bond funds or cash reserves

[ripper1]

How much are people willing to go to cash reserves from bonds at this time? How much and why?

 

[pb4uski]

I have been nervous about the interest rate risk associated with bonds, particularly bond funds, for years... still am. In 2019 many of us found some really good values in some credit union CD specials... 5-year CDs at 3.5% and 3.0%.

Only one of those remains to my knowledge... Navy Federal is still offering a 37-month 3.0% IRA CD according to its website. https://www.navyfederal.org/products-services/checking-savings/certificates-rates.php

That said, I have a lot of cash right now but that came from stock sales and not bond sales. I'm temporarily parked some in VSGDX to eek out a little more yield (1.59% SEC yield) and accepting a smidgeon of interest rate risk (2.2 duration) as I don't see interest rates going up very soon.

 

[Stormy Kromer]

I don't have any dedicated bond funds, but I do have a significant portion invested in VG Balanced Index Fund.


Going forward I am going to rebalance to 3 years cash, VG MM Fund, and the rest in a couple VG stock index funds.


Bonds have their purpose, but I've learned that they can go down in value, and they don't have the long term growth potential as equities. I also learned the hard way that if you buy an individual bond and rates go down that it can get called in. I've also seen them default. I'm not a bond guy.


Sometime in the future interest rates are going to go up. How are bonds going to perform ? I'm more comfortable with cash and diversified equites.

 

[Freedom56]

I have 41% cash (money market) and 59% in individual corporate bonds and CDs maturing between 2021 and 2031. My cash position will increment monthly as coupon payments come in. I had 20% cash going into the market sell-off and around mid March I was at about 1% cash and 99% corporate bonds. I have been selling off portions of my portfolio as prices have risen so far above par for many of my bonds/notes that they were not worth holding to maturity. I will wait for the next sell-off to buy back in. I have a shopping list ready of corporate bonds/notes that I will buy during the next sell-off. I keep to a discipline of buying bonds during periods of fund selling and sell them when their YTM is close to the best CD yields of the same duration.

 

[COcheesehead]

I am not a bond fund guy. I don’t like the risk to NAV.

I built and maintain about a 7 year bond ladder.

I can design my own paycheck with accuracy and relative safety.

I know individual bonds aren’t for everyone, but I understand them and enjoy hunting for them.

 

[Toddtheformeraccountant]

I try to keep a standard constant asset allocation between bonds in general and equities. As for my bonds, I've tended towards mid-range maturities for the last several years, because the yield curve is so flat..and so little extra yield for going long.

So to answer your question directly, I'm not changing my asset allocation, no, so my cash vs. bonds vs. equities ratio has remained constant (other than equities becoming a smaller percentage due to losses, because I haven't rebalanced yet).

 

[audreyh1]

I have a big chunk in high quality bond funds, and I am fine with that. I also have a good amount of cash both in the retirement portfolio and in short-term funds.

 

[donheff]

I liquidated enough cash to last two or three years in a crunch. But that is a small portion of our portfolio which remains at our target AA.

 

[tdv2]

Both for me. I have about 4 years of living expenses in cash or equivalents. As far as bonds go, I prefer bond index funds and have about another 15-20 years of spending in there. This is of course assuming inflation doesn't go over about 3%.....I know....could be a bad assumption out there in a few years. I'm strongly considering acquiring some TIPS now....have never owned them in the past.

 

[vince]

I have both. Two years of cash and a mix of short/intermediate/total bond funds

 

[2017ish]

No change for us. Bonds essentially 50/50 VFSUX and VBILX, at >15 years of moderate/low spending. True cash is one year of moderate/low spending, with the VFSUX still deemed quasi-cash despite the more-than-zero level of risk demonstrated again in March.

("moderate/low" spending is probably more than we'll be able to spend this year, FWIW)

 

[davebarnes]

Steady as she goes

We have cash for 6 months of withdrawals.
We have FTBFX (Fidelity Total Bond Fund) for 70 months of withdrawals. This is up a tiny bit from January 2020.
We have THOPX (Thompson Bond Fund) for 32 months of withdrawals. This is down 9% since January and I am not happy.
So, assuming the bond funds don't crater, we are good for 9 years before needing to sell stocks.
Probably too much in this "bucket", but, right now, I am making zero changes.

P.S. My Fido "advisor" told us last August that we should reduce stocks and expand bonds. I ignored his advice.

 

[retired1]

All cash reserve in checking, saving, and CD accounts earling from 2% - 3%.... just enough to keep with inflation rates (hopefully)

 

[pb4uski]

...We have THOPX (Thompson Bond Fund) for 32 months of withdrawals. This is down 9% since January and I am not happy. ...

