Need to dump VBTLX!!

[Kat07]

So you are expecting Fed funds rate to increase substantially going forward?

No I don't, but just want to put some money in something that's safe, get some interest, and avoid all the volatility I expect in the next 4 years.

 

[Diogenes]

Whatever we think of the financial theory behind bond sensitivity to interest rates, 5 years of cumulative zero gains (call -0.67% essentially zero) is horrific! If we want a lost half-decade, might as well put the money in stocks. The whole premise of decent Sharpe ratio for bonds, has to be rethought, on account of 2022. Note that 2022 was the worst year for bonds ever... worse than the Paul Volcker years of the Fed fighting in inflation, worse than the 1973-1974 bear market, worse than the Great Depression, worse than the Panic of 1907. It was the worst... ever. Now imagine: how bad could things get, if we had a real crisis? And we look to bonds, for (1) safety, and (2) negative correlation with stocks? No thanks!

 

[Kat07]

Whatever we think of the financial theory behind bond sensitivity to interest rates, 5 years of cumulative zero gains (call -0.67% essentially zero) is horrific! If we want a lost half-decade, might as well put the money in stocks. The whole premise of decent Sharpe ratio for bonds, has to be rethought, on account of 2022. Note that 2022 was the worst year for bonds ever... worse than the Paul Volcker years of the Fed fighting in inflation, worse than the 1973-1974 bear market, worse than the Great Depression, worse than the Panic of 1907. It was the worst... ever. Now imagine: how bad could things get, if we had a real crisis? And we look to bonds, for (1) safety, and (2) negative correlation with stocks? No thanks!

I agree, that's why I want to get out of them.

 

[Lorenzo]

No I don't, but just want to put some money in something that's safe, get some interest, and avoid all the volatility I expect in the next 4 years.

What is safe from volatility? A savings account? I guess a money market fund, as you asked about in the original post, is close.

 

[Kat07]

Yes, a money market is safe. I wouldn't even be touching my investments if it weren't for all the volatility that has happened in the last couple months. It's making me rethink things and how to keep my money safe so I don't keep worrying about it with each day that brings new chaos.

 

[pb4uski]

What is safe from volatility? A savings account? I guess a money market fund, as you asked about in the original post, is close.

Held to maturity high quality bonds.... sure, the value will wiggle some with changes in interest rates but if held to maturity the value eventually converges to par. that is part of why I like individual bonds. Same concept would apply to target-maturity bond ETFs. And you can't get that with a bond fund.

As a hold to maturity bond investor I don't even look at market value. OK, you made me look... for all my bonds combined I'm down 0.2%... but since it will eventually converge to par I'm not worried.

 

[Montecfo]

Kat07, your analysis is correct - bond fund performance is terrible over the past 5+ years. Some on this forum more knowledge than me mentioned on this forum in 2022 that bond funds behave quite differently than individual bonds. I’ve switched to CD’s, whose 5 year total return has been about 20%. Some on this forum also like Treasuries.

Some bond funds have done fine. Depends on what they own.

 

[Montecfo]

I think there are a lot of unrealistic views being expressed here. When I'm interested rates rise 550 basis points, any investments with duration will do very poorly whether held as individual bonds or in funds. That is how markets work.

If by "safe" you mean no fluctuations in value you are looking at CDs purchased at banks, i-bonds and money market funds. That's it.

If you understand duration and how rate sensitivity works, then you can hold in individual bonds, bond funds and all the prior options mentioned.

When the Fed began signalling it was going to raise rates from zero it was a clear sign to investors to exit bonds and bond funds with duration. Those who didn't lost a lot of value.

Good bond investments for rising rates? Floating rate bonds and funds were probably best. Ultrashort bond funds, money market funds, CDs purchased from banks and I-bonds were ok.

And you can't get stuck into that "I am not a market timer" dogma under those circumstances unless you are fine with dramatic losses.

There is no "set and forget" investment.

 

[Purslane]

Since you are at Vanguard, it's very easy to buy actual treasuries at auction. Various ones come out during the week, every week and you just say how much you want to spend.

There is no fee, unlike a fund that will charge a fee (admittedly small) for something so simple to buy.

I though you could only buy secondary treasuries on Vanguard. Am I wrong about this?

 

[Graybeard]

I though you could only buy secondary treasuries on Vanguard. Am I wrong about this?

You are wrong, I have bought treasuries at auction at Vanguard since 2022.

 

[Graybeard]

Safety is a loaded word. There is risk in everything even treasuries. That risk is if rates go up your treasury is worth less cuz new treasuries have a higher coupon. But with that said, hold to maturity you will receive your principal and the interest and that is a 100% guarantee. Same would apply to CDs as they have NCUA backing up to $250,000 per depositor, per account type.

