another question of short term bonds: VSCSX

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Nestegg_User
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another question of short term bonds: VSCSX

Post by Nestegg_User »

OK, rather than do a "necropost" on a thread that is a bit old, I thought I'd ask given current conditions:

Looking at VSCSX under current conditions, and noting that banks are among the top holdings of both it and VFSTX

VSCSX is reported as:
SEC yield of 0.86 w/ er of .07 and a 2.79 yr duration
with: AAA 0.5%
AA 8.9%
A 44.9%
BBB 45.7%
recognizing that it is a corporate only bond fund, and that I only see one top holding (CVS Health) dropping,
is there any reason not to hold this under current conditions? We're already at the bottom of likely corporate rates (except those that would get called) and short term are a fraction of the yield (and VBIRX, with 73% gov/27% corp, with less than half the yield isn't all that enticing), for a holding period of 2 - 2 1/2 yr max is it acceptable (as it's just above expected inflation for the period)?

I'm probably looking at a mix (~60/40) of VSCSX and VFSTX to hold in Schwab (not a VG acct, so no VFSUX since that is only for VG)
as part of the "higher yielding" portion of fixed income (currently retired, draw of <2%) along with CD's

{as I'm still delaying SS, duration is just past time when I plan on starting SS but have other funds used for regular spending. (I'm also
doing a conversion up to top of 12% bracket while before SS) Allocation is ~45/50/5}
Last edited by Nestegg_User on Mon Oct 05, 2020 8:58 pm, edited 1 time in total.
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Stinky
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Re: another question of short term bonds: VSCSX

Post by Stinky »

I like VSCSX for the reasons you mention, and I own it.
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Re: another question of short term bonds: VSCSX

Post by dwickenh »

Also a fan of VSCSX, and I have owned it in the past, sold it in March to rebalance into VTSAX.
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Re: another question of short term bonds: VSCSX

Post by aristotelian »

The same reasons you did not own it before interest rates dropped still apply today. If you were not OK with the risk before 2020, what makes you OK with the risk now?
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Nestegg_User
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Re: another question of short term bonds: VSCSX

Post by Nestegg_User »

aristotelian wrote: Mon Oct 05, 2020 7:45 pm The same reasons you did not own it before interest rates dropped still apply today. If you were not OK with the risk before 2020, what makes you OK with the risk now?
If you are asking me...
I had retired, my CD's matured (still use them, since principal is not at risk) as well as my treasuries ..had been in muni's when still working and in 33% marginal fed rate...and my IPS has me at 40-45% equities only, so lots of space for fixed income

I also hadn't sold some positions so that I could TLH and later TGH while I'm in lower bracket (and, yeah, I do have lots of "dry powder"). The bulk is still going to be in safer CD etc, but I'm also not a fan of MBS given current conditions and thus I'm not gonna go total bond.
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Re: another question of short term bonds: VSCSX

Post by aristotelian »

Nestegg_User wrote: Mon Oct 05, 2020 8:57 pm
aristotelian wrote: Mon Oct 05, 2020 7:45 pm The same reasons you did not own it before interest rates dropped still apply today. If you were not OK with the risk before 2020, what makes you OK with the risk now?
If you are asking me...
I had retired, my CD's matured (still use them, since principal is not at risk) as well as my treasuries ..had been in muni's when still working and in 33% marginal fed rate...and my IPS has me at 40-45% equities only, so lots of space for fixed income

I also hadn't sold some positions so that I could TLH and later TGH while I'm in lower bracket (and, yeah, I do have lots of "dry powder"). The bulk is still going to be in safer CD etc, but I'm also not a fan of MBS given current conditions and thus I'm not gonna go total bond.
That doesn't really address the question. If you are currently in CD's, why not stay in CD's? If you are trying to replace muni bonds with bonds of equivalent risk/return now that tax efficiency is no longer a concern, then corporate bonds might make sense. However, your post refers to "current conditions". Reading into your post, it appears you are trying to time the market and adjust your bond strategy to market conditions.
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Re: another question of short term bonds: VSCSX

Post by Electron »

I have a spreadsheet tracking VSCSX versus VFSUX with a hypothetical purchase of equal dollar amounts at the end of 2018. VFSUX has paid out slightly more income over the period while VSCSX has seen a greater rise in NAV.