I don't blame you... that is down almost as much as stocks.

 

[tdv2]

I don't blame you... that is down almost as much as stocks.

I was thinking the same thing.....and that performance doesn't come cheap...the expense ratio is 0.7% on that fund.

 

[VanWinkle]

Risky bond funds lead to volatility beyond the Total Bond Market. I would not leave cash for a risky bond fund. Having said that, I just invested another 2 years of withdrawals into a short term bond index due to a yield around 2-3% vs the .59 of money market funds. I also have another year of cash in my high
yield rewards checking. If you reach for higher yield with bonds, it will eventually show why it is higher risk. My bond funds have reduced my
portfolio losses by more than 50%. That is why I have them.

 

[audreyh1]

I was thinking the same thing.....and that performance doesn't come cheap...the expense ratio is 0.7% on that fund.

Looking at what that fund owns - a lot of corporate and a large chunk in BBB rated issues plus more even lower rated, yeah its credit quality wasn’t that high, and those funds often get beat up during bear markets.

Has there been any recovery in the last two to three weeks?

 

[pb4uski]

No... it just leveled off. THOPX is orange line vs VTSAX... both YTD. THOPX is down ~8.9% YTD vs ~9.2% for VTSAX.

 

[audreyh1]

Wow, that’s pretty bad!

Even DODIX which was hit very hard during the worst of it, has managed to recover to positive YTD. It turned around once the Fed was allowed to buy higher quality corporate bonds.

So it really makes me wonder about THOPX.

 

[hulurt1]

I'm 67. have 3 years of cash in MM to get me to SS. I have 600000 in the market will stay there for 10 years. What would you do with 500000 that is also siting in cash. I have about 1000 a week coming in from may Ira to live on but save 1/2 of that to savings. I live on about 2500 a month. what would you do with the 1/2m what bonds. Thanks
My Roth has 200000 in the market. I'm adding 25000 to that

 

[tdv2]

Looking at what that fund owns - a lot of corporate and a large chunk in BBB rated issues plus more even lower rated, yeah its credit quality wasn’t that high, and those funds often get beat up during bear markets.

Has there been any recovery in the last two to three weeks?

Proof once again that there are no free lunches. This came up a couple of week ago with a discussion on DODIX which holds some higher yield lower quality corporates. At least that fund came back quite a bit in the last few weeks....now down 0.7% on the year. Typical intermediate core bond index funds like FSNAX or VBIUX are up better than 3% YTD.

 

[audreyh1]

Yeah, FXNAX is up like 4.85% YTD.

 

[pb4uski]

I'm 67. have 3 years of cash in MM to get me to SS. I have 600000 in the market will stay there for 10 years. What wouuld you do with 500000 that is also siting in cash. I have about 1000 a week coming in from may Ira to live on but save 1/2 of that to savings. I live on about 2500 a month. what would you do with the 1/2m what bonds. Thanks
My Roth has 200000 in the market. I'm adding 25000 to that

I assume that the cash is in a taxable account and not an IRA?

If so, I think I would stay in cash... put it in an online savings account... they pay about 1.5% or so and are FDIC insured... but with $500k need to get a couple different ones since the FDIC limit is $250k. Also, shop around for any credit union CD specials. Keep an eye on this thread: https://www.early-retirement.org/fo...ead-2020-please-post-updates-here-101376.html

If it is in an IRA and you qualify for membership, Navy Federal is running a CD special for 3% APY for 37 months. https://www.navyfederal.org/products-services/checking-savings/certificates-rates.php

I'm not so keen on bonds these days due to interest rate risk and credit risk... online savings and CDs don't have those and if you shop around the returns can be pretty good.

What do you expect your tax bracket to be once you are on SS? I would also probably trim back on tIRA withdrawals to just what you need and then do Roth conversions to the top of the tax bracket that you'll be in once you are on SS.

 

[tdv2]

Yeah, FXNAX is up like 4.85% YTD.

Expense ratio is also very favorable at 0.03%.

 

[DawgMan]

This has been on my mind as well. It took me a while, but I made peace with the fact I should probably be looking at my bond allocation as being more a ballast against the volatility of my equity allocation, as opposed to a total fight for yield. I have been a bond ETF guy with most of my bond allocation in intermediate bonds with a portion in short term treasuries. YTD, all are up in total return in the 2 - 3% range which is better than a sharp stick in the eye (and better than money markets), but at what point do the forces say there is only one way for interest rates to go but up... or at best stay flat in the short term?? I can see there might be alternatives in individual bond & CD ladders, but should we be in anything at this point other than short term bonds (if you buy into their main objective of being a ballast) for the foreseeable future?