 

[pb4uski]

^^^ To be clear, bank CDs are insured by the FDIC and credit union CDs are insured by the NCUA.

 

[Chuckanut]

Yes, a money market is safe. I wouldn't even be touching my investments if it weren't for all the volatility that has happened in the last couple months. It's making me rethink things and how to keep my money safe so I don't keep worrying about it with each day that brings new chaos.

There was an interesting article in the WSJ on May 14. They interviewed small personal investors (such as most of us here) who simply did nothing this year. They are about back to where they were at the start of the 2025.

So I checked out the performance of the Vanguard Total US Stock Market Admiral fund, my stock index fund of choice. VTSAX is up 0.63% as of May 15, 2025. For the previous 12 months ending April 30, it's up over 11%.

What will happen as the year progresses? I don't know. I am simply offering another perspective. YMMV.

VTSAX-Vanguard Total Stock Market Index Fund Admiral Shares | Vanguard

investor.vanguard.com

 

[Diogenes]

And you can't get stuck into that "I am not a market timer" dogma under those circumstances unless you are fine with dramatic losses.

There is no "set and forget" investment.

Disagree. The whole point of passive investment is "set it and forget it". The last thing that I'd want, is to be a dabbler, a trader or even a rebalancer. I invest as if I died 20 years ago... because by some reckoning, I have.

Nobody is "fine" with dramatic losses, but these are inevitable occasionally in equity index funds. And we're not talking about a sharp loss and snap-back here. That's what happened to stocks in recent months. Or what happened in all of 2021-2024... rise, 25% loss, recovery and substantial rise. If the cumulative gains are so good, then we ought to countenance the occasional dramatic losses. If the long-term gains are crap, why should we accept the losses? If I wanted volatility without promise of steady long-term gains, I'd trade currencies, or options, or some nonsense like that.

And most of us use index funds... not individual stocks or bonds. So the fact that some individual high quality bond, held to maturity, is theoretically lossless... is irrelevant.

 

[Koolau]

Yes, a money market is safe. I wouldn't even be touching my investments if it weren't for all the volatility that has happened in the last couple months. It's making me rethink things and how to keep my money safe so I don't keep worrying about it with each day that brings new chaos.

It's important to be able to sleep at night. So holding "safe" investments can be a good thing. Just recognize that growth may be limited by safety.

It's my (very humble) opinion that the past couple of months have been an anomaly. YMMV

 

[Gumby]

There was an interesting article in the WSJ on May 14. They interviewed small personal investors (such as most of us here) who simply did nothing this year. They are about back to where they were at the start of the 2025.

....

That would be me. The only thing I've done this year is let a couple of the rungs on my treasury ladder mature and put the proceeds into the currently higher yielding VUSXX instead of rolling.

 

[Koolau]

That would be me. The only thing I've done this year is let a couple of the rungs on my treasury ladder mature and put the proceeds into the currently higher yielding VUSXX instead of rolling.

Only thing I've done this year (and it was before the tariffs "thing") was to take my RMD. I used it to "true up" my AA a bit.

 

[Chuckanut]

Only thing I've done this year (and it was before the tariffs "thing") was to take my RMD. I used it to "true up" my AA a bit.

I have a large repair expenditure looming for this later year. So, I took that money out early in 2025 with the market hitting record highs at the time. It’s currently in a money market fund yielding about 4%.

Nobody ever went broke taking a profit.

 

[pb4uski]

... And most of us use index funds... not individual stocks or bonds. So the fact that some individual high quality bond, held to maturity, is theoretically lossless... is irrelevant.

You might want to rethink that. Many of us here own individual bonds rather than bond funds or bond ETFs.

And even within bond fund and bond ETF's, indexed bond funds and indexed bond ETFs are IMO much worse than managed bond funds and managed bond ETFs.

Also, held-to-maturity (HTM) isn't irrelevant. If it was there would not be different accounting for HTM securities (amortized cost) vs available for sale securities (fair value through other comprehensive income) or trading securities (fair value through net income).

 

[TickTock]

And even within bond fund and bond ETF's, indexed bond funds and indexed bond ETFs are IMO much worse than managed bond funds and managed bond ETFs.

Worse on what basis?

 

[Montecfo]

Disagree. The whole point of passive investment is "set it and forget it". The last thing that I'd want, is to be a dabbler, a trader or even a rebalancer. I invest as if I died 20 years ago... because by some reckoning, I have.

