Using VUSXX instead of BND

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SpireSprout
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Using VUSXX instead of BND

Post by SpireSprout »

I have a 401k set up with a 3-Fund Portfolio. My "safe" portion of the portfolio is in BND and has tanked over 13%. I'm considering selling the BND portion and putting the money into VUSXX while the interest rates yield nearly 5% with far less risk. It appears to be a move that would give me a higher interest rate and eliminate risk. Am I missing anything that would make this a bad idea?
Last edited by SpireSprout on Wed Jun 28, 2023 5:08 pm, edited 1 time in total.
MillionaireMentality
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Re: Using VSUXX instead of BND

Post by MillionaireMentality »

This is classic recency bias. What is your age / time horizon? What are you going to do if / when rates on VSUXX come back down?

Chasing yield is hardly an effective strategy. Stay the course my friend.
bh3fpinv
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Re: Using VSUXX instead of BND

Post by bh3fpinv »

I did something similar a few years back when rates were at rock bottom. I realized that when interest rates increased I was going to lose a bundle. Since all my bonds (except munis) were held in my IRAs and TSP I exchanged VBTLX for VTIAX and VTSAX within the IRA and bought an equivalent amount of the G Fund within my TSP account. Essentially, I decided to take all my risk on the stock side. Eventually rates will decrease and the G Fund will also but I’ve decided I want bonds for safety and the G Fund seems pretty safe. Good luck with your decision!

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exodusNH
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Re: Using VSUXX instead of BND

Post by exodusNH »

SpireSprout wrote: Wed Jun 28, 2023 12:18 pm I have a 401k set up with a 3-Fund Portfolio. My "safe" portion of the portfolio is in BND and has tanked over 13%. I'm considering selling the BND portion and putting the money into VSUXX while the interest rates yield nearly 5% with far less risk. It appears to be a move that would give me a higher interest rate and eliminate risk. Am I missing anything that would make this a bad idea?
You've already taken the hit. The time to make a move was 16 months ago.

As long as you're not retiring in the next 5 years, it will recover. (It's the math of bonds.)
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Re: Using VSUXX instead of BND

Post by chrisdds98 »

SpireSprout wrote: Wed Jun 28, 2023 12:18 pm I have a 401k set up with a 3-Fund Portfolio. My "safe" portion of the portfolio is in BND and has tanked over 13%. I'm considering selling the BND portion and putting the money into VSUXX while the interest rates yield nearly 5% with far less risk. It appears to be a move that would give me a higher interest rate and eliminate risk. Am I missing anything that would make this a bad idea?
it has different risks. namely, reinvestment risk. for example suppose we have a hard recession and short term rates go to 0%. you would be much better off in longer duration treasuries as the value of your shares would increase as rates declined.
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SpireSprout
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Re: Using VSUXX instead of BND

Post by SpireSprout »

chrisdds98 wrote: Wed Jun 28, 2023 1:27 pm
SpireSprout wrote: Wed Jun 28, 2023 12:18 pm I have a 401k set up with a 3-Fund Portfolio. My "safe" portion of the portfolio is in BND and has tanked over 13%. I'm considering selling the BND portion and putting the money into VSUXX while the interest rates yield nearly 5% with far less risk. It appears to be a move that would give me a higher interest rate and eliminate risk. Am I missing anything that would make this a bad idea?
it has different risks. namely, reinvestment risk. for example, suppose we have a hard recession and short-term rates go to 0%. you would be much better off in longer-duration treasuries as the value of your shares would increase as rates declined.
Thank you all for your thoughts. I may stay the course, but I'd love to work through this thought process with the group. If a hard recession were to hit and short-term rates were to go to 0%, couldn't I take the funds in VSUXX and buy back into BND or another fund like it at that time?

I've got a 19-year timeline to retirement. I currently hold 90% equities and 10% bond allocation. Since I hold more risk with stocks, I'd prefer to have that 10% not fluctuate, but only grow, even if it's small. I'd love to have one area of my 401k that doesn't drop while taking on more risk with the equity side. Thoughts?
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Re: Using VSUXX instead of BND

Post by btq96r »

I did something similar to what you're proposing last year, but I did it for tax loss harvesting to offset capital gains in my taxable account. If you're going to make a move, have a reason other than chasing what's hot. Tax loss harvesting and short term needs for cash are about the only reasons I can think of for this move...but others may have some not popping in my mind.
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Re: Using VSUXX instead of BND

Post by BolderBoy »

What is VSUXX? I can't find it.
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Re: Using VSUXX instead of BND

Post by Candor »

BolderBoy wrote: Wed Jun 28, 2023 3:40 pm What is VSUXX? I can't find it.
I'm assuming it is VUSXX - Vanguard Treasury Money Market Fund.
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Re: Using VSUXX instead of BND

Post by cbs2002 »

BND/VBTLX is higher risk for higher potential returns over the long term than VUSXX. If you don't want to see your investment decrease on paper, then buying short-term Treasuries is fine. But avoiding paper losses is going to be a drag on your portfolio in the accumulation phase. The 5% you cite is just a blip that will go down when interest rates go down. Meanwhile, BND is now holding medium-term bonds that have those higher rates locked in for 5-7 years.

