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Old 01-05-2014, 10:51 AM   #21
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Originally Posted by perinova View Post
Thank You all for your feedback. I have reallocated everything at the end of the year which is something I haven't done in a while. It looks difficult to know where to put anything since:
1) The stock market is at an all time high
2) Bond funds values are poised to drop with the rate changes.

As for the initial question: I am not sure when I will need the money and want it to be flexible. I know I was exaggerating with the 0% on short money but we are not that far off from that.

Looking deeper into HY fund it is glaringly not a good idea when looking at capital preservation. I initially looked at total return and current income which are not all that bad. I then looked into the Bogleheads forum where there have been heated discussion on the subject,

The PenFed CDs are not a bad option but less flexible and again this is not tax sheltered money so it may be best for me to put it into Limited or Short Term Tax exempt fund. This i what I am leaning toward now.
Even though we are at an all time high, I can easily see the market going up another 15% in 2014. In 2013 I thought maybe it would go up 10% and it went up 30%.

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Old 01-05-2014, 11:20 AM   #22
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Originally Posted by perinova View Post
Can you guys give an example of floating rate fund? Is it A bond fund Or is this something else I don't know,
It's a type of bond fund that has super low duration, but tends to be very, very credit risk sensitive.

FFRHX is an example. It had a great run in 2013. If you look at what happened in 2008, you can see the downside. I think a lot of investors have been piling into floating rate funds just as they have into high yield bond funds. I don't recommend them for a new investor.

Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
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Old 01-05-2014, 11:33 AM   #23
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Originally Posted by perinova View Post
Thanks. I was going to ask the same question as pb4uski .
What is the easy way to look at the spread you are talking about? Is it purely the yield difference between Treasuries and Junk Index (I actually didn't know about this index).

Brewer - I also have some bond funds with a mix of high grade and there is a kick of high yield there. Are you thinking it would be better to move this into a purely high grade fund for now? These are Fidelity funds: Total Bond vs Bond Index, I actually have a mix of both.
The lazy way I monitor spreads since I no longer have access to a Bloomberg terminal is a daily (or so) visit to this site: BofA Merrill Lynch US High Yield Master II Option-Adjusted Spread (BAMLH0A0HYM2) - FRED - St. Louis Fed

I have a couple of small positions in closed end funds that have a smidge of junk. If its a truly tiny amount and you have a reason for holding the fund (I expect discounts to tighten on my CEFs), I would say it is no biggie. If this is just a bond fund, I would insist on no junk.

Floating rate fund hold leveraged loans, which is junk by another name. They have little or no interest rate risk, but they have lots of (junk) credit risk. Basically they are loan to the same shaky companies that issue junk bonds, but if the company goes bust the loans are ahead of the bonds in order of who gets paid. In theory this means that loan holders should be less at risk than bond holders. In practice, these loans did not do so well in the crash, so don't be mislead that they are safe money.
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Old 01-05-2014, 12:03 PM   #24
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GE Capital Bank

GE Capital Bank has a slight edge over Penfed for terms < 2 yrs

Term Interest Rate APY
MM 0.90% 0.90%
6 Months 0.70% 0.70%
9 Months 0.70% 0.70%
12 Months 1.00% 1.00%........was 1.05 in December
18 Months 1.04% 1.05%
24 Months 1.14% 1.15%
30 Months 1.14% 1.15%
3 Years 1.29% 1.30%
4 Years 1.50% 1.51%
5 Years 1.99% 2.01%
6 Years 2.03% 2.05%
...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
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Old 01-05-2014, 12:50 PM   #25
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Originally Posted by audreyh1 View Post
These can behave as nastily as high yield bonds and equities when a credit crisis occurs. Take a peek at the 2007/2008 performance before buying.
Yup we did and we still bought. The reality is that there is a choice between only bad options (and yes, I consider earning 2% guaranteed to be worse than the worst that could go wrong with floating rate funds mitigated by the small probability of that happening), in the context of a diversified approach to that end of our asset allocation. The reality is that if we reduce our risk too much, we're guaranteed to run out of money before we die.

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