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"Core" bond fund holdings

I believe that active managers can bring value to the bond fund arena and I've done well with Pimco Income (PIMIX) as a core bond holding over the years. PIMIX has done poorly recently and index funds, such as Vanguard Total Bond (BND) have done well.

I almost purchased AlphaCentric Bond (IOFIX), but it seemed too good to be true and we all know what happened there. Guggenheim Total Return (GIBIX) has done consistently well, but its manager seems to be a little unconventional with investing ideas. I don't think GIBIX will become the next IOFIX, but I'm wondering how much longer GIBIX can continue to outperform. Performance Trust (PTIAX) also seems like it might be a good choice.

Although I don't like to make sector bets (even in the bond market), I'd like to consider active managers and not just a plain vanilla bond index fund.

Any ideas? Thanks!


  • A number of people have positive comments for ANBEX and TGLMX.
  • edited May 2020
    Take a look at LBNDX. It has worked well for me through the years ... but, it gave up more ground than I thought it should during the recent market swoon.
  • PTTAX has made a comeback after Bill Gross departed.
  • I'm not a trader, nothing close to that. Though there might be some funds with better yields, I don't want to snare myself in something unconventional, which then gets clobbered when the spam flies into the oscillating air flow mechanism. PRSNX yield = 3.88 and RPSIX is 3.69. And PTIAX is 4.27. These are the three I own. We are slowly growing PTIAX. With the other two, we are just re-investing profits. (Same with PTIAX, too.)
  • I like a fund like VCORX as a fairly tame intermediate core bond fund without reaching for yield. Reaching for yield in this market does not seem to be a very good idea, unless you are prepared for volatility and/or loss of principal. Look no further than a "short-term" bond fund like DHEAX for that result.
  • edited May 2020
    Hi guys, For those that hold American Funds ABNDX (Bond Fund of America) is listed at MFO as a core bond fund. It has a MFO Risk Rating of 1 (Very Conserative) and a MFO Rating of 4 (Above Average). I don't currently own this fund; but, I just might in the nearterm as I expand my fixed income sleeve from nine to twelve funds. In addition, I need to learn more about their new fund MIAQX. I'll be calling my advisor next week to see if I can not get more information on this new offering. Generally, they do a lucheon sponsored by American Funds to present their new offerings. The last new offering that I bought was New World and that was a good number of years ago. With this, they might have marked me off their ... free ... lunch list. In addition, JHNBX, NEFRX, PINCX are three other fixed income funds that I'am looking at as well. JHNBX has a MFO Risk Rating of 2 (conserative) and a MFO Rating of 3 (Average) ... NEFRX has a MFO Risk Rating of 2 (Conserative) and a MFO Rating of 5 (Best) ... and, PINCX has a MFO Risk Rating of 2 (Conserative) and a MFO Rating of 5 (Best).
  • edited May 2020
    @Old_Skeet- Would appreciate your judgement on ABNDX vs MIAQX when you've gathered enough info to evaluate. We've owned ABNDX on-and-off over the years for balance, and I have to say that I was never overly impressed with American's bond performance vs their equity performance, which I thought was generally quite good.

    There's a bit of info over in the "Capital Group Launches Multi-Sector Income Fund" thread, in case you hadn't been following that. MSF, as usual, has been keeping up his good work.
  • edited May 2020

    You have asked for my thinking on fixed income. Here goes ...

    My ability to review funds has been compromised by M*. Part of my quick and dirty review matrix is no more through M* Portfolio Manager. In portfolio manager I have been able, up untill recently, to view the 52 week high and low for a mutual fund along with % above and below. I can still do this with stocks, closed end funds, and etf's but not mutual funds.

    I began this study because I was disapoined with the performance of my income funds as I felt they should have held up better than they did during this recent stock market swoon. I had been in this review process now for a couple of weeks ... and as of last week my review matrix is void of these 52 week details that was part of this review and study process. This is where I was getting my upside and downside capture numbers. Now, no more.

