Are bond funds a good parking place for liquidity?

[COcheesehead]

Kind of tempting to me, even though I also write calls and such. You do it for fun though, so I can see how putting $3 million into 20 year treasuries and just getting $150,000 every year even if Canada invades Greenland would be boring. I keep thinking that $150,000 would buy a lot of small boats and solar panels.

Sorta what I did, but with laddered muni bonds. They throw off all our needed income. All our other assets can bounce all over the place and it won’t matter.

 

[HappilyRetired]

I have 2.7 yrs of expenses in cash in a higher yield money market (current is 3.67%) in Fidelity. All else is invested in equities. The average Bear market lasts 2.7 yrs historically, so I don’t have to sell any stock shares if I need to supplement my income during a Bear market. GLTA

 

[Randy145]

I have 2.7 yrs of expenses in cash in a higher yield money market (current is 3.67%) in Fidelity. All else is invested in equities. The average Bear market lasts 2.7 yrs historically, so I don’t have to sell any stock shares if I need to supplement my income during a Bear market. GLTA

Which fund are you getting 3.67 interest in? FZDXX, for example, is at 3.47 for 7-day yield.

 

[DEC-1982]

I have never thought of bonds or bond funds as cash so watching this thread has been interesting.

 

[mailbagman]

I have never thought of bonds or bond funds as cash so watching this thread has been interesting.

Since I live in Pennsylvania I have invested in Tax Free Muni's. VPV and NQP. no Fed, state or local tax's/ All exempt, covers all my monthly bills, plus insurance and property tax's.

 

[mrfeh]

Since I live in Pennsylvania I have invested in Tax Free Muni's. VPV and NQP. no Fed, state or local tax's/ All exempt, covers all my monthly bills, plus insurance and property tax's.

Ok...but that doesn't make them equivalent to cash.

 

[Al18]

I don't like bond funds and don't invest in them. According to PortfolioVisualizer, VPV lost 26.3% in 2022. It lost money during that 5 year period ending in August, 2025 and has only been profitable since then.

By comparison, my rolling CD ladders have returned a total of 18.0% during that period, and the worst year was 2021 when they were up 2.62% during that year. Never lost a penny with CD's during my lifetime.

 

[Fermion]

I can't come up with a high inflation scenario which is why I lean toward the 5% yield on the 20 year treasuries. 6% would be a no brainer but I think 5% is reasonable. We got 6% for a few months a couple years back.

Either LLM will lead to massive productivity gains which would mean high unemployment and cheap products, ie, no inflation

or LLM will crash, causing companies to fold, leading to high unemployment and more expensive products with nobody having money to buy them, ie, no inflation

 

[COcheesehead]

I don't like bond funds and don't invest in them. According to PortfolioVisualizer, VPV lost 26.3% in 2022. It lost money during that 5 year period ending in August, 2025 and has only been profitable since then.

By comparison, my rolling CD ladders have returned a total of 18.0% during that period, and the worst year was 2021 when they were up 2.62% during that year. Never lost a penny with CD's during my lifetime.

Individual instruments like CDs or bonds have a par, a preset value they will return to at maturity. Funds do not have a par. I live off a muni ladder and own it because it has a par. Capital preservation is one of my investment goals.

 

[Al18]

COcheesehead,
That's a great strategy also. MYGA would be another good choice in my opinion - only have 1 now and thinking about another.

 

[mailbagman]

Ok...but that doesn't make them equivalent to cash.
View attachment 62544

Not sure where you can find any other bond funds paying on average of 7% tax free in PA. If so let me know.

 

[mrfeh]

Not sure where you can find any other bond funds paying on average of 7% tax free in PA. If so let me know.

Never said you could.

But, they aren't cash equivalent.

 

[Box of Rain]

I have 2.7 yrs of expenses in cash in a higher yield money market (current is 3.67%) in Fidelity. All else is invested in equities. The average Bear market lasts 2.7 yrs historically, so I don’t have to sell any stock shares if I need to supplement my income during a Bear market. GLTA

If you are prepared to ride out the average Bear, you are going to be having to sell stock shares during a down market for half of the bear markets? OK, not exactly, but my point is that 2.7 years is the average and many bears are "larger than the average bear"(!). I think that the data says that the longest bears from peak to recovered peak is about 7 years. So, we have a 60/40 asset allocation, but within that 40% of fixed income is a 7 year Treasury note ladder with enough money in each rung for one year's spending.

