Short-term BF or MMPrime?

[BOBOT]

I've got my liquid assets divided between VG ST Inv. Grade Bond and MM Prime. The current yield is almost exactly the same. Does it make sense to sell the bond fund & put the $ in the MM? The bond fund has been sagging for a year, I guess on inflation worries, but since July has rebounded somewhat.
This is money I will probably start drawing on in about 12-18 months (will be FIREd on 1/24/07).
Thanks for insights ==

 

[renferme]

Bobot,
I asked a similar question the other day and got very few responses.
Hope you do better.
.
Vanguard MM Prime paying 5.11% yield
and VG ST Inv.Grade Bond 5.12 % so the question is:
what is going to happen with bond funds like this one?
Which is better? If both stay the same, obviously just stay the course.
Will the Fed continue to raise rates which will hurt bond funds ?
Or is the Fed done and bond funds will do better ?
.
I had hoped some of our experts would respond, but since they did not,
my opinion, at least for the short term, is to stay in the MM fund.
Probably DO NOTHING for now. But then again, what do I know, else I
wouldn't have asked the question in the first place.
Sorry for the confused answer.

 

[mickeyd]

Hey Bobot,

My ST investment portfolio is pretty much like yours. I have not considered making an adjustment because I tend to stay with my decisions for the long term. Sometime this can come back and bite me in the a$$ but with ST funds it probably doesn't make a heck of a lot of difference.

Because interest rates are increasing, all bond funds are down a bit, but that is the nature of the investment. If you can make it work in your favor you might consider selling the ST bond fund.

Last year I sold 100% of my ST fund shares in Dec. and took a loss of about $350, but the reason that sold the fund was so that I could capture the loss as I had a gain that was even larger than that so the gain was partially offset by my $350 loss. After 30 days I bought back the ST bond fund and still hold .t.

 

[TromboneAl]

This thread may be somewhat relevant, although it discusses short term bond vs. total bond funds.

 

[Texas Proud]

I will say (without looking into it) that the yield is 'low' on the ST Corp fund because that rates have been rising... it has some 'friction' (my word) of the older bonds they bought during the last year that have been reduced in price with the interest rate going up... over the next year, these will mature and new ones with higher rates will replace them and the yield will go up... How long will it take I do not know...

 

[AltaRed]

I think it's a crap shoot whether Feds stay the course, raise a bit more because CPI is still too high, or late 2007 start to drop rates if a US recession comes on too hard. My take is to bet (diversify) 50/50 on MMF and ST Bond fund.

 

[mathjak107]

there is no answere anyone can give you as we just dont know....the money market is a bet rates will stay the same or rise...bond funds are a bet rates will stay the same or fall.....since no one knows and we all just speculate and my own seat of the pants guess is we are far closer to the end of the rises than the middle or beginning id say split it 50/50 too...my own feelin though is the rates arent high enough to make the short term bond fund worth the trouble,,not enough spread to accomplish much on either end or long enough duration to provide the benefits of bonds ,id split it between 1/3 in the the money market ,1/3 in a short term bond fund and say 1/3 in agg or fidelity strategic income at this point.....

 

[brewer12345]

If this is money you will need to live on soon and you are counting on it being there, I would stick it in the MMF. It makes no sense to take risk with money you need to live on.

If this is money that you consider part of your portfolio, follow your chosen aset allocation.

 

[mathjak107]

exactly brewer