Help me resist moving Bond allocation to Cash

[BigSky777]

Greetings,

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.



Cheers

[JIT23]

Newbie here but I’ll share some thoughts. Have you considered Treasuries like T bills, notes, TIPs etc? Are you thinking about a permanent change or temporary? If temporary, how do you know when to buy back in? Maybe a combination? ie, move some to the money market fund and leave some in the US total bond fund. I’d expect some more knowledgeable folks to chime in, good luck!

[eli80]

You will hear - stay the course from the true Bogleheads. I say if you are feeling that way, keep half in the bond fund and put the other half in cash/CDs to hedge your bets.

About a year before bond funds NAV went down significantly, I had all my 35% fixed in a bond fund. I believe the dividend rate was around 3%. One year CDs were paying maybe .3%. I moved half my bond fund $s to a stable value fund paying I think 1.3%. In hindsight, I would have been better off moving it all but I was hedging. When MMs and CDs started paying more, I moved from the stable value fund to 1-5 yr CDs. I’ve now added fixed deferred annuities too. I’m still holding about 1/3 my fixed in a bond fund. Call it market timing but I think the market can be assessed and moves made to hedge. I’ll take 4.25-4.75% without either downside or upside.

[gavinsiu]

You don't know what will happen. You don't know if this is just talk of tariff as a negotiation or actual tariff. If it's actual tariff, then inflation could spike up causing interest rate to rise, making cash the better investment, but that it could cause a deep depression where bond will rule. 50/50 is pretty conservative. Personally, I would stick to that allocation unless 50/50 is ultimately too volatile for you.

[BigSky777]

Newbie here but I’ll share some thoughts. Have you considered Treasuries like T bills, notes, TIPs etc? Are you thinking about a permanent change or temporary? If temporary, how do you know when to buy back in? Maybe a combination? ie, move some to the money market fund and leave some in the US total bond fund. I’d expect some more knowledgeable folks to chime in, good luck!

I was thinking temporary. No idea when I would go back in. I'm in uncharted territory. A combination may settle me down. Thanks for the reply.

[windaar]

The uncertainty

There is always nothing but uncertainty when it comes to finances and investing. Your AA should be built around that. Yet many of us here were schooled on bond funds in 2022. I'd consider moving half (or more) of your fixed to MM not because of possible future events but because bond funds have considerable long-term risk and I prefer to take my risk on the equities side.

[steadyosmosis]

I bought a TIPS ladder to remove some uncertainty from my portfolio.

[BigSky777]

You will hear - stay the course from the true Bogleheads. I say if you are feeling that way, keep half in the bond fund and put the other half in cash/CDs to hedge your bets.

About a year before bond funds NAV went down significantly, I had all my 35% fixed in a bond fund. I believe the dividend rate was around 3%. One year CDs were paying maybe .3%. I moved half my bond fund $s to a stable value fund paying I think 1.3%. In hindsight, I would have been better off moving it all but I was hedging. When MMs and CDs started paying more, I moved from the stable value fund to 1-5 yr CDs. I’ve now added fixed deferred annuities too. I’m still holding about 1/3 my fixed in a bond fund. Call it market timing but I think the market can be assessed and moves made to hedge. I’ll take 4.25-4.75% without either downside or upside.

I believe the last 10 years cash and intermediate bond funds had similar returns. Currently cash is at least 10 basis points higher. Thanks for the reponse.

[BigSky777]

The uncertainty

There is always nothing but uncertainty when it comes to finances and investing. Your AA should be built around that. Yet many of us here were schooled on bond funds in 2022. I'd consider moving half (or more) of your fixed to MM not because of possible future events but because bond funds have considerable long-term risk and I prefer to take my risk on the equities side.

Thank you, I like your reasoning.

Cheers

[Kompass]

I did exactly what you are proposing 2 years ago, happy with my decision. I am considering taking a portion of that position into Tips for the longer run, but will keep a substantial cash holding. Works for my “sleep at night” comfort level.

[J295]

We’ve always had a combination on the fixed side.

To be honest, it’s because I don’t have a strong commitment to one particular asset on the fixed side.

And because it is designed as a ballast. To my way of thinking, it is “safe” relative to equities.

I don’t particularly care for the declines in BND and TIP from a couple of years ago, but that’s the way investments go. And since these were a combination on the fixed side, it was more of a shrug.

