 am
While personal finance is indeed personal, and an individual’s situation dictates their decisions, I do wonder if your thoughts (and many others who have posted similar things) would be different if the yield curve was in a normal upward sloping shape. In other words, would people be thinking differently if MMF and T bills were paying 2% but intermediate were paying 5.5%.
Bonds to me are supposed to be relatively safe. Not only is an inverted yield curve a problem, so is unexpected inflation. Equities are supposed to be where investors take risks, not bonds. The pre-Covid era was friendly towards bonds, hence historically there were many proponents of them.

You are correct in that if there wasn't an inverted yield curve bonds would be more attractive. I have no idea when it will revert back to normal or what future inflation will be so I consider traditional bonds risky.
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greenrebellion
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Re: Money Market Vs Bonds

Post by greenrebellion »

coachd50 wrote: Wed Apr 03, 2024 6:26 am While personal finance is indeed personal, and an individual’s situation dictates their decisions, I do wonder if your thoughts (and many others who have posted similar things) would be different if the yield curve was in a normal upward sloping shape. In other words, would people be thinking differently if MMF and T bills were paying 2% but intermediate were paying 5.5%.
It is a good question, but it is difficult to accept a discount for taking duration risk. Hence why the curve is usually upward sloping because you are supposed to get paid more for taking additional risk.
- greenrebellion
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Re: Money Market Vs Bonds

Post by RyeBourbon »

GreenLawn wrote: Wed Apr 03, 2024 7:27 am
Bonds to me are supposed to be relatively safe.
It depends on what you mean by safe. If you mean less volatile than stocks, I agree. If you mean guaranteed to not lose money, then I don't.
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coachd50
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Re: Money Market Vs Bonds

Post by coachd50 »

GreenLawn wrote: Wed Apr 03, 2024 7:27 am
Bonds to me are supposed to be relatively safe. Not only is an inverted yield curve a problem, so is unexpected inflation. Equities are supposed to be where investors take risks, not bonds. The pre-Covid era was friendly towards bonds, hence historically there were many proponents of them.

You are correct in that if there wasn't an inverted yield curve bonds would be more attractive. I have no idea when it will revert back to normal or what future inflation will be so I consider traditional bonds risky.
Where does one come up with the “supposed to” concept regarding risk.

Bonds ARE “relatively safe”. Relative to what you ask? Relative to the equity market.

The issue is that somehow on this board, the false paradigm that bonds (and more to the point bond funds) = FDIC insured Savings account. Fixed monthly income, instantly liquid, and stable value.


That just isn’t so. However bonds are still relatively safe- again relative to equities. Keep in mind all of those bemoaning losses in the bond market are now getting Higher monthly coupon payments.

That doesn’t make the desire to have a certain portion of one’s assets in stable value investments wrong, and my purpose is not to turn this into yet another “bonds are good vs bonds are bad” thread. However, I do think the mindset would be different if those stable value MMF and 3 month T bills were paying 200-300 basis points less than a 5-7 year security.
Last edited by coachd50 on Wed Apr 03, 2024 1:12 pm, edited 1 time in total.
GreenLawn
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Re: Money Market Vs Bonds

Post by GreenLawn »

coachd50 wrote: Wed Apr 03, 2024 7:48 am
Where does one come up with the “supposed to” concept regarding risk.

Bonds ARE “relatively safe”. Relative to what you ask? Relative to the equity market.

The issue is that somehow on this board, the false paradigm that bonds (and more to the point bond funds) = FDIC insured Savings account. Fixed monthly income, instantly liquid, and stable value.


That just isn’t so. However bonds are still relatively safe- again relative to equities. Keep in mind all of those bemoaning losses in the bond market are now getting 300%- 500% greater monthly coupon payments.

