Bonds: The situation and near-term perspective

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
fingoals
Posts: 860
Joined: Thu Jan 24, 2019 6:43 pm

Bonds: The situation and near-term perspective

Post by fingoals »

I won't pretend that I decently understand current situation around bonds (especially in light of today's Fed message). What I know is that VBTLX (the fund in which I currently keep my EF) is experiencing slight - but recently more pronounced - downtrend. I would appreciate if knowledgeable people here clarify the situation and relevant near-term (up to a year) perspective for me. Thank you in advance!
Explorer
Posts: 607
Joined: Thu Oct 13, 2016 7:54 pm

Re: Bonds: The situation and near-term perspective

Post by Explorer »

fingoals wrote: Thu Aug 27, 2020 4:12 pm I won't pretend that I decently understand current situation around bonds (especially in light of today's Fed message). What I know is that VBTLX (the fund in which I currently keep my EF) is experiencing slight - but recently more pronounced - downtrend. I would appreciate if knowledgeable people here clarify the situation and relevant near-term (up to a year) perspective for me. Thank you in advance!
Couple of points:
1. EF in general should remain in cash-equivalent form (CDs, money market, online savings accounts, checking accounts etc) and you probably already knew that.
2. VBTLX has 6.6 years duration, which means if the market causes interest rates to go up (or down) the NAV will fall (or rise). Rule of thumb 1% rise in interest rates for 10 year bonds will lead to 6.6% drop in NAV; conversely 1% drop in interest rates for 10 year bonds will lead to 6.6% gain in NAV. The last few weeks, the market is raising the interest rates of intermediate bonds (it raises the rate via selling pressure on existing bonds and causing newly issued bonds to be issued at higher coupon).

Is any of this making sense?

I hope I haven't confused you with this explanation.
brad.clarkston
Posts: 979
Joined: Fri Jan 03, 2014 8:31 pm
Location: Kansas City, MO

Re: Bonds: The situation and near-term perspective

Post by brad.clarkston »

It depends on your risk level.

Personally I keep half of my EF in a HYSC (Ally/Cit) and the rest in NP CD's. Yes I'm not making money on it but I'm not loosing money ether.
chw
Posts: 913
Joined: Thu May 24, 2012 4:22 pm

Re: Bonds: The situation and near-term perspective

Post by chw »

Explorer wrote: Thu Aug 27, 2020 4:27 pm
fingoals wrote: Thu Aug 27, 2020 4:12 pm I won't pretend that I decently understand current situation around bonds (especially in light of today's Fed message). What I know is that VBTLX (the fund in which I currently keep my EF) is experiencing slight - but recently more pronounced - downtrend. I would appreciate if knowledgeable people here clarify the situation and relevant near-term (up to a year) perspective for me. Thank you in advance!
Couple of points:
1. EF in general should remain in cash-equivalent form (CDs, money market, online savings accounts, checking accounts etc) and you probably already knew that.
2. VBTLX has 6.6 years duration, which means if the market causes interest rates to go up (or down) the NAV will fall (or rise). Rule of thumb 1% rise in interest rates for 10 year bonds will lead to 6.6% drop in NAV; conversely 1% drop in interest rates for 10 year bonds will lead to 6.6% gain in NAV. The last few weeks, the market is raising the interest rates of intermediate bonds (it raises the rate via selling pressure on existing bonds and causing newly issued bonds to be issued at higher coupon).

Is any of this making sense?

I hope I haven't confused you with this explanation.
+1
User avatar
nisiprius
Advisory Board
Posts: 42539
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Bonds: The situation and near-term perspective

Post by nisiprius »

1) If you are using VBTLX as your emergency fund, you might want to review some statistics here:
Using mutual funds and ETFs for short-term savings (1 year): VBMFX

2) Be aware that Vanguard says that Total Bond and funds in their "risk category 2"
are subject to low to moderate fluctuations in share prices. In general, such funds may be appropriate for investors with medium-term investment horizons (4 to 10 years).
3) The red line is my free-form artwork, my personal "technical analysis" based on gut feeling and eyeball. It looks to my eyeball as if we have the general, fairly steady rise that is typical of bond funds. We have the curve bending down reflecting falling interest rates. We have market fluctuations above and below, much smaller than stock fluctuations but market fluctuations nevertheless.