Our combination FWIW
BND
TIP
Treasury/CD/i bonds
MMF

Back in the day, we also own some publicly traded master limited partnership, which kicked off 7% – 10% return of capital, but when the basis was exhausted after about 10 years, we sold those. Decided not to pursue further, but that’s a more aggressive option.

[dbr]

Greetings,

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.



Cheers

There is no basis to assume moving it all to cash will leave you better off after whatever happens has happened.

A classic strategy in such cases is to divide the difference. Put half in FXNAX and half in FADXX. You already started down that path by choosing 50/50 stocks/bonds.

The risk is what else are you going to think of to divide your assets -- gold, timber, oil and gas, houses, diamonds, marriage to a wealthy recently bereaved wealthy widow or widower -- who knows.

You can also buy an annuity or a TIPS ladder, but it isn't known that doing that leaves you absolutely better off, all risk and outcomes considered.

[rkhusky]

If rates fall, you’ll be upset that you missed the NAV increase. And then jump back in after the increase.

If you plan to go to cash, plan to never go back to bonds.

[delamer]

Newbie here but I’ll share some thoughts. Have you considered Treasuries like T bills, notes, TIPs etc? Are you thinking about a permanent change or temporary? If temporary, how do you know when to buy back in? Maybe a combination? ie, move some to the money market fund and leave some in the US total bond fund. I’d expect some more knowledgeable folks to chime in, good luck!

I was thinking temporary. No idea when I would go back in. I'm in uncharted territory. A combination may settle me down. Thanks for the reply.

Consider short-term Treasuries or other cash equivalents for all or some of your fixed income, regardless of short-term market conditions. As windaar said above, take your risk on the equities side. There always is uncertainty.

In retirement, at a minimum, keep a few years of expenses in those investments.

[dbr]

A person replacing bonds with cash might also consider shifting to a higher allocation to stocks.

[delamer]

A person replacing bonds with cash might also consider shifting to a higher allocation to stocks.

That would be my suggestion too.

[slicendice]

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.

With marketable fixed income, you cannot have any income stability if you insist on price stability. This will be important when you move to withdrawal phase. Income instability means rather than bond interest income reliably feeding you, you are in danger of eating your seed corn prematurely.

Cash won't protect you from inflation if that is your concern. Consider putting at least half your bonds in intermediate TIPS like what FIPDX tracks. Keep the remainder in FXNAX or move it to a shorter term bond fund that tracks 1-5 year tnotes if you just cant live the volatility of having everything in intermediate term. Also dont forget series I savings bonds in taxable as well.

[BigSky777]

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.

With marketable fixed income, you cannot have any income stability if you insist on price stability. This will be important when you move to withdrawal phase. Income instability means rather than bond interest income reliably feeding you, you are in danger of eating your seed corn prematurely.

Cash won't protect you from inflation if that is your concern. Consider putting at least half your bonds in intermediate TIPS like what FIPDX tracks. Keep the remainder in FXNAX or move it to a shorter term bond fund that tracks 1-5 year tnotes if you just cant live the volatility of having everything in intermediate term. Also dont forget series I savings bonds in taxable as well.

Thank you. Love the seed corn analogy.

[gavinsiu]

A person replacing bonds with cash might also consider shifting to a higher allocation to stocks.

That would increase the volatility and downmarket risk.

[delamer]

A person replacing bonds with cash might also consider shifting to a higher allocation to stocks.

That would increase the volatility and downmarket risk.

It would increase overall volatility of the portfolio due to the increase in equities.

But the fixed income portion would be less volatile.

[dbr]

A person replacing bonds with cash might also consider shifting to a higher allocation to stocks.

That would increase the volatility and downmarket risk.

Yes, it would also maintain the return. So this is just the idea of take risk in stocks and not in bonds.

If a person really wants the total portfolio risk down at the cost of return, then probably the asset allocation should be moved away from stocks as much as the bond asset should be moved to cash. But some investors are focused on bond risk and can work that down if that is what they want.

[KlangFool]

OP,

A) How many years of expense do you keep in cash now?

B) Why do you think keeping more cash helps you?

C) What is the size of your portfolio in years of expense?

KlangFool

[BolderBoy]

Newbie here but I’ll share some thoughts. Have you considered Treasuries like T bills, notes, TIPs etc?

Good suggestions.

Short-term Treasury bond index fund, such as VSBSX could serve you well.

