Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

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nassau34
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Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by nassau34 »

Three or four weeks ago I decided to move large holdings I had in treasury money market funds over into intermediate-term bond funds (3/4 Corporate Funds and 1/4 TIPS Fund). Because I've learned over the years I'm horrible at timing the market I did it all in one day. Ever since then I've been getting crushed.

Since I'm having flashbacks now to what happened to bond funds in 2022 and how that feels, I'm thinking of waiting until after the election, and if rates don't come back down, to replace the intermediate bond funds with 10-year TIPS at the November 21st auction. I know it shouldn't make a whole lot of difference holding funds versus individual issues long-term, but I think it would be better for my mental health knowing that if I hold the TIPS through maturity at least I won't lose any more money.

I'd appreciate your thoughts.
vriguy1
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by vriguy1 »

I'm sorry, but if you are "horrible" at market timing by your own assessment, why didn't you spread out the transfers instead of doing them in one fell swoop? And is the cash+bond position that you hold today a portion of a balanced portfolio (i.e somewhere between 30-70% stocks, and 30-70% bonds+cash). My impression, based on your post, is you haven't clarified in your own mind the purpose of your cash/bond holdings and perhaps that is what you need to do before making another move that you might come to regret.
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goodenyou
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by goodenyou »

Are the bonds in taxable or in a qualified account?

If they are in a qualified account, and your AA calls for bonds, I would leave it alone and allow for the volatility to accumulate more shares at lower prices over time (buy low). Although unpleasant in the short term, ignore the fluctuation and realize your greater number of shares will increase the total value of the asset as the NAV goes up (rates go down).

If the bonds are in taxable, you could TLH. Be careful with TIPS in taxable accounts as they often have tax inefficiency.

The important thing to remember is to pick an AA and stick with it. If you keep changing the AA and de-risking when the asset value declines, your performance will suffer. "New plans" often cause losses in performance.

No volatility (MMF) assets allow for better sleep, but do not achieve as much growth over time.
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N.Y.Cab
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by N.Y.Cab »

I would go with nominal Treasury instead of TIPS. Not only is the third party price more volatile for TIPS, but the cost basis keeps going up with inflation indexing which likely to show losses over time.
Last edited by N.Y.Cab on Tue Oct 29, 2024 6:07 am, edited 1 time in total.
Topic Author
nassau34
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by nassau34 »

goodenyou wrote: Tue Oct 29, 2024 5:34 am Are the bonds in taxable or in a qualified account?

If they are in a qualified account, and your AA calls for bonds, I would leave it alone and allow for the volatility to accumulate more shares at lower prices over time (buy low). Although unpleasant in the short term, ignore the fluctuation and realize your greater number of shares will increase the total value of the asset as the NAV goes up (rates go down).

If the bonds are in taxable, you could TLH. Be careful with TIPS in taxable accounts as they often have tax inefficiency.

The important thing to remember is to pick an AA and stick with it. If you keep changing the AA and de-risking when the asset value declines, your performance will suffer. "New plans" often cause losses in performance.

No volatility (MMF) assets allow for better sleep, but do not achieve as much growth over time.
The recent ones are in taxable because my tax deferred accounts have run out of room. I own quite a few individual TIPS already, but they're all in tax deferred. By tax inefficiency are you referring to the phantom income, or is there something else I'm missing?

My asset allocation is good for where I'm at (65/35).

Thank you
jebmke
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by jebmke »

Stop looking at your balances. Your mental health will improve and you will free up time to do more interesting things.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by z3r0c00l »

If you are bad at market timing, don't do it again. You took the (very modest) loss of 2 or 3%. Stocks can fall that much in a few hours. Now get the benefits of interest over long spans of time, which is what bonds are for anyway, not short term movement over a few weeks.
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feh
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by feh »

nassau34 wrote: Tue Oct 29, 2024 4:41 am Three or four weeks ago I decided to move large holdings I had in treasury money market funds over into intermediate-term bond funds (3/4 Corporate Funds and 1/4 TIPS Fund). Because I've learned over the years I'm horrible at timing the market I did it all in one day. Ever since then I've been getting crushed.

Since I'm having flashbacks now to what happened to bond funds in 2022 and how that feels, I'm thinking of waiting until after the election, and if rates don't come back down, to replace the intermediate bond funds with 10-year TIPS at the November 21st auction. I know it shouldn't make a whole lot of difference holding funds versus individual issues long-term, but I think it would be better for my mental health knowing that if I hold the TIPS through maturity at least I won't lose any more money.

