Sold some equities last week - changes in AA and Bond Advice?

[stephenson]

So, working some basic math on SPST, as an example, the NAV fluctuated around $30 most of the last year, prior to the C19. Popped to around 30.70 and has been relatively stable since then.

About 2.2% increase in NAV, then add the SEC 30 day yield (which is a mandatory reporting calculation for a year at the last 30 day interest and dividends rate - ie annualized), and the total is around 2.3% ...

Is this rough estimate process generally correct?

If, so, even CDs look better, way better, right?

 

[mrfeh]

About 2.2% increase in NAV, then add the SEC 30 day yield (which is a mandatory reporting calculation for a year at the last 30 day interest and dividends rate - ie annualized), and the total is around 2.3% ...

I don't understand - are you expecting an increase in NAV over the next year because that's what happened the last 12 months?

If you are, don't.

Might want to do some reading on bond funds at bogleheads; here are some examples:

https://www.bogleheads.org/forum/viewtopic.php?t=281208
https://www.bogleheads.org/forum/viewtopic.php?t=294539
https://www.bogleheads.org/forum/viewtopic.php?t=293040

 

[stephenson]

No, that is my point ... Only expecting the 30 day SEC yield, at least based on last 30 days annualized ... because rates already went down which caused the NAV rise.

For NAV to increase rates would need to continue lower, right?

 

[mrfeh]

For NAV to increase rates would need to continue lower, right?

Yes.

 

[tdv2]

I agree there are risks all over the place....many are saying that both stocks and bonds are way expensive, inflation may show up at some point, interest rates may go up, down stay the same....who knows. Every single decent finance book I have read has advocated creating a portfolio consistent with risk tolerance and time horizon containing, stocks, bonds, reits, materials and so on. If I sit here and look at current interest rates, PE ratios, CAPE, etc. and I wasn't invested, I would likely be parallelized by the possibilities of things going one way or the other. Since I'm currently invested in a portfolio that I have thoughtfully constructed over many decades, I do my best to not worry about anything (sometimes it's incredibility difficult). If something bad happens, well, something bad happens...the sun will rise again tomorrow.

 

[VanWinkle]

I agree there are risks all over the place....many are saying that both stocks and bonds are way expensive, inflation may show up at some point, interest rates may go up, down stay the same....who knows. Every single decent finance book I have read has advocated creating a portfolio consistent with risk tolerance and time horizon containing, stocks, bonds, reits, materials and so on. If I sit here and look at current interest rates, PE ratios, CAPE, etc. and I wasn't invested, I would likely be parallelized by the possibilities of things going one way or the other. Since I'm currently invested in a portfolio that I have thoughtfully constructed over many decades, I do my best to not worry about anything (sometimes it's incredibility difficult). If something bad happens, well, something bad happens...the sun will rise again tomorrow.

+1 Great way to look at investing.

 

[stephenson]

OK, thanks!

Now, given the lack of good options for bond funds, and my slow decision process where should I "store" the funds now sitting in the brokerage accounts at Vanguard and Fidelity?

Anyone have advice on where while I figure out next steps?

 

[TechLead]

OK, thanks!

Now, given the lack of good options for bond funds, and my slow decision process where should I "store" the funds now sitting in the brokerage accounts at Vanguard and Fidelity?

Anyone have advice on where while I figure out next steps?

You can buy 30 day and 90 days CDs directly in brokerage account. You don't need to move money.

 

[pb4uski]

I have most my cash parked in VSGDX. 1.2% SEC 30-day yield, 1.2% distribution yield, 1.9 year average duration... not great but IMO the best looking horse in the glue factory.

 

[aja8888]

I have some cash parked in ISTB (core 1 - 5 year bond ETF) which has a lot of Govvies in it and the SEC yield is a little over 1%.

https://www.ishares.com/us/products/244051/ishares-core-shortterm-us-bond-etf#/

 

[Happyras]

I put some cash into preferred stocks and a few preferred ETF's. Not the same risk as the CD's I bought that barely get 1.3%, and are no penalty FDIC insured. But a little less risk than the common shares for certain high rated companies.

 

[2177V]

I personally do not like corporate bonds because there is an increased risk during a bear market when companies go bankrupt. Since we are in a bear market, here is a link that people should be familiar with on how various bonds behave during a crash or bear market.

https://obliviousinvestor.com/what-happens-to-bonds-in-a-stock-market-crash/

As you can read, treasury bonds are the only asset class that makes money during a crash or bear market since treasuries bonds have always been a safe haven for investors.

I reallocated my 60/40 portfolio to mostly VUSUX in Summer of 2019 and my 1 year performance +25.48% which includes 6 months of 2019 and 6 months of 2020 according to the following link:

https://investor.vanguard.com/mutual-funds/profile/performance/vusux/cumulative-returns

If the market crashes again, I expect VUSUX to perform similarly to the 1st quarter of 2020 which is +20.86%.