And year-to-date we've had an anomalous high return of over 10%, in a fund that has only averaged 6% since inception and only 4% over the last ten years.

So, sure, I think we might be in a little bit of a bubble, a bond-sized bubble. This year I've made maybe 6% or 7% more than I expected or "deserved," and I rather expect to lose some of it back. But I try to ignore the fluctuations and invest for the long term, or at least the "4 to 10 years" Vanguard suggests.

Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Topic Author
fingoals
Posts: 860
Joined: Thu Jan 24, 2019 6:43 pm

Re: Bonds: The situation and near-term perspective

Post by fingoals »

Explorer wrote: Thu Aug 27, 2020 4:27 pm
fingoals wrote: Thu Aug 27, 2020 4:12 pm I won't pretend that I decently understand current situation around bonds (especially in light of today's Fed message). What I know is that VBTLX (the fund in which I currently keep my EF) is experiencing slight - but recently more pronounced - downtrend. I would appreciate if knowledgeable people here clarify the situation and relevant near-term (up to a year) perspective for me. Thank you in advance!
Couple of points:
1. EF in general should remain in cash-equivalent form (CDs, money market, online savings accounts, checking accounts etc) and you probably already knew that.
2. VBTLX has 6.6 years duration, which means if the market causes interest rates to go up (or down) the NAV will fall (or rise). Rule of thumb 1% rise in interest rates for 10 year bonds will lead to 6.6% drop in NAV; conversely 1% drop in interest rates for 10 year bonds will lead to 6.6% gain in NAV. The last few weeks, the market is raising the interest rates of intermediate bonds (it raises the rate via selling pressure on existing bonds and causing newly issued bonds to be issued at higher coupon).

Is any of this making sense?

I hope I haven't confused you with this explanation.
Thank you very much for sharing your thoughts. It certainly does make sense and you haven't confused me with your explanation. It is clear enough. Having said that, I feel the need to read some more introductory information on bonds, but it's because of my very limited knowledge of this area. Re: #1 - I surely already knew that, but some knowledgeable people on this forum have expressed an opinion that it's OK to use the Total Bond fund as a decent EF proxy. Perhaps, they implied longer-term EF scenarios (that approximately match the fund's duration).
Topic Author
fingoals
Posts: 860
Joined: Thu Jan 24, 2019 6:43 pm

Re: Bonds: The situation and near-term perspective

Post by fingoals »

brad.clarkston wrote: Thu Aug 27, 2020 4:29 pm It depends on your risk level.

Personally I keep half of my EF in a HYSC (Ally/Cit) and the rest in NP CD's. Yes I'm not making money on it but I'm not loosing money ether.
I see. Thank you for sharing your thoughts.
Topic Author
fingoals
Posts: 860
Joined: Thu Jan 24, 2019 6:43 pm

Re: Bonds: The situation and near-term perspective

Post by fingoals »

nisiprius wrote: Thu Aug 27, 2020 4:35 pm 1) If you are using VBTLX as your emergency fund, you might want to review some statistics here:
Using mutual funds and ETFs for short-term savings (1 year): VBMFX

2) Be aware that Vanguard says that Total Bond and funds in their "risk category 2"
are subject to low to moderate fluctuations in share prices. In general, such funds may be appropriate for investors with medium-term investment horizons (4 to 10 years).
3) The red line is my free-form artwork, my personal "technical analysis" based on gut feeling and eyeball. It looks to my eyeball as if we have the general, fairly steady rise that is typical of bond funds. We have the curve bending down reflecting falling interest rates. We have market fluctuations above and below, much smaller than stock fluctuations but market fluctuations nevertheless.

And year-to-date we've had an anomalous high return of over 10%, in a fund that has only averaged 6% since inception and only 4% over the last ten years.

