Go from bonds to ca$h ?

[wanaberetiree]

I am 60 and my spouse is 61.

All our IRAs (about ~20-25% of total assets value) are in bonds - BND and BNDX. They are 1.78% in plus YTD.

(I moved to all bonds from Welleslay fund in Jan 2020 during annual re-balancing)

I still work and my spouse retired.

I am counter-playing an idea to move 100% bonds in IRAs into ca$h.

What's wrong with this idea ?

Thx

 

[OldShooter]

What problem are you trying to solve?

 

[Sunset]

You will earn nothing in cash.
Surely you mean move into CD's paying 1.5%

If I was working right now, I'd be putting in every paycheck my 401K contribution as pure stock, in order to buy at low prices. Of course I'm an optimist and expect the market will be higher in 2 yrs.

 

[wanaberetiree]

What problem are you trying to solve?

Protecting from unpredictable lose of bond capital.
My thinking was that can wait out for say 3-12 months before committing back maybe more aggressively.

But sitting on cash meanwhile

 

[wanaberetiree]

You will earn nothing in cash.
Surely you mean move into CD's paying 1.5%

If I was working right now, I'd be putting in every paycheck my 401K contribution as pure stock, in order to buy at low prices. Of course I'm an optimist and expect the market will be higher in 2 yrs.

I am still putting all 401k contributions to S&P

 

[Lsbcal]

I am 60 and my spouse is 61.

All our IRAs (about ~20-25% of total assets value) are in bonds - BND and BNDX. They are 1.78% in plus YTD.

(I moved to all bonds from Welleslay fund in Jan 2020 during annual re-balancing)

I still work and my spouse retired.

I am counter-playing an idea to move 100% bonds in IRAs into ca$h.

What's wrong with this idea ?

Thx

How about short term Treasury bond fund, VFIRX. SEC yield is 0.9% now. Duration is 2 years. Even if rates go up mildly it will probably beat cash. It will not suffer from investment grade bond risk.

If it has to be cash consider VUSXX Treasury MM fund.

 

[OldShooter]

How about short term Treasury bond fund, VFIRX. ...

Or save the 10bps and just buy some govvies on the auction. You can buy treasury bills for terms of 4, 8, 13, 26, and 52 weeks. That's pretty close to cash and you'll always know exactly what you'll receive when they mature. Call the bond desk at your broker; if buying these is not as easy as buying a mutual fund you are at the wrong broker.

I am at Schwab and the process is friction-free. I get an email a week or so before maturity and a phone call on the day. The online trade is free and to buy through one of the bond desk guys is $25 unless they waive it, which they have done for me from time to time. A call to the bond desk to get educated is free. https://www.schwab.com/public/schwa...nt/bonds/individual_bonds/treasury_securities My guess is that Fido is more or less the same.

You can also buy brokered CDs the same way but the terms are longer and they are less liquid if you want to sell before maturity.

 

[Lsbcal]

Or save the 10bps and just buy some govvies on the auction. You can buy treasury bills for terms of 4, 8, 13, 26, and 52 weeks. That's pretty close to cash and you'll always know exactly what you'll receive when they mature. Call the bond desk at your broker; if buying these is not as easy as buying a mutual fund you are at the wrong broker.

I am at Schwab and the process is friction-free. I get an email a week or so before maturity and a phone call on the day. The online trade is free and to buy through one of the bond desk guys is $25 unless they waive it, which they have done for me from time to time. A call to the bond desk to get educated is free. https://www.schwab.com/public/schwa...nt/bonds/individual_bonds/treasury_securities My guess is that Fido is more or less the same.

You can also buy brokered CDs the same way but the terms are longer and they are less liquid if you want to sell before maturity.

The SEC yield is 0.9% for short term Treasury fund VFIRX which has a 2.0 year average maturity. The 2 year Treasury is currently yielding about 0.25%. Now VFIRX holds a group of Treasury bonds up to 5 year maturities so these are not really apples to apples comparisons.

Wouldn't VFIRX be the better choice for a typical investor?

I'm not really sure of the answer but VFIRX feels right to me. It is my current choice for short term holdings.

VFIRX link: https://investor.vanguard.com/mutual-funds/profile/portfolio/vfirx

 

[OldShooter]

The SEC yield is 0.9% for short term Treasury fund VFIRX which has a 2.0 year average maturity. The 2 year Treasury is currently yielding about 0.25%. Now VFIRX holds a group of Treasury bonds up to 5 year maturities so these are not really apples to apples comparisons.

Right. In theory at least, an individual investor with a reasonable amount of money could duplicate the maturity mix apples of any govvie fund. What he couldn't duplicate is the current discount or premium from face due to the fund's historical purchase dates. So maybe one or the other has an advantage.

Wouldn't VFIRX be the better choice for a typical investor?

Maybe. Certainly it is less hassle. The tradeoff IMO is hassle against the uncertain value of the fund on the day he/she decides to sell. Remember, the OP is really risk averse with this part of his stash.

The other thing arguing in favor of less hassle is the actual dollar value of what we are talking about. Generally it is pretty small. Arguing for individual securities/more hassle is the fund management fee as a % of the yield.

So it's a tradeoff and in the context of the current equity market gyrations it's probably not a very important one. If I make 10 bps on a bond over a year and my equity side moves five or six digit$, which is the more important?

As usual, all opinions guaranteed worth price paid.

 

[pb4uski]

Or move it to Navy Federal if you qualify for membership and jump into their 37-month, 3% APY IRA CDs.

https://www.navyfederal.org/products-services/checking-savings/certificates-rates.php

 

[audreyh1]

You can get 1.5% in a high yield savings account, FDIC insured. The yields will gradually continue to drop (as will the short-term treasury bond fund), but in the last very low interest rate environment, they stayed well above the rates for US treasuries for years.

And for higher yield you can buy CDs if you are willing to lock-in a rate for a while.