VSCSX appears to be the riskier of the two funds. When corporate bonds are moving up in price, VSCSX sees greater percentage gains in NAV than VFSUX. When corporate bonds are falling in price, VSCSX tends to see greater percentage declines than VFSUX.
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Re: another question of short term bonds: VSCSX

Post by Nestegg_User »

aristotelian wrote: Mon Oct 05, 2020 9:22 pm That doesn't really address the question. If you are currently in CD's, why not stay in CD's? If you are trying to replace muni bonds with bonds of equivalent risk/return now that tax efficiency is no longer a concern, then corporate bonds might make sense. However, your post refers to "current conditions". Reading into your post, it appears you are trying to time the market and adjust your bond strategy to market conditions.
I've already noted that I eliminated (over time) muni positions as I didn't need them now that I'm in lower bracket, and obviously one gives up some yield for that tax efficiency.
AFA current conditions (at least over the time frame I referenced)... lower employment/full employment (ie, reduced hours) implies higher likelihood of difficulty in paying mortgages (queue legislation on forbearance) and that drives me away from MBS and thus "total" bond
current conditions also stress muni's that are revenue based and to a lesser degree operating muni's as credit worthiness may erode under the difficult conditions some areas face.

Fund providers "titrate" their return/risk, within the available corporate bonds, with mixtures of AAA, AA, A, and BBB for those not considered "junk" (notwithstanding the consideration that some bonds could be downgraded). In a similar manner, I'm looking at the "titration" of corporate bonds and CD's for the period noted, after which I'll start SS and start the upward trajectory of the "bond tent"-like movement of my portfolio as per IPS.
you might call it "timing", I call it period in life (I already noted our WR and am conscious of "need/ability/willingness" as already have pension and savings (with SS starting after time period noted) and am also aware of the current rates that I've seen in shorter duration CD's (I'd reduced duration earlier in those as the risk return favored ~2 yr.... and most of those have matured)
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Re: another question of short term bonds: VSCSX

Post by MikeG62 »

Nestegg_User wrote: Mon Oct 05, 2020 6:26 pm
...Looking at VSCSX under current conditions, and noting that banks are among the top holdings of both it and VFSTX

VSCSX is reported as:
SEC yield of 0.86 w/ er of .07 and a 2.79 yr duration
with: AAA 0.5%
AA 8.9%
A 44.9%
BBB 45.7%
46% of the fund in BBB paper and SEC yield of 0.86% - no thanks.

Would rather go with Marcus NP CD 7-month (for AARP members) at 0.85% and zero risk (as long as you stay within FDIC insurance limits) than this MF.

What I've been doing over the last year or so is invest in traditional CD's. Don't think it would be hard to find some with a yield well above 0.86% and also with zero risk (assuming you stay within FDIC/NCUA insurance limits). Check Deposit Accounts website.
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Re: another question of short term bonds: VSCSX

Post by Electron »

Here is a chart showing the SEC Yield and NAV Ratio for VSCSX and VFSUX. The chart covers 6-22-15 through 10-05-20.

VSCSX maintained a higher yield for a period of time but it has now fallen below the yield on VFSUX.

The NAV ratio shows how VSCSX has performed relative to VFSUX in recent periods of rising and declining short term interest rates. The ratio also reflects the rapid decline and recovery in the bond markets in March and April 2020.

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Re: another question of short term bonds: VSCSX

Post by patrick »

You can get higher yields on FDIC insured deposit accounts:

3% at Porte Bank with a $15,000 limit. They require $1000 of deposits in a month (an ACH push from another of your own accounts seems to qualify) to open the account.

3% at HMBradley with a $100,000 limit. They require direct deposit every month (payroll or government benefits) and saving at least 20% of deposits (i.e. total withdrawals no more than 80 percent of total deposits), evaluated quarterly.

1% at Affirm, Chime, and First Foundation with no limits.
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