Taxable Account - VGSH vs Buying Short Term Treasuries

[rkser]

Taxable Account - VGSH vs Buying Short Term Treasuries
Please help me decide which route to take -

At Fidelity either to start buying Short Term Treasuries VS buy VGSH - Vanguard Short Term Treasury ETF VS continue with SPAXX Fidelity Government Money Market. ??

I have been a Mutual Fund/ETF investor so far & have not ventured into buying individual treasuries (or any individual stocks). I do have some CDs in Taxable & Tax Deferred accounts.
I hear Short Term Treasuries yield a little more than the ETF & have heard Fidelity has a Roll Over Bond Tool which may make this exercise easier.
A part of me does not want to be tied down to the Laptop micro managing the investments, possibly messing up our retirement. Now these funds are in SPAXX Fidelity Govt Money Market yielding 4.96%, which is not bad at all, but finally do need a home.

These $700k+ came out of sale of VWIUX Tax Exempt Intermediate Bond Fund at a loss, because of possibly coming back into 22% from 24% Marginal Tax Bracket & also needed this sale at a loss to harvest for some other gains. Realized one does not have any control in the Mutual Fund & took the losses due to interest rate hikes in this intermediate term Muni Fund.

Any feedback will be greatly appreciated, thankyou in advance.

 

[Phroig]

This seems to be part of your fixed income allocation. If so, VGSH or MM would be temporary, so it makes sense to go with the highest yield. You could also slowly start getting back into intermediate term funds.

 

[pb4uski]

I would just do a short term rolling Treasury ladder for the term of your choice vs a short term Treasury fund because you have more control.

VGSH has an average effective maturity of 2 years so that would suggest a 4 year ladder... I'd probably look at 8 rungs with a rung maturing and rolling over every 6 months vs VSGH.

 

[rkser]

This seems to be part of your fixed income allocation. If so, VGSH or MM would be temporary, so it makes sense to go with the highest yield. You could also slowly start getting back into intermediate term funds.

I came out of the Vanguard Municipal Fund VWIUX in Taxable & BND in Tax Deferred bruised & battered after the recent rapid Fed Interest Rate hikes. I could have saved myself lots of dollars & grief by selling them earlier, rather than later.
So now I am gearing myself for short term Bonds, yes the return may not be much but the losses will not be much either as they are not done raising the rates yet.

I never could understand Bonds, it is not as cut & dry for me as VTI & VXUS, We are at 70/30 now, with ages 67 & DW is 62.

Appreciate your feedback

 

[rkser]

I would just do a short term rolling Treasury ladder for the term of your choice vs a short term Treasury fund because you have more control.

VGSH has an average effective maturity of 2 years so that would suggest a 4 year ladder... I'd probably look at 8 rungs with a rung maturing and rolling over every 6 months vs VSGH.

If the average effective maturity of VGSH is 2 years, why would it suggest a 4 year instead of a 2 year Ladder.

I am trying to learn here & as always I appreciate your help & feedback

 

[pb4uski]

^^^^ Let's say you had an 8-rung ladder of bonds that mature every 6 months.

At the beginning of the period your average effective maturity would be 2.5 (0.5, 1.0, 1.5, 2.0, 2.5, 3.0. 3.5 and 4.0 divided by 8).

But three months later the average effective maturity would be 2.0 (0.25, 0.75, 1.25, 1.75, 2.25, 2.75, 3.25 and 3.75 divided by 8).

So the effective average maturity would drift between 2.25 and 1.75 over the 6-month... 2.25 just after rolling the most recent maturity and 1.75 just before maturity of the shortest rung and would average 2.0.

	Beginning	Midpoint	End
1	0.50	0.25	0.00
2	1.00	0.75	0.50
3	1.50	1.25	1.00
4	2.00	1.75	1.50
5	2.50	2.25	2.00
6	3.00	2.75	2.50
7	3.50	3.25	3.00
8	4.00	3.75	3.50
Average	2.25	2.00	1.75

 

[mrfeh]

Money that we may need in the next couple years is currently in CDs and treasuries.

YMMV

 

[rkser]

Money that we may need in the next couple years is currently in CDs and treasuries.

YMMV

Presently I just do Roth Conversions out of IRAs, and have not & do not use IRA money for living expenses in Retirement.

Our living expenses come from taxable dividends & from selling of VTIs as needed.

Yes,( it is market timing ) although our time frame for needing the money from taxable intermediate term Bonds is probably beyond 2 years,
we sold them because of the losses in their Value (due to interest rate hikes) & wanting to come to short term bonds.

 

[mrfeh]

Presently I just do Roth Conversions out of IRAs, and have not & do not use IRA money for living expenses in Retirement.

Our living expenses come from taxable dividends & from selling of VTIs as needed.

We are also living off of taxable accounts (57 years old), but aren't doing any conversions.

Yes,( it is market timing ) although our time frame for needing the money from taxable intermediate term Bonds is probably beyond 2 years,
we sold them because of the losses in their Value (due to interest rate hikes) & wanting to come to short term bonds.

