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Rebalancing and too much cash !
Old 11-04-2017, 07:38 PM   #1
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Rebalancing and too much cash !

I use a 60/40 split and religiously rebalance anytime I'm 5% out of whack. With the run up in the markets this past year it seems I have to rebalance about every three or four months. Not a bad problem to have but I'm to the point of looking for some decent and safe fixed income vehicles. I already have 10 CDs laddered out five years in varying amounts and totaling a tad more than $250K.

Any sage suggestions on other relatively safe places to stick some cash in fixed income type vehicles ? Appreciate any and all advice in advance.
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Old 11-04-2017, 07:54 PM   #2
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Put it in a 1.25% Savings Account and wait for a 10%+ correction to buy more stock
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Old 11-04-2017, 10:19 PM   #3
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Originally Posted by frayne View Post
I use a 60/40 split and religiously rebalance anytime I'm 5% out of whack. With the run up in the markets this past year it seems I have to rebalance about every three or four months. Not a bad problem to have but I'm to the point of looking for some decent and safe fixed income vehicles. I already have 10 CDs laddered out five years in varying amounts and totaling a tad more than $250K.

Any sage suggestions on other relatively safe places to stick some cash in fixed income type vehicles ? Appreciate any and all advice in advance.
Widen your bands and don't rebalance quite so often?

High yield savings 1.3% or better. Synchrony, CIT, a few others.

No penalty 11 months CD 1.5% for $25K or more. Ally

What about bond funds - how relatively safe do you need?
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Old 11-05-2017, 03:08 AM   #4
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I put my FI $ into investment grade, intermediate term corporate bonds.
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Old 11-05-2017, 06:04 AM   #5
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Originally Posted by frayne View Post
I use a 60/40 split and religiously rebalance anytime I'm 5% out of whack. With the run up in the markets this past year it seems I have to rebalance about every three or four months. Not a bad problem to have but I'm to the point of looking for some decent and safe fixed income vehicles. I already have 10 CDs laddered out five years in varying amounts and totaling a tad more than $250K.

Any sage suggestions on other relatively safe places to stick some cash in fixed income type vehicles ? Appreciate any and all advice in advance.
I use a short term bond index fund at Vanguard (VSCSX) for holding 1 years worth of spending. It yields about 2.23% per Vanguard and has a duration of 2.8 years. Also easy enough to rebalance to equities if the market get frothy.

VW
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Old 11-05-2017, 06:23 AM   #6
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I put my FI $ into investment grade, intermediate term corporate bonds.
These do well most of the time, but not as well when stocks are getting hit hard and not well during a financial/credit crisis.

It's safer to have a good slug of government-back bonds in the mix for fixed income.
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Old 11-05-2017, 06:43 AM   #7
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Any sage suggestions on other relatively safe places to stick some cash in fixed income type vehicles ? Appreciate any and all advice in advance.
VFSUX should get you about 2% with very little volatility.
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Old 11-05-2017, 07:18 AM   #8
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I use a 60/40 split and religiously rebalance anytime I'm 5% out of whack. With the run up in the markets this past year it seems I have to rebalance about every three or four months. Not a bad problem to have but I'm to the point of looking for some decent and safe fixed income vehicles. I already have 10 CDs laddered out five years in varying amounts and totaling a tad more than $250K.

Any sage suggestions on other relatively safe places to stick some cash in fixed income type vehicles ? Appreciate any and all advice in advance.


Hard money lending pays in the 7.5%-10% range. Your loans are backed by deeds of trust. Not liquid as loans typically stay outstanding for 6-12 months, and there is risk of default, so not at safe as CD's or publicly traded bonds. Hence the returns are higher. I have had very positive results using this as a big chunk of our fixed income allocation.
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Old 11-05-2017, 07:22 AM   #9
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Frayne, looks like someone else is doing a little rebalancing.

Jeff Bezos just sold $1.1 billion worth of Amazon stock

Maybe you can see where he moved all that cash and follow suit.
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Old 11-05-2017, 07:41 AM   #10
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VFSUX should get you about 2% with very little volatility.
Unless you go through another 2008 when you experience huge volatility with a sharp drop: -4.65% total return (including dividends) in 2008!

In contrast a high quality short-term bond index fund like VBIRX had a total return in 2008 of 5.51% providing a nice cushion against tanking equities. That outperformed VFSUX by over 10%.

Currently VFSUX is getting 0.28% more SEC yield than VBIRX: 2.09% versus 1.81%. That difference is what you are paying for the higher quality bonds in VBIRX, credit quality AA versus A in VFSUX.**

Ask yourself why you invest in fixed income. Is it to balance your equities and provide some diversification and lower overall portfolio volatility when equities tank? Then take your risks on the equity side.

** Corporate bond spreads (compared to treasuries) happen to be at extreme lows right now which means historically you aren't getting as much benefit as you normally would for taking on the extra credit risk of corporate bonds. https://fred.stlouisfed.org/series/BAMLC0A4CBBB
https://fred.stlouisfed.org/series/BAMLC1A0C13Y
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Old 11-05-2017, 07:57 AM   #11
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+1 on the investment grade corp bond funds above. If it’s in your after tax account, consider a tax free muni bond fund. That’s what we do with a chunk of our cash, since we’re living off our taxable account now.
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Old 11-05-2017, 08:19 AM   #12
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+1 on the investment grade corp bond funds above. If it’s in your after tax account, consider a tax free muni bond fund. That’s what we do with a chunk of our cash, since we’re living off our taxable account now.
Municipal bonds are such a small slug of the bond market only about 5% of the total bond market... and many states are having challenges with their budgets/deficits.

I have stopped buying muni bonds a couple of years ago due to lack of diversification and systemic problems with many states.

I understand the tax-free nature of munis... but the risk is not worth it.