    I do remember looking at ABNDX to see how it performed against some of my current bond funds as like you I had owned ABNDX before (from time-to-time). ABNDX and AGTHX along with ANCFX were part of my seasonal spiff package where I'd load equities (AGTHX & ANCFX) in the late fall and hold them until spring then rebalance and move (through the nav exchange program) into fixed income (ABNDX) (commission free). Generally, I'd also put my new money to work and buy the bond fund during the summer months as the commission to purchase it was less than to purchase equity funds. I learned to do this early on in my investing endeavors during my teenage years from my late father's stock broker. As a matter of fact he is the one that schooled me on the seasonal investment stratey (Sell In May) that I have used through the years and still do today as May/June period & September/October period are generally seasonal (calendar) rebalance times for me.

    During this review of my fixed income sleeve I remember that ABNDX when compaired to my other holdings was the better performer during the downdraft period while it did give up some ground to the others in its fair weather performance. Still it's yield is a little low (2.2%) for my taste. Some Old_School Mytholodgy, taught to me by my father's broker during my early years in investing, was to make +2% above inflation on fixed income and savings and +4% to +6% on value (equity income) and +6% to +8% (perhaps more) on equity growth positions. I remember back in the late 1990's and early 2000's I was getting a yield from AHITX of about 10% (now about 6.5%) and a 5% yield on CD's and yes ABNDX was at the 5% yield mark as well (now around 2.2%). Then the Great Recession came and fixed income started paying little to nothing as it is today with the FOMC's low interest rate policy. With this ... equities have thrived and bonds have withered. Thank goodness for the hybrid funds.

    I guess what I'm saying to you ... and others ... fixed income is not what it use to be. And, to gain yield I took on more risk in my fixed income sleeve than I thought I had. If I had continued with ABNDX as one of my core fixed income holdings I'd now be better off today than where I am now in protecting the downside. Still my other holdings within my income sleeve over a ten year period have out gunned ABNDX from both a yield and a total return perspective.

    I'm thinking that this new bond fund by American Funds (MIAQX) is a marketing tool fund to help better sell their fixed income stuff thus retain more shareholder money that might now be moving to other bond houses. Anyway, I plan to cut some of my fixed income money back to American Funds where it be ABNDX (most likely) or MIAQX (the new fund) as I'm equity heavy and May/June are rebalance months for me. This rebalance is mostly because I am equity heavy based upon my asset allocation model more so than a seasonal timming strategy move plus I like to rebalance in both spring and fall. In addition, I've been thininking of trimming some from FKINX and moving these proceeds (through nav transfer) into FISCX and FBLAX. FKINX has disappointed me (lately) but it is the first fund I began my investing endeavors with, at age 12. It still remains as one of my top five positions outside of cash.

    Thanks ... Old_Joe for asking my thoughts. In writing this out gave me some clairty to the mater as well. I had an elementary school teacher that had us writing a Friday paper as what we had learned in school for the week. I've kept with this through the years and even today write a weekly recap ... more so ... on my portfolio and the market than anything else. One week I turned in a blank paper ... I learned "the hard way" not to do that anymore. Come Monday ... I had to write 50 times on a sheet of notebook paper (front and back) ... during recess ... "I'll take good daily class notes so I can write my Friday paper." In doing this she marked my Friday paper assignment as complete. Told me next time ... I'd not be so lucky.

    If I learn anything of great value with my call to my advisor about this new bond fund ... I'll let you know. I'm planning to do a nav transfer this week as I have to call to do this. This will be a good time to make the inquiry on the new bond fund. I'll post what I learn.

  • IMHO it's not that people took on more risk than they thought but rather that people do not appreciate what risk is. Stuff happens. Risk generally is rewarded, but the ride can be jarring.

    The average 10 year returns for multisector and for intermediate core bond funds were very close as of today (May 3, 2020). Multisector: 3.65%, core 3.80%.

    Take the same ten years through the end of 2019 and the averages are multisector: 4.87%, core: 3.81%. (All data from M*'s legacy graphs; see here for 10 years through 2019, see here for 10 years through today).

    Over the long term, higher risk investments will probably do better, but when there are corrections or disruptions, they'll come down to earth faster and harder, bringing their long term averages closer to the lower risk investments.