People should learn about treasuries fund as an alternative to corporate bonds.

When you overlay VUSUX historical performance to the DOW historical performance in 2007 to 2009, you will notice a pattern: VUSUX does well at the beginning of a bear market and VUSUX`does lousy at the beginning of a bull market. This is due to the flight to quality and the flight from quality as explained in the following link:

https://www.thebalance.com/what-is-the-flight-to-quality-416873

I am betting that we are still at the beginning of the bear market. If this becomes true and there is another decline in the stock market, I stand to make some money. Note that the stock market rallied during the 2nd quarter 2020 and VUSUX performance was +0.54%. In other words, the risk is low during a market rally but the reward is high during a market decline.

 

[aja8888]

I personally do not like corporate bonds because there is an increased risk during a bear market when companies go bankrupt. Since we are in a bear market, here is a link that people should be familiar with on how various bonds behave during a crash or bear market.

https://obliviousinvestor.com/what-happens-to-bonds-in-a-stock-market-crash/

Nice post but....I'm not so sure we are in a bear market when the Fed is juicing the rails. Maybe later on sometime, but for now, we may see Dow 30,000 before too long.

 

[COcheesehead]

I personally think there are opportunities in fixed income, but you need to dig a bit and it’s not in funds.

 

[2177V]

Nice post but....I'm not so sure we are in a bear market when the Fed is juicing the rails. Maybe later on sometime, but for now, we may see Dow 30,000 before too long.

It can go either way since the virus is pulling it down while the Fed is pulling it up. I am not going to make any predictions.

However, have you considered this wild card situation: Trump loses the election but he refuses to leave the WH, claiming the election was "rigged" as noted in the following article...

https://www.politico.com/story/2019/06/21/trump-election-2020-1374589

Meanwhile, the right wing Trump supporters are fighting the left wing Democrats in the streets. Due to instability, foreign investors pull out of the US stock market. I am just glad to have US treasuries in these uncertain times. Regardless 2020 will be a historical year. This thread is about AA and bonds advice so people should understand ALL market risks.

 

[harley]

Or Neowise could make a sharp left and crash into Texas. Definitely needs to be counted as a major market risk.

 

[aja8888]

Or Neowise could make a sharp left and crash into Texas. Definitely needs to be counted as a major market risk.

Only for the oil stocks, but they are in the tank anyway! Besides, Texas can handle whatever gets thrown at it.

 

[Montecfo]

And don't forget zombie apocalypse....

 

[RobLJ]

"The sun also ariseth, and the sun goeth down, and hasteth to his place where he arose. . . The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun. "

I agree there are risks all over the place....many are saying that both stocks and bonds are way expensive, inflation may show up at some point, interest rates may go up, down stay the same....who knows. Every single decent finance book I have read has advocated creating a portfolio consistent with risk tolerance and time horizon containing, stocks, bonds, reits, materials and so on. If I sit here and look at current interest rates, PE ratios, CAPE, etc. and I wasn't invested, I would likely be parallelized by the possibilities of things going one way or the other. Since I'm currently invested in a portfolio that I have thoughtfully constructed over many decades, I do my best to not worry about anything (sometimes it's incredibility difficult). If something bad happens, well, something bad happens...the sun will rise again tomorrow.

 

[stephenson]

So, gave up on bond funds for now ... started buying ATT on dips ... first real dip today to 29.30 a share - a bit over 7% dividend at that price.

 

[VanWinkle]

So, gave up on bond funds for now ... started buying ATT on dips ... first real dip today to 29.30 a share - a bit over 7% dividend at that price.

-1.78 over the last 3 years and +3.87 for the last 5 years total return. They have been just giving peeps their own money back for the last 3 years. Don't be fooled by the risk, it is much higher risk than bonds. I know it sounds good to receive a 7 % dividend, but when total return lags the market by so much, it it is just a dividend trap. I hope it changes for you and you get a better total return.

 

[stephenson]

Yep - understand the market pricing risks on this action.

I am only doing this now due to my perception of this particular stock's stability - and, that it is pretty darn depressed.

I realize bonds are more broadly stable, but the lack of suitable return (especially shorter term, and even on many moderate term bonds), and their recent tracking with the market (especially on longer term bonds) has just left me wondering if the standard patterns aren't as applicable now.

Be interesting to see how this turns out

 

[pb4uski]

...I am only doing this now due to my perception of this particular stock's stability - and, that it is pretty darn depressed. ...

Huh? A 52-week high of $39.70 and 52-week low of $26.08 is "stability"?

It's a stock... a high dividend paying stock... less volatile than the market as a whole with a 0.66 beta, but nowhere near the stability of a bond or CD.

 

[stephenson]

Well, it is compared to most stocks

Sure, I get the differences - this is tradeoff - (relatively) stable stock bought (relatively) cheap vs bonds (pick your current poison).