If a hard recession hits and short-term Treasury rates drop sharply, BND share prices will have already risen by the time you've decided it's time to buy again.

I'd encourage you to read more about how bonds work before moving money around like you are proposing. BND only "tanked" if you sold into a rising interest rate environment - I hope you didn't/won't. By definition, bonds held to maturity provide nominal return regardless of share value.
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Re: Using VSUXX instead of BND

Post by the_wiki »

SpireSprout wrote: Wed Jun 28, 2023 2:59 pm
Thank you all for your thoughts. I may stay the course, but I'd love to work through this thought process with the group. If a hard recession were to hit and short-term rates were to go to 0%, couldn't I take the funds in VSUXX and buy back into BND or another fund like it at that time?
You have a lot of confidence in yourself to be able to react faster than everyone else. The most likely scenario is that by the time you hear about it you already missed a nice run up. It's like those people who think they can get out of stocks and then get back in when they start going up. By the time that is obvious, they missed a nice 10-15% gain and the run may be almost over. When rates move, these funds move almost instantly.
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Re: Using VSUXX instead of BND

Post by tibbitts »

SpireSprout wrote: Wed Jun 28, 2023 2:59 pm
chrisdds98 wrote: Wed Jun 28, 2023 1:27 pm
SpireSprout wrote: Wed Jun 28, 2023 12:18 pm I have a 401k set up with a 3-Fund Portfolio. My "safe" portion of the portfolio is in BND and has tanked over 13%. I'm considering selling the BND portion and putting the money into VSUXX while the interest rates yield nearly 5% with far less risk. It appears to be a move that would give me a higher interest rate and eliminate risk. Am I missing anything that would make this a bad idea?
it has different risks. namely, reinvestment risk. for example, suppose we have a hard recession and short-term rates go to 0%. you would be much better off in longer-duration treasuries as the value of your shares would increase as rates declined.
Thank you all for your thoughts. I may stay the course, but I'd love to work through this thought process with the group. If a hard recession were to hit and short-term rates were to go to 0%, couldn't I take the funds in VSUXX and buy back into BND or another fund like it at that time?

I've got a 19-year timeline to retirement. I currently hold 90% equities and 10% bond allocation. Since I hold more risk with stocks, I'd prefer to have that 10% not fluctuate, but only grow, even if it's small. I'd love to have one area of my 401k that doesn't drop while taking on more risk with the equity side. Thoughts?
There was a thread recently on using only ticker symbols and here we have the perfect example. Please use the fund name along with the symbol.

There is no thought process necessary. You've already seen one of the most dramatic rate increases ever and managed to miss taking action to avoid the drop in share prices. In real life there have been plenty of false starts in history where there's a little blip up or down in rates and we all think "this is finally the time..." and it turns out not to be. Until one time, it is. And then we're too late. I was lucky and moved out of conventional bond funds when rates were low, but only because I had 3% TIAA to fall back on. As with the G fund not everyone has that for an alternative.

If you do decide to move out of your bond fund now, with the idea of moving back later, I'd suggest developing and adhering to some math-based strategy, and not just "feeling" your way. With me I moved the money out of bond funds with no intention of moving back during my lifetime so that wasn't an issue for me.
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Re: Using VSUXX instead of BND

Post by IRouteIP »

SpireSprout wrote: Wed Jun 28, 2023 2:59 pm If a hard recession were to hit and short-term rates were to go to 0%, couldn't I take the funds in VSUXX and buy back into BND or another fund like it at that time?
Wouldn't that be "Sell low, buy high?"

You would be selling BND after it took a 13% drop and then buying it back when the price is higher.
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Re: Using VSUXX instead of BND

Post by nisiprius »

SpireSprout wrote: Wed Jun 28, 2023 2:59 pm,,,If a hard recession were to hit and short-term rates were to go to 0%, couldn't I take the funds in VSUXX and buy back into BND or another fund like it at that time?...
Everybody thinks they do things like this. The reason why you can't is that all the numbers you are watching are fractal. They have movements within movements within movements. Short-term uptrends inside longer-term downtrends inside longer-term uptrends.

