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Old 04-25-2020, 09:40 AM   #61
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Yup. Great scheme. All it requires is that the investor can see the future. There are a lot of schemes like that.
The inverted yield curve is a reliable predictor of a recession. I suggest that you read up on what an "inverted yield curve" means and why "some" investors make decisions when the yield curve inverts. I did and I am making much more money than if I ignored it and stayed passive in a 60/40 portfolio. This is not rocket science or predicting the future.

The best thing about an inverted yield curve is that long term yield decline. Remember that price and yields move in opposite direction.

Case in point: VUSUX performance in 2019 BEFORE the crash was +14.83. This is relatively high and comparable to some equities. This is attributed to investors buying long term treasuries which cause the yield to fall but the price to rise.

Should an investor put money in equities making 15% with high risk?
Or...should an investor put money in treasuries making similar returns with lower risk?

In any case, VUSUX just made 20% 1st quarter 2020 performance during this crash so I have no regrets.

The thread was started by asking the following question:
How much are people willing to go to cash reserves from bonds at this time? How much and why?

My answer: I prefer to stay in LT treasuries since cash makes 0%. LT treasuries generally do well historically during the beginning of a bear market.
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Old 04-25-2020, 09:54 AM   #62
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The inverted yield curve is a reliable predictor of a recession. ...
Yup. An inverted yield curve is well known to precede recessions. So is the sun coming up in the morning.
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Old 04-25-2020, 03:48 PM   #63
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Yup. An inverted yield curve is well known to precede recessions. So is the sun coming up in the morning.
Precisely why I reallocated into a capital preservation portfolio before the current recession.

Anyway, people should respond to the original question by this thread which is.... How much are people willing to go to cash reserves from bonds at this time? How much and why?

I already stated I prefer treasuries because cash earn 0%. What is your contribution to this question in order to bring value to other readers?
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Old 04-25-2020, 03:56 PM   #64
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Cash earning 0% is probably an overstatement.... online savings accounts are paying 1.4-1.7% right now and are fully FDIC insured.

FWIW, I'm 100% cash and fixed income at this moment... very unusual for me. Fixed income is mostly CDs yielding 3.0-3.5%... and some at 2.25%.... CD weighted average yield is 3.29% and CDs ~47% of total portfolio.
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Old 04-25-2020, 04:10 PM   #65
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Cash earning 0% is probably an overstatement.... online savings accounts are paying 1.4-1.7% right now and are fully FDIC insured.

FWIW, I'm 100% cash and fixed income at this moment... very unusual for me. Fixed income is mostly CDs yielding 3.0-3.5%.

You are right. However, 3.5% is less than my 20% yield from my 1st quarter 2020 VUSUX returns although I acknowledge VUSUX involve higher risk than cash.

I have a IRA so I can transfer money from one asset class into another without tax consequences. However, Vanguard does not have CD options. Vanguard do have a money market option which I declined since I preferred treasuries which are safer than equities while earning bull market equity returns during a bear market.
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Old 04-25-2020, 04:14 PM   #66
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You are right. However, 3.5% is less than my 20% yield from my 1st quarter 2020 VUSUX returns although I acknowledge VUSUX involve higher risk than cash.

I have a IRA so I can transfer money from one asset class into another without tax consequences. However, Vanguard does not have CD options. Vanguard do have a money market option which I declined since I preferred treasuries which are safer than equities while earning bull market equity returns during a bear market.
20% return is not 20% yield.


But it is a nice return.
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Old 04-25-2020, 04:31 PM   #67
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I'm 67 have 3 years in cash before SS, After that I have 1/2m sitting in cash. I also have 600000 in equity that I'm not going to use for 10 years. Have roth 200000 and 1.1m in a Ira. I only want about 36000 year and I have that in cash now. So what would you put 1/2m in for bonds that will not be needed for 3years. Thanks.
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Old 04-25-2020, 05:06 PM   #68
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...However, Vanguard does not have CD options. ...
To be clear though, Vanguard does offer brokered CDs.... however, I've never found brokered CDs (from Vanguard or Fidelity) attractive.
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Old 04-25-2020, 06:13 PM   #69
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To be clear though, Vanguard does offer brokered CDs.... however, I've never found brokered CDs (from Vanguard or Fidelity) attractive.

Thanks....I have to look into that. I do not expect VUSUX to have high returns forever and I have always used lower risk ST Treasuries such VFIRX to lock in my gains from my LT treasuries.

However, VFIRX typically earn only about 1 to 2% which may be less than CD so I am always looking to compare my investment options in a safer asset class...after I made enough money in VUSUX.

Even though VUSUX has been a winner for me, I do not believe in letting it ride too long. This is because bad things can happen if you let something ride too long. IMO, this applies to gambling at Las Vegas as well as investing in equities after a record breaking bull market.
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Old 04-25-2020, 06:42 PM   #70
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I'm 67 have 3 years in cash before SS, After that I have 1/2m sitting in cash. I also have 600000 in equity that I'm not going to use for 10 years. Have roth 200000 and 1.1m in a Ira. I only want about 36000 year and I have that in cash now. So what would you put 1/2m in for bonds that will not be needed for 3years. Thanks.

I would either go online or go to your local bank to start comparing the latest 3 years Jumbo CD rates that is federally insured.

