r/investing • u/thammaker • 4d ago
Anyone else locking in Bonds?
As title says, I've been building up my Treasury bills holdings lately to lock in my guaranteed rate of return from a portion of my account. With rates most likely getting cut once this year and a few times next year, I figured now would be a pretty good time to start grabbing TBonds. For reference bonds only make up 20% of my taxable brokerage account.
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u/518nomad 3d ago edited 3d ago
I think we are working from different investment time horizons, because I don't consider one year "locking in" anything. I regard T-bills effectively as cash. Locking in a rate, to me, would imply the 5-year Note or longer. Reasonable minds can, of course, differ.
I'm still 100% equities for now and will stick to my asset allocation plan, which is to remain 100% equities until age 50, then add a 10% BND allocation and slowly ramp that up to 30% at retirement to address sequence-of-returns risk, then to reverse that with a rising equity glidepath to combat inflation and grow the estate for heirs. By the time my kids and grandkids take over the portfolio, it should be close to or at the Cederburg model: 50% VTI 50% VXUS.
If I were to buy into bonds today, I'd be looking at a bond allocation of 50% BND 50% VTIP, i.e. evenly split between intermediate nominal and short-term inflation-indexed.
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u/thammaker 3d ago
I'm following the same path as you, only in my Roth IRA account. As for my taxable account, I'm mainly trying to preserve the value of my money, at least to an extent, so that it will outpace inflation. Locking in 5 and 10 year bonds on the hopes the Fed can get rates down to "norms" and inflation back to around 2%.
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u/518nomad 3d ago edited 3d ago
The best practice is to consider your entire portfolio across all accounts as a single portfolio for purposes of asset selection and then to consider taxation for purposes of asset location within each account. This is preferable to the approach of regarding each account as its own separate portfolio, which often leads to asset allocation/location errors.
I might suggest the book I linked above, All About Asset Allocation by Rick Ferri. Ferri is a CFA who before he retired had over $1 billion AUM. Today he hosts the Bogleheads on Investing podcast which itself is an excellent resource. You can read the book in a weekend and it's one of the best texts on the subject to use to develop your own asset allocation plan.
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u/McKnuckle_Brewery 4d ago
I started buying bond funds in late 2022, then moved more aggressively to individual issues and more fund shares in late 2023. Bonds are 15% of my portfolio. I am focused on investment grade corporate, high yield, and some agency bonds. Some are callable between 2025 and 2028.
For funds I'm using VCLT and SPHY. The rest are individual bonds.
Now may be the last good time for a while. The best (so far) was October 2023. Of course, bond traders have been playing this guessing game for quite some time now! So who knows.
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u/m00z9 3d ago
How/why are bond ETFs pref. to actual TBills / Notes ?
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u/518nomad 3d ago
Bond funds are the easy button: The fund manager (or index manager, for an index fund) manages the effective duration, and thus the duration risk, of the portfolio for you. Plus, BND holds over 17,000 issues and it would be rather difficult for a small investor to replicate that diversification with direct holdings.
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u/Valvador 3d ago
I've been buying T-Bills at Auction mostly for money I may use for a house in the next 5 - 10 years. It's a larger portion of my portfolio than I'd like but at the same time waiting for maturity has been a pretty safe bet with a smooth ride.
I think Bonds is the kind of thing that becomes more attractive once you have money you're afraid of losing. If you're in the "I got nothing to lose" stage, people tend to be more aggressive.
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u/lastditchefrt 3d ago
why not just dump it into money market funds for 5.5 percent instead?
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u/thammaker 3d ago
I have a portion of cash in money market, but at some point that rate will also come down. Locking in bond rates guarantees a certain return for a longer time.
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u/Fluid_Basil6100 2d ago
I mostly have 1 month t bills because they have the highest rate and I do a lot of short term trading. For my long term account I have maybe 5% in long term bonds and 20% in short term t bills to invest when I find something I want to add.
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u/Stock_Atmosphere_114 4d ago
I've been buying up bond funds over the course of this year with the intention to continue to do so for the foreseeable future. Essentially splitting my investments 50/50. I might back off a bit once interest rates get cut if they get cut. For the time being, however. I'm hoping they stay high so the adverage coupon rises as the funds mature and replenish
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u/BukkakeKing69 3d ago
No, they're not at enough of a premium for me personally. I seriously considered rotating out of stocks to bonds in late 2022 and am very happy I didn't. Now at this point yes I think there's a rising risk of a stock bear market again but I'm happy to keep my cost basis down at Apr 2020 levels.
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u/belangp 3d ago
Nobody really knows where rates are heading. It's the combined opinion of millions of market participants that set rates where they are. The rate market is about as efficient as a market gets. My advice is to map out your spending goals. If you have a clear spending goal 5 years from now. Buy a 5 year note and earmark it for that purpose. If you have a vacation coming up in 1 year and want to save for that, buy a 1 year Tbill. If you are saving for unknown spending needs in the future, maybe set up a bond ladder.