After it's over, you see the big picture and smooth things out in your mind, but when you are in the middle of them, you simply don't know whether you're seeing a tiny short-term movement or a bigger long-term movement, and by the time you are sure, it's too late.

In the specific case you've mentioned, by the time you are sure rates are really, truly falling, BND will already be up, and you will be buying in at an unfavorable time.
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Re: Using VSUXX instead of BND

Post by chrisdds98 »

IRouteIP wrote: Wed Jun 28, 2023 5:27 pm
SpireSprout wrote: Wed Jun 28, 2023 2:59 pm If a hard recession were to hit and short-term rates were to go to 0%, couldn't I take the funds in VSUXX and buy back into BND or another fund like it at that time?
Wouldn't that be "Sell low, buy high?"

You would be selling BND after it took a 13% drop and then buying it back when the price is higher.
exactly. sell low buy high is not an ideal strategy!

if you are insistent on changing your plan you might want to consider something that has fallen a lot, like EDV or LTPZ. that aligns more with the buy low sell high philosophy ;)
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Re: Using VUSXX instead of BND

Post by SpireSprout »

Thank you all so much for your thoughts and for helping me clear my head. I will stay on course with BND - Vanguard Total Bond Market Index Fund ETF. I appreciate the support along the road to retirement. Cheers! :sharebeer
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Re: Using VSUXX instead of BND

Post by secondopinion »

chrisdds98 wrote: Wed Jun 28, 2023 6:30 pm
IRouteIP wrote: Wed Jun 28, 2023 5:27 pm
SpireSprout wrote: Wed Jun 28, 2023 2:59 pm If a hard recession were to hit and short-term rates were to go to 0%, couldn't I take the funds in VSUXX and buy back into BND or another fund like it at that time?
Wouldn't that be "Sell low, buy high?"

You would be selling BND after it took a 13% drop and then buying it back when the price is higher.
exactly. sell low buy high is not an ideal strategy!

if you are insistent on changing your plan you might want to consider something that has fallen a lot, like EDV or LTPZ. that aligns more with the buy low sell high philosophy ;)
Both are risky, but I rank EDV as being more risky short-term and long-term than LTPZ. Go with EDV if one wants to seriously risk losing real value even if they hold it for decades (or grow real value, who knows?).
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Re: Using VSUXX instead of BND

Post by chrisdds98 »

secondopinion wrote: Thu Jun 29, 2023 12:29 pm
chrisdds98 wrote: Wed Jun 28, 2023 6:30 pm
IRouteIP wrote: Wed Jun 28, 2023 5:27 pm
SpireSprout wrote: Wed Jun 28, 2023 2:59 pm If a hard recession were to hit and short-term rates were to go to 0%, couldn't I take the funds in VSUXX and buy back into BND or another fund like it at that time?
Wouldn't that be "Sell low, buy high?"

You would be selling BND after it took a 13% drop and then buying it back when the price is higher.
exactly. sell low buy high is not an ideal strategy!

if you are insistent on changing your plan you might want to consider something that has fallen a lot, like EDV or LTPZ. that aligns more with the buy low sell high philosophy ;)
Both are risky, but I rank EDV as being more risky short-term and long-term than LTPZ. Go with EDV if one wants to seriously risk losing real value even if they hold it for decades (or grow real value, who knows?).
I don't know that I would call LTPZ risky. the fund would lose value if real interest rates rise but if you want a 20 year duration that beats inflation it will be fine.
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Re: Using VUSXX instead of BND

Post by Artsdoctor »

SpireSprout wrote: Thu Jun 29, 2023 11:58 am Thank you all so much for your thoughts and for helping me clear my head. I will stay on course with BND - Vanguard Total Bond Market Index Fund ETF. I appreciate the support along the road to retirement. Cheers! :sharebeer
It's great to be able to think these things through.

Two things:

1. Why would you hold a treasury fund in your tax-deferred account? You might get 1 basis point in yield favorably one way or the other but generally, treasury funds will be slightly lower than fully taxable money market funds.

2. It's a retirement account and you won't be needing the money in the near future. You're investing for years, not months. The thing about bond funds is that their NAV increases when rates decrease, something a money market fund cannot do. Rates have ticked up and if the fed needs to ultimately decrease rates for a recession (this is an example but not a far-fetched possibility), your bond fund value will increase. I doubt we'll experience the ultra-low yields that we've seen over the past 15 years but given time, your bond fund should do fine.
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Re: Using VUSXX instead of BND

Post by broadstone »

OP I acted on what you are thinking about 3 years ago. I ditched the Total Bond Fund and went 100% equities. It was a lucky move that could have gone the other way.