That doesn’t make the desire to have a certain portion of one’s assets in stable value investments wrong, and my purpose is not to turn this into yet another “bonds are good vs bonds are bad” thread. However, I do think the mindset would be different if those stable value MMF and 3 month T bills were paying 200-300 basis points less than a 5-7 year security.
5-7 year securities paying more than T-bills doesn't take into account the effect of unexpected inflation over those 5-7 years. As I found out the hard way. I'll invest in bonds, but they have to be inflation adjusted (e.g. I-bonds or short-term TIPS). I'm fine with risk, taking plenty of it with my large VTI holding. I want my risk in fixed income to be minimal.
Topic Author
trueson1
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Re: Money Market Vs Bonds

Post by trueson1 »

muffins14 wrote: Tue Apr 02, 2024 5:11 pm
trueson1 wrote: Mon Apr 01, 2024 4:22 pm Just a thought, but for tIRA accounts - with the total bond market averaging ~5% over the past 30 years, why not just move bonds to VUSXX (5.29%) or similar cash instruments until interest rates are substantially reduced and bond performance improves. This would substantially reduce bond risk. Now this might only be for a year so - who knows ( maybe should have done this the past 2 years in retrospect).

Thoughts?
2 years from now total bond could be yielding 5% and money market could be yielding 1%

what then?
The whole idea would be to move back into bonds - bonds funds that is not individual bonds. Not trying to time the market just moving money from cash to bond fund or vice versa. Probably not all bond funds to cash just a percentage.
KlangFool
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Re: Money Market Vs Bonds

Post by KlangFool »

trueson1 wrote: Wed Apr 03, 2024 8:55 am
muffins14 wrote: Tue Apr 02, 2024 5:11 pm
trueson1 wrote: Mon Apr 01, 2024 4:22 pm Just a thought, but for tIRA accounts - with the total bond market averaging ~5% over the past 30 years, why not just move bonds to VUSXX (5.29%) or similar cash instruments until interest rates are substantially reduced and bond performance improves. This would substantially reduce bond risk. Now this might only be for a year so - who knows ( maybe should have done this the past 2 years in retrospect).

Thoughts?
2 years from now total bond could be yielding 5% and money market could be yielding 1%

what then?
The whole idea would be to move back into bonds - bonds funds that is not individual bonds. Not trying to time the market just moving money from cash to bond fund or vice versa. Probably not all bond funds to cash just a percentage.
trueson1,

You are "market timing". Changing your allocation to bond and cash dependent on interest rate movement.

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the_wiki
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Re: Money Market Vs Bonds

Post by the_wiki »

trueson1 wrote: Wed Apr 03, 2024 8:55 am
muffins14 wrote: Tue Apr 02, 2024 5:11 pm
trueson1 wrote: Mon Apr 01, 2024 4:22 pm Just a thought, but for tIRA accounts - with the total bond market averaging ~5% over the past 30 years, why not just move bonds to VUSXX (5.29%) or similar cash instruments until interest rates are substantially reduced and bond performance improves. This would substantially reduce bond risk. Now this might only be for a year so - who knows ( maybe should have done this the past 2 years in retrospect).

Thoughts?
2 years from now total bond could be yielding 5% and money market could be yielding 1%

what then?
The whole idea would be to move back into bonds - bonds funds that is not individual bonds. Not trying to time the market just moving money from cash to bond fund or vice versa. Probably not all bond funds to cash just a percentage.
Bond funds don't have a steady $1 price like a money market fund. So you are ignoring the part where you sell the bond fund at a low price and then have to buy in at a high price, missing a massive portion of a bond fund returns. Your individual yield will be much lower because you had to pay an expensive price for the bond fund.
coachd50
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Re: Money Market Vs Bonds

Post by coachd50 »

GreenLawn wrote: Wed Apr 03, 2024 8:08 am
coachd50 wrote: Wed Apr 03, 2024 7:48 am
Where does one come up with the “supposed to” concept regarding risk.

Bonds ARE “relatively safe”. Relative to what you ask? Relative to the equity market.

The issue is that somehow on this board, the false paradigm that bonds (and more to the point bond funds) = FDIC insured Savings account. Fixed monthly income, instantly liquid, and stable value.


That just isn’t so. However bonds are still relatively safe- again relative to equities. Keep in mind all of those bemoaning losses in the bond market are now getting 300%- 500% greater monthly coupon payments.