    My guess is that the "wealth effect" has something to do with people's reactions. High flying funds make people feel wealthier than they are; they don't factor in embedded risk. So when, as is inevitable, that risk manifests and the funds show themselves to be just somewhat better, people tend to feel disappointed. I'm suggesting that rather than feel disappointed when bad things happen, instead feel just a little less good when good things happen.

    Based on the performance figures, ABNDX is an average fund. It's done very well this year on a relative basis, about 3.5% above category average. And that's brought its 10 year performance up to about 0.35%/year above category average.

    On the other hand, PIMIX has held up relatively well against its category, ahead 0.5% YTD. Even from peak (Feb 23) to trough (March 23) it did better, losing "only" 13.3% vs. 14.22% for its category.

    ISTM the question is whether one is willing to hold higher risk categories over a long term for a payoff, recognizing that long term is not one or three years but more likely five or even ten years. If that's too long to stay pat, then intermediate term core bond bonds would seem a better fit.

    FWIW, I haven't reacted with changes to my portfolio. The only changes I'm contemplating are lateral moves (not category changes) that I've been looking into for years. I just have a little more data to work with now.
  • Thanks very much to both of you for your well-thought-through analysis on the bond situation. As you might know from some of my postings, when I hit 80 around a year or so ago I basically went to an all-cash situation. We are extremely fortunate to have ample retirement income from pensions and SS, and felt that at our ages we may not have time left to work through a five or ten year recovery cycle in the event of a serious downturn. (No prescience- certainly wasn't expecting the present situation!)

    But the safety of MMKT and bank deposits is not only totally boring, but it's sort of like watching the inflation termites ever so slowly eat your house away from the inside. When I saw the post about MIAQX I wondered if maybe that might be a possible anti-termite move, but it seems that there just isn't any fool-proof answer to that problem.
  • edited May 2020
    Hi @Old_Joe:

    I was able to speak with my advisor yesterday and discussed several things. On the subject of MIAQX my broker, after speaking with American Funds, explained to me that this new fund was designed to fill a void in their fixed income lineup. It's yield was targeted to be somewhere around 4.65% (that's somewwhere between Bond Fund America and their high yield fund). I'm finding that it closed yesterday with a nav of $9.65. According, to my advisor, it is not yet available for purchase on their platform as it has not yet been submitted, to the firm, for product review and listing. However, I was told I could still purchase the fund directly through American Funds and then transfer it into my account once it became available on the platform.

    I also checked with a couple of other investment shops and they indicated that it was not yet available for purchase with them.

    I'm liking what I'm seeing in INPAX ... and, I may go that route as an addition to my hybrid income sleeve as it is conseratively invested with a decent yield of about 3.5%. Being a hybrid type fund it can reallocate (among the family of American Funds) and reposition within certain asset allocation ranges based upon the manager's call.
  • I think it is difficult to be invested in a bond fund that is supposed to be "ballast" to your equities and then see it drop 13%

    A "Core " Bond fund IMHO should diversify and provide some income but not reach for yield, etc. With treasury yields so low, I think you have to look at corporate bonds. Mortgages bother me as I think there will be significantly more foreclosures, although this may take several months.

    A quick search of our data base for Core Bond funds ranked as highest comes up with 18 funds and ETF. They have widely varying performance for March 1 thru the 18th when AGG lost 8% and "investment grade" corporate bond Index LQD dropped 20% !!! until the Fed stood up. The top few lost a lot less ANBAX -.2, AGGP -.3, SCPZX -.6, SIUSX - 3% PNIIX and MXEDX -4, BCPIX and JCPB -4%

    Yet many of these are loaded with BBB bonds, which may be currently labeled investment grade but had defaults of 7 to 10% during the GFC. LQD has 46% BBB. Unless you think the manager can really pick the right BBBs, I would stay away from a fund with more than say 10% and pick a core fund that held up better than an index.

    While the fed is backstopping the market, and we are unlikely to see widespread collapse again, bankruptcies among BBB rated companies are a given. I think this calls for active management but reaching for yield will be very risky.

    Staying in cash limits you return to 1% or less.

