Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Interesting commentary. Ed seems of the opinion we’re facing hyper-inflation. (But please read it yourself and draw your own conclusions.) He doesn’t much address ron’s question if I understand what ron is asking (kind of vague).
But, yes, as I think Shostakovich observes, Ed recommends staying very short on your fixed income duration - out to only a year or two. He points to 2 funds he likes that do that. Since “dividends” usually refers to stocks, not bonds, I gather that ron is contemplating some type of fund that invests in dividend paying companies. Hmmm … Tough call because these types of funds have run up a lot (ie PRFDX) this year and I never like buying high. But, what do I know?
A fund like like RPSIX will provide maybe 15-25% exposure to stocks while still playing mainly in the fixed income area. Not a bad choice - however, the bond duration is likely longer than Ed recommends. And there are combo funds like ALAAX that carry a slightly higher equity content - while still focusing on the income producing type stocks.
Real estate is sometimes included in that area, but it’s had a great run up this year. I’d be loath to buy a REIT at these levels. I’m thinking a utilities fund might be a better value if seeking dividend paying companies.
Full disclosure: I’m using a lot of GNMA funds in my fixed income portion. They’re on the relatively shorter end of the duration curve presently (for the type of fund) - only out 3-5 years, but still much farther out than Ed deems prudent. I like that they’re of a higher quality credit than corporate bonds and I don’t mind loosing a bit of $$ on them as long as the equity / risk-asset areas keep climbing.
No easy answers.
Here’s 1 out of many articles on using dividend paying stocks or funds. I haven’t had time to read it closely, but it appears something ron might find of interest - if only to encourage him to do more research on the subject. Here
Hank, thank you. My quick check shows PRFDX as more volatile with higher returns. Both RPSIX and ALAAX are good steady returns that I am interested in. I will spend more time but that you.
@ron - PRFDX is a stock fund. Back from the death because it had several lousy years before dividend paying stocks started to shine. ALAAX is one I owned briefly, I really like the approach but fees are too high and some of the underlying funds are suspect. That said, they’re only running 30-40% stocks compared to near 100% for PRFDX. So … maybe a fund that is similar to ALAAX, but with lower fees. Actually, many of the 40 / 60 funds might be what you’d tolerate. I use PRSIX. TRRIX is similar and equally fine. However, these do not focus only on dividend paying stocks - so I did not raise them earlier.
Good luck
Here’s your original question: Large Cash vs bonds or dividends? Nothing wrong with cash for older investors. It won’t keep up with inflation, but certainly helps sleep better. There’s been quite a bit of discussion here over whether the equity / commodity markets are valued rationally.
Saying any of these funds should be used as "cash" positions is inaccurate, isn't it? Sounds more like a 'want' for income generating funds. Certainly not cash. Maybe you can stretch the term cash using ultra short bonds, but I wouldn't say any holding that can easily drop 5-10-15% can be considered cash equivalent. Just my 2 cents.
Ha! I hadn’t read the text of the post very well. You guys are right. Agree fully. I went with the caption which seemed to be debating which investment was better at this time.
@Shostakovich had it correct when he referenced Ed’s mention of short duration bonds.
“So, back to asset allocation – obviously have enough cash reserves to fund at least two years of living expenses, in insured certificates of deposit. There is a market to be shopped there in smaller banks and credit unions, with nine to twelve month certificate yields running between 35 and 45 basis points. In terms of currencies, if your liabilities are dollar-denominated, your investments also should be. The exception is using international funds that do not hedge back their foreign currency exposure to dollars. In terms of bonds, favor those with maturities of less than a year, generally using some of the ultra-short bond funds available from Vanguard or Northern Funds.“
@bee Good point on oil. It’s taught me the value of patience and sticking to your guns, as most of us abandoned our oil positions way back and watched its price fall into negative territory (early 2020). Yet - here it is at near $83. I remember T Boon Pickins predicting this price rise a few years ago. T. Boone had it right. Unfortunately he died in 2019.
Before you pull the trigger on SCHD you might want to revisit this thread posted earlier this summer. Lynn Bolin had a lot to say about Revisiting Defensive Funds.
I have been using DIVO for sometime now and I am pleased so far. I also hold a position in CDC but everyone has different needs, wants and portfolio's.
Comments
But, yes, as I think Shostakovich observes, Ed recommends staying very short on your fixed income duration - out to only a year or two. He points to 2 funds he likes that do that. Since “dividends” usually refers to stocks, not bonds, I gather that ron is contemplating some type of fund that invests in dividend paying companies. Hmmm … Tough call because these types of funds have run up a lot (ie PRFDX) this year and I never like buying high. But, what do I know?
A fund like like RPSIX will provide maybe 15-25% exposure to stocks while still playing mainly in the fixed income area. Not a bad choice - however, the bond duration is likely longer than Ed recommends. And there are combo funds like ALAAX that carry a slightly higher equity content - while still focusing on the income producing type stocks.
Real estate is sometimes included in that area, but it’s had a great run up this year. I’d be loath to buy a REIT at these levels. I’m thinking a utilities fund might be a better value if seeking dividend paying companies.
Full disclosure: I’m using a lot of GNMA funds in my fixed income portion. They’re on the relatively shorter end of the duration curve presently (for the type of fund) - only out 3-5 years, but still much farther out than Ed deems prudent. I like that they’re of a higher quality credit than corporate bonds and I don’t mind loosing a bit of $$ on them as long as the equity / risk-asset areas keep climbing.
No easy answers.
Here’s 1 out of many articles on using dividend paying stocks or funds. I haven’t had time to read it closely, but it appears something ron might find of interest - if only to encourage him to do more research on the subject. Here
Good luck
Here’s your original question: Large Cash vs bonds or dividends? Nothing wrong with cash for older investors. It won’t keep up with inflation, but certainly helps sleep better. There’s been quite a bit of discussion here over whether the equity / commodity markets are valued rationally.
@Shostakovich had it correct when he referenced Ed’s mention of short duration bonds.
Apologies.
Here’s a clip of what Ed said re cash:
“So, back to asset allocation – obviously have enough cash reserves to fund at least two years of living expenses, in insured certificates of deposit. There is a market to be shopped there in smaller banks and credit unions, with nine to twelve month certificate yields running between 35 and 45 basis points. In terms of currencies, if your liabilities are dollar-denominated, your investments also should be. The exception is using international funds that do not hedge back their foreign currency exposure to dollars. In terms of bonds, favor those with maturities of less than a year, generally using some of the ultra-short bond funds available from Vanguard or Northern Funds.“
@bee Good point on oil. It’s taught me the value of patience and sticking to your guns, as most of us abandoned our oil positions way back and watched its price fall into negative territory (early 2020). Yet - here it is at near $83. I remember T Boon Pickins predicting this price rise a few years ago. T. Boone had it right. Unfortunately he died in 2019.
I have been using DIVO for sometime now and I am pleased so far. I also hold a position in CDC but everyone has different needs, wants and portfolio's.