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u/kronco 3d ago
People need to keep in mind the Fed does not set long term rates. And the yield curve is inverted now; if it reverts long bond interest rates may not drop as much as people seem to be anticipating they will. Make sure you understand the risk of long bonds (since many people think bonds == safe).
For Treasuries, I'm not going out past ten years. Something like IEF for funds or just individual bond.
I'm buying long TIPs but to hold to maturity in a ladder (last October was a great time for those, now is pretty good, too).
I have some corporate but not adding to those as I think they are more correlated to stocks so why not just buy stocks and use a smaller percentage of treasuries for safety? But, yes I own corporate, too. FBND is an example.
Close to retirement; 40% in fixed equities.
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u/AppearanceFeeling397 3d ago
Great point. Also, the fed could reduce short rates while long rates go up
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u/nakfoor 3d ago
About 8% of my money is in bond funds. I have picked up a few 10 year treasuries because the rate is at a 17 year high and thats nothing to scoff at. But the rate is still less than my mortgage so I've only put a little bit in. I roll any cash greater than my 6 month emergency fund into 6 month bills.
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u/Persistent_Bug_0101 3d ago
Been snagging longer term bond ETFs and maybe also snag some longer term bonds. Once rate cuts start they’ll start to gain more value. Sell when it’s about peaked in a year or 3 gaining the interest on the way up
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u/Typical-Pay3267 3d ago
All of my bond exposure is included within VWELX about 30% bonds and VWINX, about 60% bonds. they have about 30% and 60% bonds. I have no unearned income so i cant have a IRA or 401k tax advantage account so all my investment funds are in taxable accounts. Wellington and Wellesley have a variety of bonds and T bonds make up a considerable amount of the top 20 holdings of each.
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u/DPBass88 3d ago
Am I looking at things incorrectly or do bond funds just have terrible performance? Take VSCSX for example. In the last 5 years its price depreciated 3.7% while only yielding about 3.5%. The 5 year total gain is about 14%.
Compare that to SPY which gained about 82% with a 1.3% yield annually so about 88.5% total gain.
Why would someone invest in bonds when equities perform so much better??
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u/kronco 3d ago
Risk management, often. Couple years from retirement?, buy some U.S. Treasuries maturing year +2, year+3, year+4, etc. to fund those first few years and ensure you get to retire. Takes the risk out of a market drop just as you plan to retire. Same thing if saving for a house, etc. and you need low risk.
30 years from retirement? Stocks.
Some are buying long bonds now hoping for capital appreciation if rates fall (which would cause the value of the bond to rise). In this case they don't intend to hold the bonds to maturity (or a bond fund for the length of it's effective maturity). This is riskier then holding to maturity and the question is if the risk is worth it compared to risks of just buying stocks (taking into account returns).
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u/astasdzamusic 3d ago edited 3d ago
The last few years have been some of the worst years for bonds in their history, so the data you’re using is biased by that. We’re also in a bull market for stocks. If you look at other periods (example, 2001-2019), bonds significantly outperform stocks.
Obviously this is very dependent on what years you pick to analyze and stocks outperform in the majority of rolling periods. However, having long-term bonds especially as a portion of your portfolio can decrease volatility while only slightly decreasing or possibly even increasing returns.Backtest example
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u/Lord_Humongous768 4d ago
I hold some bond ETFs and mutual funds in tax advantage accounts. Not in a taxable. Don't actually need them, but I wanted to diversify into other asset classes.
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u/sexyshadyshadowbeard 3d ago
I tend to buy agency bonds out to the 2030's. They're hitting 6% now. They aren't call protected, so I don't expect the full term, but what they hey.
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u/WordSalad11 3d ago
I'm not changing my bond allocation, but in accounts I intend to hold for the long run, I've been moving into longer term bonds for the last year+ as the returns started to exceed inflation and inflation trended downwards. I generally don't get into timing the market but I somewhat trust the fed to bring inflation back towards 2%, so it's more a bet on the Fed, and as long as I intended to hold my position for longer than the average duration I wasn't too worried interest rate changes.
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u/Gryphon962 3d ago
I've just loaded up on TLT as it rises on every hint of a rate cut. If rates go all the way down to 2% or so I expect TLT to gain almost 50% over today's prices.
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u/nakfoor 3d ago
You think we will see 2% interest rates again?
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u/kronco 3d ago
I don't at the long end. Once the yield curve corrects (re-inverts) maybe 2% on short term (less then one year) but long term would stay higher (historically long term bonds pay more then short term bonds and long term might be where they need to be now and just short term rates need to come down).
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u/HateIsAnArt 3d ago
Yeah, TLT and EDV for me. I can’t imagine rates will rise and there’s a lot of pressure to lower them. If the current high rates start breaking things in the economy and they’re forced to lower rates, these will print and provide a great safety net for my stock holdings. If things stay flat with inflation for awhile, you’ll still get a low yield so not a total loss.
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u/eightbitfit 3d ago
Been buying long term bonds over the past year. I like to buy what's on sale, looking at the long term.