    I am open to suggestions.
  • @Old_Skeet- Thanks much for your report on MIAQX. Our situations are somewhat different, as I believe that you depend upon your elaborate and well thought-out investment scheme to generate a current income stream, whereas we have the benefit of very good pension and SS income. My main concern is trying to prevent the slow but sure deterioration of the value of our savings due to inflation. Unfortunately. there seems to be no way to accomplish that without exposure to a significant market risk, which was acceptable until we became too old to allow for an extended recovery period associated with a typical market downturn.

    I was tempted by MIAQX because we have a significant amount still at American Funds, just sitting in AFAXX slowly "rotting away". Thanks again for your help in evaluating this situation.

    Best regards- OJ
  • edited May 2020
    Hi again @Old_Joe.

    Thus far this year ... and, I'm thinking that the only money I'll pull from the investmets is the required RMD from the retirement accounts and some of that will get repositioned back into investments. What I'm doing with most of the income that is generated from the investments is to increase my acreage by buying more shares of good funds. In this way, there will be a greater number of base shares to build from when the rebound comes (continues). Currently, wife and I live pretty well off of our SS checks, wife's school pension, and my contract work with my former full time employer before I retired from full time work. For us, life is good since we are debt free.

    But, I also understand where you are coming from with how you are governing as well. 20% was a sizeable sum of our portfolio for us to hold in cash since it was paying next to nothing and losing to inflation. So, I over weighted my sleeve of good dividend paying equity funds in the growth & income section of my portfolio. Firured over the next five years or so I'd do ok with this strategy and grow my principal thus offsetting inflation and collect the dividend.

    Much like a company if you are not growing principal and income then you are simply not progressing.

    But, each of us on the board has to do what we feel is best. And, what I do might not be right for others. I understand that. But, I also understand, income has never gone out of style.
  • sma3, in the investment grade corporate bond arena, would VFIDX meet your parameters?

  • @sma3,

    Why not roll your own using various proportions (some overlap of course) of EDV, BND, and SHY?
  • If there is ever a time for active management of a bond fund, I think this is it. VFDIX and BND follow an index and as M* says of VFDIX

    "The portfolio relies on the market's collective wisdom and does not attempt to avoid bad credit risks or identify undervalued bonds."

    While VFDIX is only 20% BBB, by the time individual bonds are downgraded, the damage to their prices may have already been done.

    I think going with an index fund you are going to be buying a fairly large number of bonds that are at risk of defaulting. I don't know how often any of the rating agencies will be acknowledging that the oil companies hotels etc may be going under

  • sma3 said:

    I think it is difficult to be invested in a bond fund that is supposed to be "ballast" to your equities and then see it drop 13%

    A "Core " Bond fund IMHO should diversify and provide some income but not reach for yield, etc. With treasury yields so low, I think you have to look at corporate bonds. Mortgages bother me as I think there will be significantly more foreclosures, although this may take several months. ...

    Staying in cash limits you return to 1% or less.

    I am open to suggestions.

    For quite some time I've been questioning the virtue of bonds, whether for ballast or for total return. ISTM cash is more valuable than you're giving it credit for, and bonds less so.

    First, cash. Personally, for cash I focus on preservation and liquidity (withdrawals, not additions). Marcus Bank is currently offering 1.55% for 7 month no penalty CDs, 1.45% for 11 month ones. These meet my definition of cash and are 50% above "1% or less". The nice thing about these CDs is that the rates won't go down at least for several months. After that, one can reexamine the situation.

    Next, ballast. In a literal sense, dead weight, something to keep a ship from listing. Cash does that, as does anything that reduces beta (relative volatility).

    Negative correlation seems to be another reason given for investing in bonds. Two issues here: (1) what does negative correlation really mean (and what does it do for you), and (2) what types of bonds negatively correlate with, say, the S&P 500?

    Here's a nice (3 page) piece by PIMCO Does the Stock‑Bond Correlation Really Matter?