That doesn’t make the desire to have a certain portion of one’s assets in stable value investments wrong, and my purpose is not to turn this into yet another “bonds are good vs bonds are bad” thread. However, I do think the mindset would be different if those stable value MMF and 3 month T bills were paying 200-300 basis points less than a 5-7 year security.
5-7 year securities paying more than T-bills doesn't take into account the effect of unexpected inflation over those 5-7 years. As I found out the hard way. I'll invest in bonds, but they have to be inflation adjusted (e.g. I-bonds or short-term TIPS). I'm fine with risk, taking plenty of it with my large VTI holding. I want my risk in fixed income to be minimal.
Nothing that isn't inflation adjusted takes into account anything that is unexpected. That is the definition of unexpected.

What I see here on the forums is a lot of regency bias. "Oh my look what just happened in 2022". That is valid. However, it is just as valid and possible that the US will have a Japanese like market crash and stagnation.

A great deal of the ideas and philosophies discussed by board members are all based on one massive assumption-- the equity market will "be higher" in the long term. There are thousands of posts debating individual bonds vs bond funds, the "safety" of bonds, how bonds should be used in an investment plan, total return vs income focused investing, dividends, optimizing portfolios for tax purposes etc. But the most central aspect to the entire boglehead existence--equity investing using index funds, often just assumes the risk away by saying "the market will be higher in the future". However, we seem very intune to the worst bond market event in history, and seem to be making plans like it will be a regular occurrence.
coachd50
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Re: Money Market Vs Bonds

Post by coachd50 »

trueson1 wrote: Wed Apr 03, 2024 8:55 am
muffins14 wrote: Tue Apr 02, 2024 5:11 pm
trueson1 wrote: Mon Apr 01, 2024 4:22 pm Just a thought, but for tIRA accounts - with the total bond market averaging ~5% over the past 30 years, why not just move bonds to VUSXX (5.29%) or similar cash instruments until interest rates are substantially reduced and bond performance improves. This would substantially reduce bond risk. Now this might only be for a year so - who knows ( maybe should have done this the past 2 years in retrospect).

Thoughts?
2 years from now total bond could be yielding 5% and money market could be yielding 1%

what then?
The whole idea would be to move back into bonds - bonds funds that is not individual bonds. Not trying to time the market just moving money from cash to bond fund or vice versa. Probably not all bond funds to cash just a percentage.
What do you mean when you say "bond performance improves"? What are you considering to be "bond performance"?

I
GreenLawn
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Re: Money Market Vs Bonds

Post by GreenLawn »

coachd50 wrote: Wed Apr 03, 2024 9:43 am
GreenLawn wrote: Wed Apr 03, 2024 8:08 am
coachd50 wrote: Wed Apr 03, 2024 7:48 am
Where does one come up with the “supposed to” concept regarding risk.

Bonds ARE “relatively safe”. Relative to what you ask? Relative to the equity market.

The issue is that somehow on this board, the false paradigm that bonds (and more to the point bond funds) = FDIC insured Savings account. Fixed monthly income, instantly liquid, and stable value.


That just isn’t so. However bonds are still relatively safe- again relative to equities. Keep in mind all of those bemoaning losses in the bond market are now getting 300%- 500% greater monthly coupon payments.

That doesn’t make the desire to have a certain portion of one’s assets in stable value investments wrong, and my purpose is not to turn this into yet another “bonds are good vs bonds are bad” thread. However, I do think the mindset would be different if those stable value MMF and 3 month T bills were paying 200-300 basis points less than a 5-7 year security.
5-7 year securities paying more than T-bills doesn't take into account the effect of unexpected inflation over those 5-7 years. As I found out the hard way. I'll invest in bonds, but they have to be inflation adjusted (e.g. I-bonds or short-term TIPS). I'm fine with risk, taking plenty of it with my large VTI holding. I want my risk in fixed income to be minimal.
Nothing that isn't inflation adjusted takes into account anything that is unexpected. That is the definition of unexpected.

What I see here on the forums is a lot of regency bias. "Oh my look what just happened in 2022". That is valid. However, it is just as valid and possible that the US will have a Japanese like market crash and stagnation.

