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.
You can lock in non-callable CDs with rates exceeding 5% up to two years and 4.5% up to five years. I don’t own or track a single bond fund that has produced an average annual return approaching 5% over the past 5 or 10 years. What’s not to like about CDs yielding close to 5% or more? By waiting to see if rates go higher, you could be passing up an opportunity of the decade. If rates go higher, so what? Create a ladder and take advantage of the increase.
We’ve all seen over the past year that bond funds can be very, very risky and produce abysmal returns over long periods of time. Their returns do not necessarily provide ballast during periods when stocks drop. They can let you down when you need them the most.
Hey -- I am a dog expert: years of experience with a local shelter, served on the board of directors, became familiar with literally hundreds of dogs. Dogs don't care where they live, they care who they live with. You can assure your wife that your canine companion looks to you far more than it looks at where you are. You can trust me on this. Adjustment to a change in environment comes easily. Oh, they are so much more adaptable than we are.
BTW, Fidelity’s bond listings showed a bunch of new Treasury offerings today. This morning, the expected yield on the one-year Treasury zeros was 5.05% By this afternoon, the expected yield had risen to 5.35%. I’m going to jump on this. Unlike CDs, you can readily sell Treasuries if you need the cash prematurely.
@Sfnative…. Appreciate your comments about dogs. Did your shelter care for cats? Off topic but my experience is that cats, unlike dogs,,, have a very difficult time with change. So I can’t move. My dear cat would object.
I don’t own or track a single bond fund that has produced an average annual return approaching 5% over the past 5 or 10 years
Neither do I, but some posters here do track or own BGHIX / BGHAX. This fund has returned at least 5.5% annualized over the past five years.
Regardless, it's pointless to project past fixed income returns into the future. I don't know of any MMF that yielded 4% over the past several years, yet many taxable MMF now yield at least that much. Rates have risen.
Unlike CDs, you can readily sell Treasuries if you need the cash prematurely.
CDs that are purchased directly from an issuer often carry a put option. That is, you can redeem them (sell them back to the issuer) albeit with a penalty (strike price below par).
For example, you can save like a Senator via The United States Senate Federal Credit Union. It offers fixed rate share certificates (the CU equivalent of CDs) yielding more than5% for up to 3 years. Though they come with substantial loss of interest early withdrawal penalties.
This morning, Schwab brokerage MM SWVXX is paying 5.17% and SNAXX is paying 5.32%. CD rates at Schwab seem to be about in this same MM range, with anything over a year being less than the MM rates. I had a CD mature yesterday, which I have decided to park in SWVXX for now.
I don’t own or track a single bond fund that has produced an average annual return approaching 5% over the past 5 or 10 years
That time frame includes a couple very bad years for bonds during the FED rate hikes, so of course averages will be lower. If you look forward as the FED slows and completes their interest rate hikes, those statistics will likely change again for the better for income funds. Just my opinion. That change may have already happened. PIMIX has gained 5% in just the 1st half of 2023. Projection and extrapolating data is a risky business, but, what is to keep income funds from continuing that trend moving forward?
Not saying buying treasury or CD ladders now at 5% isn't a safe and prudent investment. It certainly is. Especially for retirees or those close to it. I've been doing it too. I do think, though, that when we look back a year or 2 from now, income funds may be winning the race.
@msf — I agree with you that the next 5-10 years could be very different. That’s why I’m maintaining significant holdings in bond and stock funds. However, in my lifetime as an investor, I haven’t seen cash yields this high and I doubt that it will continue for long. As soon as the Fed starts cutting rates, yields will drop. If that doesn’t happen for a while, I will keep buying CDs and Treasuries as issues mature.
My wife and I will start taking required minimum distributions before long, and it’s nice to have cash holdings we can rely on if stocks and/or bonds are down. BTW, I checked my watch lists for bond funds and very few have topped 5% over the past 15 years either— and those funds are all high yield funds that tend to drop in stock market crashes.
“ … in my lifetime as an investor, I haven’t seen cash yields this high ”
Gosh, I do remember earning 15-20% on money market funds during my early working years.