So, sure, I think we might be in a little bit of a bubble, a bond-sized bubble. This year I've made maybe 6% or 7% more than I expected or "deserved," and I rather expect to lose some of it back. But I try to ignore the fluctuations and invest for the long term, or at least the "4 to 10 years" Vanguard suggests.

Image
Your clarifications and insights are very much appreciated. Based on statistics from your link in #1, it seems that I should not worry too much. In the near term, my VBTLX-based emergency fund will most likely neither earn much, not lose much.
JimmyJammy
Posts: 252
Joined: Sat Oct 26, 2013 1:08 pm

Re: Bonds: The situation and near-term perspective

Post by JimmyJammy »

I trimmed my core bond fun by 10% today. I couldn't help it. Going into safer bonds.

Anybody read about this fund called IVOL? It's mostly TIPS.

https://seekingalpha.com/article/437056 ... transcript
Topic Author
fingoals
Posts: 860
Joined: Thu Jan 24, 2019 6:43 pm

Re: Bonds: The situation and near-term perspective

Post by fingoals »

JimmyJammy wrote: Thu Aug 27, 2020 5:39 pm I trimmed my core bond fun by 10% today. I couldn't help it. Going into safer bonds.

Anybody read about this fund called IVOL? It's mostly TIPS.

https://seekingalpha.com/article/437056 ... transcript
Pretty interesting, thank you for sharing. Never heard of IVOL ETF before. Would you advise it for emergency fund holding as a safer alternative to VBTLX?
User avatar
patrick013
Posts: 3073
Joined: Mon Jul 13, 2015 7:49 pm

Re: Bonds: The situation and near-term perspective

Post by patrick013 »

Check VG's recent advise. They would likely advise 100% stocks
on any market pull back for the best return the next 5 years or more.
Another opinion.
age in bonds, buy-and-hold, 10 year business cycle
User avatar
jeffyscott
Posts: 9324
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Bonds: The situation and near-term perspective

Post by jeffyscott »

Explorer wrote: Thu Aug 27, 2020 4:27 pmCouple of points:
1. EF in general should remain in cash-equivalent form (CDs, money market, online savings accounts, checking accounts etc) and you probably already knew that.
2. VBTLX has 6.6 years duration, which means if the market causes interest rates to go up (or down) the NAV will fall (or rise). Rule of thumb 1% rise in interest rates for 10 year bonds will lead to 6.6% drop in NAV; conversely 1% drop in interest rates for 10 year bonds will lead to 6.6% gain in NAV. The last few weeks, the market is raising the interest rates of intermediate bonds (it raises the rate via selling pressure on existing bonds and causing newly issued bonds to be issued at higher coupon).
To add to that, the current SEC yield of VBTLX is 1.13%. If interest rates that affect the bonds in this fund remain stable, that's about what the expected return of the fund is. If you were to guess that the interest rates that affect the bonds in this fund might change by up to 1/2% either way over the next year, then your likely total return over the next year might range from about -2.2% to +4.4%.

Treasuries, which make up about 40% of the fund, are already at near zero yields (Vanguard Intermediate treasury has an SEC yield of 0.25%). The other 60% of the fund (primarily mortgage and corporate bonds) has an SEC yield of maybe about 1.6% (Intermediate Corporate SEC yield is 1.65% and Mortgage Backed Securities SEC yield is 1.48%). So to see -1/2% from here and get a total return of about +4.4% over the next year, might mean treasuries at negative yields and corporate and mortgage bonds dropping to a yield of about 1% or it might mean treasuries remain stable and the yield spreads between those and corporate/mortgage bonds collapse to nearly nothing.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
NoRegret
Posts: 171
Joined: Sat Dec 16, 2017 2:00 am
Location: California

Re: Bonds: The situation and near-term perspective

Post by NoRegret »

fingoals wrote: Thu Aug 27, 2020 8:20 pm
JimmyJammy wrote: Thu Aug 27, 2020 5:39 pm I trimmed my core bond fun by 10% today. I couldn't help it. Going into safer bonds.

