Anyone selling stocks to buy CDs, treasuries?

[FREE866]

Except you really can make 6%-7% or more if you venture into investment grade bonds.

thats def more enticing
as you know I'm not a bond guy
how far out do you have to go for that?

 

[COcheesehead]

thats def more enticing
as you know I'm not a bond guy
how far out do you have to go for that?

I just bought some 9- 11 month ones in the 6.5%-7.2% range. You can buy non callables easily around 6% for longer duration.

 

[FREE866]

I just bought some 9- 11 month ones in the 6.5%-7.2% range. You can buy non callables easily around 6% for longer duration.

wow
thats pretty good

 

[TickTock]

There are a few ways to look at this. If we maintain 5% ROI, stay in the 12% tax bracket, 3% inflation with our SS we have 100% success with some left over after 30 years. That gives us $140k safe spending constant every year. We do not spend that much, but I’m thinking nursing home or independent living for one of us at some point. Even if one of us dies, the SS reduces, we’re ok. Or we get the 25% haircut, still ok. This stuff gets complicated and I’m using every calculator I can get my hands on

I would not characterize this as market timing, but rather changing the strategy/asset allocation in response to life goals.

DW and I went from 80/20 to 60/40 over the course of four years. Not as market-timing, but as changing the portfolio's risk profile as we got closer to retirement.

We're maintaining 60/40 for now. FI is in MM and individual UST, Agency, and investment-grade individual bonds, all <=5 years duration.

That said, with DW retired last year I'm considering a Kitces "bond tent" strategy to reduce SORR.

 

[TickTock]

For those thinking we are near the top in terms of LT yields, you can pick up the US Treasury 30 year bond 1.25% coupon maturing 5/15/2050, issued 5/15/2020 for less than 50 cents on the dollar. (It reached a low today of 48 and 23/32nds and had a high over 101 in Aug 2020.) YTM is over 4.6%.

So much for a "risk free" investment (that is trading for less than half its original value, and for all those "well it will be redeemed at par" folks well I just lol.)

COcheesehead is right - duration kills. Or can kill.

I don't remember who said this (it was a big name in the financial world) [paraphrasing since I don't have the original source] - The difference between 30-year and 1-year yields is less than 1%. That's not an investment decision, that's an intelligence test.

Low rates and low delta rates between long and short bonds strongly suggest pulling back on duration. In a balanced portfolio, FI is primarily for volatility dampening, so you can rebalance when stocks take a nosedive and you buy them on sale. For those already retired, without outside income sources, volatility is more important.

 

[OldShooter]

wow
thats pretty good

Yes. The problem with corporates, for most of us anyway, is that we don't have enough time or money to build a reasonably diversified portfolio.

I am on the investment committee of a small nonprofit. On the FI side we have 2-3 $million in corporates because our strict instruction to the FA is to stay out of bond funds. He has built the portfolio using $10K purchases of investment grade bonds, resulting in over 100 positions. Too many issues, IMO, for an amateur to select and monitor effectively. This assumes that you have 7 figures to put into bonds in the first place.

 

[TickTock]

Yes, but it's all relative. Today, buying a 5 year CD Ladder thats averaging ~ 5% is priced that high due to inflation running at like 3.25% so yeah you can make 1.75% adjusted for 5 years. Maybe a little higher if you shop around I would imagine. Again, its a way to mitigate volatility. Not to get some great return on your money.

Agree that damping volatility is the primary reason to hold FI in a balanced portfolio. (Those who have enough to fund retirement with most or all $ in FI are a different matter; personally, I'd maintain a floor of 20-25% stocks for long-term growth.)

That being said, historically long-term bonds have returned an average of ~3% real return, short-term bonds ~1%, and cash equivalents roughly keeping pace with inflation. The fed is targeting 2% inflation. Will they achieve it? Who knows? (Not me!) But getting ~1.75% real returns on short-term bonds is not bad.

 

[pb4uski]

Yes. The problem with corporates, for most of us anyway, is that we don't have enough time or money to build a reasonably diversified portfolio.