Along with that, the aisles in grocery stores (1970s) were often filled with store employees busy changing the previously marked prices to try and keep up with the ongoing increases. Without bar codes / scanners every bottle of ketchup or loaf of bread carried a marked price. One wonders if all this remarking itself contributed to the inflation rate.
No doubt. Cash at today’s 5% (+ -) looks very compelling, especially to the “over the hill” crowd.
I'm holding my bond funds and enjoying the junk yield. I got in at the WRONG time, but am riding the rising tide, now. I'm halfway back from my -9% loss in '22, simply by reinvesting the dividend every month. I'm adding nothing at all, myself.
“ … in my lifetime as an investor, I haven’t seen cash yields this high ”
Gosh, I do remember earning 15-20% on money market funds during my early working years.
Along with that, the aisles in grocery stores (1970s) were often filled with store employees busy changing the previously marked prices to try and keep up with the ongoing increases. Without bar codes / scanners every bottle of ketchup or loaf of bread carried a marked price. One wonders if all this remarking itself contributed to the inflation rate.
No doubt. Cash at today’s 5% (+ -) looks very compelling, especially to the “over the hill” crowd.
I am also experiencing some degree of nostalgia with some of the recent posts, especially looking at the past 15 years. Around the 2000 to 2007 period, CDs were paying 5+% and I was shopping banks for the best CD rates and terms. Then the financial markets went into a crisis period, with banks closing, major business closings, and the government cutting rates, stimulating the economy, and trying to focus on financial stabilization and economic growth. I have never seen anything like the Covid years, supply chain and manufacturing disruptions, and the renewed fight against inflation in the last few years. 5+% CDs are back, we are fighting inflation again, but now I am in retirement, focused more on preservation of assets than accumulation of assets. I hope I am around for another 15 years so I can participate in investing philosophy, but the odds are that I will not be alive.
Worth noting that money market funds back in the 70s and up to the 2007-09 financial crisis were less regulated and, while quite safe, took on more risk than they can today. So those 15-20% rates are a bit over-stated. Apples to oranges.
Doubt I’ll ever succumb to going all to cash. Admittedly, that would have been the smart move 18-20 months ago before the bottom fell out of equities. I enjoy investing and tracking a widely diversified portfolio too much to give it up (a “fool’s errand” perhaps). But the bumps in the road are getting harder to ride out with age.
We bought a retirement home on Cape Cod in a spur of the moment decision, but we were smart enough to buy one less than 20 years old, built by a guy who over engineered everything ( It was his fifth personal build). BR on first floor, etc. IF we took more time we might have gotten something with a view etc, but we love the quiet neighborhood and new friends. We passed on new dog, because my daughter moved here too and has two lovely dogs we use to get dog fix every several days. As we helped her buy her house, she frequently acknowledges that she will help us when we can't drive etc. Not including travel expenses, our income needs so far have been met with SS and dividends, even in high tax Massachusetts ( realestate taxes up 30% since 2018)
I became convinced that going into retirement is not the best time to have large equity exposure, given risk of serious bear market, so in 2015 to 2018 I cut stocks back and now am around 30%. The fact that rates shot up has made that decision easier obviously.
I think there is more downside ahead than upside, at least for US market and I don't mind making 5 to 6% rather than 20% if it means avoiding a 40 % loss in capital.
This sorta makes up for the fact that in CT for the last 30 years our house lost us lots of money, my salary was stagnant and we were taxed to the max.
But you can't focus on the past, and we are grateful we are both healthy, our kids are generally happy and educated and employed, although one is 1200 miles away.
I'm OK with "only" 5.2% using SCOXX(Treasury) which has a guarantee for no locks. I stopped using SNOXX in 2022, and I'm not coming back anytime soon. This allows me to trade anytime with ease and flexibility. Another 0.1-0.2% for 6 months isn't worth for me the hassle. While MM keeps going up, the CDs you bought 3-6 months ago were lower.
Perhaps because of some of the ideas that this discussion brought up I started organizing our “family office” in case something happens to me sooner than expected. I ran across something from the esteemed Rick Ferri from 2/6/15. The piece was titled “The Center of Gravity for Retirees.”