Anybody read about this fund called IVOL? It's mostly TIPS.

https://seekingalpha.com/article/437056 ... transcript
Pretty interesting, thank you for sharing. Never heard of IVOL ETF before. Would you advise it for emergency fund holding as a safer alternative to VBTLX?
IVOL is SCHP + 2s10s curve steepener. Actively managed but the only way individual investors can access OTC rates derivatives that I know.

I still lean towards rates will trend lower but transitioned part of my (already small) long bond allocation to IVOL/VTIP early August. The majority of my “safe fixed income” is in stable value funds In 401k. YMMV
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
PhooBooKhoo
Posts: 10
Joined: Mon Jun 08, 2020 7:27 am

Re: Bonds: The situation and near-term perspective

Post by PhooBooKhoo »

My observation of bond funds over the years is that they are cyclical with a slight uptrend. I only add to my position on the down cycles, and they always come along, though it takes a few years in between. I believe in getting the lowest price at all times. Right now all the needles are pinned to the right on the 52-week ranges on most bond funds, though EDV is about mid-range at -14% from 52-week high.

To sum, most bonds and bond funds are expensive right now. But a down cycle will come.
JimmyJammy
Posts: 252
Joined: Sat Oct 26, 2013 1:08 pm

Re: Bonds: The situation and near-term perspective

Post by JimmyJammy »

NoRegret wrote: Fri Aug 28, 2020 9:25 am
fingoals wrote: Thu Aug 27, 2020 8:20 pm
JimmyJammy wrote: Thu Aug 27, 2020 5:39 pm I trimmed my core bond fun by 10% today. I couldn't help it. Going into safer bonds.

Anybody read about this fund called IVOL? It's mostly TIPS.

https://seekingalpha.com/article/437056 ... transcript
Pretty interesting, thank you for sharing. Never heard of IVOL ETF before. Would you advise it for emergency fund holding as a safer alternative to VBTLX?
IVOL is SCHP + 2s10s curve steepener. Actively managed but the only way individual investors can access OTC rates derivatives that I know.

I still lean towards rates will trend lower but transitioned part of my (already small) long bond allocation to IVOL/VTIP early August. The majority of my “safe fixed income” is in stable value funds In 401k. YMMV
What are some examples of the "stable value funds" you own?
Topic Author
fingoals
Posts: 860
Joined: Thu Jan 24, 2019 6:43 pm

Re: Bonds: The situation and near-term perspective

Post by fingoals »

Thank you, patrick013, jeffyscott, NoRegret and PhooBooKhoo, for sharing your insights since my previous comment.
User avatar
Kevin M
Posts: 11721
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Bonds: The situation and near-term perspective

Post by Kevin M »

PhooBooKhoo wrote: Fri Aug 28, 2020 9:33 am My observation of bond funds over the years is that they are cyclical with a slight uptrend <snip>.
Vanguard total bond fund inception date was Dec 11, 1986. The "slight uptrend" is due in part to the general decline in yields since then.

Image

It's hard to see how the future will resemble the past unless yields go deeply negative. But this is a bit off topic, since this is a comment on the long term, not the near term.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)
NoRegret
Posts: 171
Joined: Sat Dec 16, 2017 2:00 am
Location: California

Re: Bonds: The situation and near-term perspective

Post by NoRegret »

JimmyJammy wrote: Fri Aug 28, 2020 3:43 pm
NoRegret wrote: Fri Aug 28, 2020 9:25 am
fingoals wrote: Thu Aug 27, 2020 8:20 pm
JimmyJammy wrote: Thu Aug 27, 2020 5:39 pm I trimmed my core bond fun by 10% today. I couldn't help it. Going into safer bonds.

Anybody read about this fund called IVOL? It's mostly TIPS.

https://seekingalpha.com/article/437056 ... transcript
Pretty interesting, thank you for sharing. Never heard of IVOL ETF before. Would you advise it for emergency fund holding as a safer alternative to VBTLX?
IVOL is SCHP + 2s10s curve steepener. Actively managed but the only way individual investors can access OTC rates derivatives that I know.

