401K - timing move from stable fund back to bond fund

[baseman250]

Hi all,

There are threads specific to bonds/bond funds/treasuries but none seem appropriate for this particular topic, so here we go.

For perspective, my 401K makes up 52% of my entire nest egg. The AA inside of the 401K is 56/44. (Entire nest egg AA is about 65/30/5.) Options within the 401K are limited. (I can't trade individual bonds.)

A while back, I did move out of an age-based fund into a total stock fund (FSKAX) and stable fund while maintaining the same AA in hopes this would limit losses as bond funds unwind, but I assume at some point, considering the options I do have, getting back into bonds (via the only available bond fund) would be better than sitting in the stable fund.

This is my bond fund option: FXNAX
I've compared to BND and it charts pretty much the same.

Based on the bond/bond fund threads I've been reading, it seems this "golden period for fixed income" was somewhat predictable. Can we somewhat predict when it might be time to move back to a bond fund if the only other option is a stable fund earning barely 2%?

Thanks,

 

[Spock]

If you are not working at the company sponsoring your 401k you can move the $ out of the 401k to a rollover IRA and buy individual bonds.

The stable value fund in my 401k is the only fund (out of ~200 choices) that is not negative YTD.

 

[baseman250]

I am still working.

If you are not working at the company sponsoring your 401k you can move the $ out of the 401k to a rollover IRA and buy individual bonds.

The stable value fund in my 401k is the only fund (out of ~200 choices) that is not negative YTD.

 

[Dash man]

I am still working.

I would avoid any bond fund in this rising interest rate environment. The Stable Value fund is better than any bond fund right now.
But you need to look at your entire portfolio. If you have accounts outside of your 401k where you can buy bonds that you can hold until maturity, you should consider putting some of your fixed income allocation there, and increasing your equity allocation in your 401k.

 

[baseman250]

I’ve already been buying individual bonds in these other accounts where dollars are available. Reducing dollars in the stable fund and increasing bonds elsewhere beyond what I’ve already done will result in a major tax event if done in my brokerage account or would require me to change a Roth to bonds that is currently all equities, and that would still only be about half of the stable fund. The DW also has a Roth with all equities that could be in play, but holding bonds in Roth accounts seems wrong, but yeah, using both would get me most of the way there.

If you have accounts outside of your 401k where you can buy bonds that you can hold until maturity, you should consider putting some of your fixed income allocation there, and increasing your equity allocation in your 401k.

 

[Dash man]

I’ve already been buying individual bonds in these other accounts where dollars are available. Reducing dollars in the stable fund and increasing bonds elsewhere beyond what I’ve already done will result in a major tax event if done in my brokerage account or would require me to change a Roth to bonds that is currently all equities, and that would still only be about half of the stable fund. The DW also has a Roth with all equities that could be in play, but holding bonds in Roth accounts seems wrong, but yeah, using both would get me most of the way there.

Keeping equities in Roth accounts is wise. I’d use the stable value fund.

 

[jazz4cash]

Are you absolutely positive your 401k does not allow in-service rollovers? Have you read the Summary Plan Description or Prospectus?

 

[baseman250]

I actually started looking into this today, but I’m guessing Fidelity will tell me to talk with our “plan administrator” — the local HR manager, and she’s not exactly the most competent person I’ve met.

I fear getting to a point of no return and finding out a mistake was made that triggers a huge tax obligation, but maybe I will make some inquiries tomorrow.

Are you absolutely positive your 401k does not allow in-service rollovers? Have you read the Summary Plan Description or Prospectus?

 

[daylatedollarshort]

Some 401Ks have a brokerage account option. Two of ours do, so I move money to those and buy Treasuries from there.


When to move back? Keep an eye on yields of the funds vs. Treasuries, the unemployment rate, the Fed minutes / Powell speeches / member interviews, real interest rates and inflation. When the Fed indicates they are done raising rates, unemployment is rising, real interest rates are zero or higher, and the month to month inflation (PCE) is no more than 2% annualized over several months - those are all indicators the Fed won't keep raising rates and inflation is under control.

