Sell bond index funds at a loss in order to buy CDs?

[daylatedollarshort]

Thanks for the long reply but I’m out of creative ways to say that we are staying put.

You are the one who asked the question, "What if there is a global flight to safety in 2023?"

 

[Markola]

BND is 67.3% US gvt issues and the rest is high quality. It will fare well enough for me in a flight to safety, and a downturn is not the time to fiddle with investment strategies. You like individual bonds. I do not, nor do I want CDs. You do you. What I want is to see BND continue gradually stuffing itself with higher yielding bonds, as it will over the next 6 years or so, and to be positioned for a price rise when the world has another shock.

I have thought through my strategy during the recent good, stable times so that I can stick with it during the bad panicky times, which seems to be what the OP is experiencing by exploring CDs, so I’m offering my case for BND. My own “learning opportunity” was similar, when in the depths of the Great Recession I got religion about why people own bonds - at exactly the wrong time. I wish I hadn’t but it taught me not to try to outsmart the global financial markets. The dynamics are much too complex to predict, like the weather or the World Cup. Don’t dance around. The best a person can do is strategize, buy, hold.

 

[daylatedollarshort]

BND is 67.3% US gvt issues and the rest is high quality. It will fare well enough for me in a flight to safety, and a downturn is not the time to fiddle with investment strategies. You like individual bonds. I do not, nor do I want CDs. You do you. What I want is to see BND continue gradually stuffing itself with higher yielding bonds, as it will over the next 6 years or so, and to be positioned for a price rise when the world has another shock.

I have thought through my strategy during the recent good, stable times so that I can stick with it during the bad panicky times, which seems to be what the OP is experiencing by exploring CDs, so I’m offering my case for BND. My own “learning opportunity” was similar, when in the depths of the Great Recession I got religion about why people own bonds - at exactly the wrong time. I wish I hadn’t but it taught me not to try to outsmart the global financial markets. The dynamics are much too complex to predict, like the weather or the World Cup. Don’t dance around. The best a person can do is strategize, buy, hold.

I didn't give you any unsolicited advice on what to do with your personal portfolio. You are the one who asked the general financial question, "What if there is a global flight to safety in 2023?" and you got a mostly cut and paste answer from financial reference sites about risk and flight to safety.

Why did you even ask the question?

 

[rkser]

You are way overthinking this. That 13% loss is a sunk cost. Ditto with any VTI losses this year. It is psychologically hard to sell investments at a loss because even though you should know better, in the back of your mind it is conceding to failure. We are all just wired that way.

What is relevant is what BND will do from here vs what a similarly safe alternative will do.

Whether most bond return for a particular period is from price or distributions depends on what interest rates do, but look at BND as an example. The NAV at 12/31/2021 was $84.77 and is $73.60 today. During 2022 it paid out $1.70 in distributions and had $9.47 loss in value.

BND's Dec 6 monthly distribution was 0.164606/share... times 12 months is $1.98 annual distributions divided by $73.60 share price is a 2.7% yield. Or alterrnatively, if the $1.70 of 2022 distributions was repeated in 2023 that is only 2.3% of the current $73.60 NAV.

SWVXX, Schwab's money market fund is currently paying 3.8%. Below are current CD and bond yields from Schwab.

If you sold BND which is yielding 2.7% and bought a CD ladder where the rungs yield 4.37% to 4.80% and as rungs mature roll the proceeds into a new rung, which do you think you will come out ahead with?

	3 Mo	6 Mo	9 Mo	1 Yr	18 Mo	2 Yr	3 Yr	4 Yr	5 Yr	10 Yr	20 Yr	30 Yr+
CDs	4.37	4.65	4.77	4.70	4.70	4.70	4.65	4.80	4.60	--	--	--
Bonds
U.S. Treasuries	4.39	4.67	4.52	4.58	4.52	4.25	3.98	3.79	3.68	3.49	3.80	3.54
U.S. Treasury Zeros	--	--	--	4.41	4.25	4.04	3.81	3.74	3.69	3.66	3.89	--
Government Agencies	--	4.37	--	4.54	--	5.30	4.17	4.26	5.33	4.61	--	--

Could BND outperform a CD ladder rolling over over 10 years... perhaps, but I doubt it .

Thankyou PB4uski,
I am doing just this in our Schwab IRA, I am a little slow but am catching on & seeing the light finally.

 

[pdxgal]

Thankyou PB4uski,
I am doing just this in our Schwab IRA, I am a little slow but am catching on & seeing the light finally.

+1. This thread has been very helpful and educational!

 

[rkser]

My initial attempts at buying CDs in my Schwab IRA in exchange of a small portion of the bleeding BND .

At Schwab the highest rate of 4.65 is for under 18 months CD, the rate falls to 4.5 for a 2 yr CD & down from there.

I do not see a rate of 5 for a 5yr CD.

Is there any where else do I look for CDs at Schwab ? .