That was probably a mistake, IMO. Unless one needs to sell something, the NAV is not relevant.

 

[rkser]

^^^^ Let's say you had an 8-rung ladder of bonds that mature every 6 months.

At the beginning of the period your average effective maturity would be 2.5 (0.5, 1.0, 1.5, 2.0, 2.5, 3.0. 3.5 and 4.0 divided by 8).

But three months later the average effective maturity would be 2.0 (0.25, 0.75, 1.25, 1.75, 2.25, 2.75, 3.25 and 3.75 divided by 8).

So the effective average maturity would drift between 2.25 and 1.75 over the 6-month... 2.25 just after rolling the most recent maturity and 1.75 just before maturity of the shortest rung and would average 2.0.

	Beginning	Midpoint	End
1	0.50	0.25	0.00
2	1.00	0.75	0.50
3	1.50	1.25	1.00
4	2.00	1.75	1.50
5	2.50	2.25	2.00
6	3.00	2.75	2.50
7	3.50	3.25	3.00
8	4.00	3.75	3.50
Average	2.25	2.00	1.75

Thankyou for this explanation

 

[Rianne]

I came out of the Vanguard Municipal Fund VWIUX in Taxable & BND in Tax Deferred bruised & battered after the recent rapid Fed Interest Rate hikes. I could have saved myself lots of dollars & grief by selling them earlier, rather than later.
So now I am gearing myself for short term Bonds, yes the return may not be much but the losses will not be much either as they are not done raising the rates yet.

I never could understand Bonds, it is not as cut & dry for me as VTI & VXUS, We are at 70/30 now, with ages 67 & DW is 62.

Appreciate your feedback

When did you sell your bond funds? We sold all of ours in the tIRA in April-June 2022 and started the treasury/CD ladder. Now that interest rates are looking good long term, we're going for 4%+ long term (5-7 years). Specifically looking at high coupons for cash flow. And preserving capital.

I called the VG bond desk a few times. They spent time explaining some helpful details. I was ignorant about bond maturities. You can buy a treasury, for instance, with a nice 5% interest. But if you want that interest to flow into your settlement account you have to pay attention to the coupon, when they're paid etc. I am now gearing up to buy those longer-term coupon treasuries and CDs. $1M at 4.5% will get us a cash flow of $45K/per year. That is more than the pension and we'll preserve capital.

 

[rkser]

When did you sell your bond funds? We sold all of ours in the tIRA in April-June 2022 and started the treasury/CD ladder. Now that interest rates are looking good long term, we're going for 4%+ long term (5-7 years). Specifically looking at high coupons for cash flow. And preserving capital.

I called the VG bond desk a few times. They spent time explaining some helpful details. I was ignorant about bond maturities. You can buy a treasury, for instance, with a nice 5% interest. But if you want that interest to flow into your settlement account you have to pay attention to the coupon, when they're paid etc. I am now gearing up to buy those longer-term coupon treasuries and CDs. $1M at 4.5% will get us a cash flow of $45K/per year. That is more than the pension and we'll preserve capital.

Thankyou for your helpful post,

I sold Our Taxable VWIUX & Tax Deferred BND in June - July/2023, & am learning to buy the Treasury Ladder at Fidelity, & am wanting to be where you are soon.

In the meantime they are in CDs & Money Market Funds at Fidelity SPAXX & Schwab SWVXX respectively.

Fidelity also does these Bond Ladders for you, of course for a fee which I am trying to learn about.
Schwab also does these Bond Ladders for a fee, which I am yet to lean about

 

[ERhoosier]

For this part of my AA- holding AA/AAA individual shorter term bonds to maturity is my preference. Very easy with the larger discount brokers these days (bond "ladders" are just deciding on varied individual maturities across your desired time frame- don't over think things). No added expense, NO variation in my capital (VGSH dropped 2% in value between March hi & July low). I can choose exactly which holdings make sense to ME (like maturity dates for meeting MY cash flow needs), and there is no risk to the bond manager selling off bonds at a loss (with resulting drop in NAV of the fund).

Good luck!

 

[rkser]

For this part of my AA- holding AA/AAA individual shorter term bonds to maturity is my preference. Very easy with the larger discount brokers these days (bond "ladders" are just deciding on varied individual maturities across your desired time frame- don't over think things). No added expense, NO variation in my capital (VGSH dropped 2% in value between March hi & July low). I can choose exactly which holdings make sense to ME (like maturity dates for meeting MY cash flow needs), and there is no risk to the bond manager selling off bonds at a loss (with resulting drop in NAV of the fund).

Good luck!

Do you use Fidelity to do this ?

That is where our money market funds are in SPAXX ,
how involved do you need to be,? is it automated enough ?

How much higher than the 4.9% (SPAXX)are the gains with Treasuries/ Bonds ?

In my case, it is more like fear of getting into the water & getting my feet wet, I have always been in a Bond Mutual Fund & am now getting individual bonds.

I might as well just dive in & see what happens, I have an appointment with our local Fidelity Rep to ease me in.

Thank you