I am on the investment committee of a small nonprofit. On the FI side we have 2-3 $million in corporates because our strict instruction to the FA is to stay out of bond funds. He has built the portfolio using $10K purchases of investment grade bonds, resulting in over 100 positions. Too many issues, IMO, for an amateur to select and monitor effectively. This assumes that you have 7 figures to put into bonds in the first place.

I would say that a maximum of $10k per credit for a $2-3m corporate bond portfolio is pretty low. I limit any one corporate bond credit to $25k, but I also generally only invest in A or better, so a little north of the bottom of investment grade credits.

Recently, the premium of corporates over similar term agency bonds or even brokered CDs isn't enough to be attractive to me, but there are occasional exceptions.

 

[TickTock]

The problem with corporates, for most of us anyway, is that we don't have enough time or money to build a reasonably diversified portfolio.

Agreed. The biggest risk for an individual investor is the default risk.

That said, I do think there are strategies to help mitigate that risk. (Shorter durations, high-quality) Alternatively, short-term USTs can be used, with short-term bond funds for the bulk of the remainder of the FI portion of the portfolio.

 

[street]

I will say my CDs that have come due during this high interest rate period I have them now into 5% and above CDs. Not selling anything to move to CDs.

 

[Chuckanut]

I don't get why people get excited about being able to get higher rates on treasuries and CDS. Sure, rates are higher, but that's just in response to higher inflation. The only reason I would include such securities in my portfolio would be to mitigate volatility of the stock market.

I think the idea is to buy CDs out in the 5+ year maturity area and then let inflation drop to the Feds 2% goal while continuing to collect 5%. Maybe it will work. Maybe not.

 

[pb4uski]

I don't get why people get excited about being able to get higher rates on treasuries and CDS. Sure, rates are higher, but that's just in response to higher inflation. The only reason I would include such securities in my portfolio would be to mitigate volatility of the stock market.

Vanguard forecasts that the total return for US equities for the next decade will be 3.7-5.7% with 17.0% median volatility and the total return for US aggregate bonds will be 4.0-5.0% with 5.6% median volatility... so if they are right, given the similarity in returns why assume the significanty different volatility?

That said, nobody knows nuttin.

https://corporate.vanguard.com/cont.../investment-economic-outlook-august-2023.html

 

[disneysteve]

I don't get why people get excited about being able to get higher rates on treasuries and CDS. Sure, rates are higher, but that's just in response to higher inflation. The only reason I would include such securities in my portfolio would be to mitigate volatility of the stock market.

Inflation certainly matters but I think personal spending matters even more. YTD our WR is running about 1.7%. If I can get 5+% guaranteed and only need to draw out 1.7%, I'm good with that. And the treasuries are state-tax free.

I'm not pulling money out of stocks but we are 60/40 and that 40% in fixed income is serving us very nicely right now. And your point about smoothing volatility is very true also. We've got the guaranteed income from the 40% plus the growth, dividends, and capital gains from the 60%. It's a good balance for us.

 

[MarieIG]

I already ditched some (expensive) mutual funds and replaced them with more boring index funds over the last two years. I went into retirement with cash on hand, and over the last nine months or so, loaded up on T-bills and CDs. I would like to keep some dry powder in the event of a significant drop in the spring (to add to some of my ETFs) - but I have no crystal ball.

 

[Sanstar]

Question: is it better to take cash for dividends and use it to rebalance, or buy high yield CD’s, or auto reinvest?

Other info: My IRA equity portfolio is in 3 US, low cost, broad market ETFs. They generate between $37k -$41k/ year in dividends, set to automatically reinvest. Am several years out from RMDs, maintaining 5 years of fixed, annual 4% WD’s.

Stay the course? Take a more active role in managing dividends?

Appreciate any thoughts/ideas.

 

[disneysteve]

Question: is it better to take cash for dividends and use it to rebalance, or buy high yield CD’s, or auto reinvest?