    Its thesis is that correlation isn't what you think it is. Negative correlation happens when bonds' deviation from their normal return zigs while stocks' deviation from their normal return zags. Both stocks and bonds can drop even with negative correlation, and stocks and bonds can move in opposite directions (one gaining, one losing) even when they're positively correlated.
    Bonds have historically hedged equity risk in recessions because returns have been positive, not necessarily because correlations have been negative. So, does the correlation matter? In our view, not really.
    Cash is guaranteed to have positive returns. Bonds, not so much. These days, what one is getting from bonds isn't high enough to serve as a good hedge, just as ballast.

    Even if we stipulate that negative correlation is somewhat beneficial, what types of bonds are negatively correlated with stocks? If the correlation is near zero, then the bonds are just as likely to harm portfolio returns as to help. That is, bonds are just as likely to underperform at the same time stocks are underperforming as they are likely to outperform.

    Schwab has a table of correlations over the period 2004-2015. It's Exhibit 7 in this whitepaper. The correlation (ranges) it gives for different bond types relative to the S&P 500 are:

    Treasuries: negative
    Core, securitized, and inflation-protected: 0.0 - 0.3 (i.e. insignificant)
    IG Corporate: 0.3-0.7
    HY Corporate: 0.7 - 0.9 (little better than holding stocks)

    If you're going to reach for yield with corporates, you're taking on equity risk, especially with junk bonds. As one can see from the difference between HY, IG, and Core, both credit quality and corp vs. gov. affect how good the bonds are in not doing harm. Aside from Treasuries, the best you can say is that with luck (50/50) the bonds won't underperform at the same time stocks are underperforming. Sometimes it works, sometimes it doesn't.

    The ETF suggestions (which are fairly representative of lower credit risk bonds) serve to illustrate why cash (around 1.5%) may do at least as good a job as bonds. Unless one really does take on more credit risk (and hence greater correlation with stocks).

    SEC yields: EDV 1.28%, BND 1.62%, SHY 0.09% (each from its sponsor's web page)
  • edited May 2020
    >> correlation isn't what you think it is.

    for sure that

    Yeah, I was comparing $10k growth of SPAXX w those three ETFs for various timespans, and they in combo seemed like a prudent ballast improvement. But maybe not.
  • Old_Skeet said:

    Hi again @Old_Joe.

    Thus far this year ... and, I'm thinking that the only money I'll pull from the investmets is the required RMD from the retirement accounts and some of that will get repositioned back into investments.

    FYI, under the CARES act, RMDs are waived this year so you don’t need to take it if you choose not to.

  • In the core space I like BCOSX, GIBLX and for a simple ETF, BIV. All up YTD, good ballast relative to equities, good long term. In a word, solid.
  • edited May 2020
    Hi @ MrRuffles: You are correct sir ... about the 2020 IRA distrbution. My 12/31/2019 IRA valuation, I'm thinking, will be higher than my 12/31/2020 valuation. But, the govt. does not give something to you for nothing. My RMD factor will be higher on my 2021 distribution than on my 2020 because as you age the RMD factor increases. I'm still with my plan to take my full 2020 RMD. If the govt wanted to be graceous then they would have granted a three year waiver or made the 2020 distribution a non taxable event. They did nothing more than push the required distribution further out. Skeet
  • Old_Skeet said:

    But, the govt. does not give something to you for nothing. My RMD factor will be higher on my 2021 distribution than my 2020 because as you age the factor increases.

    Hope springs eternal. Last fall, the IRS proposed new life expectancy figures that make the 2021 divisor even larger (smaller RMD) than the 2020 divisor is currently. Not only something for nothing, but something more than what you asked for.

    The comment period closed January 7th. I don't know what the status is, though Kitces wrote that "it’s likely the changes to the tables will be finalized sometime in 2020 in the same or substantially similar form."

    Here's the table of life expectancies, both current and proposed:

    Proposed Regulation: Updated Life Expectancy and Distribution Period Tables Used for Purposes of Determining Minimum Required Distributions

    Comments (55):

  • What do folks think of the Scout bond funds, now called Carillion Reams?
  • @Bitzer SCPZX is one of the funds that did well this year esp in March, but M* is leery

    "But such wins depend on precise timing, and mistakes can sting. The strategy slashed its 40% agency mortgage-backed securities stake to 4% in late 2008 and doubled down on commercial mortgage-backed securities (to 34%), for example, missing a rally in the former and getting hammered by the latter."