I still lean towards rates will trend lower but transitioned part of my (already small) long bond allocation to IVOL/VTIP early August. The majority of my “safe fixed income” is in stable value funds In 401k. YMMV
What are some examples of the "stable value funds" you own?
Just vanilla stable value funds found in most US corporate 401k’s, typically debt instruments under an insurance wrapper. Mine and my wife’s still paying 3% last I checked. Can’t argue with that.
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
shess
Posts: 865
Joined: Wed May 17, 2017 12:02 am

Re: Bonds: The situation and near-term perspective

Post by shess »

fingoals wrote: Thu Aug 27, 2020 5:11 pm
Explorer wrote: Thu Aug 27, 2020 4:27 pm
fingoals wrote: Thu Aug 27, 2020 4:12 pm I won't pretend that I decently understand current situation around bonds (especially in light of today's Fed message). What I know is that VBTLX (the fund in which I currently keep my EF) is experiencing slight - but recently more pronounced - downtrend. I would appreciate if knowledgeable people here clarify the situation and relevant near-term (up to a year) perspective for me. Thank you in advance!
Couple of points:
1. EF in general should remain in cash-equivalent form (CDs, money market, online savings accounts, checking accounts etc) and you probably already knew that.
2. VBTLX has 6.6 years duration, which means if the market causes interest rates to go up (or down) the NAV will fall (or rise). Rule of thumb 1% rise in interest rates for 10 year bonds will lead to 6.6% drop in NAV; conversely 1% drop in interest rates for 10 year bonds will lead to 6.6% gain in NAV. The last few weeks, the market is raising the interest rates of intermediate bonds (it raises the rate via selling pressure on existing bonds and causing newly issued bonds to be issued at higher coupon).

Is any of this making sense?

I hope I haven't confused you with this explanation.
Thank you very much for sharing your thoughts. It certainly does make sense and you haven't confused me with your explanation. It is clear enough. Having said that, I feel the need to read some more introductory information on bonds, but it's because of my very limited knowledge of this area. Re: #1 - I surely already knew that, but some knowledgeable people on this forum have expressed an opinion that it's OK to use the Total Bond fund as a decent EF proxy. Perhaps, they implied longer-term EF scenarios (that approximately match the fund's duration).
Personally, I consider bond funds reasonable for my "deep" emergency fund. So I have cash tucked away for things like replacing the transmission, or an entire vehicle, or the roof, but if we're talking "replace 12 months of income", I'm fine with some of that coming from bond funds. In all likelihood, I'll never dip that far into the emergency fund (*), and after ten years or so it should hopefully have enough buffer to beat out having kept it in cash.

(*) I'm retired, now, so I guess it's a lot less clear what "replace 12 months of income" really means. I never ended up dipping into that level of reserves.
quicknss
Posts: 39
Joined: Mon Nov 19, 2012 7:25 pm

Re: Bonds: The situation and near-term perspective

Post by quicknss »

fingoals wrote: Thu Aug 27, 2020 4:12 pm I won't pretend that I decently understand current situation around bonds (especially in light of today's Fed message). What I know is that VBTLX (the fund in which I currently keep my EF) is experiencing slight - but recently more pronounced - downtrend. I would appreciate if knowledgeable people here clarify the situation and relevant near-term (up to a year) perspective for me. Thank you in advance!
with no yield the most viable solution is gold (a zero coupon long/infinite duration asset). Bonds may appreciate as rates go negative but you depend on that appreciation to match inflation to not lose money. gold as a rare asset will appreciate in a no yield bond environment as will stocks due to lack of other areas for yield.
Always passive
Posts: 772
Joined: Fri Apr 14, 2017 4:25 am
Location: Israel

Re: Bonds: The situation and near-term perspective

Post by Always passive »

Here is my take on bonds - not a straight forward dilemma with many “ifs”
1.At best they are all nothing more than cash (Zero interest rate)
2. No matter what bonds we use either will make no money or lose (if the Fed decides to rise interest rates, which they have said that they will not)
3. if inflation goes up and the FED keeps interest rates at current levels, TIPS are my answer.
4. If the FED allows interest rates to go up, it is better to own short term TIPS.
3. They will all do worse than inflation (I mean the quality bonds, not junk) That has become obvious looking at the negative real rates of TIPS.
4. If inflation stays as currently expected (no surprises), it makes no different if we use nominal or TIPS bonds.
5. There is a high concern that the dollar is/will devaluate. Printing money and buying bonds by the FED may be a very long term project. For all practical purposes, Europe and now the US have implemented MMT (Modern Monetary Theory-look it up). Thus, equities and gold may be the only answer.