I'd appreciate your thoughts.
If you're freaking out over what happens over the course of a few weeks, perhaps you should be in a target date fund so you can't torpedo yourself.
aristotelian
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by aristotelian »

Perhaps you are realizing that cash and bonds can each be advantageous in certain environments. In that case, decide on a long term allocation in each and rebalance to your target allocation. The important thing is that you come up with a plan that you can stick to. If it helps to wait until after the election that is fine.
dbr
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by dbr »

nassau34 wrote: Tue Oct 29, 2024 4:41 am Three or four weeks ago I decided to move large holdings I had in treasury money market funds over into intermediate-term bond funds (3/4 Corporate Funds and 1/4 TIPS Fund). Because I've learned over the years I'm horrible at timing the market I did it all in one day. Ever since then I've been getting crushed.
To think you are getting "crushed" in intermediate duration bonds in three or four weeks indicates that you don't understand bonds well enough to have any business holding a bond fund. Timing has nothing to do with this. Bond funds by nature fluctuate over short times, and you certainly don't evaluate your results in weeks. It is also true that an intermediate term bond fund does have interest rate risk, which is something that comes with the territory. A reasonable time period to evaluate the performance of a six year duration fund would be more like 10, 20, 30 years.

I suggest you back up and do more reading in the Wiki and in a good bond book and attend to some of the posting here to the point that you have a better concept of how bond funds behave. In the meantime you will certainly be happier leaving those assets in a cash equivalent fund such as the above mentioned Treasury money market.
DesertInvestor
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by DesertInvestor »

nassau34 wrote: Tue Oct 29, 2024 4:41 am Three or four weeks ago I decided to move large holdings I had in treasury money market funds over into intermediate-term bond funds (3/4 Corporate Funds and 1/4 TIPS Fund). Because I've learned over the years I'm horrible at timing the market I did it all in one day. Ever since then I've been getting crushed.

Since I'm having flashbacks now to what happened to bond funds in 2022 and how that feels, I'm thinking of waiting until after the election, and if rates don't come back down, to replace the intermediate bond funds with 10-year TIPS at the November 21st auction. I know it shouldn't make a whole lot of difference holding funds versus individual issues long-term, but I think it would be better for my mental health knowing that if I hold the TIPS through maturity at least I won't lose any more money.

I'd appreciate your thoughts.
I did the same. Painful, but I got it done and stopped thinking about it. Evaluate again in a few months. Every time I lump sum stock or bond, exactly the same thing.
Tamalak
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by Tamalak »

It's just duration risk, and not a lot of that. You're still getting the yield you saw on the tin, you're just getting it later instead of earlier.

You may be down 3% NAV but that means forward yields are up. You still win.
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by BolderBoy »

jebmke wrote: Tue Oct 29, 2024 6:14 amStop looking at your balances. Your mental health will improve and you will free up time to do more interesting things.
I agree with jebmke. "3-4 weeks ago" is just a blip in the grand scheme of things.
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Lawrence of Suburbia
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by Lawrence of Suburbia »

When do you need to spend this money? Is it intended for retirement in XX years, or in six months for a car purchase, home down payment, child's college tuition?
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by tibbitts »

vriguy1 wrote: Tue Oct 29, 2024 5:26 am I'm sorry, but if you are "horrible" at market timing by your own assessment, why didn't you spread out the transfers instead of doing them in one fell swoop? And is the cash+bond position that you hold today a portion of a balanced portfolio (i.e somewhere between 30-70% stocks, and 30-70% bonds+cash). My impression, based on your post, is you haven't clarified in your own mind the purpose of your cash/bond holdings and perhaps that is what you need to do before making another move that you might come to regret.
In fairness to the OP, over the years the majority of Boglehead advice has been to decide on an allocation and move to it in, as you say, "one fell swoop."
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by nisiprius »

You didn't say what specific bond fund you moved to, but most intermediate-term bond funds have average durations in the vicinity of 6 years.

For example, the Vanguard Inflation-protected Securities Fund, VAIPX, has an average duration of 6.7 years, while the Vanguard Intermediate-Term Corporate Bond Index Fund, VICSX, has an average duration of 6.1 years.

Vanguard puts both of these fund in its rough-and-ready "Risk Category 2" and says "In general, such funds may be appropriate for investors with medium-term investment horizons (4 to 10 years)." The rule-of-thumb is that you should be prepared to hold a bond fund for about its duration. But it's not a precise thing, and it's better to think in terms like "4 to 10 years" than "6.1 years."

If you are not seriously prepared to hold an intermediate-term bond fund for about that period of time, you shouldn't buy it in the first place.

It sounds as if moving from cash to intermediate-term bond funds was much too big a step for you. I don't have any very great answer on what to do. Whatever you do next, it should be something you can stick to, understanding that "stuff happens" with any investment.

This is an idea, it's only an idea, you are responsible for your investments and you know, or should know, your own risk tolerance. One of my personal rules, which I really do follow, is "no big sudden changes in asset allocation, not never, not nohow." I will allow myself to make steady incremental changes with the idea of moving to a new asset allocation over the course of several years. In your case, maybe you should consider gradually exchanging your intermediate-term bond funds for short-term bond funds, a little at a time... and staying there.
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Topic Author
nassau34
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by nassau34 »

nisiprius wrote: Tue Oct 29, 2024 8:26 pm You didn't say what specific bond fund you moved to, but most intermediate-term bond funds have average durations in the vicinity of 6 years.

For example, the Vanguard Inflation-protected Securities Fund, VAIPX, has an average duration of 6.7 years, while the Vanguard Intermediate-Term Corporate Bond Index Fund, VICSX, has an average duration of 6.1 years.