    @msf I would rather not have to set up another account, especially a retirement account to buy Marcus CDs. While FDIC guarantees work ( I lost two CDS during the 1980s housing crisis) it does take some time to get your money back so there is some opportunity cost.

    1.5% after taxes will not beat inflation, unless you think there is a massive deflation coming. There are a number of 1 year A+ bonds paying up to 2.5% from companies that are highly unlikely to go bankrupt in the next year ie, Kimberly Clark, Home Depot, Wells Fargo. If a good analyst knows what they are doing I think they can avoid bankrupcies and make more than that with longer duration bonds.

    Unfortunately even the most conservation fund seems temped with asset backed securities and even emerging markets

    I can't argue with cash, other than it pays very little and I want some diversification but also want to avoid the potential for capital loss.

    Correlation are helpful in the big picture, but they are really backward looking as we don't know what is coming. While some individual companies will go under, the Feds entire reason to buy stuff is to keep the system from going under.

  • sma3 said:

    I would rather not have to set up another account, especially a retirement account to buy Marcus CDs. While FDIC guarantees work ( I lost two CDS during the 1980s housing crisis) it does take some time to get your money back so there is some opportunity cost.

    1.5% after taxes will not beat inflation, unless you think there is a massive deflation coming. There are a number of 1 year A+ bonds paying up to 2.5% from companies that are highly unlikely to go bankrupt in the next year ie, Kimberly Clark, Home Depot, Wells Fargo. If a good analyst knows what they are doing I think they can avoid bankrupcies and make more than that with longer duration bonds.

    Certainly moving money around in IRAs is more difficult. In a post I made on another board I acknowledged that. Here, it just didn't occur to me that the question concerned IRAs. You're right that they're more problematic.

    I used to work with someone who had taken delight in putting money into the most shaky Texan S&Ls in the early 80s. He said that he had gotten his money back a few days after each institution failed. Apparently your mileage did vary:-)

    I am curious about the bonds you're looking at. I did a search on Fidelity's site, expanding the parameters to look for corporate bonds with maturities through Nov. 2029, and S&P or Moody's rating of at least BBB+/Baa1 respectively. Fidelity showed an inventory of 1139 bonds. When sorted by YTW (highest to lowest), the highest yielding WF bonds I found were:
    94974BGL8, 2.922%, BBB+/A3, 7/22/27
    94974BFY1, 2.558%, BBB+/A3, 6/3/26
    95000U2D4, 2.497%, A-/A2, 1/24/29 (call 10/23/28)
    95001D6P0, 2.314%, A-/A2, 4/17/28 (call 4/17/22)
    949746SH5, 2.181%, A-/A2, 10/23/26
    949746RW3, 2.108%, A-/A2, 4/22/26 (and callable)
    94974BFN5, 1.975%, BBB+/A3, 8/15/23
    94974BGP9, 1.940%, A-/A2, 9/29/25

    No other Wells Fargo bonds yielding at least 1.92%. The bond I bolded comes closest to what you were describing - it should be called in two years (not quite a one year bond) and it is rated just a couple of notches below your A+ or better requirement.

    Corporates rated A+ or better that I can find with YTW over 2.5% that may be redeemed sometime in 2021 are premium bonds callable next year. One expects premium bonds to be called, so I would count these as 1-1.5 year bonds; at least until problems prevent them from being called. So some possibilities do exist, albeit with liquidity risk (they may not be called, and there are added trading costs to sell rather than wait for redemption).

    They're largely from health companies and banks - BP Capital, Credit Suisse, Barclays, UnitedHealth, Merck, etc. But no Wells Fargo, no Home Depot, no Kimberly Clark. The Schwab screener lets you look for issuers, and the only bonds it shows for these three companies are generally rated A-/A2 for Wells Fargo, or A/A2 for the others.
  • edited May 2020
    @Old_Joe and others ...

    For those that would like more information on the new American Funds' Multi Sector Income Fund MIAQX below is a link that you can follow to the fund's web page which just recently became available.
  • @msf

    Thanks for the info. I am unsure if you are sitting 100% in your CDs. If so how will you decide to move money anywhere else?