Nobody is "fine" with dramatic losses, but these are inevitable occasionally in equity index funds. And we're not talking about a sharp loss and snap-back here. That's what happened to stocks in recent months. Or what happened in all of 2021-2024... rise, 25% loss, recovery and substantial rise. If the cumulative gains are so good, then we ought to countenance the occasional dramatic losses. If the long-term gains are crap, why should we accept the losses? If I wanted volatility without promise of steady long-term gains, I'd trade currencies, or options, or some nonsense like that.

And most of us use index funds... not individual stocks or bonds. So the fact that some individual high quality bond, held to maturity, is theoretically lossless... is irrelevant.

Well it sounds like we agree on a few things. And if you are ok taking losses on bond funds with duration, then I have no issue with that. My post was not for you. It was for folks who wish to the understand the markets better and achieve more success within them.

Indexes are fine-for equities but the post you are responding to is about bonds. And if you want to do bond indexes tied the the Agg, again that is your choice. I have merely made the case for this being suboptimal.

Good investing!

 

[pb4uski]

Worse on what basis?

Investing | active bond funds | Fidelity

Bond investors may benefit from actively managed mutual funds and ETFs. Learn more here.

www.fidelity.com

... Many investors find passively managed index mutual funds or ETFs to be good options for stock investing. However, they may also find that actively managed funds can offer significant advantages over passive funds for bond investing.

Stock markets offer investors opportunities to buy or sell shares of a relatively small number of companies and the process of valuing, buying, and selling stocks is efficient. Bond markets, however, are much larger, more complex, and far less efficient. That’s not necessarily a bad thing, but it does suggest that differing investment strategies may be needed in differing markets.

Unlike stock markets where even the most skilled and experienced managers may struggle to outperform popular market indexes such as the S&P 500 over time, the very size, complexity, and inefficiency of the bond markets has historically created opportunities for skilled active managers to outperform popular indexes.

In fact, the majority of active bond managers have outperformed their benchmark indexes over time, sometimes significantly. Meanwhile, passive bond investing strategies have sometimes struggled to deliver performance that matches their benchmark indexes because broad-based fixed income indexes are more difficult to replicate than stock indexes are. Remember, though, that past performance is no guarantee of future results. ...

 

[Graybeard]

^^^ To be clear, bank CDs are insured by the FDIC and credit union CDs are insured by the NCUA.

Yes that was poorly worded!

 

[Stormy Kromer]

Bonds suck. I've never met a happy bond holder. When interest rates to up, bonds go down.
Bond owners are mad. When interest rates go down, their bonds get called in. Bond owners are mad again. (I know you can buy bonds that don't get called, but you pay for that with lower rates..) Bond income is taxed as ordinary income, not LTCG like stocks. Bond owners are mad. And every so often the bond issuer goes broke. As in Lehman and others less likely. Bond owners are mad. I know one personal bond holder that lost 6 figures with the Lehman failure. $1,000,000 million even. gone...from the "safe" side of his portfolio. The poor fella also had a large stake in Enron. He lost all of that too. Poor fella lost $2 million in a 60/40 portfolio.

That's why I am most all in VG SP 500 Index with 10% cash (VG MM fund).

Over the long term everyone knows that equities will out perform bonds. Bond holders are mad again.

For the small percentage I have in safe income, give me VG MM at 3.65% or cd's for an extra half percent..... not really worth it..... Bonds are too much head ache and risk. ( Bonds do have risk folks. ) Bonds can break your heart if you're looking for guaranteed growth or income.

 

[TickTock]

"Because bond markets tend to be at least as efficient as stock markets, I recommend low-expense bond index funds. Bond index funds and ETFs, which just buy and hold a broad variety of bonds, generally outperform actively managed bond funds." Burton Malkiel, A Random Walk Down Wall Street

"I lean strongly toward index investing (for both stocks and bonds) because beating the market is hard to do. Study after study shows that index investors, in both equities and fixed income, wind up doing better than the majority of investors. That's largely because index funds tend to be the least expensive funds. Index fund managers take less for themselves, and they incur far fewer trading costs." Russell Wild, Bond Investing for Dummies

I trust Malkiel's research. But the vast majority of Random Walk is devoted to equities rather than bonds, so while he states the bond index results he doesn't have the in-depth charts and analysis of equity index vs. active funds. The For Dummies book has just the one mention. It's relatively easy to find equity data for active vs. index funds over time, and it shows that most funds fail to beat their index over time periods (with more failing over longer time periods) and that of the ones that do, persistence in outperforming is roughly equal to what you'd expect from random chance. Not so easy to find the same data for bond index vs. active funds.