Other info: My IRA equity portfolio is in 3 US, low cost, broad market ETFs. They generate between $37k -$41k/ year in dividends, set to automatically reinvest. Am several years out from RMDs, maintaining 5 years of fixed, annual 4% WD’s.

Stay the course? Take a more active role in managing dividends?

Appreciate any thoughts/ideas.

Do you mean in your IRA or in a taxable account?

In your IRA, I think reinvesting is fine if you're a few years away from RMDs. At that point, I'd probably stop them and let the cash build up to fund your RMD. That's what I'm doing in my inherited IRA.

In a taxable account, I think it depends on your needs. If you need the cash for spending, do that. If not, do whatever works to maintain your AA.

 

[pb4uski]

... Appreciate any thoughts/ideas.

If you are reasonable close to your target AA, then reinvesting dividends in an IRA isn't necessarily bad, but if you have taxable account money in the same tickers in taxable accounts then automatic reinvesting in an IRA could inadverdently trigger a wash sale situation.

IOW, if you sell a ticker at a loss in your taxable account and within 60 days the same ticker in a taxable account reinvests the reinvestment could disqualify your tax loss in the taxable account. Taking dividends in cash and reinvesting "manually" gives you the opportunity to avoid such disqualification.

 

[OldShooter]

I would say that a maximum of $10k per credit for a $2-3m corporate bond portfolio is pretty low. I limit any one corporate bond credit to $25k, but I also generally only invest in A or better, so a little north of the bottom of investment grade credits. ...

As you imply I would say that maximum position sizes should primarily be driven by the overall size of the portfolio. A $10K maximum in a $20K portfolio would be silly, but in a $2M it's less than 1%. For our FA its not the burden that it would be for a DIY-er because he is researching and buying for a number of portfolios. A $25K maximum, though, certainly means less work for a DIY-er and if it works for you that's all that matters.

Recently, the premium of corporates over similar term agency bonds or even brokered CDs isn't enough to be attractive to me, but there are occasional exceptions.

Yeah. At every one of our quarterly reviews we look at the spreads and trends. As a result of weak spreads from time to time, we do have some govvies in the portfolio.

At the quarterlies we also review (typically) 2-4 holdings that have been downgraded. That's mostly a spectator sport as the reduced quality aka increased risk is already priced into the bonds, so we wouldn't really gain anything by selling.

 

[FREE866]

Vanguard forecasts that the total return for US equities for the next decade will be 3.7-5.7% with 17.0% median volatility and the total return for US aggregate bonds will be 4.0-5.0% with 5.6% median volatility... so if they are right, given the similarity in returns why assume the significanty different volatility?

That said, nobody knows nuttin.

https://corporate.vanguard.com/cont.../investment-economic-outlook-august-2023.html

Im actually happy to see their forecast for stocks is so dour. Says a lot about current sentiment. I take that forecast as a bullish sign to be honest.

Be curious what they were saying back in 1963, 1973, 1983, 1993, 2003 and 2013. All those ten years returns were excellent.


But as you said "nobody knows nuttin"
As I mentioned earlier for me personally I don't need historical returns and if I just get half of them I'm fine. Barring something absolutely cataclysmic that's not happening.

 

[pb4uski]

...Be curious what they were saying back in 1963, 1973, 1983, 1993, 2003 and 2013. ....

In 2013 their highest probability was 6-9%, closely followed by 9-12%. For 2013-2022 with dividends reinvested, VTI was 12.07%... so close but no cigar.

 

[Car-Guy]

I actually overdid it. Sold all my equities in my brokerage account (that's not what I overdid) and bought CD's with all "almost" all my cash. (That's what I overdid). I kept enough cash for "living" but not for major purchases. I'm slowly recovering as my shorter term CD's mature and I'm moving that money into SWVXX (which pays over 5% and can be turned into cash, penalty free, in one day.) You know, you just can't fix stupid!

 

[copyright1997reloaded]

COcheesehead is right - duration kills. Or can kill.

