pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
+1 a lot of interest rate risk with a duration of 18.3 one would not want to get caught flat-footed if rates start rising.
bond funds or cash reserves
- Thread starter ripper1
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+1 a lot of interest rate risk with a duration of 18.3 one would not want to get caught flat-footed if rates start rising.
You really do not understand how a treasury mutual fund work.
If though there are bonds within VUSUX with an average duration 18.3 years, you can buy and sell VUSUX shares within the same year or even within the same month.... so you have liquidity just like a equity mutual fund or a total bond index fund which may also have long term treasuries with a duration of 18.3 years.
In fact, when the interest do rise, I have the option to sell all my shares of VUSUX and buy equities or another asset class when the time comes.
VUSUX has a minimum $50,000 buy in. However, there is a similar Long term treasuries mutual fund VUSTX with a minimum $3,000 buy in. VUSTX has slightly higher expense ratio.
People had contacted me via private emails on questions on treasuries. I usually responded that the best way to learn about treasuries is to invest $3,000 in VUSTX. All investors should go through a learning curve in different asset classes. However, that is your choice whether you want to learn something new or not.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Yes, I understand that you can sell if you see rates rising... hence the flat-footed comment. You did read that did you not? Why was it so confusing to you?
Montecfo
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Funds which attempt to track the Bloomberg Barclays Aggregate US bond index which is a capitalization weighted index of intermediate term investment grade US bonds.
https://en.wikipedia.org/wiki/Bloomberg_Barclays_US_Aggregate_Bond_Index
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Ok I get your flat footed comment now. I got confused with tdv2 original comment and I should have quoted tdv2 comment and not your comment in my response. Anyway I hope my previous comments were helpful to people who are not familiar with treasury bond mutual funds. I originally had a total market index bond fund but I started to learn the differences between high yield bonds, AAA bonds, treasury bonds, etc during a bear market and during a bull market. The only bond that rises during a bear market are treasury bonds. During a bull market, treasuries tend to perform poorly because investors tend to take money from treasuries and into equities. If the dow zoom past 29555, then I will do the same.
As far as I am concerned you have provided no explanation of how a bond mutual fund works. What you have implied is that you can move in and out of long and short treasuries as well as equities to capture large returns. At the end of the day there are two types of assets....risky ones and safe ones. For those of us constructing portfolios (not trading in and out of large positions) choosing the right mix is what it is all about.
The explanation is the links that I already provided. Trading in and out of large positions are what some investors do ...but not all. Results really matters. I am providing information and knowledge. If you do not want to use additional knowledge from the links that i provided, that is perfectly fine. However do not believe that choosing the right mix and being passive is the only way to go. Being pro-active is another way provided you have more knowledge.
Case in point. This nation was passive when the corona virus hit due to lack of knowledge but next time I expect this nation will be more pro-active. I got caught being passive during the last recession in 2008 just like everyone else. This time I was prepared. I became more pro-active and here are the result: "This is my best bear market ever". I will let you argue with success. In the future in about 10 years when the yield curve inverts, i will continue to be pro-active and you can continue to be passive and you can ignore the opportunities that treasuries can potentially provide in the links that I provided. That is your choice which I respect since I was a passive investor in 2008.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
tdv2, I think what vchan2177 is saying is that by holding the long-treasury fund he can get the benefit of a higher yield while it lasts and then get out of it when rates start to rise and the NAV starts to drop.
The thing is that the SEC yield of VGLT is only 1.19% and the portfolio average yield to maturity is only 1.3% and distribution yield based on the last 3 months is only 1.86%... so the income isn't all that attractive given the interest rate risk.
With those low yields in relation to duration it seems like it is just mostly a capital gains play... buy at $104.12, put in a stop loss to protect yourself and try to ride it up and sell at a gain.... but since rates are already so low it look like the opportunity to eek out a gain in the near term is limited unless rates do indeed go negative.
The thing is that the SEC yield of VGLT is only 1.19% and the portfolio average yield to maturity is only 1.3% and distribution yield based on the last 3 months is only 1.86%... so the income isn't all that attractive given the interest rate risk.
With those low yields in relation to duration it seems like it is just mostly a capital gains play... buy at $104.12, put in a stop loss to protect yourself and try to ride it up and sell at a gain.... but since rates are already so low it look like the opportunity to eek out a gain in the near term is limited unless rates do indeed go negative.
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OldShooter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Yup. Great scheme. All it requires is that the investor can see the future. There are a lot of schemes like that.
Sunset
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I really appreciate a lot of the input in this thread, as I've never really been a bond buyer, especially over the past 10 years.
I have dipped my toes into it, as a capital preservation holding, buying funds/etf's and even actual bonds/cds via brokerage website.
I will say, I've found the bond fund/etf purchasing a LOT easier than buying an individual bond. I have not tried Schwab to buy a bond/treasury yet.
I've been pleased with BND during this time, and welcome folks discussing their favorite choices.
I have dipped my toes into it, as a capital preservation holding, buying funds/etf's and even actual bonds/cds via brokerage website.
I will say, I've found the bond fund/etf purchasing a LOT easier than buying an individual bond. I have not tried Schwab to buy a bond/treasury yet.
I've been pleased with BND during this time, and welcome folks discussing their favorite choices.
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.
OldShooter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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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pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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.
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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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.
COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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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.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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.
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.
COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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.
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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Markola
Thinks s/he gets paid by the post
Wow! That’s a bold but defensible move, given the odds of carnage ahead vs. blue skies. Best wishes.
copyright1997reloaded
Thinks s/he gets paid by the post
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.
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.
OldShooter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Oh, I think 45 years of mostly successful investing experience has provided a pretty good education.... OldShooter - perhaps you need some 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/publicati...dicting-recessions-using-the-yield-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.
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*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.