    Keeping enough cash to live on for some period of time gives you the opportunity to take some risk with the rest. However, it is hard to believe that there is not going to be another serious equity downturn. Bonds are generally unappealing but look better than most stocks as the "E" in P/E ratios is a complete unknown.

    I am carefully buying some higher dividend positions with good balance sheets in defensive sectors but avoiding utilities ( who knows how many people wont pay their electric bill?) and REITS ( although industrial and cell tower reits might do ok)

    I think higher quality bonds from the same companies will be OK, and if there is worse economic news ahead might even have a price uptick.

    We are in uncharted times, but there is nothing wrong with lots of cash if you do not need an income stream
  • There are various strategies for asset allocation that seem to work out about the same. Consequently, I honestly think the choice comes down more to what feels right than to a real difference in outcome or even overall risk.

    To the extent that I invest in dividend paying stock funds, I do that to diversify my equity portfolio, not for a cash stream per se. ISTM that what matters when investing in a company is how profitable the company will be. Whether it retains its profits (because it feels it can put the cash to good use), or pays them out to me as divs, doesn't matter.

    At a macro level, what works for me with cash is allocating enough to "real cash" to last a couple of years, to "near cash" for 1-2 more. I also maintain a secondary liquid cache (see below). Along with a modest bond buffer that sits between cash and equities I can wait out almost any equity downdraft. Essentially I can bury my head in the sand until it all blows over. Which is one's natural inclination anyway - not to look at figures that are down 30% or more:-)

    I think the micro level is what you're asking about - how am I splitting up that cash and near cash. In my mind, cash is something that's available for immediate use without fluctuation in value.

    Right now I do like no-penalty CDs since they give me that flexibility and better rates than MMAs (let alone MMFs). Until recently, something like Vanguard's Treasury MMF did better on an after-tax basis (state tax exempt). I do keep a few months cash in MMAs. They pay not much less than the CDs (though I expect MMA rates to fall), and they're a bit easier to deal with than the CDs. When one cashes out a CD, it's all or nothing. So I pay a small amount (in lost interest) with the MMAs for a small added convenience.

    Moving up the scale, I use both taxable and muni "near cash" funds. I've written before that one expects these to do better over a span of a couple of years, though they could underperform cash (or even lose a penny or two) over shorter periods of time.

    I also have a second level "cache" - mostly older I-bonds. Liquid, no penalty, state tax exempt, tax-deferred, and aside from tax benefits competitive with MMAs. Not replaceable - there are limits on how much one can buy in a year, they have penalties for five years, and the fixed rate on new ones is now 0%. If I need to wait out a long market decline, these are available as backup.

    So long as rates are stable or dropping, I don't expect to move money from cash (MMA, MMF, no penalty CDs) to "near cash" (short term and/or short duration funds). I'd rather have the rate lock on the CDs. When rates take a sharp jump up, I'll see what vehicles are offering the best yields.

    Overall, while this is a conservative cash strategy, it lets me be more aggressive with equities, both in percentage allocation and in the type of equities. For other people, a traditional 60/40 portfolio provides a greater level of comfort and they don't have a cash drag from a significant cash allocation. Or, they can be more aggressive with their cash. Different paths to hopefully the same positive results.

  • @msf
    Thanks for the detailed explanation. I am recently retired and purposely reduced equity exposure before Covid as I was concerned about a 30 to 50% drop in my retirement accounts immediately if something like this came along. I guess I lucked out but now of course it is how and when to get back in. I am aiming to increase my income production gradually over the next year or so especially as MMF and most CDs are now paying almost as little as savings accounts. Fortunately I have enough to live on

    It is very difficult to identify vehicles for reasonable ( over 2 or 3%) income returns without taking a lot of risk in these times. Many of the usual ideas like REITS and utilities have been decimated and will soon be forced to cut their dividends too. It will take a long time for a utility to recover from a 20 or 25% drop in share price.

    Unfortunately many of the "income" strategies seem to ignore absolute returns claiming all that counts is the income, but I think that is short sighted, as dividend cuts usually follow share declines of this nature.
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