“Retirees and those almost retired shouldn’t care what their highest level of risk tolerance is because they shouldn’t be investing anywhere near it. There is no economic reason for a person to take more investment risk once they have accumulated enough money for retirement.
The focus should be on the minimum needed to achieve an income required in retirement.
@LarryB - About a year ago (or a bit further back) you were looking at VWINX as a possible spot for most of your assets. Have you discarded that notion?
I’d never argue with folks going all to cash. 5+% is nothing to sneeze at.
I think that might make sense if you don't have any kids and you plan on spending as much as possible before you die. Otherwise I think you should do as well as you can with your investments, realizing that the true investment period surpasses your own life expectancy.
"The focus should be on the minimum needed to achieve an income required in retirement."
The focus should be on risk-adjusted performance and after that look for the income. Income by itself doesn't guarantee better performance or better risk/SD. Example: PIMIX in its glory days 2010-2013(https://schrts.co/TRyXMDdV) was better than SPY, 2010-2018 better than many bond funds. In these periods it beat many funds for SD too. On the other hand, PDI, managed by one of the best teams in the world, paid about 10% annually in the last 5 years but made less than 6% total in 5 years. RCTIX made a total of close to 23% and SPY made 71% (https://schrts.co/vszPEmPD)
I’ll assume, for the sake of argument, that those favoring a cash heavy allocation must believe that equities at today’s valuations don’t represent a good risk-reward trade off. Who’s to say they’re wrong? BTW - Has Jeremy Grantham weighed in on valuations lately?
I think that might make sense if you don't have any kids and you plan on spending as much as possible before you die. Otherwise I think you should do as well as you can with your investments, realizing that the true investment period surpasses your own life expectancy.
Same here. Wife's job brings in enough for us, PLUS (even before bequeathing the nest egg to her once I'm gone) together, right here and now, we are able to assist family members in need so much more than we would ever have thought possible--- for us.
@Hank. You got me laughing at myself. Still thinking about going to Vwinx. Like everyday. Got distracted by ever increasing risk free yields and our retirement burn rate is very minimal. But going forward my motivation is an autopilot situation for my wife. I have heard people say that nobody ever got fired for buying from IBM and Wellesley as a one fund solution would not be the worst thing to do. Except in a taxable account.
Yeah Hank. You are right. That hasn’t encouraged my transition to autopilot. But when interest rates peak things will look better for Wellesley. Truth is it’s not an optimal growth solution,,, it’s a simplification solution.
M* shows VWINX at 5.23% annually for 10 years. I hadn’t realized they hew to a 60/40 allocation until I looked tonight. Somehow thought it was more like 30/70. That 10-year average stacks up very well against similar funds. And it managed to shed less than 10% in a tough 2022.
Hardest thing is to try to anticipate how a fund like that might perform in an era of stable or rising interest rates. Funds holding bonds had a nice tail-wind over the past decade as rates fell - actually more like 2 decades.
Hank. You were actually right. VWINX has a 37.39% allocation to equity. 60.41% to FI. As of June 30. Using Portfolio Visualizer to back test since 1/1 2019 I would be ahead if I would have been 100% in VWINX. Of course my equity allocation was never above 33%. And I had more fun messing around.
Comments
We’ve all seen over the past year that bond funds can be very, very risky and produce abysmal returns over long periods of time. Their returns do not necessarily provide ballast during periods when stocks drop. They can let you down when you need them the most.
Neither do I, but some posters here do track or own BGHIX / BGHAX. This fund has returned at least 5.5% annualized over the past five years.
Regardless, it's pointless to project past fixed income returns into the future. I don't know of any MMF that yielded 4% over the past several years, yet many taxable MMF now yield at least that much. Rates have risen.
Unlike CDs, you can readily sell Treasuries if you need the cash prematurely.
CDs that are purchased directly from an issuer often carry a put option. That is, you can redeem them (sell them back to the issuer) albeit with a penalty (strike price below par).