Make money and pay taxes... that is the patriotic thing to do.

My preference for fixed income is US Treasuries (no credit risk, flight to safety and negative correlation to equities).. short-term or intermediate term treasuries could be used based on duration risk you want to take.
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Old 11-05-2017, 08:39 AM   #13
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I do hold a position in muni bond funds as part of my AA. They are a good diversification against other bond funds plus they tend to behave well when stocks go to hell. I would not hold only muni bonds as my fixed income though. They are just another asset class within fixed income, like corporate, treasuries, GNMA, TIPS, etc. Bond index funds don't usually have any exposure to muni bonds nor TIPS.
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Old 11-05-2017, 08:43 AM   #14
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...
Ask yourself why you invest in fixed income. Is it to balance our your equities and provide some diversification and lower overall portfolio volatility when equities tank? Then take your risks on the equity side. ...
Here is wisdom.

IOW, I agree with her. (More discussion in a thread I started a while back: http://www.early-retirement.org/foru...his-89012.html)
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Old 11-05-2017, 09:17 AM   #15
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I do hold a position in muni bond funds as part of my AA. They are a good diversification against other bond funds plus they tend to behave well when stocks go to hell. I would not hold only muni bonds as my fixed income though. They are just another asset class within fixed income, like corporate, treasuries, GNMA, TIPS, etc. Bond index funds don't usually have any exposure to muni bonds nor TIPS.
+1

Munis make sense in our taxable account & are <10% of our fixed income allocation. But, the OP’s situation might be different.
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Old 11-05-2017, 09:40 AM   #16
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I put my FI $ into investment grade, intermediate term corporate bonds.
Aren't bonds overvalued more than stocks?
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Old 11-05-2017, 10:11 AM   #17
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Unless you go through another 2008 when you experience huge volatility with a sharp drop: -4.65% total return (including dividends) in 2008!

In contrast a high quality short-term bond index fund like VBIRX had a total return in 2008 of 5.51% providing a nice cushion against tanking equities. That outperformed VFSUX by over 10%.

Currently VFSUX is getting 0.28% more SEC yield than VBIRX: 2.09% versus 1.81%. That difference is what you are paying for the higher quality bonds in VBIRX, credit quality AA versus A in VFSUX.**

Ask yourself why you invest in fixed income. Is it to balance your equities and provide some diversification and lower overall portfolio volatility when equities tank? Then take your risks on the equity side.

** Corporate bond spreads (compared to treasuries) happen to be at extreme lows right now which means historically you aren't getting as much benefit as you normally would for taking on the extra credit risk of corporate bonds. https://fred.stlouisfed.org/series/BAMLC0A4CBBB
https://fred.stlouisfed.org/series/BAMLC1A0C13Y
I have about 7% of our portfolio in VFSUX (ST investment grade). But I do a bit of gentle market timing and am willing to move it to Treasuries (or maybe ST Bond Index mentioned by Audrey) should a quantifiable condition occur (partly influenced by yield curve flattening which is associated with economic stress). Plus I consider it to be a longer term strategy and it is what we use to convert to spending. So that is my rational for the holding.

Also, it is short term so the risk that showed up in 2008 might have reversed even if the economy did not should one have used VFSUX as a buy-hold asset. The duration is 2+ years so one should be prepared to hold it for at least that period. Others (like Larry Swedroe) have said that short term investment grade is one asset class that has historically been a good risk bet. Short term is also a decent way to go should unexpected inflation occur.

Here is a chart comparison of 3 Vanguard short term bond funds. Pick your poison .

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Old 11-05-2017, 10:22 AM   #18
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Also, it is short term so the risk that showed up in 2008 might have reversed even if the economy did not should one have used VFSUX as a buy-hold asset. The duration is 2+ years so one should be prepared to hold it for at least that period. Others (like Larry Swedroe) have said that short term investment grade is one asset class that has historically been a good risk bet. Short term is also a decent way to go should unexpected inflation occur.

Here is a chart comparison of 3 Vanguard short term bond funds. Pick your poison .

Sure - you may have a "short-term risk" with some of the riskier bond funds as in 2008, with them recovering within a year or two.

But if you are rebalancing between stocks and bonds (as most folks here do), then when stocks are down is precisely when you would like to sell bond funds to buy more stocks. So having them hold steady or, even better, appreciate when stocks drop is a desirable feature.
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Old 11-05-2017, 10:50 AM   #19
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Sure - you may have a "short-term risk" with some of the riskier bond funds as in 2008, with them recovering within a year or two.

But if you are rebalancing between stocks and bonds (as most folks here do), then when stocks are down is precisely when you would like to sell bond funds to buy more stocks. So having them hold steady or, even better, appreciate when stocks drop is a desirable feature.
Just because VFSUX fell in 2008, we shouldn't assume it will fall in any recession. It did just fine from 2000-2003.

I'll take the extra return instead of insuring against a once-every 70 years recession. YMMV
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Old 11-05-2017, 11:07 AM   #20
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Just because VFSUX fell in 2008, we shouldn't assume it will fall in any recession. It did just fine from 2000-2003.

I'll take the extra return instead of insuring against a once-every 70 years recession. YMMV
A corporate bond fund will have some difficulty whenever there is a credit crunch or financial crisis. Corporate spreads can widen drastically because suddenly corporate debt doesn't seem so safe. Under these conditions there tends to be a "rush to quality" and the safest bonds get bid up. And this is when someone is most likely to rebalance selling bonds to buy stocks.

The OP was looking for "relatively safe" fixed income options. IMO going 100% corporate bonds is not as safe as making sure there is a good chunk of the highest quality bonds in his fixed income allocation.

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.

Again - it comes down to "why do you invest in fixed income?" and "where in your AA is it best to take risks for higher returns?"
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