A great deal of the ideas and philosophies discussed by board members are all based on one massive assumption-- the equity market will "be higher" in the long term. There are thousands of posts debating individual bonds vs bond funds, the "safety" of bonds, how bonds should be used in an investment plan, total return vs income focused investing, dividends, optimizing portfolios for tax purposes etc. But the most central aspect to the entire boglehead existence--equity investing using index funds, often just assumes the risk away by saying "the market will be higher in the future". However, we seem very intune to the worst bond market event in history, and seem to be making plans like it will be a regular occurrence.
I came of age during the 1970's so this isn't my first inflation rodeo. I have no idea what the future holds, hence I want my fixed income to ride out whatever storm we endure. I-bonds do that so I-bonds will continue to increase as a percentage of my portfolio.

I prefer to take risk in equities, not fixed income. Not everyone agrees with that, preferring to take some risk in fixed income for a higher return. That is a valid viewpoint, just not mine.
evancox10
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Re: Money Market Vs Bonds

Post by evancox10 »

the_wiki wrote: Wed Apr 03, 2024 9:13 am
trueson1 wrote: Wed Apr 03, 2024 8:55 am
muffins14 wrote: Tue Apr 02, 2024 5:11 pm
trueson1 wrote: Mon Apr 01, 2024 4:22 pm Just a thought, but for tIRA accounts - with the total bond market averaging ~5% over the past 30 years, why not just move bonds to VUSXX (5.29%) or similar cash instruments until interest rates are substantially reduced and bond performance improves. This would substantially reduce bond risk. Now this might only be for a year so - who knows ( maybe should have done this the past 2 years in retrospect).

Thoughts?
2 years from now total bond could be yielding 5% and money market could be yielding 1%

what then?
The whole idea would be to move back into bonds - bonds funds that is not individual bonds. Not trying to time the market just moving money from cash to bond fund or vice versa. Probably not all bond funds to cash just a percentage.
Bond funds don't have a steady $1 price like a money market fund. So you are ignoring the part where you sell the bond fund at a low price and then have to buy in at a high price, missing a massive portion of a bond fund returns. Your individual yield will be much lower because you had to pay an expensive price for the bond fund.
If bond funds are still paying 5% in this scenario their NAV wouldn’t really have changed.

What this doesn’t consider is the scenario where rates decline for both MMF and bonds. In that case you would have been better off holding the bonds. But this is impossible to know beforehand.

I can see the appeal in staying short when duration risk is not being rewarded, or even is penalized with lower yield. I don’t think this is a crazy choice.
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Hacksawdave
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Re: Money Market Vs Bonds

Post by Hacksawdave »

trueson1 wrote: Wed Apr 03, 2024 8:55 am The whole idea would be to move back into bonds - bonds funds that is not individual bonds. Not trying to time the market just moving money from cash to bond fund or vice versa. Probably not all bond funds to cash just a percentage.
Out of curiosity, what metric would tell you it is the “right condition” to do so?

I bought $56.5K of CA tax-exempt longs VCLAX in December at a price of $11.33 per share with a per share distribution of $.030892 to my existing position. The same fund was at $11.47 when it made its distribution last week at $0.031871 per share. Rate decreases (or expectation of) would increase the NAV price on the bond fund thus making the transaction at a higher cost.
Gd_Enf_56
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Re: Money Market Vs Bonds

Post by Gd_Enf_56 »

coachd50 wrote: ↑Wed Apr 03, 2024 12:48 pm

Where does one come up with the “supposed to” concept regarding risk.

Bonds ARE “relatively safe”. Relative to what you ask? Relative to the equity market.

The issue is that somehow on this board, the false paradigm that bonds (and more to the point bond funds) = FDIC insured Savings account. Fixed monthly income, instantly liquid, and stable value.


That just isn’t so. However bonds are still relatively safe- again relative to equities. Keep in mind all of those bemoaning losses in the bond market are now getting 300%- 500% greater monthly coupon payments.