Some of the smart minds here may feel differently. Please correct me. I welcome all criticism.
User avatar
jeffyscott
Posts: 9324
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Bonds: The situation and near-term perspective

Post by jeffyscott »

shess wrote: Sat Aug 29, 2020 2:01 am(*) I'm retired, now, so I guess it's a lot less clear what "replace 12 months of income" really means. I never ended up dipping into that level of reserves.
Retired or not, if looking to "replace 12 months of (something)", I think it makes more sense to have a plan to cover 12 months of spending, rather than income. But in retirement, assuming one has a reasonable portfolio with, say, 30-60% in fixed income of one sort or another, I don't really see a need to identify some part of it as an emergency fund.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
shess
Posts: 865
Joined: Wed May 17, 2017 12:02 am

Re: Bonds: The situation and near-term perspective

Post by shess »

jeffyscott wrote: Sat Aug 29, 2020 8:22 am
shess wrote: Sat Aug 29, 2020 2:01 am(*) I'm retired, now, so I guess it's a lot less clear what "replace 12 months of income" really means. I never ended up dipping into that level of reserves.
Retired or not, if looking to "replace 12 months of (something)", I think it makes more sense to have a plan to cover 12 months of spending, rather than income. But in retirement, assuming one has a reasonable portfolio with, say, 30-60% in fixed income of one sort or another, I don't really see a need to identify some part of it as an emergency fund.
Yeah, that's what I mean - it's all internally-generated, now, so it's more of a glide path from equities to bonds to cash than it is a reserve against something happening. I mean, you still have buffers built into each stage so you aren't forced into something, but if, say, equity dividend payments go to zero, it has a different impact than losing that amount as job income does (maybe like if you lost your job AND had a large position in employer stock, issues on those fronts are correlated).
Topic Author
fingoals
Posts: 860
Joined: Thu Jan 24, 2019 6:43 pm

Re: Bonds: The situation and near-term perspective

Post by fingoals »

Thanks to everyone who has shared their thoughts since my previous comment. Keep them coming. This forum is a financial self-education paradise ...
JimmyJammy
Posts: 252
Joined: Sat Oct 26, 2013 1:08 pm

Re: Bonds: The situation and near-term perspective

Post by JimmyJammy »

Always passive wrote: Sat Aug 29, 2020 2:14 am Here is my take on bonds - not a straight forward dilemma with many “ifs”
1.At best they are all nothing more than cash (Zero interest rate)
2. No matter what bonds we use either will make no money or lose (if the Fed decides to rise interest rates, which they have said that they will not)
3. if inflation goes up and the FED keeps interest rates at current levels, TIPS are my answer.
4. If the FED allows interest rates to go up, it is better to own short term TIPS.
3. They will all do worse than inflation (I mean the quality bonds, not junk) That has become obvious looking at the negative real rates of TIPS.
4. If inflation stays as currently expected (no surprises), it makes no different if we use nominal or TIPS bonds.
5. There is a high concern that the dollar is/will devaluate. Printing money and buying bonds by the FED may be a very long term project. For all practical purposes, Europe and now the US have implemented MMT (Modern Monetary Theory-look it up). Thus, equities and gold may be the only answer.

Some of the smart minds here may feel differently. Please correct me. I welcome all criticism.
I think what you're saying makes a lot of sense. Do you guy TIPS funds? Any recommendations?