Vanguard puts both of these fund in its rough-and-ready "Risk Category 2" and says "In general, such funds may be appropriate for investors with medium-term investment horizons (4 to 10 years)." The rule-of-thumb is that you should be prepared to hold a bond fund for about its duration. But it's not a precise thing, and it's better to think in terms like "4 to 10 years" than "6.1 years."

If you are not seriously prepared to hold an intermediate-term bond fund for about that period of time, you shouldn't buy it in the first place.

It sounds as if moving from cash to intermediate-term bond funds was much too big a step for you. I don't have any very great answer on what to do. Whatever you do next, it should be something you can stick to, understanding that "stuff happens" with any investment.

This is an idea, it's only an idea, you are responsible for your investments and you know, or should know, your own risk tolerance. One of my personal rules, which I really do follow, is "no big sudden changes in asset allocation, not never, not nohow." I will allow myself to make steady incremental changes with the idea of moving to a new asset allocation over the course of several years. In your case, maybe you should consider gradually exchanging your intermediate-term bond funds for short-term bond funds, a little at a time... and staying there.
The bond fund investments were 75% split between VCIT (Vanguard I-T Corp Bond ETF) & SCHI (Schwab 5-10 Yr Corp Bond ETF), and 25% SCHP (Schwab US TIPS ETF). I plan to hold whatever I settle on for 10+ years.

My thinking was similar to when you have a large sum of cash to put into the stock market. That around 2/3 of the time you're better off just doing it in a lump sum. I may not have been thinking about that correctly in this case. I guess I wasn't mentally ready to lose well into five figures right away.
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by sycamore »

nassau34 wrote: Wed Oct 30, 2024 2:22 am ...
I plan to hold whatever I settle on for 10+ years.
Given this intent, your choice of bond funds is a reasonable one.

Over the course of those 10+ years you should expect bond rates to sometimes fluctuate by 1 or 2 percent up or down. Not all at once, but it would unfold over, say, a year's time. Maybe a couple of times the fluctuation will be 3 or 4 percent like we had in 2022.

For an intermediate term fund with a 5 - 7 year duration, the dollar fluctuation could be of magnitude like 10, 15, 20% of your bond holdings.

Again, gains or losses will not appear out of the blue but unfold over many months. So you should be comfortable seeing your fund drop a non-trivial amount from its high value mark. And be prepared for it to stay down for a while. Many bond fund holders still see their bond holdings at a lower level than they had a few years ago.

Remember that you're also receiving higher yields when prices drop.

Remember that sometimes bond rates will drop and the value of your bond funds will rise.

Get used to the fluctuations!
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by retired@50 »

nassau34 wrote: Wed Oct 30, 2024 2:22 am
My thinking was similar to when you have a large sum of cash to put into the stock market. That around 2/3 of the time you're better off just doing it in a lump sum. I may not have been thinking about that correctly in this case. I guess I wasn't mentally ready to lose well into five figures right away.
It's just a "paper" loss, until you sell.

Your short time frame of evaluation (weeks) when your intent is to hold for years is like evaluating a 26.2 mile marathon race after a couple hundred feet. Give it time.

Regards,
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gionnovi
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by gionnovi »

If rates stay at the exact same level, your NAV will be probably be back to even inside of 9 months just form the underlying coupon payments on the bonds. I wouldn't worry too much about it - sounds relatively immaterial in the scheme of things. You'd have a good chance of selling out at the wrong time too.
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by gavinsiu »

You should get used to volatility. Bonds are not as volatile as stock but they are not stable value. If you buy a bond, it will also be volatile until it matures. That 10 year TIPS is more volatile than your IT bond fund. You can think that if you hold it to maturity, you can get your money back, but if you need to sell within that 10 years, you may have a loss. For bond fund, you can also wait until the fund recover before you sell.
rossington
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by rossington »

nassau34 wrote: Tue Oct 29, 2024 4:41 am Three or four weeks ago I decided to move large holdings I had in treasury money market funds over into intermediate-term bond funds (3/4 Corporate Funds and 1/4 TIPS Fund). Because I've learned over the years I'm horrible at timing the market I did it all in one day. Ever since then I've been getting crushed.
OP,
Please tell what reasoning prompted you to make this decision in the first place.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
Topic Author
nassau34
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by nassau34 »

rossington wrote: Fri Nov 01, 2024 4:57 am
nassau34 wrote: Tue Oct 29, 2024 4:41 am Three or four weeks ago I decided to move large holdings I had in treasury money market funds over into intermediate-term bond funds (3/4 Corporate Funds and 1/4 TIPS Fund). Because I've learned over the years I'm horrible at timing the market I did it all in one day. Ever since then I've been getting crushed.
OP,
Please tell what reasoning prompted you to make this decision in the first place.
Knowing carrying such a large cash balance wouldn't bode well over time.
livesoft
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Re: Recently moved from Cash to I-T Bond Funds. Big regrets. New plan?

Post by livesoft »

Bond funds have a one-month return of about -2.5%, so OP had great timing. Not.

I suggest that one double their money in bond funds making their one-month return only -1.25%. If you aren't gonna buy when things drop, then you are probably doomed.
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