Hold bond side of the portfolio in MM

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NabSh
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Hold bond side of the portfolio in MM

Post by NabSh »

So I am fairly new to BH ( less than a year).
I have been slowly building my portfolio as I was worried about bringing large cash to investment portfolio.

Due to current historical low interest rates and fluctuation in bond prices, some people are recommending to hold bond side of the investment in a MM.

To me it seems timing the market. Many advisors made same claims during 2009 - 2011 as bonds very forecasted lose money.

I have been ignoring the advice, but I do see my bond funds not doing well.

Has anyone else considered hold larger than normal in cash as bond side of the portfolio. If yes what %?
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riverant
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Re: Hold bond side of the portfolio in MM

Post by riverant »

Poor strategy imo unless you need the money near term. Cash gets destroyed by inflation and people have been forecasting poor bond performance for a decade, but there’s no guarantee interest rates will rise or what the exact impact would be on bond prices. I’d probably err towards intermediate term bond funds to protect a bit against interest rate risk.
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welderwannabe
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Re: Hold bond side of the portfolio in MM

Post by welderwannabe »

Moneymarket rates are essentially zero.

Bond rates havent moved much in the last couple of months, so I dont know why your bond funds arent 'doing well' unless you are comparing them to stock appreciation.
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jebmke
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Re: Hold bond side of the portfolio in MM

Post by jebmke »

One year is a very short time to measure returns. I don't look at historical results but if I did, I'd be inclined to look at a random sample of 20-year periods of my results. If I had to guess, my bond holdings are probably flat to slightly up (due to individual Tips holdings) YTD.

I ditched cash decades ago; I don't even have an emergency fund. But my portfolio is fairly conservative and the fixed income side is fairly low duration and high quality; no MBS.
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GMCZ71
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Re: Hold bond side of the portfolio in MM

Post by GMCZ71 »

Well sort of, not MM but Ibonds and HYSA's.

Tmobile 1% rate
HmBradley 3% rate
Ibonds 3.5% rate rumor is they are going to 6%

MM less than 1%

Percentage wise very small of bond side maybe 9%
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KlangFool
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Re: Hold bond side of the portfolio in MM

Post by KlangFool »

OP,

I have both CASH and BOND. I do not market time. My EF is in CASH. My bond is in my portfolio.

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Dandy
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Re: Hold bond side of the portfolio in MM

Post by Dandy »

I'm retired, 73 and pension and SS almost equal normal expenses. I allocate my fixed income as follows:

1. 25% "no loss of principal" e.g. FDIC products, money markets, legacy EE bonds
2. 25% Short term bond funds e.g. Short term Bond Index, S.T Treasury, Ltd Term Tax Exempt
3. 50% Intermediate bonds e.g. bond portion of Balanced Index and Wellesley Income, Intermediate Tax Exempt and Intermediate Treasury Funds.

I keep enough in the first 2 categories to fund my spouse's income needs to age 90 should I die first since she will lose
half my pension, her SS and be filing single instead of joint.

To me it is mostly about asset preservation and secure funding of retirement income needs vs growth. I have a nice size portfolio and allocate it about 50/50. Our heirs will do fine in almost any event.
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Wiggums
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Re: Hold bond side of the portfolio in MM

Post by Wiggums »

We have cash for Roth conversions. It is just part of our fixed income. We get compensated by holding bonds when interest rates fall and by holding to maturity. We don’t want our fixed income to have the same risk as equities in retirement.

It’s easy to take market risk when the government spends 8.5 trillion in 4 years, followed by trillions more spent on the pandemic and the fed bond purchases. The answer for you really depends on how big your portfolio is, how much you withdraw from it, and how much risk you are willing to take. At some point, the gravy train will be over and bonds yields will rise.
Last edited by Wiggums on Sun Sep 19, 2021 8:37 am, edited 2 times in total.
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patrick
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Re: Hold bond side of the portfolio in MM

Post by patrick »

Money market funds, and most money market deposits accounts, have very low yields. However, for limited amounts you can get deposit accounts with significantly higher yields than bonds. Here are some of the better ones:

