Total Bond Fund vs 2.65% Stable Value

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ofcmetz
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Total Bond Fund vs 2.65% Stable Value

Post by ofcmetz » Tue Jun 11, 2019 12:47 pm

I invest my governmental 457B entirely in fixed income (low six figures in this account). For the last year or so I've had all that in the iShares Total Bond Market fund with around a 0.1% expense ratio. This year has been a good year for bonds as far as capital appreciation due to the big drop in yields. The competing option in my 457B is a stable value fund paying 2.65% that has no withdrawal restrictions. I'm thinking I can lock these gains in while getting the same yield and could always switch back in the future if the bond fund yields return to the 3% or higher level. I don't make many if any changes with our equity portfolio which is kept in other accounts, but I do feel that fixed income is a different beast entirely. What do you all think? Is it time to roll it all to stable value for awhile?
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MotoTrojan
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Re: Total Bond Fund vs 2.65% Stable Value

Post by MotoTrojan » Tue Jun 11, 2019 1:05 pm

ofcmetz wrote:
Tue Jun 11, 2019 12:47 pm
I invest my governmental 457B entirely in fixed income (low six figures in this account). For the last year or so I've had all that in the iShares Total Bond Market fund with around a 0.1% expense ratio. This year has been a good year for bonds as far as capital appreciation due to the big drop in yields. The competing option in my 457B is a stable value fund paying 2.65% that has no withdrawal restrictions. I'm thinking I can lock these gains in while getting the same yield and could always switch back in the future if the bond fund yields return to the 3% or higher level. I don't make many if any changes with our equity portfolio which is kept in other accounts, but I do feel that fixed income is a different beast entirely. What do you all think? Is it time to roll it all to stable value for awhile?
This is a pretty low-risk change, but you are timing the bond market so just accept that. Most people on this forum understand why timing the stock market is a bad idea, but think they can do it with bonds. Just as stock prices are based on the market's belief for the future, so are bond prices (and thus yields). If yields continue downward, what happens to the stable value payout? How often can it change and by how much? It would be a shame if the yields go down (even with a lag to the rest of the market) so you end up at a similar spot in 1, 2, 10 years but without any of the NAV gains from bond funds.

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2pedals
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Re: Total Bond Fund vs 2.65% Stable Value

Post by 2pedals » Tue Jun 11, 2019 1:12 pm

Things to think about, when does the stable value rate 2.65% reset to a different rate? How is the stable value insured? I have no problem with that but you are trying to time the interest rate market. iShares Total Bond Market fund (IUSB) is a good fund of the 30 day yield is 2.86%. I think you are splitting hairs. Why is it an either or choice?

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ofcmetz
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Re: Total Bond Fund vs 2.65% Stable Value

Post by ofcmetz » Tue Jun 11, 2019 3:19 pm

Thanks for the posts. The Stable value rate changes quarterly. It's usually somewhere between no change an 5 basis points. Yeah, I realize this would be a little timing of the interest rates and we are talking in the low thousands of dollars at the most.
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ofcmetz
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Re: Total Bond Fund vs 2.65% Stable Value

Post by ofcmetz » Tue Jun 11, 2019 3:20 pm

2pedals wrote:
Tue Jun 11, 2019 1:12 pm
Things to think about, when does the stable value rate 2.65% reset to a different rate? How is the stable value insured? I have no problem with that but you are trying to time the interest rate market. iShares Total Bond Market fund (IUSB) is a good fund of the 30 day yield is 2.86%. I think you are splitting hairs. Why is it an either or choice?
It is insured and this is the stable value fund for the State of Louisiana deferred comp plan so pretty low risk. And that's a good point about it not being either or. Maybe I'll just split the difference and then let it ride and see which one wins over the next few years.
Never underestimate the power of the force of low cost index funds.

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Stinky
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Re: Total Bond Fund vs 2.65% Stable Value

Post by Stinky » Tue Jun 11, 2019 3:24 pm

ofcmetz wrote:
Tue Jun 11, 2019 3:19 pm
Thanks for the posts. The Stable value rate changes quarterly. It's usually somewhere between no change an 5 basis points. Yeah, I realize this would be a little timing of the interest rates and we are talking in the low thousands of dollars at the most.
Whichever way you choose to go, I think this is a pretty low risk decision.
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Earl Lemongrab
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Re: Total Bond Fund vs 2.65% Stable Value

Post by Earl Lemongrab » Tue Jun 11, 2019 4:02 pm

I've been using MegaCorp's fund 50/50 with bond index since 2007. My rationale at the time was rebalancing between them if rates went up or down strongly. In actuality, the performance was so close that nothing ever presented itself. The allocation of the two are within a half percentage point of each other.
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