Change Asset Allocation 80 Stock / 20 Cash?

[djustind]

Can someone please give me a reason to invest a portion of the cash allocation in short/intermediate term bonds vs keeping cash? Currently earning 5%+ in VMFXX (money market).

In my current allocation of 80/20, 20% cash represents 4.5 years of expenses so I feel like I have enough cushion to weather a downturn. The equity portion is mostly VTI/VOO.

About a year from retirement.

Thanks,

David

 

[HI Bill]

Given the really poor bond fund performance of late (especially BND), I think a money market account such as VMFXX is fine. I just took my RMD today by selling BND. No reason to keep losing money year after year...! Especially when the rate of return is near 5%!

 

[disneysteve]

Can someone please give me a reason to invest a portion of the cash allocation in short/intermediate term bonds vs keeping cash? Currently earning 5%+ in VMFXX (money market).

Sure I can.

The interest rate on a bond is fixed for the life of the bond. As long as you hold it until maturity, you'll earn that rate the whole time whether it's 3 months or 30 years or anything in between.

The rate on your money market is variable. Right now it's fantastic and I've got money in VMFXX too, but rates have already started slipping and are expected to get cut a few times in 2024 so that 5.3% isn't likely going to last much longer.

If that cash represents over 4 years worth of expenses, now would be the time to lock in some of it in a ladder of issues to mature over time matched with when you anticipate needing the funds. You'll probably give up some interest in the near term but a couple of years from now, you'll probably be glad you locked in at 4.7 or 4.5%.

 

[ncbill]

Yep, I just do Treasury MM for fixed income, no bonds.

 

[DrRoy]

You should be able to find better returns, and lock them in for longer.

 

[mrfeh]

Given the really poor bond fund performance of late (especially BND), I think a money market account such as VMFXX is fine. I just took my RMD today by selling BND. No reason to keep losing money year after year...! Especially when the rate of return is near 5%!

a) what happened in the past is irrelevant; investors care about what happens in the future
b) BND total return was 5.7% last year

OP - you need investments that fit your horizon for when you need the money. Total bond is a fine option for money you'll need in >5 years.