VMFXX vs BIV

[sid hartha]

I've had my fixed income allocation in my taxable account in VMFXX since Jan of 2022. Previously it was in BIV but I didn't want to be in BIV when the fed started their rate increases. I guess this was market timing and you are not supposed to do that but this just seemed obvious to me and I just couldn't stomach the loss on my fixed income allocation. My question is on when to get back in because I don't see the money market as a long term investment. I'm very happy with a risk free 5% but that's probably not going to last forever. Now that they have paused and probably will stop hiking does it seem reasonable to move back to BIV now? Or should I wait closer to some announcement of a rate cut? Thanks.

[JoMoney]

The 3-month Tbill rate was above 5% most of the time from 1965-2000, with a peak above 16% in 1981.
Looking at historical charts of rates, I would not be certain that a short-term rate above 5% can't last.
There are historical periods over 30+ years, where investments in rolling shorter term Tbills outperformed rolling portfolios of longer term bonds.

I don't know what the case going forward will be, and I would be skeptical of anyone that claims they know... but by keeping your bonds duration matched to your expected need of the money you can avoid the interest rate risk of higher future interest rates while locking in the current rates available for that money should interest rates fall. You need to look at your own risk preferences and objectives for the money you're saving. I would suggest that your decision on the risks (and potential consequences of) you're willing to take should weigh heavier than your guesses on what the future will bring.

[sycamore]

I've had my fixed income allocation in my taxable account in VMFXX since Jan of 2022. Previously it was in BIV but I didn't want to be in BIV when the fed started their rate increases. I guess this was market timing and you are not supposed to do that but this just seemed obvious to me and I just couldn't stomach the loss on my fixed income allocation. My question is on when to get back in because I don't see the money market as a long term investment. I'm very happy with a risk free 5% but that's probably not going to last forever. Now that they have paused and probably will stop hiking does it seem reasonable to move back to BIV now? Or should I wait closer to some announcement of a rate cut? Thanks.

Emphasis mine. If it was obvious to move out of BIV, and it was a successful move, why not try the same approach this time? I mean it seriously.

Personally I don't have any reliable insight or gut feel about the direction (and consistency) of rate direction, so I don't go the market timing route. I tend to think no one else has a reliable way to judge when to go short/go long so I wouldn't rely on others' opinions either. If you have some specific liabilities you need to match (e.g. bridge to social security, mortgage payments, etc.) then fund them with specific duration-matched bonds. For general / vague future spending, it seems to me a general intermediate-term bond fund like BIV or a TIPS variant is entirely reasonable.

[sid hartha]

I've had my fixed income allocation in my taxable account in VMFXX since Jan of 2022. Previously it was in BIV but I didn't want to be in BIV when the fed started their rate increases. I guess this was market timing and you are not supposed to do that but this just seemed obvious to me and I just couldn't stomach the loss on my fixed income allocation. My question is on when to get back in because I don't see the money market as a long term investment. I'm very happy with a risk free 5% but that's probably not going to last forever. Now that they have paused and probably will stop hiking does it seem reasonable to move back to BIV now? Or should I wait closer to some announcement of a rate cut? Thanks.

Emphasis mine. If it was obvious to move out of BIV, and it was a successful move, why not try the same approach this time? I mean it seriously.

Personally I don't have any reliable insight or gut feel about the direction (and consistency) of rate direction, so I don't go the market timing route. I tend to think no one else has a reliable way to judge when to go short/go long so I wouldn't rely on others' opinions either. If you have some specific liabilities you need to match (e.g. bridge to social security, mortgage payments, etc.) then fund them with specific duration-matched bonds. For general / vague future spending, it seems to me a general intermediate-term bond fund like BIV or a TIPS variant is entirely reasonable.

Yup good point. I guess I just wait until they get more definitive on cutting rates. Like I said I'm happy now to take the 5% risk free.

[grabiner]

The rate that the Fed targets is not the relevant rate for an intermediate-term bond fund such as BIV. The Fed targets very-short-term rates, which do not always move in the same direction as long-term rates. Bond traders trade long-term bonds based on their expectations over the entire term of the bond.