 

[Box of Rain]

Individual instruments like CDs or bonds have a par, a preset value they will return to at maturity. Funds do not have a par. I live off a muni ladder and own it because it has a par. Capital preservation is one of my investment goals.

I just do not like bond funds and never have liked them. They are NOT the same as owning bonds. They are mutual funds that invest in, and trade bonds and the interest payments and proceeds of trading are shared proportionately with the mutual fund investors. Totally different than buying a bond and holding it to maturity and then redeeming it to get your principal back. Yes, there's a risk that you might need the money before maturity and then might have to sell it instead of holding it. But that's why you think about what you are doing before doing it. In other words, make sure you ALSO have some other amount of money in accessible sources such as MM fund, HYSA, etc so you are very unlikely to ever need to sell the bonds you had planned to hold until maturity. You have to think about what you are doing, why you are doing it, and what is best for you and ignore the fear that someone else has a better way and is making more money on their investments than you are. Do what's right for you. I don't think bond funds fall into what's right for pretty much anyone compared to owning actual bonds.

 

[pb4uski]

I just do not like bond funds and never have liked them. They are NOT the same as owning bonds. They are mutual funds that invest in, and trade bonds and the interest payments and proceeds of trading are shared proportionately with the mutual fund investors. Totally different than buying a bond and holding it to maturity and then redeeming it to get your principal back. Yes, there's a risk that you might need the money before maturity and then might have to sell it instead of holding it. But that's why you think about what you are doing before doing it. In other words, make sure you ALSO have some other amount of money in accessible sources such as MM fund, HYSA, etc so you are very unlikely to ever need to sell the bonds you had planned to hold until maturity. You have to think about what you are doing, why you are doing it, and what is best for you and ignore the fear that someone else has a better way and is making more money on their investments than you are. Do what's right for you. I don't think bond funds fall into what's right for pretty much anyone compared to owning actual bonds.

I agree with much of what you wrote but there is one fairly new category of bond funds that are different... target maturity bond ETFs. Target maturity bond ETFs buy and generally hold a portfolio of bonds that mature in a stated year, for example 2030, then in December of 2030 after all the bonds held in the portfolio have matured the fund does a terminal distribution (akin to a maturity for an individual bond) nd the fund no longer exists.

I hold a ladder of these rather than a bond fund. That way, if I need cash prior to maturity, I have choices as to which rung of the ladder to redeem and of course, just like individual bonds, the value of the ETF converges to the portfolio par value towards the maturity year.

 

[Contrarian]

I agree with much of what you wrote but there is one fairly new category of bond funds that are different... target maturity bond ETFs. Target maturity bond ETFs buy and generally hold a portfolio of bonds that mature in a stated year, for example 2030, then in December of 2030 after all the bonds held in the portfolio have matured the fund does a terminal distribution (akin to a maturity for an individual bond) nd the fund no longer exists.

I hold a ladder of these rather than a bond fund. That way, if I need cash prior to maturity, I have choices as to which rung of the ladder to redeem and of course, just like individual bonds, the value of the ETF converges to the portfolio par value towards the maturity year.

I like the concept and especially the instant diversification but if investors can sell (force redemptions) of the fund before maturity date wouldn't it be subject to same issues as a bond fund in general until it approaches its maturity date? Then maybe little downside but also little upside? With individual bonds, though market price may for a while go down if rates go higher, it will return to par if I simply hold till maturity, absent default. Maybe am wrong. Don't own any. Do you have any suggestions for consideration of purchase so can review performance?

 

[pb4uski]

I like the concept and especially the instant diversification but if investors can sell (force redemptions) of the fund before maturity date wouldn't it be subject to same issues as a bond fund in general until it approaches its maturity date? Then maybe little downside but also little upside? With individual bonds, though market price may for a while go down if rates go higher, it will return to par if I simply hold till maturity, absent default. Maybe am wrong. Don't own any. Do you have any suggestions for consideration of purchase so can review performance?

