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I recently sold some bond ETFs to harvest the capital losses. I want to re-deploy the proceeds into fixed income as my stock allocation is where I want it to be.
I subscribe to Jonathan’s and Adam’s philosophy of taking risk with my stocks, not bonds. I was initially inclined to reinvest in Treasury ETFs, around 75% short term and 25% intermediate term. But with the turmoil reaching even Treasuries over the last couple of days, is a better course to just stash the cash in a MM fund, which is paying north of 4%, at least until things (hopefully) settle down a bit?
I’d appreciate any thoughts.
I have quite a bit in money markets but have been buying municipal bonds on a dip (mostly 5 – 10 year). Everything is going to be volatile so long as policies are not consistent and rapidly changing. This is not a good market to invest in. Therefore mm and medium term municipals. I maintain investments in dividend paying and dividend increasing stocks. You might look at inflation adjusted bonds.
I like to keep my non-equity money spread between money market, T-bills, short and intermediate Treasury ETFs, TIPS and TIPS funds, and I bonds.
Andrew, Vanguard has a Mutual Fund and ETF scanner you can access to narrow your view for further research. Hope it helps.
I’m not enamored of treasury bond ETFs, especially because I can buy bonds at Treasury Direct.
Here’s why:
Vanguards Intermediate Term Treasury Bond fund VGIT is down 16.27% since March 31, 2020. Since 7/31/2022 it has been in the range $62.25 to $56.79. Current price per share is $59.07.
I own two TIPS ETFs. SCHD is down 12.22% since October 2024. VTIP is down 3.82% since December 2020. For both I have reinvested all dividends.
These are examples of why I am not pleased with treasury ETFs.
In 2021 I shifted most of my cash equivalents to purchases at Treasury Direct, to MM accounts and to CDs. As of today my portfolio includes 4.28% bond ETFs/funds. I won’t consider increasing that unless MM and CDs are no longer attractive.
I have two goals for my “cash” equivalents: (1) don’t lose principal and (2) keep up with inflation. Back when cash was “trash” I got riskier and my portfolio allocation was 70/30. I wouldn’t do that today.
I am removing my comment because it is covered in a comment below this which I hadn’t seen.
Norman, I happen to own the same two TIPS ETFs in small amounts – VTIP and SCHP (not SCHD which is a dividend stock ETF). Like you, I’m also not super thrilled with the performance of these TIPS funds, but it wasn’t completely unexpected either. However, I’m seeing different performance numbers that what you cited for these funds for the periods you mentioned.
Using stockcharts.com (which calculates the dividend-reinvested returns, not price returns), I see different total returns for both the funds. SCHP from Oct’24-Current is about breakeven (slightly negative depending on the specific date), not -12%. VTIP from Dec’20-Current is up 15%, not down 3%.
I wonder if you are seeing price performance only, instead of the total return. Note that reinvested dividends should have a cost-basis of zero for calculating the correct return. However, in taxable accounts, reinvested dividends show the positive cost-base to calculate the taxes when they are sold. The price-performance shown on the taxable accounts (“Total Gain %”) can thus be misleading.
Both the funds had duration risk (SCHP much more than VTIP), and the rise in interest rate caused them to lose market value, which was somewhat compensated by the inflation adjustments. They should gain value if and when the interest rate drops in the future.
I agree that the price performance figure is misleading. Is the total gain figure easily accessible at the Vanguard website? I’m also interested in laddered I-Bonds, but find the Treasury Direct site unfriendly. Any suggestions for Vanguard ETFs to roughly accomplish an I-Bond ladder.
Sanjib, I’m using the numbers from my statements for the periods I mentioned. The statements indicate the purchase amount plus dividends. Comparing to the current price of the shares I own determines the overall gain or loss.
FWIW – brokers aren’t held to any statutory rules on the returns number they present. As long as there’s a reasonable calculation it’s acceptable.
If you really want to know, I think the number you’d really care about is initial invested dollars versus current value, So 12,000 divided by say 10,000 equal to 1.2 means a 20% total gain. Then you’d want to take the root of 1.2 by the number of years invested. That would give you the annualized rate of return which is a fair yield number to consider.
That method isn’t perfect, but it’s a fast way to get at the numbers you really care about.
Treasuries at auction for taxable accounts. TIPS ladder for retirement accounts
Our goals for non-equity cash-equivalent investments are to 1) never decrease in absolute value; and 2) stay at or ahead of inflation. Growth and income are not expected from the cash-equivalents. Money market funds, high-yield savings, CDs, and I-bonds achieve what we want, with everything except for I-bonds currently at or above 4%. We hold about 5 years of spending in cash and cash-equivalents if withdrawn at nominal 4% rate but our actual draw-down rate is almost zero. It is likely that our CDs that mature this year will be rolled into additional money market investments, depending on rates and terms available then. We avoid bond funds because they do not meet criteria #1 listed above. Equity funds are for long-term growth.
Thanks for the replies.
An aspect of this I’m wondering about—and I should’ve included it in my original post—is this: One reason often cited for not trying to time the market when it comes to stocks is that a large chunk of their gains comes during a small number of days. So if you’re on the sidelines then, you really miss out.
Is there a similar phenomenon with bond ETFs and funds? That is, do they tend to have big gains on just a few days? My guess is that their situation is different from stocks in this respect, but that’s just a guess.
Does anyone happen to know what history tells us?
Andrew, Vanguard Treasury Money Market fund—VUSSX current sec yield 4.31. As of 4/9. Free of state and local taxes”. High safety profile—tax exempt interest for those in high tax states.considered as safe as FDIC insured bank account.
This is a good state tax efficient fund that is 97% invested in TBills. TBills have been paying better than Bonds for the better part of two years now, so most of our bond portfolio has been sitting here and in individual TBills until the yield curve gets sorted out. The rest in in intermediate term (<7yr duration) bond ETFs.
My thinking for what it is worth is that the current yield curve can’t go on like this forever. Short term yields need to come down and/or intermediate and longer-term yields have to come up relatively speaking. How this happens is not clear. I suspect intermediate and long-term rates will likely stay high and short-term rates will decrease over time. However, whatever happens, it is safer to stay in short term obligations given their higher yields and low duration risk.
Hi, I think you mean VUSXX
Thanks, Norman. Another good reason Jonathan has underscored giving name of funds mentioned—not just symbols.
Too easy to make a typo.
Six month treasury bills are currently paying around 4% and the rate is guaranteed for that period. Rates for MM funds are variable but you have access to the money whenever you need it.
MM seems like a good idea especially if you’re concerned with short term volatility.
The advantage to bond funds is you could earn a little more interest, and you may make more money if rates go down. But if rates go up the funds’ value could fall.