I'm now 50/50 in VTSAX and VUSXX.

I figured once interest rates start to fall, I'll move from VUSXX back to the bond fund. I just couldn't justify the losses on the Bond Fund when I could get 5% in VUSXX with no risk other than a drop in yield.

But I understand the "stay the course" theory. Sometimes it's hard when you see a fund price in the mud for long periods.
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Re: Using VUSXX instead of BND

Post by Mr. Potter »

I’ve been buying T-bills for last 2 years, 5 plus % interest and no state taxes gives me a TEY equivalent of around 5.5%, what’s not to like? When they rates drop I’ll move on, but for now I’m buying more every paycheck. I do have a brokerage at Vanguard so I could use VUSXX. But buying T-bills individually gives a little bit better yield with a couple clicks of the mouse.
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Re: Using VUSXX instead of BND

Post by ApeAttack »

SpireSprout wrote: Thu Jun 29, 2023 11:58 am Thank you all so much for your thoughts and for helping me clear my head. I will stay on course with BND - Vanguard Total Bond Market Index Fund ETF. I appreciate the support along the road to retirement. Cheers! :sharebeer
A huge benefit of picking a strategy and sticking with it through thick and thin is that you don't need to spend time thinking about what to do in a given set of market conditions. Since market conditions are constantly changing, you save a lot of time and worry in the long run.

This is a point I really came to appreciate during 2022 when both stocks and bonds declined significantly. I developed an investment plan during the prior two years that I could stick with, felt indifferent to the market conditions in 2022, and had zero desire to make changes to my plan. In 2023, stocks have rebounded and my bond mutual fund is earning much more than before (the fund's overall value likely will take a few years to recover, of course). And if interest rates fall in the future, my bond fund will regain some of the losses from 2022.
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Re: Using VSUXX instead of BND

Post by Chv396 »

+1, I agree
MillionaireMentality wrote: Wed Jun 28, 2023 12:29 pm This is classic recency bias. What is your age / time horizon? What are you going to do if / when rates on VSUXX come back down?

Chasing yield is hardly an effective strategy. Stay the course my friend.
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Re: Using VUSXX instead of BND

Post by cpumechanic »

I will tag on to this, as I am retired , have a large portion of my savings in BND, and it has made me quite cranky.

Thankfully Nisiprius explained (several times over time) that I just need to be patient, and stay the course, and BND will recover and the damage will be undone.

While I am unimpressed with the rate the actual BND value has increased as the Fed raises rates, I am now a little happier that the latest (today) SEC Yield for BND is 4.5%, and so I am only losing 4-5% due to inflation, and not the full 8-10%.

In the meantime, guess I will sell a big chunk of the SP500 401k early in Jan (if the market holds) and use that money to live on while I patiently wait for BND to recover .

I also thought about turning off the automatic use of dividends to purchase BND, but I guess if I think this period is the "low" period I should buy low, and sell in a year or two or three higher.

Thanks to all the experts here.. I feel better now
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Re: Using VUSXX instead of BND

Post by N.Y.Cab »

I'm also using VUSXX for fixed income in my 401k and HSA. It may take several months for the inverted yield curve to revert back to normal so unlikely to miss much.
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Re: Using VUSXX instead of BND

Post by dbr »

cpumechanic wrote: Sun Aug 06, 2023 8:02 am I will tag on to this, as I am retired , have a large portion of my savings in BND, and it has made me quite cranky.

Thankfully Nisiprius explained (several times over time) that I just need to be patient, and stay the course, and BND will recover and the damage will be undone.

While I am unimpressed with the rate the actual BND value has increased as the Fed raises rates, I am now a little happier that the latest (today) SEC Yield for BND is 4.5%, and so I am only losing 4-5% due to inflation, and not the full 8-10%.

In the meantime, guess I will sell a big chunk of the SP500 401k early in Jan (if the market holds) and use that money to live on while I patiently wait for BND to recover .

I also thought about turning off the automatic use of dividends to purchase BND, but I guess if I think this period is the "low" period I should buy low, and sell in a year or two or three higher.

Thanks to all the experts here.. I feel better now
Relevant numbers or irrelevant numbers a data point is that Vanguard quotes the SEC yield on VIPSX as 2.04% real. June inflation was at an annual average (not compounded) rate of 3.84% so the nominal yield on VIPSX is running at 5.88% now. Month of July inflation is not posted yet.

