bonds, funds, CDs

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
leftcoaster
Posts: 745
Joined: Mon Jul 23, 2007 4:04 pm

bonds, funds, CDs

Post by leftcoaster »

I have 300K from my fixed income allocation that I need to invest. Candidates include:
  • Brokered CDs
  • callable brokered cds
  • secondary market treasuries
  • treasuries at auction
  • a vanguard fund
I don't need the money for 10 or so years.

I've been buying CDs and not laddering them because the short-term yields have been so much better. So I could continue this.

secondary treasuries are transparent - I know what I'm buying. But these are not paying as much as CDs

treasuries at auction... I have zero visibility into these. Vanguard's platform tells me nothing, not even an estimate based on the secondary market.

I'd love a vanguard fund for convenience and while the yield is close, the total return for the funds I looked at is negative.

What advice do BHs have on how to make this decision?
Valuethinker
Posts: 49129
Joined: Fri May 11, 2007 11:07 am

Re: bonds, funds, CDs

Post by Valuethinker »

leftcoaster wrote: Tue Apr 02, 2024 9:51 am I have 300K from my fixed income allocation that I need to invest. Candidates include:

[*] Brokered CDs
[*] callable brokered cds
[*] secondary market treasuries
[*] treasuries at auction
[*] a vanguard fund

I don't need the money for 10 or so years.

I've been buying CDs and not laddering them because the short-term yields have been so much better. So I could continue this.

secondary treasuries are transparent - I know what I'm buying. But these are not paying as much as CDs

treasuries at auction... I have zero visibility into these. Vanguard's platform tells me nothing, not even an estimate based on the secondary market.

I'd love a vanguard fund for convenience and while the yield is close, the total return for the funds I looked at is negative.

What advice do BHs have on how to make this decision?
We do not know your goals or your overall investment policy statement.

So it's difficult to answer this.

10 or so years suggests to me Intermediate US Treasury bonds. Over time, you would then add Short Term bonds to this, and eventually cash and cash substitutes to lower the overall weighted average maturity of the portfolio.

Don't drive by the rear view mirror on this. The best predictor of future performance of bond funds is the weighted average yield of the fund. John Bogle wrote a piece on precisely that point. US Treasury bonds are now returning c 4% pa, I believe, and that's your likely return.

One thing to note. It's not usually a long term thing that short term rates are higher than long term ones. When the US Federal Reserve signals it is done with interest rate raises for a while, that will likely reverse. If an investor has not locked in longer yields now, they could find the price of the bonds has gone up by the time they want to. (OTOH of course interest rate rises could continue)

"Reverse yield curves" only occur a minority of the time. Most of the time, quite logically, longer term interest rates are higher than shorter term.
Topic Author
leftcoaster
Posts: 745
Joined: Mon Jul 23, 2007 4:04 pm

Re: bonds, funds, CDs

Post by leftcoaster »

Addressing the last part first
Valuethinker wrote: Tue Apr 02, 2024 9:55 am
One thing to note. It's not usually a long term thing that short term rates are higher than long term ones. When the US Federal Reserve signals it is done with interest rate raises for a while, that will likely reverse. If an investor has not locked in longer yields now, they could find the price of the bonds has gone up by the time they want to. (OTOH of course interest rate rises could continue)

"Reverse yield curves" only occur a minority of the time. Most of the time, quite logically, longer term interest rates are higher than shorter term.
At various points over the last 25 years I have thought "oh, I will build a ladder" only to be met with an inverted yield curve. I'm not saying that things have never gone the "normal" way, but my experience is that I have *never* encountered a time when it wasn't inverted. Please do not spend time proving that it happened on March whatever. I'm simply saying that, in practice, I have not experienced the case you describe as the norm.
Valuethinker wrote: Tue Apr 02, 2024 9:55 am
10 or so years suggests to me Intermediate US Treasury bonds. Over time, you would then add Short Term bonds to this, and eventually cash and cash substitutes to lower the overall weighted average maturity of the portfolio.

Don't drive by the rear view mirror on this. The best predictor of future performance of bond funds is the weighted average yield of the fund. John Bogle wrote a piece on precisely that point. US Treasury bonds are now returning c 4% pa, I believe, and that's your likely return.
You wrote "intermediate treasury *bonds*" and "short term *bonds*" but then talked about the performance of *bond funds*.

Were you advocating for funds or individual treasuries? and why not CDs if their yield is higher?

Also: if individual treasuries, do you buy at auction and let the yield chips fall where they may?
User avatar
BolderBoy
Posts: 6793
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: bonds, funds, CDs

Post by BolderBoy »

What state do you live in (is there a state income tax?)
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
Topic Author
leftcoaster
Posts: 745
Joined: Mon Jul 23, 2007 4:04 pm

Re: bonds, funds, CDs

Post by leftcoaster »

BolderBoy wrote: Tue Apr 02, 2024 10:12 am What state do you live in (is there a state income tax?)
California but this is in an IRA so effectively "no."
Post Reply