[RyeBourbon]

Are you going to spend it in the next 5 years? Then, ok, cash might be ok, but I would buy a TIPS ladder if I was going to spend it over the next 5 years. If the time frame is longer, I'd leave it in a bond fund. In no case would I leave it in cash. You risk losing too much to inflation.

[gavinsiu]

Yes, it would also maintain the return. So this is just the idea of take risk in stocks and not in bonds.

If a person really wants the total portfolio risk down at the cost of return, then probably the asset allocation should be moved away from stocks as much as the bond asset should be moved to cash. But some investors are focused on bond risk and can work that down if that is what they want.

I guess I am more of a total portfolio person. I care more about the how the whole portfolio work as a whole than its individual pieces. Down market risk with cash is actually higher than with bonds.

[BigSky777]

OP,

A) How many years of expense do you keep in cash now?

B) Why do you think keeping more cash helps you?

C) What is the size of your portfolio in years of expense?

KlangFool

4 years in cash
Possibly less volatile, current yield higher than intermediate bonds
27 years of expense

[BigSky777]

Yes, it would also maintain the return. So this is just the idea of take risk in stocks and not in bonds.

If a person really wants the total portfolio risk down at the cost of return, then probably the asset allocation should be moved away from stocks as much as the bond asset should be moved to cash. But some investors are focused on bond risk and can work that down if that is what they want.

I guess I am more of a total portfolio person. I care more about the how the whole portfolio work as a whole than its individual pieces. Down market risk with cash is actually higher than with bonds.

Not sure I understand what a down market in cash looks like, unless you are referring to inflation.

[BigSky777]

Greetings,

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.



Cheers

There is no basis to assume moving it all to cash will leave you better off after whatever happens has happened.

A classic strategy in such cases is to divide the difference. Put half in FXNAX and half in FADXX. You already started down that path by choosing 50/50 stocks/bonds.

The risk is what else are you going to think of to divide your assets -- gold, timber, oil and gas, houses, diamonds, marriage to a wealthy recently bereaved wealthy widow or widower -- who knows.

You can also buy an annuity or a TIPS ladder, but it isn't known that doing that leaves you absolutely better off, all risk and outcomes considered.

FADXX?

[Mr. Rumples]

Found a paper on the default rate of US corporate bonds; average annual default rate is about 1.5%, but it has been over 30%. A bit dated perhaps and some periods prior to the establishment of the Federal Reserve and modern trading methods: https://www.anderson.ucla.edu/documents ... paper1.pdf.

[dogagility]

You're at 50:50. If half of your income is coming from the fixed income portion, one suggestion would be to build a TIPS ladder to meet this portion of your income spend.

[tdgb]

viewtopic.php?t=79939

Some wisdom straight from the source Hope it helps!

[Target2019]

Greetings,

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.

Cheers

I'd want to know what my target retirement year would be, and when would I start tapping the bond allocation.

Beginning 2023 we did change what I call fixed income allocation to include more CD's, MMF, and so on. I retired in 2020 with a portfolio close to your 50/50 target. Essentially we put an infusion of cash into HYSA, CD's and so on. But rate cuts are tipping the scale back into favor for good old bond funds. I personally believe the ship has sailed on that, and you shouldn't make a move until considering where you're going with this. I understand the feeling of lost opportunity, but you need more substance in the thought process and end game for beginning retirement and decumulating.

[dcabler]

Greetings,

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.



Cheers

For most of my pre-retirement investing life, I went with an intermediate treasury fund from Fidelity - FUAMX (or its predecessors before Fidelity combined them all under a single ticker). As I was approaching retirement, I changed this to a pair of duration matched TIPS bond funds after learning more about the concept of having the duration of one's bonds match one's investment horizon. In 2025, this will be converted to a TIPS ladder. So SS + the TIPS ladder will provide an inflation adjusted income floor and stock will provide the remainder. I stopped rebalancing between stock and bonds a long time ago. With the income floor, I see no need for holding money on the side for "a number of years in expenses". Even without an income floor, I would never have done that.

There are a lot of concepts on bogleheads regarding AA's and bonds/fixed income and withdrawal methods. Some of these concepts work better with each other than others do. And many of the concepts out there have more utility as ways to avoid behavioral errors than they are about possibly providing better outcomes.

Cheers.

[KlangFool]

OP,

A) How many years of expense do you keep in cash now?