That does not mean one is supposed to run out and exchange total bond for TIPS, just adding data to the pile of numbers.
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Re: Using VUSXX instead of BND

Post by arcticpineapplecorp. »

1 year's performance does not an investment make. Investing is a marathon not a sprint.
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Re: Using VUSXX instead of BND

Post by dbr »

arcticpineapplecorp. wrote: Sun Aug 06, 2023 9:26 am 1 year's performance does not an investment make. Investing is a marathon not a sprint.
Of course. I am just needling those who have some need to focus on this month's data. I guess sarcasm is a pretty useless nuance to play on a forum.
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Re: Using VUSXX instead of BND

Post by Chv396 »

I use BND in my IRA as my bond holding. I’ve slowly started adding to my position using DCA.

Your mileage may vary.
Last edited by Chv396 on Sun Aug 06, 2023 12:02 pm, edited 1 time in total.
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Re: Using VUSXX instead of BND

Post by arcticpineapplecorp. »

dbr wrote: Sun Aug 06, 2023 9:36 am
arcticpineapplecorp. wrote: Sun Aug 06, 2023 9:26 am 1 year's performance does not an investment make. Investing is a marathon not a sprint.
Of course. I am just needling those who have some need to focus on this month's data. I guess sarcasm is a pretty useless nuance to play on a forum.
my statement was intended for the OP not for you (sorry it came right after your post and you assumed it was directed at you; it was not). The OP is looking at total bond market's 1 year's performance (last year, -13%) and not looking at the big picture/long game. I'm just giving the OP a friendly reminder that in any given year you might not like whatever you're holding. That doesn't give you a reason to dump something.
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Re: Using VUSXX instead of BND

Post by dbr »

arcticpineapplecorp. wrote: Sun Aug 06, 2023 10:37 am
dbr wrote: Sun Aug 06, 2023 9:36 am
arcticpineapplecorp. wrote: Sun Aug 06, 2023 9:26 am 1 year's performance does not an investment make. Investing is a marathon not a sprint.
Of course. I am just needling those who have some need to focus on this month's data. I guess sarcasm is a pretty useless nuance to play on a forum.
my statement was intended for the OP not for you (sorry it came right after your post and you assumed it was directed at you; it was not). The OP is looking at total bond market's 1 year's performance (last year, -13%) and not looking at the big picture/long game. I'm just giving the OP a friendly reminder that in any given year you might not like whatever you're holding. That doesn't give you a reason to dump something.
Agreed.
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Re: Using VUSXX instead of BND

Post by riptide »

Mr. Potter wrote: Fri Jul 21, 2023 10:48 am I’ve been buying T-bills for last 2 years, 5 plus % interest and no state taxes gives me a TEY equivalent of around 5.5%, what’s not to like? When they rates drop I’ll move on, but for now I’m buying more every paycheck. I do have a brokerage at Vanguard so I could use VUSXX. But buying T-bills individually gives a little bit better yield with a couple clicks of the mouse.
I got rid of my BND nearly two years ago and bought T-Bills at Treasury Direct, much better gains , instead of dropping money with a bond fund. I will never own BND again!
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Re: Using VUSXX instead of BND

Post by mbouck »

I'd keep the bond fund - selling now will just lock-in your losses. Going forward I would incorporate TIPS/floating-rate treasuries though. This is the strategy I'm pursuing:

40% bond fund (e.g. BND or IUSB)
40% TIPS fund (VTIP)
20% Treasury floaters (e.g. USFR or TFLO)

The bond fund and TIPS play both sides of the inflation coin while the floaters track rapidly-changing rate changes. In 2022 the floaters would have been in the money while TIPS/bonds were both underwater.
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Re: Using VUSXX instead of BND

Post by CenTexan »

riptide wrote: Mon Apr 01, 2024 8:53 am
Mr. Potter wrote: Fri Jul 21, 2023 10:48 am I’ve been buying T-bills for last 2 years, 5 plus % interest and no state taxes gives me a TEY equivalent of around 5.5%, what’s not to like? When they rates drop I’ll move on, but for now I’m buying more every paycheck. I do have a brokerage at Vanguard so I could use VUSXX. But buying T-bills individually gives a little bit better yield with a couple clicks of the mouse.
I got rid of my BND nearly two years ago and bought T-Bills at Treasury Direct, much better gains , instead of dropping money with a bond fund. I will never own BND again!
I'm with riptide. Try as I might, I can't understand how a bond fund works. I'll stick with CDs and Treasuries - and hold to maturity.
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Re: Using VUSXX instead of BND

Post by Gennaro Dillinger »

I would sit tight. BND just like VTI, VSUX...buy and hold forever, if you're a boglehead. If you need the money soon, that's something else. (I did do some tax loss harvesting with BND ways back and now I'm in AGG and may be there for who knows how long.)
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