For example, you can save like a Senator via The United States Senate Federal Credit Union. It offers fixed rate share certificates (the CU equivalent of CDs) yielding more than5% for up to 3 years. Though they come with substantial loss of interest early withdrawal penalties.
https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202308
Not saying buying treasury or CD ladders now at 5% isn't a safe and prudent investment. It certainly is. Especially for retirees or those close to it. I've been doing it too. I do think, though, that when we look back a year or 2 from now, income funds may be winning the race.
My wife and I will start taking required minimum distributions before long, and it’s nice to have cash holdings we can rely on if stocks and/or bonds are down. BTW, I checked my watch lists for bond funds and very few have topped 5% over the past 15 years either— and those funds are all high yield funds that tend to drop in stock market crashes.
Gosh, I do remember earning 15-20% on money market funds during my early working years.
Along with that, the aisles in grocery stores (1970s) were often filled with store employees busy changing the previously marked prices to try and keep up with the ongoing increases. Without bar codes / scanners every bottle of ketchup or loaf of bread carried a marked price. One wonders if all this remarking itself contributed to the inflation rate.
No doubt. Cash at today’s 5% (+ -) looks very compelling, especially to the “over the hill” crowd.
Hope both of us are alive & well in 15 years.
Worth noting that money market funds back in the 70s and up to the 2007-09 financial crisis were less regulated and, while quite safe, took on more risk than they can today. So those 15-20% rates are a bit over-stated. Apples to oranges.
Doubt I’ll ever succumb to going all to cash. Admittedly, that would have been the smart move 18-20 months ago before the bottom fell out of equities. I enjoy investing and tracking a widely diversified portfolio too much to give it up (a “fool’s errand” perhaps). But the bumps in the road are getting harder to ride out with age.
We passed on new dog, because my daughter moved here too and has two lovely dogs we use to get dog fix every several days. As we helped her buy her house, she frequently acknowledges that she will help us when we can't drive etc. Not including travel expenses, our income needs so far have been met with SS and dividends, even in high tax Massachusetts ( realestate taxes up 30% since 2018)
I became convinced that going into retirement is not the best time to have large equity exposure, given risk of serious bear market, so in 2015 to 2018 I cut stocks back and now am around 30%. The fact that rates shot up has made that decision easier obviously.
I think there is more downside ahead than upside, at least for US market and I don't mind making 5 to 6% rather than 20% if it means avoiding a 40 % loss in capital.
This sorta makes up for the fact that in CT for the last 30 years our house lost us lots of money, my salary was stagnant and we were taxed to the max.
But you can't focus on the past, and we are grateful we are both healthy, our kids are generally happy and educated and employed, although one is 1200 miles away.
This allows me to trade anytime with ease and flexibility.
Another 0.1-0.2% for 6 months isn't worth for me the hassle. While MM keeps going up, the CDs you bought 3-6 months ago were lower.
“Retirees and those almost retired shouldn’t care what their highest level of risk tolerance is because they shouldn’t be investing anywhere near it. There is no economic reason for a person to take more investment risk once they have accumulated enough money for retirement.
The focus should be on the minimum needed to achieve an income required in retirement.
I believe Mr. Ferri says 30/70 is ideal.
@LarryB - About a year ago (or a bit further back) you were looking at VWINX as a possible spot for most of your assets. Have you discarded that notion?
I’d never argue with folks going all to cash. 5+% is nothing to sneeze at.
dThe focus should be on risk-adjusted performance and after that look for the income. Income by itself doesn't guarantee better performance or better risk/SD.
Example:
PIMIX in its glory days 2010-2013(https://schrts.co/TRyXMDdV) was better than SPY, 2010-2018 better than many bond funds. In these periods it beat many funds for SD too.
On the other hand, PDI, managed by one of the best teams in the world, paid about 10% annually in the last 5 years but made less than 6% total in 5 years. RCTIX made a total of close to 23% and SPY made 71% (https://schrts.co/vszPEmPD)
Thanks Larry. I haven’t followed VWINX too closely. But seems to be in a bit of a funk compared to earlier years.
Hardest thing is to try to anticipate how a fund like that might perform in an era of stable or rising interest rates. Funds holding bonds had a nice tail-wind over the past decade as rates fell - actually more like 2 decades.