B) Why do you think keeping more cash helps you?

C) What is the size of your portfolio in years of expense?

KlangFool

4 years in cash
Possibly less volatile, current yield higher than intermediate bonds
27 years of expense

BigSky777,

A) Does the 27 years include the 4 years of cash?

B) Does the 27 years counting your future social security benefits?

C) If the stock market crashes 50%, do you plan to rebalance by selling cash/bond to buy the stock?

D) Inflation is a longer term problem. If stock market crashes with a recession and stays down for more than 4 years, why do you think money will be a problem at all? Most American live paycheck to paycheck. They will not last 4 years.

E) In summary, I do not see how more cash help you. In any situation where you need more than 4 years of cash, money is not the problem. If you really worry about that kind of problem, you should have a few thousands in physical gold and silver plus plenty of food and water in your pantry.

KlangFool

[muffins14]

Greetings,

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.



Cheers

How about SCHP or LTPZ for inflation protection via TIPS?

[Cah]

Greetings,

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.



Cheers

Big mistake. Bonds are paying the highest % paid in decades. Sit back and enjoy spending your higher income.

[gavinsiu]

I guess I am more of a total portfolio person. I care more about the how the whole portfolio work as a whole than its individual pieces. Down market risk with cash is actually higher than with bonds.

Not sure I understand what a down market in cash looks like, unless you are referring to inflation.

It would help to take a look at a historical comparsion betwen 50/50 Stock/Bond, 50/50/Stock Cash, and 60/40 Stock/Cash (I believe someone on this thread proposed to avoid bonds). The following is the link to portfolio visualizer from 1972 to present (LINK)



As you can see historically, you were better off in stock/bond then stock/cash. A 50/50 stock/bond has historically had a lower worst year than stock/cash. There was a false belief that stocks and bond were negative correlated, so that whenever stock fall, bonds will do the reverse and reduce the fall. Now due to 2022, their belief swing in the other direction and they believe stocks will always fall with bonds. In truth, stocks and bond have a low correlation and move somewhat independent of one another. As a result, sometimes it will move with stock and sometimes it will not. Going through the historical return, I feel that the stock/bond combo has worked out better in most downmarket than cash.

I also caution against raising the equity to compensate for the loss of return on switch from bond to cash. Now your maximum down has increased to -32% around 2008. If your goal is to just reduce risk, this is not the way to go unless you define risk is fixed income risk only as oppose to the whole portfolio.

[grok87]

Greetings,

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.



Cheers

ibonds?

[BigSky777]

viewtopic.php?t=79939

Some wisdom straight from the source Hope it helps!

Agreed. I read it last night. It was helpfull, Thank You.

[goodenyou]

When you move from bonds to cash, you have made a commitment that puts you at risk for re-investment risk. If you are consuming your portfolio in a declining bond market, however, cash may be the superior investment in that situation.

But, if you plan to re-enter the bond market in a declining interest rate environment (or after rates have declined and cash is paying very little), bonds will have increased in value. You will be left with buying high/selling low.

I can't say that I'm not guilty of chasing cash yield and trying to avoid bond volatility as well. I think most of that comes from the inherent desire for bonds to lower volatility more than they have recently. Lowering bond duration could have achieved that.

Cash is a zero-duration bond, in essence, and still has interest rate risk without the interest rate duration risk multiple of bonds.

As a novice, that's the way I think of it.

[BigSky777]

4 years in cash
Possibly less volatile, current yield higher than intermediate bonds
27 years of expense

BigSky777,

A) Does the 27 years include the 4 years of cash?

B) Does the 27 years counting your future social security benefits?

C) If the stock market crashes 50%, do you plan to rebalance by selling cash/bond to buy the stock?

D) Inflation is a longer term problem. If stock market crashes with a recession and stays down for more than 4 years, why do you think money will be a problem at all? Most American live paycheck to paycheck. They will not last 4 years.

E) In summary, I do not see how more cash help you. In any situation where you need more than 4 years of cash, money is not the problem. If you really worry about that kind of problem, you should have a few thousands in physical gold and silver plus plenty of food and water in your pantry.

KlangFool

A) yes
B) No

Thank you for your response, much appreciated.

[KlangFool]

BigSky777,

A) Does the 27 years include the 4 years of cash?

B) Does the 27 years counting your future social security benefits?