Buying a 3 year treasury directly from the government is an option but the coupon yield is subject to the auction price.

ST Treasury bond funds such as VFINX is an option but there is some volatility and there is an expense ratio.

AAA bonds also have volatility and some risk. I would not recommend anything lower than AAA since the economy is being stressed and bankrupcy of companies less than AAA rated is a concern.

Since you are about the same age as myself, Jumbo 3 years CD rates are probably your best bet. I invest in treasuries because I am more of a risk taker and you have not mention your risk tolerance. I am assuming your risk tolerance is low and this justify a 3 years Jumbo CD recommendation.
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Old 04-25-2020, 06:45 PM   #71
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CDs don’t work for everyone.
If I bought a CD, paid the taxes and the opportunity cost of an insured investment, I would be better off elsewhere.
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Old 04-25-2020, 07:16 PM   #72
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FWIW, I'm 100% cash and fixed income at this moment... very unusual for me.

Wow! Thatís a bold but defensible move, given the odds of carnage ahead vs. blue skies. Best wishes.
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Old 04-26-2020, 07:43 AM   #73
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The inverted yield curve is a reliable predictor of a recession. I suggest that you read up on what an "inverted yield curve" means...
Gotta say, this was just the best!

OldShooter - perhaps you need some education!
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Old 04-26-2020, 08:46 AM   #74
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vchan2177

2 months ago I was 97/3 but at my age I sold everything. I have 600000 in Facebook and S%P. I do not mind risk but I won the game and with my cash would like a little growth. I could live until 80 with just the cash.
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Old 04-26-2020, 09:10 AM   #75
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... OldShooter - perhaps you need some education!
Oh, I think 45 years of mostly successful investing experience has provided a pretty good education.

The yield curve/recession story comes around every few years. It is always pretty much the same: "The yield curve is inverted, we're gonna have a recession," "Jeeez where is that recession?," and so on. There is always a lot of chatter about the correlation between the yield curve and a subsequent recession, but it always turns out that the uncertain timing means that the yield curve information is not actionable for investors. Actually there are many "leading economic indicators" that together still don't allow the economists to accurately predict recessions. For more on this, read Nate Silver's "the signal and the noise" or at least his chapter on economic forecasting.

Whenever the yield curve inverts there are always those who offer various naive methods for forecasting the "inevitable" recession and taking advantage of that knowledge. Sometimes someone gets lucky, like our @vchan here on his exit decision. (He still has to re-enter successfully to declare a win.) But think about this: there are a lot of smart people out there. (@vchan might even admit that there is probably a tiny sliver who are smarter than he is.) If yield curves did provide consistently reliable and investable information, those smart people would have had it arbitraged away by now. If you want to read something that is not naive, Google gave me this: https://www.bostonfed.org/publicatio...eld-curve.aspx from the Boston Fed. It discusses a number of indicators, including the yield curve. Regarding 2019, when @vchan went to cash: "After the stance of monetary policy is taken into account, the probability of a future recession as of the third quarter of 2019 is lower, often noticeably so, than the signal obtained by relying exclusively on the yield curve." Complicated stuff. (No I did not read the paper in detail.)

Another interesting aspect of @vchan's genius idea is the cause of the current recession*. He says he made his decision based on the financial indicators but the current recession has had nothing to do with financial indicators. It was caused by the pandemic and consequent shutdowns of economic activity. So does his view mean that the pandemic was simply a coincidence and that the recession would have happened exactly now, anyway? Certainly he does not think that the inverted yield curve predicted the pandemic?

This yield curve stuff seems to be all new to @vchan so I can see why he is quite excited about it. It is really pretty old news.

----------------------
*Technically I don't think we are officially in a recession. That is a lagging call, but I certainly think the call will be made at some point.
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Old 04-26-2020, 09:19 AM   #76
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What is wrong with Total Bond Index Fund VBTLX ??

The predominant portion of my fixed income is in VBTLX, apart from a minor portion in VWIUX Inter. Term Tax Exempt, & have nearly 3 yrs of living expenses in Online Savings. I have held VBTLX for a long time.

Am I missing something, I admit do not understand much about Bonds. Is ignorance the bliss my situation.

I am almost 64, & am at somewhere between 50/50 to 60/40 after the recent market upheavals.

What do you guys think ?
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Old 04-26-2020, 09:30 AM   #77
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I believe the timing between when the yield curve inverts and a recession is quite variable, so one could certainly miss out on market performance by quickly reacting each time this occurs.
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Old 04-26-2020, 09:32 AM   #78
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What is wrong with Total Bond Index Fund VBTLX ??


What do you guys think ?
Looks good to me!!!!
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Old 04-26-2020, 09:41 AM   #79
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What is wrong with Total Bond Index Fund VBTLX ??
... What do you guys think ?
I'm not keen of VBLTX as a long-term hold because of interest rate risk (duration is 16 years) and to a lesser degree, credit quality (45% in A and Baa credits).
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Old 04-26-2020, 10:05 AM   #80
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I must be missing something. The summary of VBTLX that I am looking at shows 81% is in high quality A - AAA bonds, no junk and the duration is 6.22 years. As a core intermediate holding, I think that’s fine.
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