 

[copyright1997reloaded]

I actually started looking into this today, but I’m guessing Fidelity will tell me to talk with our “plan administrator” — the local HR manager, and she’s not exactly the most competent person I’ve met.

I fear getting to a point of no return and finding out a mistake was made that triggers a huge tax obligation, but maybe I will make some inquiries tomorrow.

Request the 401K SPD (Summary Plan Description), which likely discusses whether in-service rollovers are allowed.

 

[monte1022]

I'm in the same boat with the same bond fund choice. "Brokeragelink" in my Fidelity 401k will not allow for individual bond purchases. For now, I'm holding 900k in Metlife stable value at 1.91%. The new (and hopefully higher) rate will start 1/1/23. My plan is to ride the SV fund until I get the moment you are looking for and then move a percentage to FXNAX.

 

[daylatedollarshort]

Baserman250, another option is to see if you can take a loan out on your 401K. We've done that, and the "interest" gets paid back to your own account.

 

[jazz4cash]

I actually started looking into this today, but I’m guessing Fidelity will tell me to talk with our “plan administrator” — the local HR manager, and she’s not exactly the most competent person I’ve met.



I fear getting to a point of no return and finding out a mistake was made that triggers a huge tax obligation, but maybe I will make some inquiries tomorrow.

It’s very good that you are looking into this. It’s part of DIY culture. You could try your HR plan administrator but sometimes they take the approach that the custodian (Fidelity) is paid to speak to employees. From personal experience, I would suggest asking Fidelity how to get a copy of the SPD or Prospectus. More than once the plan reps have told me I could not do something and I pointed out details in the SPD saying I could. My plan is with Fido also and they are pretty good but they have dozens of plans to monitor. I can access my plan documents from the Fido website.

 

[mrfeh]

This is my bond fund option: FXNAX
I've compared to BND and it charts pretty much the same.

Based on the bond/bond fund threads I've been reading, it seems this "golden period for fixed income" was somewhat predictable. Can we somewhat predict when it might be time to move back to a bond fund if the only other option is a stable fund earning barely 2%?

Thanks,

You haven't stated your age, or when you might need to use this money for living expenses.

if you don't need the money for at least 5 years, go back to total bond now.

 

[baseman250]

I'm 56 and see at least a semi-retirement in no more than 2 years. I have a small "off the radar" income stream that could come close to covering health care premiums, and there will likely be consulting opportunities. Point being, the WR will likely be pretty low at first; especially if the DW continues to work a little longer.

You haven't stated your age, or when you might need to use this money for living expenses.

if you don't need the money for at least 5 years, go back to total bond now.

 

[Freedom56]

I would stay away from BND/FXNAX. Passive bond funds like those with such low distribution yields are about to face massive redemptions as interest rates continue to rise. They are in a buy high sell low mode. In the case of BND, it is reaching the point of negative total returns since inception. The price of BND continues to fall, rates are rising, and their distribution yield continues to be pathetically low and even below 1 month treasuries. Then there is the issue of these funds overstating their asset values. Most bonds don't actively trade and some trade only a few times per year. Analysts are now questioning the basis for reporting net asset values. If stable value is your only other fixed income option, I would keep money there until rates stabilize. There is no rational argument for moving money into a bond fund with no capital protection and a distribution yield less than a 30 day treasury or money market fund.

 

[baseman250]

It turns out, dollars in my 401k that were rolled over from a previous employer plan are eligible for in-service rollover to an IRA (also in Fidelity) with no paperwork requirements. I was able to do it with a few clicks right on the Fidelity site.

In-kind for now (except for the stable fund, which will go to the FIDO GOV MM Fund I assume). It will take a few days for this transaction to complete.

It represents about half of what is in the stable fund, so I'm good with this; especially considering how easy it was.

Nice!

Are you absolutely positive your 401k does not allow in-service rollovers? Have you read the Summary Plan Description or Prospectus?

 

[daylatedollarshort]

In the case of BND, it is reaching the point of negative total returns since inception.