That doesn’t make the desire to have a certain portion of one’s assets in stable value investments wrong, and my purpose is not to turn this into yet another “bonds are good vs bonds are bad” thread. However, I do think the mindset would be different if those stable value MMF and 3 month T bills were paying 200-300 basis points less than a 5-7 year security.
OK. You made me look. I've been invested in VBILX since Feb 2015 and I'm not seeing "300%-500% greater monthly coupons".

Are you referring to bond funds or other types of bonds?
coachd50
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Re: Money Market Vs Bonds

Post by coachd50 »

Gd_Enf_56 wrote: Wed Apr 03, 2024 12:46 pm
coachd50 wrote: ↑Wed Apr 03, 2024 12:48 pm

Where does one come up with the “supposed to” concept regarding risk.

Bonds ARE “relatively safe”. Relative to what you ask? Relative to the equity market.

The issue is that somehow on this board, the false paradigm that bonds (and more to the point bond funds) = FDIC insured Savings account. Fixed monthly income, instantly liquid, and stable value.


That just isn’t so. However bonds are still relatively safe- again relative to equities. Keep in mind all of those bemoaning losses in the bond market are now getting 300%- 500% greater monthly coupon payments.

That doesn’t make the desire to have a certain portion of one’s assets in stable value investments wrong, and my purpose is not to turn this into yet another “bonds are good vs bonds are bad” thread. However, I do think the mindset would be different if those stable value MMF and 3 month T bills were paying 200-300 basis points less than a 5-7 year security.
OK. You made me look. I've been invested in VBILX since Feb 2015 and I'm not seeing "300%-500% greater monthly coupons".

Are you referring to bond funds or other types of bonds?
Fair enough, I believe I did give incorrect info in that post. I edited to give less specific (and more accurate) information
the_wiki
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Re: Money Market Vs Bonds

Post by the_wiki »

evancox10 wrote: Wed Apr 03, 2024 12:02 pm
the_wiki wrote: Wed Apr 03, 2024 9:13 am
trueson1 wrote: Wed Apr 03, 2024 8:55 am
muffins14 wrote: Tue Apr 02, 2024 5:11 pm
trueson1 wrote: Mon Apr 01, 2024 4:22 pm Just a thought, but for tIRA accounts - with the total bond market averaging ~5% over the past 30 years, why not just move bonds to VUSXX (5.29%) or similar cash instruments until interest rates are substantially reduced and bond performance improves. This would substantially reduce bond risk. Now this might only be for a year so - who knows ( maybe should have done this the past 2 years in retrospect).

Thoughts?
2 years from now total bond could be yielding 5% and money market could be yielding 1%

what then?
The whole idea would be to move back into bonds - bonds funds that is not individual bonds. Not trying to time the market just moving money from cash to bond fund or vice versa. Probably not all bond funds to cash just a percentage.
Bond funds don't have a steady $1 price like a money market fund. So you are ignoring the part where you sell the bond fund at a low price and then have to buy in at a high price, missing a massive portion of a bond fund returns. Your individual yield will be much lower because you had to pay an expensive price for the bond fund.
If bond funds are still paying 5% in this scenario their NAV wouldn’t really have changed.

What this doesn’t consider is the scenario where rates decline for both MMF and bonds. In that case you would have been better off holding the bonds. But this is impossible to know beforehand.

I can see the appeal in staying short when duration risk is not being rewarded, or even is penalized with lower yield. I don’t think this is a crazy choice.
If rates stay the same, you wouldn't have switched back from the MMF, so that is irrelevant.

If you actually have short term spending needs, it is a rational choice to shop on current yield only.

If this is long term investing with market timing, it is not a rational choice. Because whenever it becomes obvious that bonds are outperforming, you already missed the boat and missed the NAV increase. And long term, bonds have always beat cash/MMF/treasury bills.