1% with no limit - T-Mobile Money
2% on the first $20,000 - Elements Financial Credit Union, requires 15 withdrawal transactions (bill pays qualify) per month
2.25% on the first $25,000 - Presidential Bank, requires $500 in direct deposits and 7 withdrawal transactions (bill pays qualify) per month, minimum balance $500
3% on the first $15,000 - Porte, requires a one-time electronic deposit of $1,000 to activate
3% on 10% of direct deposits - One Finance, max $1,000 per month into the 3% account, the rest only gets 1% but can be spent or withdrawn
3.3% on the first $20,000 - Evansville Teachers Federal Credit Union, requires 15 debit card purchases per month and a monthly electronic deposit
4.07% on the first $7,500 - Genisys Credit Union, requires 10 debit card purchase per month of at least $5 each
5% on the first $500 and 3% on another $3,000 - Service Credit Union
6.17% on the first $1,000 - Digital Credit Union

US savings bonds also have better yields than marketable bonds, though they also have purchase limits.
dbr
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Re: Hold bond side of the portfolio in MM

Post by dbr »

NabSh wrote: Sun Sep 19, 2021 7:37 am
Has anyone else considered hold larger than normal in cash as bond side of the portfolio. If yes what %?
Lots of people do. Some of them do it in what amounts to market timing. Other people just hold cash all the time because they want to. Sometimes it doesn't make any difference anyway.

Over long times I doubt either of those is the best plan. Over short times any arbitrary plan will be better than some other arbitrary plans.

The entire result also depends on how you are investing your portfolio as a whole, meaning the stock bond asset allocation, which one does not necessarily choose the same for different choices of fixed income.

But in any case people have their money and get to make their choice.
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ruralavalon
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Re: Hold bond side of the portfolio in MM

Post by ruralavalon »

NabSh wrote: Sun Sep 19, 2021 7:37 am So I am fairly new to BH ( less than a year).
I have been slowly building my portfolio as I was worried about bringing large cash to investment portfolio.

Due to current historical low interest rates and fluctuation in bond prices, some people are recommending to hold bond side of the investment in a MM.

To me it seems timing the market. Many advisors made same claims during 2009 - 2011 as bonds very forecasted lose money.

I have been ignoring the advice, but I do see my bond funds not doing well.

Has anyone else considered hold larger than normal in cash as bond side of the portfolio. If yes what %?
Shifting fixed income to a money market fund is indeed market timing.

I have not considered that.

If you have a Stable Value Fund or Guaranteed Income Fund paying good interest offered in your company plan, then that could be a good choice for a fixed income allocation.


If not, then I suggest staying with be good, short-term or intermediate-term bond fund, with a low expense ratio and good credit quality, held in a tax-advantaged account, preferably a tax-deferred account like a traditional 401k.

When we came out of the prolonged low interest rate environment after the 2008 stock market crash there was no crash in bond funds. There were only temporary small dips in bond fund returns.
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aristotelian
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Re: Hold bond side of the portfolio in MM

Post by aristotelian »

Cash gives up the diversification potential of going up while stocks are going down, plus earns less interest over time. I would rather take some duration risk for superior diversification and extra return over time. I don't see how the current environment changes anything.
Topic Author
NabSh
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Re: Hold bond side of the portfolio in MM

Post by NabSh »

Thank you for the advice
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quisp65
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Re: Hold bond side of the portfolio in MM

Post by quisp65 »

I do all cash at 25% in the fixed income part of my portfolio. I wanted to go equity heavy in retirement at 75/25 (roughly 7 years cash) and wanted less risk in what little fixed income I had. I came to the conclusion I would not make much more in intermediate bond funds when compared to competitive CDs and CDs gave me more piece of mind.
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billthecat
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Re: Hold bond side of the portfolio in MM

Post by billthecat »

patrick wrote: Sun Sep 19, 2021 8:26 am 1% with no limit - T-Mobile Money
Welp, opening an account with T-Mobile Money didn't work for me. :confused
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Broken Man 1999
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Re: Hold bond side of the portfolio in MM

Post by Broken Man 1999 »

Cash can't get you capital gains, bonds can.

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skibummer
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Re: Hold bond side of the portfolio in MM

Post by skibummer »

billthecat wrote: Mon Sep 20, 2021 9:48 am
patrick wrote: Sun Sep 19, 2021 8:26 am 1% with no limit - T-Mobile Money
Welp, opening an account with T-Mobile Money didn't work for me. :confused
Anyone else get denied while trying to open a Tmobile checking account (for the unlimited 1% yield)? I don't have Tmobile (not a requirement) and my FICO is over 830 with zero derogatory remarks, own home, lived at current address over 5 years. They said based on some unnamed database I was declined, same for spouse. We get instant approved for CC with no issues.
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