I don't think that sellers force redemptions with ETFs like the might with mutual funds. If you sell an ETF another investor is buying and that is why they trade at slight premiums or discounts to NAV.

I have the BlackRock iBond series though I have owned Invesco Bulletshares in years past.

 

[Contrarian]

Not sure. When there is excess supply of an ETF (more sellers than buyers), APs (Authorized Participants) will buy the ETF shares from the market and redeem them with the issuer to reduce the supply. Are you possibly speaking about CEFs, closed ended funds vs. etf (exchange traded funds)?
But will look at IBDV, i Shares Dec 30 Term Corp. One thing about buying individual bonds is some difficulty with diversification. Interesting post.

 

[pb4uski]

I'm transitioning to target maturity bond ETFs from individual bonds to simplify our investments for DW and DD should I get hit by a beer truck.

 

[COcheesehead]

I think you have to enjoy the hunt in order to buy individual bonds. They can provide nice value, but there is a learning curve.
I enjoy it. I could probably build a nice ladder for someone in less than a few hours.
Replacing bonds in my ladder is something I look forward to. It’s fun. I am weird.

 

[Fotodog]

I think you have to enjoy the hunt in order to buy individual bonds. They can provide nice value, but there is a learning curve.
I enjoy it. I could probably build a nice ladder for someone in less than a few hours.
Replacing bonds in my ladder is something I look forward to. It’s fun. I am weird.

I agree, I’m the same! Schwab makes it easy to filter through types of bonds, maturity dates, YTM, etc. Since MM funds are still earning a decent return, you can be patient and hold cash there until something desirable comes up. I’m sure the other brokers like Fidelity work well too, although the search function in JP Morgan, which I use for my muni bond ladder in my brokerage account is not quite as robust.

 

[pb4uski]

I think you have to enjoy the hunt in order to buy individual bonds. They can provide nice value, but there is a learning curve.
I enjoy it. I could probably build a nice ladder for someone in less than a few hours.
Replacing bonds in my ladder is something I look forward to. It’s fun. I am weird.

I get it. I enjoy the hunt too, but concede that I find the higher yield of callables often very enticing. For me the simplification going from individual bonds to target maturity corporate bond ETF is to simplify things for DW who has only fleeting interest in investing. A by-product of this shift is that the bonds in the target maturity corporate bond ETFs are more non-callable so while the yields are lower the call risk is much lower.

 

[COcheesehead]

I get it. I enjoy the hunt too, but concede that I find the higher yield of callables often very enticing. For me the simplification going from individual bonds to target maturity corporate bond ETF is to simplify things for DW who has only fleeting interest in investing. A by-product of this shift is that the bonds in the target maturity corporate bond ETFs are more non-callable so while the yields are lower the call risk is much lower.

With bonds I have 3 goals: income, capital preservation and also resilience. So agency bonds or other callables can provide a short term pop, but they fall short on their “Durability”.

 

[jazz4cash]

I just do not like bond funds and never have liked them. They are NOT the same as owning bonds. They are mutual funds that invest in, and trade bonds and the interest payments and proceeds of trading are shared proportionately with the mutual fund investors. Totally different than buying a bond and holding it to maturity and then redeeming it to get your principal back. Yes, there's a risk that you might need the money before maturity and then might have to sell it instead of holding it. But that's why you think about what you are doing before doing it. In other words, make sure you ALSO have some other amount of money in accessible sources such as MM fund, HYSA, etc so you are very unlikely to ever need to sell the bonds you had planned to hold until maturity. You have to think about what you are doing, why you are doing it, and what is best for you and ignore the fear that someone else has a better way and is making more money on their investments than you are. Do what's right for you. I don't think bond funds fall into what's right for pretty much anyone compared to owning actual bonds.

Agree, generally. Another reason I prefer individual issues is that in case of emergency I can liquidate individual issues that may be less distressed, near maturity, etc. With a bind fund I would be forced to sell everything proportionately, bad and not-so-bad. Also, laddering is easier but I would consider using target date maturity funds.

 

[HappilyRetired]

Which fund are you getting 3.67 interest in? FZDXX, for example, is at 3.47 for 7-day yield.

I’m in the higher rated money market called FMPXX.