It's no different than thinking you can time when to go between stocks and bonds.
suemarkp
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Location: Somewhere in WA State

Re: Money Market Vs Bonds

Post by suemarkp »

the_wiki wrote: Wed Apr 03, 2024 9:13 am
trueson1 wrote: Wed Apr 03, 2024 8:55 am
muffins14 wrote: Tue Apr 02, 2024 5:11 pm
trueson1 wrote: Mon Apr 01, 2024 4:22 pm Just a thought, but for tIRA accounts - with the total bond market averaging ~5% over the past 30 years, why not just move bonds to VUSXX (5.29%) or similar cash instruments until interest rates are substantially reduced and bond performance improves. This would substantially reduce bond risk. Now this might only be for a year so - who knows ( maybe should have done this the past 2 years in retrospect).

Thoughts?
2 years from now total bond could be yielding 5% and money market could be yielding 1%

what then?
The whole idea would be to move back into bonds - bonds funds that is not individual bonds. Not trying to time the market just moving money from cash to bond fund or vice versa. Probably not all bond funds to cash just a percentage.
Bond funds don't have a steady $1 price like a money market fund. So you are ignoring the part where you sell the bond fund at a low price and then have to buy in at a high price, missing a massive portion of a bond fund returns. Your individual yield will be much lower because you had to pay an expensive price for the bond fund.
No one has any idea how the yield curve is going to rotate so you don't know if any bond is going to be cheaper or more expensive in the future. Intermediate term bonds could stay the same while longs go up (price down), and shorts go down (price up). Or it could rotate on longs while everything else drops, or rotate on shorts while everything else goes up. The only clue we have is the Fed wants to reduce ultra short rates. That may drag down shorts too. No clue how intermediate and longs will react.

I'm not moving out of my bond funds, but I'm also not not happy how they performed. I'm directing all the monthly dividends to the money market settlement fund mostly because its a taxable account but also because I'm not sure I want more bond funds right now. When the yield on the money market fund becomes less than the bond funds, I will reassess what to do by looking at the yields and the yield history on short, intermediate, and long bonds. I realize some world event could up end any fund tomorrow, but I try not to just blindly buy either.

I don't really see this as market timing so much as determining what to do when a rebalance is required or you have a bit of money to invest but it isn't going to significantly alter your asset allocation. Do bonds look topped? Do stocks seem weak? If I can't tell, I may just evenly split stock/bonds. But the bond portion I further split between money market, stable value fund, and short or intermediate bonds depending on circumstance.
Mark | Somewhere in WA State
the_wiki
Posts: 3032
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Re: Money Market Vs Bonds

Post by the_wiki »

suemarkp wrote: Wed Apr 03, 2024 1:40 pm
the_wiki wrote: Wed Apr 03, 2024 9:13 am
trueson1 wrote: Wed Apr 03, 2024 8:55 am
muffins14 wrote: Tue Apr 02, 2024 5:11 pm
trueson1 wrote: Mon Apr 01, 2024 4:22 pm Just a thought, but for tIRA accounts - with the total bond market averaging ~5% over the past 30 years, why not just move bonds to VUSXX (5.29%) or similar cash instruments until interest rates are substantially reduced and bond performance improves. This would substantially reduce bond risk. Now this might only be for a year so - who knows ( maybe should have done this the past 2 years in retrospect).

Thoughts?
2 years from now total bond could be yielding 5% and money market could be yielding 1%

what then?
The whole idea would be to move back into bonds - bonds funds that is not individual bonds. Not trying to time the market just moving money from cash to bond fund or vice versa. Probably not all bond funds to cash just a percentage.
Bond funds don't have a steady $1 price like a money market fund. So you are ignoring the part where you sell the bond fund at a low price and then have to buy in at a high price, missing a massive portion of a bond fund returns. Your individual yield will be much lower because you had to pay an expensive price for the bond fund.
No one has any idea how the yield curve is going to rotate so you don't know if any bond is going to be cheaper or more expensive in the future. Intermediate term bonds could stay the same while longs go up (price down), and shorts go down (price up). Or it could rotate on longs while everything else drops, or rotate on shorts while everything else goes up. The only clue we have is the Fed wants to reduce ultra short rates. That may drag down shorts too. No clue how intermediate and longs will react.

