Why choose intermediate term treasury at this time?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Stormbringer
Posts: 860
Joined: Sun Jun 14, 2015 7:07 am

Re: Why choose intermediate term treasury at this time?

Post by Stormbringer » Wed Feb 13, 2019 2:04 pm

strongboy2005 wrote:
Sun Feb 10, 2019 5:04 pm
When comparing an intermediate term treasury fund, such as SCHR, with a short term treasury fund, such as SCHO, is there any reason to prefer the intermediate term fund if the yields are the same for both funds?
Over the past couple years, I've been putting new money into SCHO (short-term) rather than SCHZ (intermediate) because of my expectation of rising rates.

Also, as the opportunity has presented itself, I've sold blocks of SCHZ to build a CD ladder because the interest rates have at times been significantly better. For example, last fall I bought a 5-year brokered CD paying 3.55%, which is a much better yield than SCHZ was paying and a shorter duration.
"Compound interest is the most powerful force in the universe." - Albert Einstein

User avatar
Doc
Posts: 9228
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Re: Why choose intermediate term treasury at this time?

Post by Doc » Wed Feb 13, 2019 2:31 pm

Stormbringer wrote:
Wed Feb 13, 2019 2:04 pm
Also, as the opportunity has presented itself, I've sold blocks of SCHZ to build a CD ladder because the interest rates have at times been significantly better. For example, last fall I bought a 5-year brokered CD paying 3.55%, which is a much better yield than SCHZ was paying and a shorter duration.
You need to plan what you will do if your equities drop 20% tomorrow. Are you going to want to rebalance into stocks. If the answer is yes and all your FI is in CD's brokered or not, you may find yourself SOL. Is a few tens of basis point worth it?
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

michaeljmroger
Posts: 504
Joined: Fri Sep 21, 2018 10:54 am

Re: Why choose intermediate term treasury at this time?

Post by michaeljmroger » Wed Feb 13, 2019 3:18 pm

Stormbringer wrote:
Wed Feb 13, 2019 2:04 pm
Over the past couple years, I've been putting new money into SCHO (short-term) rather than SCHZ (intermediate) because of my expectation of rising rates.
I guess you're aware of it but, just in case: the difference between SCHO and SCHZ isn't only the duration, but also (and especially) the fact that SCHO is a treasury fund. It's a much safer bond fund overall.

Stormbringer
Posts: 860
Joined: Sun Jun 14, 2015 7:07 am

Re: Why choose intermediate term treasury at this time?

Post by Stormbringer » Wed Feb 13, 2019 3:37 pm

michaeljmroger wrote:
Wed Feb 13, 2019 3:18 pm
I guess you're aware of it but, just in case: the difference between SCHO and SCHZ isn't only the duration, but also (and especially) the fact that SCHO is a treasury fund. It's a much safer bond fund overall.
Yeah, I picked SCHZ based on the recommendation of the wiki here.
"Compound interest is the most powerful force in the universe." - Albert Einstein

Stormbringer
Posts: 860
Joined: Sun Jun 14, 2015 7:07 am

Re: Why choose intermediate term treasury at this time?

Post by Stormbringer » Wed Feb 13, 2019 3:43 pm

Doc wrote:
Wed Feb 13, 2019 2:31 pm
You need to plan what you will do if your equities drop 20% tomorrow. Are you going to want to rebalance into stocks. If the answer is yes and all your FI is in CD's brokered or not, you may find yourself SOL. Is a few tens of basis point worth it?
Well, I'm not 100% of my FI in CDs. About 20% of it is in SCHO, and I am adding new money monthly. If I wanted to rebalance I could do so (and the CDs are tradable as well). The interest rate difference was more than a few tens of basis points. At the time it was almost .5% difference, which is $500 per year per $100K. Enough that it mattered.
"Compound interest is the most powerful force in the universe." - Albert Einstein

pascalwager
Posts: 1552
Joined: Mon Oct 31, 2011 8:36 pm

Re: Why choose intermediate term treasury at this time?

Post by pascalwager » Thu Feb 14, 2019 6:01 pm

strongboy2005 wrote:
Sun Feb 10, 2019 5:04 pm
When comparing an intermediate term treasury fund, such as SCHR, with a short term treasury fund, such as SCHO, is there any reason to prefer the intermediate term fund if the yields are the same for both funds?
In general, an accumulator should use a short-term fund--even a MMF right now due to the small yield spread--in the interest of portfolio stability. A retiree may need to take intermediate-term interest rate risk to generate income, but should also use a MMF right now for the same reason.

The SEC mandates the SEC yield to allow you to make fund comparisons, so feel free to exercise that ability.

hudson
Posts: 1966
Joined: Fri Apr 06, 2007 9:15 am

Re: Why choose intermediate term treasury at this time?

Post by hudson » Thu Feb 14, 2019 6:21 pm

pascalwager wrote:
Thu Feb 14, 2019 6:01 pm
strongboy2005 wrote:
Sun Feb 10, 2019 5:04 pm
When comparing an intermediate term treasury fund, such as SCHR, with a short term treasury fund, such as SCHO, is there any reason to prefer the intermediate term fund if the yields are the same for both funds?
In general, an accumulator should use a short-term fund--even a MMF right now due to the small yield spread--in the interest of portfolio stability. A retiree may need to take intermediate-term interest rate risk to generate income, but should also use a MMF right now for the same reason.

The SEC mandates the SEC yield to allow you to make fund comparisons, so feel free to exercise that ability.
I think that you are implying this?
The accumulator should use the short term safe bond funds or safe money market funds to protect against possible losses in volatile stock funds.

pascalwager
Posts: 1552
Joined: Mon Oct 31, 2011 8:36 pm

Re: Why choose intermediate term treasury at this time?

Post by pascalwager » Thu Feb 14, 2019 8:25 pm

hudson wrote:
Thu Feb 14, 2019 6:21 pm
pascalwager wrote:
Thu Feb 14, 2019 6:01 pm
strongboy2005 wrote:
Sun Feb 10, 2019 5:04 pm
When comparing an intermediate term treasury fund, such as SCHR, with a short term treasury fund, such as SCHO, is there any reason to prefer the intermediate term fund if the yields are the same for both funds?
In general, an accumulator should use a short-term fund--even a MMF right now due to the small yield spread--in the interest of portfolio stability. A retiree may need to take intermediate-term interest rate risk to generate income, but should also use a MMF right now for the same reason.

The SEC mandates the SEC yield to allow you to make fund comparisons, so feel free to exercise that ability.
I think that you are implying this?
The accumulator should use the short term safe bond funds or safe money market funds to protect against possible losses in volatile stock funds.
It reduces the overall portfolio % loss/panic and provides living expenses if you lose your job.

Post Reply