When Rates Head Towards Zero

[Marc]

I am sitting on around $1.5M in FTBFX; around 40% of my portfolio. With talk of further Fed rate cuts of possibly 0.75% the funds will continue to do well; however, what goes up must come down. I am not a market timer but can see that in the long term I am going to suffer capital loss on this fund.

So, what can I do (over time) to mitigate this future loss? CDs? Ultra short term bond funds? Short term bond funds? High yield checking accounts?

After the next Fed rate drop, should I start moving (e.g, 100K every couple of weeks)?

In the past, I have always had an idea in my head when asking for advice; I was looking for knowledge from those experienced than me. This time, I haven't a clue and would really like your thoughts.

Marc

 

[mrfeh]

Assuming your horizon is 5+ years, just leave it alone. Every instrument that pays interest will have lower rates in the near to mid term.

No point looking for the needle in the hay stack. The only exception I would make is if you can find some 3% CDs, but I doubt it.

 

[The Cosmic Avenger]

Um...rebalance? What's your target AA? And it's not like you need to rebalance every week or even month, something that surprised me when I saw this recent thread. Fidelity's lowest rebalance "setting" is 5%, so personally I'd say no more than once every 30 days or every 5%, whichever comes first. (I've been restricted on one account for rebalancing too often, 30 days is their limit on certain funds. After reading that linked thread above, I no longer feel that need, though. )

 

[brewer12345]

Ideally sell out and find high rate 5 year cd special offers.

 

[audreyh1]

I rebalance occasionally.

 

[njhowie]

Ideally sell out and find high rate 5 year cd special offers.

The high rate 5 year CD special offers will be 2%.

Things are going to get very ugly.

 

[Dtail]

The high rate 5 year CD special offers will be 2%.

Things are going to get very ugly.

Yeah, I just missed by 1 day securing a 2.15% for Ally 5 yr CD for my parents. They dropped 40 bps on Friday.
So nabbed the 18 month 2% CD for them.

 

[ziggy29]

My CU is still paying 1.65% for savings.... at least through the end of the month. I expect that to plummet in April.

Here we go again with another round in the War on Savers. And also this brings more insanely low mortgage rates to really stoke a housing bubble.

 

[CardsFan]

If the money is in an IRA, Navy Federal Credit Union still has their 37 month 3% CD available, but I expect it will go away soon. Max is $150k

 

[Montecfo]

1. Rebalance if you need to
2. Reduce duration
3. Consider CDs

It might be a good time to revisit the reason you selected this fund. Presumably it is because you want a single fund to handle all your bond management. Has anything changed? Of not, perhaps make no changes.

However, you could take a different tack by investing in a shorter and if desired longer duration fund (so 2 or 3 total). Then you can use your own judgement as to rate direction and balance between them accordingly.

I agree with you, it seems we may have a unique opportunity to do so coming up. Then again, perhaps the tointermediate direction of rates is to go negative.

Predictions are hard, especially about the future.

 

[njhowie]

Here we go again with another round in the War on Savers. And also this brings more insanely low mortgage rates to really stoke a housing bubble.

At this time, with the recent stock market weakness, I think there's pretty good opportunity for picking up solid dividend paying/growth company shares which have been slammed.

Personally, sitting with a 2/98 AA, I have lots of room to increase my equity allocation taking advantage of the current situation, and I've begun to slowly do so.

 

[ziggy29]

At this time, with the recent stock market weakness, I think there's pretty good opportunity for picking up solid dividend paying/growth company shares which have been slammed.

There are probably opportunities, but the market still isn't "cheap" by just about any metric. I tend to gravitate toward dividend stocks, too. Earnings on paper can be manipulated, but cold hard cash can not be faked.

But yeah, if someone is almost entirely out of the market and is looking for a re-entry point, now isn't a bad time to at least start nibbling.

 

[jazz4cash]

The high rate 5 year CD special offers will be 2%.



Things are going to get very ugly.

Yes, this is what I expect. 2% will be a “CD Special” and the regular CD rate will be lower. This makes those NFCU add on CDs all the more valuable until they go away too.

 

[Dtail]

Yes, this is what I expect. 2% will be a “CD Special” and the regular CD rate will be lower. This makes those NFCU add on CDs all the more valuable until they go away too.

Same with the GTE add on CD.

 

[pb4uski]

Yes, this is what I expect. 2% will be a “CD Special” and the regular CD rate will be lower. This makes those NFCU add on CDs all the more valuable until they go away too.

Do most NFCU CDs allow additional deposits? News to me. Any idea how I can find out if mine does?

 

[jazz4cash]

Do most NFCU CDs allow additional deposits? News to me. Any idea how I can find out if mine does?

That’s a good question. The easiest thing to do is call and ask or just request to add funds via the secure message feature. AFAIK once the CD is open there is no obvious way to tell. Most of their “specials” are for odd terms like 13, 17 or 37 months and they have add on feature and sometimes max balance limit. NFCU has a long history of add-on CDs going back as long as i can remember. They used to permit additions in the 1st quarter which was not always advertised. They also have a variable rate CD that allows additions on the anniversary date. I have an add on now with 24 months left to maturity that pays 3.7. Where else could I get a rate like that for 24 months? That’s why I and some others “pound the table” about them.

 

[newellcr]

however, what goes up must come down. I am not a market timer but can see that in the long term I am going to suffer capital loss on this fund.

So, what can I do (over time) to mitigate this future loss? CDs? Ultra short term bond funds? Short term bond funds? High yield checking accounts?

Yes. In my case, BND and BNDX. BND is up about 9% NAV from the 52 week low and yields are 2.6%. Where is the high, dunno. Where is the low in the next year (or 2 or 3 years), probably closer to the 52 week low than a new high. Risk, IMO, is the downside in NAV that isn't offset by the yield gains.

What version of buy the dips and sell at the top do I buy into? I feel your pain.

Cheers,


Chris