One or two more Fed hikes might accomplish that. The five year returns are now at 0%, ten year under 1%.

https://finance.yahoo.com/quote/BND/performance/

 

[jazz4cash]

It turns out, dollars in my 401k that were rolled over from a previous employer plan are eligible for in-service rollover to an IRA (also in Fidelity) with no paperwork requirements. I was able to do it with a few clicks right on the Fidelity site.



In-kind for now (except for the stable fund, which will go to the FIDO GOV MM Fund I assume). It will take a few days for this transaction to complete.



It represents about half of what is in the stable fund, so I'm good with this; especially considering how easy it was.



Nice!

Excellent. Are you using the Fido website? It’s pretty good but 401k rollovers usually require a call. My 2 employer plans plus Roth and t-IRAs all show up when I login.

 

[Poweruser]

Hi all,

There are threads specific to bonds/bond funds/treasuries but none seem appropriate for this particular topic, so here we go.

For perspective, my 401K makes up 52% of my entire nest egg. The AA inside of the 401K is 56/44. (Entire nest egg AA is about 65/30/5.) Options within the 401K are limited. (I can't trade individual bonds.)

A while back, I did move out of an age-based fund into a total stock fund (FSKAX) and stable fund while maintaining the same AA in hopes this would limit losses as bond funds unwind, but I assume at some point, considering the options I do have, getting back into bonds (via the only available bond fund) would be better than sitting in the stable fund.

This is my bond fund option: FXNAX
I've compared to BND and it charts pretty much the same.

Based on the bond/bond fund threads I've been reading, it seems this "golden period for fixed income" was somewhat predictable. Can we somewhat predict when it might be time to move back to a bond fund if the only other option is a stable fund earning barely 2%?

Thanks,

What a coincidence, today I started doing what you're proposing when I noticed my 401k stable value fund only yielding 0.17 for September. I exchanged all funds from the stable value to an international index fund.

In my Vanguard rollover IRA, I sold the equivalent amount in an international index. With the proceeds I'm planning to ladder short term treasuries up to 2 years but I'm still deciding what percent to put in each rung. Since the settlement fund currently pays a decent rate I'm leaning towards putting equal amounts in the following:

Settlement Fund
3-month
6-month
1-year
2-year

 

[baseman250]

No call needed. I did it all through the website. The total stock fund already showed up in the Rollover IRA overnight. Still waiting for the stable fund dollars.

Employer-sponsored 401k is with Fidelity.
I also already had a Fidelity brokerage account.

It knew about the dollars that qualified for in-service transfer and let me initiate without a phone call. It automatically created the Rollover IRA acct (which didn't exist at the time)... done.

Excellent. Are you using the Fido website? It’s pretty good but 401k rollovers usually require a call. My 2 employer plans plus Roth and t-IRAs all show up when I login.

 

[jblack]

I’m also in this situation. Most of our 20% bond allocation is my entire 401k in a bond fund and no option of in-service rollover other than a tiny slice of a former 401k rollover from 20yrs ago. My fixed income investment options to change are limited to a short-duration bond fund (2-3 yr vs 6-7 currently) or simply a money market fund. I may have to do the latter to side step further carnage. We are/were hoping to RE in the next 2-4 years.

Only other option is to put individual bonds or a stable value fund into my taxable accounts and I’m not sure if that is advisable with our high marginal tax bracket?

 

[xlf11]

Just opened a brokerage account within 401k and transferred bond fund (inflation protected fund, but losing 10+% so far). Brought brokered CD (3.3 to 4%) ladder the next day. Even the MM fund (earns about 2%) in brokerage account is better than SV in 401k. The only down side is $20/3 months maintenance fee, which is probably similar to SV anyway.

 

[Big_Hitter]

I thank my lucky stars for:

the stable value fund in my 401k (I rebalanced to half stable value and half equities late last year)
the decision to leave the entire balance in my prior employer's 401k after I retired (and still haven't rolled over a cent)

 

[Big_Hitter]

What a coincidence, today I started doing what you're proposing when I noticed my 401k stable value fund only yielding 0.17 for September.

since the benchmark for most SV funds are 90 day t-bills, they will be paying over 3% shortly, at least mine will