I don't remember who said this (it was a big name in the financial world) [paraphrasing since I don't have the original source] - The difference between 30-year and 1-year yields is less than 1%. That's not an investment decision, that's an intelligence test.

Low rates and low delta rates between long and short bonds strongly suggest pulling back on duration. In a balanced portfolio, FI is primarily for volatility dampening, so you can rebalance when stocks take a nosedive and you buy them on sale. For those already retired, without outside income sources, volatility is more important.

Just to be clear here - I never said that going long (e.g. 30 year T-Bond, or even more so going for long term Stripes) was a good idea. I'm not doing it, in fact my weighted days of to maturity is under one year.

All I stated is that if we were are at the peak for long term rates, that the longer the duration the better. They WILL rise the most (just as they have fallen the most).

As for me, I remain very skeptical that inflation is under control or will soon be under control, or the flip side being that to get it under control will mean pain in terms of defaults. So no way am I (again just speaking for myself) going to go very long at current real rates, nor will I adventure much out in terms of risk. I have enough risk in equities (about 40% of my net worth at this point), I don't need or want it in my fixed.

Having said the above, that doesn't mean I would never buy anything but a short term treasury, just that I won't put a lot of $ into "investment grade" or even worse bonds.

Would I do so? Yes, if the risk/reward was good enough. In 2009 I bought 7.5% Ford preferred which were selling at 20-25 cents on the dollar. Yes, a current yield of 35%. Ford didn't go bankrupt and they were eventually redeemed by Ford at par. I will take 5x on my investment PLUS the 35% annual interest (for a couple/few years) anytime. I'm not saying we will see deals like this again, but we are so far away from that I'm still not interested in tons of debt risk (particularly at my older age).

But if I see 10/20 year TIPS with a 3% real, then I will certainly be going HMM, maybe it is time to buy a bunch.

 

[jazz4cash]

Question: is it better to take cash for dividends and use it to rebalance, or buy high yield CD’s, or auto reinvest?

Other info: My IRA equity portfolio is in 3 US, low cost, broad market ETFs. They generate between $37k -$41k/ year in dividends, set to automatically reinvest. Am several years out from RMDs, maintaining 5 years of fixed, annual 4% WD’s.

Stay the course? Take a more active role in managing dividends?

Appreciate any thoughts/ideas.

It makes a big difference if you ate taking i come from IRAs. Your question is being discussed in another active thread here…

https://www.early-retirement.org/forums/showthread.php?t=119362

 

[Koolau]

No.
IMO the market is still the best place to stay invested. CDs are short lived compared to gains in the market for the long haul.

Getting out, getting in, isn't for me and from experience it never has worked out for me.

I plan to stay in that 80/20AA till my last breath and just let it ride the times.

I couldn't have said it better. (except I'm more like 35% equities.)

 

[UpQuark]

We’re thinking of selling some our stock index funds to buy safe long-term bonds.
We’ll be 66 next year.

I am. I'm pivoting from some target-retirement-year funds to buying treasuries. I haven't decided when to go long tho. So far just rolling the 4 week treasuries while trying to time the bond market (bad me I guess).

I'd really like to simply buy 20 year treasuries to have a comfy feel of regular dependable income for the rest of my life. Probably an annuity with a COLA would be more appropriate but annuities seem to have a bad rep and I think the cola ones are expensive.

The target-year funds have been extremely disappointing, I retired last year and was depending on their income (their description says that their highest goal is to provide income after reaching their target year), but they only paid out $251 (semi-annual income) this past June. I was so horrified, if their income is as unpredictable as stock prices I feel I can do better just using the money to buy bonds.

I was also motivated because my AA had accidentally drifted to 88% equities so now it has adjusted to 57% equities (I was aiming for 60/40 so I overshot a little).

I wish I knew what to expect for the 20 year bond coupon rates. I have a couple treasury bonds in a ladder that have 7.5% coupons, so apparently almost 30 years ago there were some good rates.