C) If the stock market crashes 50%, do you plan to rebalance by selling cash/bond to buy the stock?

D) Inflation is a longer term problem. If stock market crashes with a recession and stays down for more than 4 years, why do you think money will be a problem at all? Most American live paycheck to paycheck. They will not last 4 years.

E) In summary, I do not see how more cash help you. In any situation where you need more than 4 years of cash, money is not the problem. If you really worry about that kind of problem, you should have a few thousands in physical gold and silver plus plenty of food and water in your pantry.

KlangFool

A) yes
B) No

Thank you for your response, much appreciated.

OP,

So, you have no problem. Your social security benefit is COLA adjusted. Aka, no problem with inflation. Plus, depending on how much social security cover your retirement expense, your 27X is significantly much more than 27X.

KlangFool

[CuriousGeorgeTx]

The hardest time to resist a trend is just before it ends, a wise man taught me.

Cash has had a good run. It may continue. It may not. Diversification is your friend.

[BigSky777]

When you move from bonds to cash, you have made a commitment that puts you at risk for re-investment risk. If you are consuming your portfolio in a declining bond market, however, cash may be the superior investment in that situation.

But, if you plan to re-enter the bond market in a declining interest rate environment (or after rates have declined and cash is paying very little), bonds will have increased in value. You will be left with buying high/selling low.

I can't say that I'm not guilty of chasing cash yield and trying to avoid bond volatility as well. I think most of that comes from the inherent desire for bonds to lower volatility more than they have recently. Lowering bond duration could have achieved that.

Cash is a zero-duration bond, in essence, and still has interest rate risk without the interest rate duration risk multiple of bonds.

As a novice, that's the way I think of it.

Good point, I have been considering what you described without a good solution. Thanks for your thoughtful response.

[retired@50]

Newbie here but I’ll share some thoughts. Have you considered Treasuries like T bills, notes, TIPs etc? Are you thinking about a permanent change or temporary? If temporary, how do you know when to buy back in? Maybe a combination? ie, move some to the money market fund and leave some in the US total bond fund. I’d expect some more knowledgeable folks to chime in, good luck!

I was thinking temporary. No idea when I would go back in. I'm in uncharted territory. A combination may settle me down. Thanks for the reply.

Temporary sounds like market timing, which doesn't work. Everyone is always in uncharted territory. The future is uncertain. This has been true forever. That's investing. I'd urge you to do nothing and pick up a new hobby or something. Ignore the news and your portfolio.

Regards,

[BigSky777]

I was thinking temporary. No idea when I would go back in. I'm in uncharted territory. A combination may settle me down. Thanks for the reply.

Temporary sounds like market timing, which doesn't work. Everyone is always in uncharted territory. The future is uncertain. This has been true forever. That's investing. I'd urge you to do nothing and pick up a new hobby or something. Ignore the news and your portfolio.

Regards,

Thank you for your advice. It's always been helpful when I have needed help. Happy Thanksgiving!!

In my profession, one of my favorite quotes is "the illusion of control is more comforting than the reality of uncertainty". Maybe I should apply that here as well.

[jec1ny]

If you are worried about American politics, debt, inflation, tariffs etc. consider adding a little international to your bond portfolio. Maybe some BNDX or just go with BNDW for your entire bond portfolio and call it a day. Another alternative is to adopt something like the much discussed Harry Browne Permanent Portfolio. (https://www.bogleheads.org/blog/2023/01 ... 22-update/) There are a gazillion discussion threads on that topic.

[retired@50]

In my profession, one of my favorite quotes is "the illusion of control is more comforting than the reality of uncertainty". Maybe I should apply that here as well.

Great quote. I think you're correct, it applies in this case.

Regards,

[dbr]

In my profession, one of my favorite quotes is "the illusion of control is more comforting than the reality of uncertainty". Maybe I should apply that here as well.

Great quote. I think you're correct, it applies in this case.

Regards,

A corollary is that comfort in investing is an illusion. If you want comfort you are in the wrong zip code.

[MedEngineer]

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.

I'm in a similar situation, about 50/50 AA, Age soon to be 62 with a mixed bag of bond funds and have similar concerns. I am in the process of consolidating those mixed funds to FXNAX, and plan to do similar with some maturing CDs unless rates go up again, so I guess I'm leaning in the opposite direction. Maybe buy low, sell high if I'm lucky, in any case I stick with the "don't try to time the market" mantra.