what to do with cash reserve and recommendation for bonds for EU investor

[antonkanton]

Hi all,

I read with great interest this thread viewtopic.php?t=398359. I am a resident of the Netherlands and my sister lives in Germany. I would be very grateful if you can help me out with picking a suitable instrument for the following goals. We both have too much cash laying around on IBKR (we are in the Ireland one) and especially my sister is relatively risk averse (would like to have a portfolio of 50% stocks and 50% of instruments that are less volatile but still give some interest). I am a bit more offensive but also would like to hold 20-30% less volatile assets, of which some serve as cash reserve. Thus I am looking for two types of instruments:


1. The first instrument should be a smarter version of cash. It should share with cash that it is suitable as investment reserve. Thus, it should not crash (much) when stocks do crash and you should be able to sell it without much loss in such a situation. I say "not much" because it would be OK if it looses 5-10% if stocks loose much much more, say 30-50%. If I understood the current market situation, this is actually possible with short duration bond ETFs. But which products to choose when you are resident in NL or GER? What to watch out for? E.g. IBKR pays ~4% on USD but if you have 40k on there, it will only pay 4% on the 30k. Also, I am uncomfortable to hold so much cash there but my bank pays nothing for it. Furthermore, most of my money is in EUR. I found VDST that seems like a great alternative to the cash I hold in USD. Would you agree? If I understand correctly, if interest rates rise, this instrument will drop only little in value compared to long duration bonds, while stocks are at much higher risk in that environment, meanwhile it will quickly pick up the new interest rates also and you are not too stuck in that position. For EUR, I was thinking about this product: https://www.ishares.com/nl/particuliere ... tf-de-fund. This is seems safe but I did not understand why this chart is declining for so many years. I thought these instruments should be very stable in value. So, there seems to be something I do not understand correctly. I was also wondering about EUR hedged ETFs such as this one: https://www.amundietf.lu/en/individual/ ... 2182388749 Those invest in US Treasuries. What are your opinions on that? Especially for my sister I want to be very careful and take little risk and I am afraid I am overlooking risks.


2. Which bonds would you recommend for someone who likes to have a 50/50 portfolio with stocks and bonds? Why would someone invest in long duration bonds anyways in this time where you get higher interest in short duration bonds? I understand that when rates drop, that these will rise in value but therefore they do not pay high interest atm. If you could recommend products that would be great. I was thinking to pick these for my sister to hold long term:

iShares Global Corporate Bond ETF IE00B9M6SJ31 90% allocation
UBS Euro Treasury 1-10 ETF LU0969639128 6% allocation
iShares Global High Yield Corporate Bond ETF IE00BJSFR200 2%
iShares USD Emerging Markets Bond ETF IE00BYXYYK40 2%

Or just keep it simple and buy only the first one. But I would be curious to understand better why someone would prefer instrument number 2 over 1 in this current environment.

Looking forward to your input and to learn from you. Especially grateful if you have concrete product recommendations and explanations why these products are suitable for my goal. I am very keen on learning about these topics and in the meantime I hope you can help me to avoid bigger mistakes. If you know about a clever tutorial for people in my situation, feel free to point me there.

Thank you,
Anton

[DJN]

Hi,
read these sections of the Bogleheads Wiki for non US investors:
https://www.bogleheads.org/wiki/Outline ... _domiciles
https://www.bogleheads.org/wiki/Buildin ... _portfolio
Might be helpful.
DJN

[daviddem]

Consider a money market mutual fund for your USD (and also your Euros). Invesco USD Liquidity Portfolio Acc is currently yielding 4.8%, min purchase 150k USD.

[antonkanton]

Thank you both for the responses. I read through most of the first link. And I also will read through the moneymarkets link provided in the other thread. I never heard of that in context with passive investing. But definitively curious. If it is explained in the FAQ you provided in the other thread just ignore it but I am of course most curious how this compares risk/return wise with the products I suggested above.

[Valuethinker]

Hi all,


2. Which bonds would you recommend for someone who likes to have a 50/50 portfolio with stocks and bonds? Why would someone invest in long duration bonds anyways in this time where you get higher interest in short duration bonds? I understand that when rates drop, that these will rise in value but therefore they do not pay high interest atm. If you could recommend products that would be great. I was thinking to pick these for my sister to hold long term:

iShares Global Corporate Bond ETF IE00B9M6SJ31 90% allocation
UBS Euro Treasury 1-10 ETF LU0969639128 6% allocation
iShares Global High Yield Corporate Bond ETF IE00BJSFR200 2%
iShares USD Emerging Markets Bond ETF IE00BYXYYK40 2%

Or just keep it simple and buy only the first one. But I would be curious to understand better why someone would prefer instrument number 2 over 1 in this current environment.

3 of those funds have significant credit risk in the bonds. You will see that show up this week if it has not already - Credit Suisse bailout.

Global Corporate Bond is likely to depart from the performance of government bonds.

Euro Treasury is likely to be the most stable.