What concerns me is that, during the liquidity crisis and crash in March, *everything* sold off hard. Including my gold fund and muni bonds.
So, I feel like I need something less risky that those investments. Hence, I now have 10% in cash, but I've dipped my toes into TIPS. I guess my real default "safe" bond are short term treasuries.
JimmyJammy
Posts: 252
Joined: Sat Oct 26, 2013 1:08 pm

Re: Bonds: The situation and near-term perspective

Post by JimmyJammy »

brad.clarkston wrote: Thu Aug 27, 2020 4:29 pm It depends on your risk level.

Personally I keep half of my EF in a HYSC (Ally/Cit) and the rest in NP CD's. Yes I'm not making money on it but I'm not loosing money ether.
Why not just stick it in a Vanguard money market fund? Then it's ready to deploy quickly into riskier assets if opportunity arises and the yield isn't that far off the third party accounts.
brad.clarkston
Posts: 979
Joined: Fri Jan 03, 2014 8:31 pm
Location: Kansas City, MO

Re: Bonds: The situation and near-term perspective

Post by brad.clarkston »

JimmyJammy wrote: Sat Aug 29, 2020 2:24 pm
brad.clarkston wrote: Thu Aug 27, 2020 4:29 pm It depends on your risk level.

Personally I keep half of my EF in a HYSC (Ally/Cit) and the rest in NP CD's. Yes I'm not making money on it but I'm not loosing money ether.
Why not just stick it in a Vanguard money market fund? Then it's ready to deploy quickly into riskier assets if opportunity arises and the yield isn't that far off the third party accounts.
The HYSC half is 6 months of living expenses and it's the true EF. I count the CD's as part of my stable bond port, it's another 6 months of expenses.
I also have cash in my Fidelity spaxx account which is as liquid as the HYSC (debit card and Fidelity CC attached) which may or may not get invested.

I've also maxed my tax sheltered space for once so, meh. I grew up poor and dumb so having that big cushion of cash to fall back on is comfortable compared to the couple of extra %'s I could min/max.
User avatar
Kevin M
Posts: 11721
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Bonds: The situation and near-term perspective

Post by Kevin M »

JimmyJammy wrote: Sat Aug 29, 2020 2:24 pm
brad.clarkston wrote: Thu Aug 27, 2020 4:29 pm It depends on your risk level.

Personally I keep half of my EF in a HYSC (Ally/Cit) and the rest in NP CD's. Yes I'm not making money on it but I'm not loosing money ether.
Why not just stick it in a Vanguard money market fund? Then it's ready to deploy quickly into riskier assets if opportunity arises and the yield isn't that far off the third party accounts.
Money from an externally-linked bank account (e.g., Ally Bank online savings) can be used for same-day purchases of stock mutual funds ("riskier assets") at Vanguard, so a Vanguard money-market fund offers no advantage here.

The yield on Ally savings (0.80%) currently is 8X the yield on Prime money market Admiral shares (0.10%). I would call that pretty "far off".

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)
MathIsMyWayr
Posts: 2650
Joined: Mon Mar 27, 2017 10:47 pm
Location: CA

Re: Bonds: The situation and near-term perspective

Post by MathIsMyWayr »

Kevin M wrote: Sat Aug 29, 2020 8:00 pm
JimmyJammy wrote: Sat Aug 29, 2020 2:24 pm
brad.clarkston wrote: Thu Aug 27, 2020 4:29 pm It depends on your risk level.

Personally I keep half of my EF in a HYSC (Ally/Cit) and the rest in NP CD's. Yes I'm not making money on it but I'm not loosing money ether.
Why not just stick it in a Vanguard money market fund? Then it's ready to deploy quickly into riskier assets if opportunity arises and the yield isn't that far off the third party accounts.
Money from an externally-linked bank account (e.g., Ally Bank online savings) can be used for same-day purchases of stock mutual funds ("riskier assets") at Vanguard, so a Vanguard money-market fund offers no advantage here.

The yield on Ally savings (0.80%) currently is 8X the yield on Prime money market Admiral shares (0.10%). I would call that pretty "far off".

