In 2021 - Is 60/40 the Same as 60/Cash

[clobber]

I understand that 60(equities)/40(bonds) might not be what it used to be. But these days, how is different than replacing the bonds with cash in a savings account?

Stated another way, if I have $600k in stocks and $400k in cash, why should I put the $400k in bonds?

thanks

 

[DrRoy]

With BBB rated bonds you could get 3-3.5%. Don't know of a savings account paying that.

 

[Montecfo]

In my opinion you want to limit duration. Cash does that. Keep bonds, if any, very short term.

Interest rates have risen sharply over the past 9 months. Most bonds (adjustable rate securities excepted) do not fare well in this environment and they are not paying you enough in interest to take that risk, in my view.

 

[disneysteve]

You can pretty easily find bonds that mature in less than 3 years with yields of 1.5% or even a bit higher, 3 times what cash accounts are paying. If you hold until maturity, any price fluctuation is irrelevant.

 

[razztazz]

I've been cash for some years now. (for the fixed income part) Chicken feed diff between bonds and cash unless you wanna stick your neck out. Not enough to "interest" me. Like market timing or trying to score with the next Amazon or Microsoft, you'll go crazy chasing every last possible percentage/fractional percentage point of potential gain. Always and everywhere in good times and bad there's always somewhere else you coulda been that paid some increment more or less than what you got over the same period of time.

 

[Out-to-Lunch]

I profess no particular expertise, but I think that holding most of your non-equity pot of money in cash is reasonable at this time. (I have not done so myself, but I can see the appeal.)

 

[stephenson]

What if? Ya know, the thing one could ask and imagine themselves being brilliant by being the first to consider?

So, what if bonds are no longer “right” for the pie chart? Perhaps circumstances make a difference, as well?

Could be the martini speaking now, but “what if?”

I agonized about losing 2-3% to inflation over the last couple of years - finally gave up and shifted process to try low volatility dividend stocks - T seemed undervalued so picked it.

I know, I know ...

What if?

 

[olyveoil]

What if? Ya know, the thing one could ask and imagine themselves being brilliant by being the first to consider?

So, what if bonds are no longer “right” for the pie chart? Perhaps circumstances make a difference, as well?

Could be the martini speaking now, but “what if?”

I agonized about losing 2-3% to inflation over the last couple of years - finally gave up and shifted process to try low volatility dividend stocks - T seemed undervalued so picked it.

I know, I know ...

What if?

I took 7% of my portfolio from Bond fund. Half to low volatile dividend paying stocks and half in cash. NOT T, though

 

[Closet_Gamer]

This is a very good question and one that I have wrestled with on multiple occassions.

Ultimately, I decided that I would take a few points of increased interest from my broad bond funds vs. holding more cash. SWAGX is yielding 2.25% a duration of 6.2.

People have been frettying a big interest rate correction of over a decade now -- and it will have to happen at some point.

It again feels like the time is ripe and I will pay a price when that happens.

On the other hand, if I'd stayed out of the bond game during that long fretting period, I would have forgone a fair bit of interest gain vs. cash and I would have missed AA rebalancing opportunities when the stock market took it on the chin.

So I look at my bond allocation, eat some Tums, and stick with my AA and investing policy.

YMMV.

 

[mrfeh]

Cash is part of fixed income.

Think of your AA as equities/fixed income, not equities/bonds. Renders the question moot.

 

[mrfeh]

So I look at my bond allocation, eat some Tums, and stick with my AA and investing policy.

I really don't understand the constant hand wringing over total bond funds.

Yes, they're down something like 2.5% this year. They were also up about 8% in both 2019 and 2020.

I don't see anything to complain about.

 

[street]

^^ I agree.

 

[Exchme]

I agree with mrfeh, this is not something to wring your hands over.

Three scary things have always been true: That if interest rates rise, bonds will go down in value, that stocks are vulnerable to downturns and that cash seems attractive as a way to mitigate those risks.

But cash loses value by the rate of inflation and stocks and bonds do better than that on average. So investing has been a good idea over the years in spite of our fears.