I'm not moving out of my bond funds, but I'm also not not happy how they performed. I'm directing all the monthly dividends to the money market settlement fund mostly because its a taxable account but also because I'm not sure I want more bond funds right now. When the yield on the money market fund becomes less than the bond funds, I will reassess what to do by looking at the yields and the yield history on short, intermediate, and long bonds. I realize some world event could up end any fund tomorrow, but I try not to just blindly buy either.

I don't really see this as market timing so much as determining what to do when a rebalance is required or you have a bit of money to invest but it isn't going to significantly alter your asset allocation. Do bonds look topped? Do stocks seem weak? If I can't tell, I may just evenly split stock/bonds. But the bond portion I further split between money market, stable value fund, and short or intermediate bonds depending on circumstance.
Of course nobody knows what is coming in the future.

But what am saying is that by the time you do know, it is too late. That's why market timing rates doesn't work any better than timing stocks.
muffins14
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Location: New York

Re: Money Market Vs Bonds

Post by muffins14 »

trueson1 wrote: Wed Apr 03, 2024 8:55 am
muffins14 wrote: Tue Apr 02, 2024 5:11 pm
trueson1 wrote: Mon Apr 01, 2024 4:22 pm Just a thought, but for tIRA accounts - with the total bond market averaging ~5% over the past 30 years, why not just move bonds to VUSXX (5.29%) or similar cash instruments until interest rates are substantially reduced and bond performance improves. This would substantially reduce bond risk. Now this might only be for a year so - who knows ( maybe should have done this the past 2 years in retrospect).

Thoughts?
2 years from now total bond could be yielding 5% and money market could be yielding 1%

what then?
The whole idea would be to move back into bonds - bonds funds that is not individual bonds. Not trying to time the market just moving money from cash to bond fund or vice versa. Probably not all bond funds to cash just a percentage.
Moving between bonds and bond funds based on whatever is the best current yield is exactly market timing, and it is likely suboptimal

You are proposing to sell bonds while prices are low and then buy back into bonds after bond prices have gone up and yields go down? That seems like you're market timing.
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muffins14
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Re: Money Market Vs Bonds

Post by muffins14 »

evancox10 wrote: Wed Apr 03, 2024 12:02 pm
I can see the appeal in staying short when duration risk is not being rewarded, or even is penalized with lower yield. I don’t think this is a crazy choice.
You don't know that "duration" risk "isn't being rewarded" By looking at yields right now with a flat or inverted curve, it either doesn't say anything about future yields or it says that future yields on the short end should fall, thus meaning you WILL be rewarded for longer duration. Or short stays flat and long-term bonds start paying 10% interest I guess

You can't know a priori that "duration" risk is not being rewarded because the reward may be 1-5-10 years into the future
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suemarkp
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Re: Money Market Vs Bonds

Post by suemarkp »

the_wiki wrote: Wed Apr 03, 2024 1:44 pm Of course nobody knows what is coming in the future.

But what am saying is that by the time you do know, it is too late. That's why market timing rates doesn't work any better than timing stocks.
Maybe, maybe not. There is no guarantee that buying now is buying low.

There is no penalty with being in a money market fund as rates move, especially if it is yielding higher than any bond fund. Why not choose the horse you know versus the one you don't know? When the money market starts to drop below the bond fund rates, buying a bond could be advantageous or maybe less so. Depends how the yield curve moved and if you care whether you are buying short, intermediate, or long. Intermediate and longs could certainly have increasing rates as the MM drops, giving an even lower purchase price when you pivot.
Mark | Somewhere in WA State
the_wiki
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Re: Money Market Vs Bonds

Post by the_wiki »

suemarkp wrote: Wed Apr 03, 2024 2:17 pm
the_wiki wrote: Wed Apr 03, 2024 1:44 pm Of course nobody knows what is coming in the future.

But what am saying is that by the time you do know, it is too late. That's why market timing rates doesn't work any better than timing stocks.
Maybe, maybe not. There is no guarantee that buying now is buying low.
I feel like people are quoting me and then arguing with someone else. I never said buying now is buying low. I said you can't market time this, and if you think you can, you probably don't understand how it works.
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