Rebalancing and too much cash !

[frayne]

You could spend it. We’ve had an extended period of low inflation. Is there any durable good you’ve had your eye on? A new fishing pole and tackle? A jet ski? A new roof?

I think we are just as likely to see a spike in inflation as we are a major correction. 2017 prices may seem absurdly cheap in 2020.

Thanks everyone for the input and I will continue to research what might work best as there is no cookie cutter recipe where one size fits all. To reply to cooch 96, I have already upgraded my golf bag with a new Callaway Epic driver, three wood and apex hybrids and blade irons, along with a new odyssey putter. Probably have two grand plus in the golf bag so I can't blame my substandard play on crummy equipment. Spending just to be spending on any thing else would just be plain foolish as I don't need a bigger house, newer cars or more toys. It's a good feeling to know I can't out live my portfolio and will probably use a portion of it for my grandkid's education, which I have been contributing to for some time. Again, thanks for all the sage advice. We have a great forum here with some pretty smart cookies.

 

[mrfeh]

Many folks were very surprised when their bond funds performed poorly in 2008 probably because they were loaded up with too much corporate and high-yield debt. So IMO telling someone "VFSUX should get you about 2% with very little volatility." is not good advice because "very little volatility" is not always true.

Depends on your definition of "very little volatility". IMO, dropping 4.6% during the worst recession since the 30s qualifies. YMMV

 

[audreyh1]

When I look at the Fed curve you showed, it looks like the low credit spread is no worse then some other years in the past (late 90's, 2004 to 2007). I'm not sure that alone is predictive. I was not able in the past to show that credit spreads alone are actionable. Alternate views?

If the 10yr - 3mo Treasuries went to about 1.0% I would consider switching to VFIRX (short term Treasuries). Right now that number is about 1.2%. See this chart for more the yield curve data: https://fred.stlouisfed.org/series/T10Y3M

Actually the real switching method I use is more focused on switching out of intermediate term investment grade (VFIDX to VFIUX). The switching on short term IG is not so important to me.

I see - so in 7/2005 it started dropping to well under 1%, and that's when you would have switched from intermediate IG to short term treasuries? And switched out again in early 2008?

 

[pn3069]

Aren't bonds overvalued more than stocks?

My view is that there is no such thing as over/under-valued in investment grade bonds (unlike stocks). High Yield (junk) bonds act similar to stocks with a higher degree of correlation.

Bond prices/yields are simple math based on credit quality and yield curve.

Very little emotion (at least in investment grade bonds).

 

[Lsbcal]

I see - so in 7/2005 it started dropping to well under 1%, and that's when you would have switched from intermediate IG to short term treasuries? And switched out again in early 2008?

Sorry, I haven't really discussed the full algorithm here. But basically it is to a large extent driven by the yield curve and also how equities perform. The move from intermediate IG is to intermediate Treasures (for instance, VFIDX and VFIUX). The switch into intermediate IG would have occurred in July 2005 but the switch back in would have been in April 2009.

I haven't had to switch at all since I adopted this method so ask me in a decade if it was successful.

This could be adapted to short term IG with short term Treasuries but the data seems to show that the same algorithmic approach does not work as well with short term bonds. I think it is because intermediate term is more equity dependent and also short term is lower risk.

 

[mickeyd]

Too much ca$h is a damn good problem to have. I have it often. My solution is to not rebalance so often. Suggest that you rebalance once per year at the same time (every December for instance) and let that be your guide.

 

[rayvt]

Put it in a 1.25% Savings Account and wait for a 10%+ correction to buy more stock

So that would be like all those people who sold their stocks the day after the 2016 election, figuring to buy back in 10% lower, after the Trump crash? How'd that work out.

The problem with waiting for a 10% correction is that the drop may well be 10% drop after the 25% gain. IOW, you'd have given up 15%.

 

[Lsbcal]

So that would be like all those people who sold their stocks the day after the 2016 election, figuring to buy back in 10% lower, after the Trump crash? How'd that work out.

The problem with waiting for a 10% correction is that the drop may well be 10% drop after the 25% gain. IOW, you'd have given up 15%.

I was prepping myself psychologically for a 10% drop after the results were in. It was a surprise to see it go the other way.

 

[mathjak107]

with many fund families you can not judge a bond fund by 2008 . 2008 saw many fund families load up on tiered multi level cdo's .

they were an untested manufactured supposedly safe product . they became ill-liquid when the credit markets froze and supposedly safe bond funds took nasty hits .

my money market went bust and i lost 3% .....many funds like fidelity ultra conservative bond fund lost a lot of money . a lot of total bond funds did exceptionally poorly too for the same reasons .

so performance in many bond funds in 2008 were a one time event and these products are long gone .

 

[audreyh1]

with many fund families you can not judge a bond fund by 2008 . 2008 saw many fund families load up on tiered multi level cdo's .

they were an untested manufactured supposedly safe product . they became ill-liquid when the credit markets froze and supposedly safe bond funds took nasty hits .

my money market went bust and i lost 3% .....many funds like fidelity ultra conservative bond fund lost a lot of money . a lot of total bond funds did exceptionally poorly too for the same reasons .

so performance in many bond funds in 2008 were a one time event and these products are long gone .

CDOs were mortgage backed investments, so you wouldn't find them in investment grade corporate bond funds.

 

[mathjak107]

CDOs were mortgage backed investments, so you wouldn't find them in investments grade corporate bond funds.

but they were in total bond funds , ultra conservative bond funds , go anywhere bond funds and most important money markets .

 

[audreyh1]

but they were in total bond funds , ultra conservative bond funds , go anywhere bond funds and most important money markets .

In the 2008 comparisons previously, I was using the 2008 comparison to point out the relative risks of investing in corporate only bond funds and their vulnerability to credit crises and distressed markets when the spread suddenly widens. Comparing VFSUX and VBIRX.

Just recommending that someone not put all their fixed income in corporate bonds since they are higher risk than higher quality bonds, and that risk is exposed precisely when stocks take a hit, when is when you want some cushion from stocks dropping.