Kevin
Kevin M wrote: Sat Aug 29, 2020 8:00 pm
JimmyJammy wrote: Sat Aug 29, 2020 2:24 pm
brad.clarkston wrote: Thu Aug 27, 2020 4:29 pm It depends on your risk level.
Personally I keep half of my EF in a HYSC (Ally/Cit) and the rest in NP CD's. Yes I'm not making money on it but I'm not loosing money ether.
Money from an externally-linked bank account (e.g., Ally Bank online savings) can be used for same-day purchases of stock mutual funds ("riskier assets") at Vanguard, so a Vanguard money-market fund offers no advantage here.

The yield on Ally savings (0.80%) currently is 8X the yield on Prime money market Admiral shares (0.10%). I would call that pretty "far off".

Kevin
Does Vanguard use ACH to pull money from an externally-linked bank account? It may take some time for ACH to transfer funds. Does a delay matter? Does the link have to be a direct one? Can I use the Ally > my bank > Vanguard route?
sycamore
Posts: 1530
Joined: Tue May 08, 2018 12:06 pm

Re: Bonds: The situation and near-term perspective

Post by sycamore »

MathIsMyWayr wrote: Sat Aug 29, 2020 9:00 pm ...
Does Vanguard use ACH to pull money from an externally-linked bank account? It may take some time for ACH to transfer funds. Does a delay matter?
Vanguard uses ACH. I have not found that the delay matters. In fact, I haven't seen any out-of-the-ordinary delays. When I place an online order to buy a mutual fund using money pulled from my bank, I get that day's closing price (assuming I submit my order before 4:00PM Eastern).

Sometimes if I'm not sure which mutual fund to buy, I'll pull from my bank into my settlement fund, and then a day later (or whenever) I'll buy using the money in my settlement fund. You could use this approach if you're concerned about delays.
MathIsMyWayr wrote: Sat Aug 29, 2020 9:00 pm Does the link have to be a direct one? Can I use the Ally > my bank > Vanguard route?
From Vanguard's perspective, any externally-linked bank can only be directly linked. They don't know or care if you have other accounts linked to "my bank". They only care if you try to pull out money from "my bank" but don't have sufficient assets there.

Does that answer your question? I'm not sure why you're asking about direct vs non-direct... maybe you're asking if you can have Vanguard pull from "my bank" and that would somehow trigger "my bank" to pull from Ally automatically? In that case, the answer is no. If you want to get money from Ally to Vanguard but don't want to link Ally to Vanguard directly, then it's up to you to (1) first move the money from Ally to "my bank", and (2) wait for it to clear, and (3) then have Vanguard pull from "my bank". That's too roundabout for me.
User avatar
Kevin M
Posts: 11721
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Bonds: The situation and near-term perspective

Post by Kevin M »

I think sycamore answered the questions, but to state it more firmly, there is no delay in ability to do same-day fund purchases due to using ACH. Vanguard protects itself by not letting you transfer new money back out of Vanguard until the ACH payment has cleared.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)
Xrayman69
Posts: 685
Joined: Fri Jun 01, 2018 8:52 pm

Re: Bonds: The situation and near-term perspective

Post by Xrayman69 »

fingoals wrote: Thu Aug 27, 2020 4:12 pm I won't pretend that I decently understand current situation around bonds (especially in light of today's Fed message). What I know is that VBTLX (the fund in which I currently keep my EF) is experiencing slight - but recently more pronounced - downtrend. I would appreciate if knowledgeable people here clarify the situation and relevant near-term (up to a year) perspective for me. Thank you in advance!
I believe the bond market is substantially larger than the equity market.

As equity prices escalate it is commonly as a result of bonds being sold and funds redirected towards equities (risk on trade). As result bond yield increases as a lever to encourage bond purchases and thus results in the NAV decrease as yields from the current portfolio are lower than the increasing bond yield.

The opposite occurs when equity prices decrease, the funds resulting from selling typically are directed towards the purchase of bonds (risk off trade). This typically results in bond yields decrease as a safe haven and thus the NAV of bonds funds increases as the yields within the funds is greater than the new lower yield.

Thus the BH philosophy of managed risk with equities and bond funds.
Post Reply