Well yeah. I guess I assumed he didn’t want the hassle of changing institutions.
Printable View
Well yeah. I guess I assumed he didn’t want the hassle of changing institutions.
Target date funds are very heavy into bonds as they get close to the target date. There is interest rate risk associated with those funds as they near their target date and move more of their holdings out of equities and into bonds.
If rates continue to go up, those target date funds are going to lose money as the coupon value of the bonds they hold goes down.
This won't be a problem if you believe the Fed is done raising rates. If they continue to raise rates though...
Vanguard's funds are simply a mix of 4 (I think it's 4) index funds, and they balance down (move out of equities, but they still keep some) as they get closer to target. You can increase the equity mix by choosing a later target date (for ex, I have some money on a 2040 fund though I sure as fuck better be retired by 2035).
Obviously, if the mix they use doesn't appeal to you, then it's not good. But it is pretty much the easiest comprehensive way to invest for a future date.
Yes, it is easy. My point is that there is interest rate risk in near dated target date fund because they move heavily into bonds as they near maturity. If interest rates continue to go up, the bond funds you are invested in through the target date funds will lose value.
Buzz might be better off moving to money market funds instead of target date funds if he expects interest rates to continue to rise because a near dated target date fund (and it's underlying bond index fund) will likely lose value in the short term in a rising interest rate environment. Money market funds don't have that risk and will perform better if rates continue to rise.
Someone with a longer time horizon (kids don't got to college until 2030 or 2035) is probably better off just using a target date fund for the simplicity of it and because the likelihood of a long dated target fund over performing money market funds in the long term.
What rates have risen? 6month tsy out to 30year yields have fallen the last 2 months.Quote:
Originally Posted by Kevo
Anyway if you need the money in 3 months put it in a money market, make 4+% and take it out when you need it. I’d say the same if mm rates were back at 0.05% like the last 10-15 years. Liquidity is your #1 concern. Not timing the market from an internet chat room.
That said…vanguard doesn’t use an allocation to commodities in the bulk (all?) of their target date strategies. “Keep it simple” doesn’t work quite as well in an inflationary regime. Others (fidelity, blackrock, state street) I believe do.
Brock, I think we're saying the same thing but you are coming from a more academic perspective and I'm layering in pontification about the potential for interest rates to continue to rise.
I think there is a chance of rates continuing to rise despite recent drops in 6 month to 30 year bond rates. Today's employment report was better than expected and wage growth was much higher than expected.
Brock knows more than I do and I'd do what he was suggesting if it were my kid's college fund and said kid was starting college in the fall.
If the fed were to hike again (chances before this morning were very low but deffffinitely not 0 now) rates would go DOWN. Like they have the last 2 months.Quote:
Originally Posted by Kevo
We are near the end of the hiking cycle if not already there. Inflation is coming down. The rate hikes will eventually hit businesses which will hit workers and consumers. Cuts are priced in for later this year and 2024. Why? Because shits going to get real.
That’s why at this point, the more the Fed raises the front end, if they do, anything 5 years and out yields will likely fall. And if the Fed has to cut its because shits hitting the fan. And yields will drop. And that’s why you put money into longer dated bonds. Especially when they’re paying 4%.
Is there a high level reason for the disparity in growth of indexed mutual funds vs etfs on a day like today?
VFIAX 3.70 vs VOO 3.73
VTSAX 0.97 vs VTI 2.05
Or is this something more in the weeds like specific allocations, expense ratios, etc?
Isn’t everything up ~1% today?
Mutual funds price after close. ETF’s price in real time. But everything should be aligned by now.
You're totally right, my stocks app reverted to price change instead of percentages.
I’ll be discussing this my my dad, coming up from AZ for my daughter’s graduation next week. For the time being I did pull half of each fund into the cash reserves fund, as to keep some money safe from market fluctuations.Quote:
Originally Posted by Kevo
33 yr high on the Nikkei 225
IEP going to $5. Old man Icahn stayed too long. No way he recovers. Wall Street eats their own.
Jesus Christ people must be choking on vol. it’s like the market is rigged. I don’t think I can remember a crazier time where the mkt just goes fucking no where. Must be little to no risk on. Boring.
I’m going out in a limb and predicting a more than usual volatility summer.
Bless your heart.
Anybody sell TSLA after the last months increase? I did this am, sold my 50 shares in the YOLO account. Managed to eke out a decent profit but individual stocks are not for me any longer.
No, paid 108 ish. 220 was a good spot to sell, but it’s in my Sep ira so I’m not going to ruin a good entry that should hold up.
crazy amount of t-bill auctions being announced. Not sure if I should buy t-bills or bet on buying a lower s&p(guessing sell off as people move into t-bills). Last 52/26 week t-bills was just over 5%...I'm guessing might hit 6% in next few auctions.
Treasury supply has never been an issue that overrides macro sentiment. I doubt it does this time.
That said, I’m liking TLT on this pullback. Claims ticking up and inflation could surprise lower.
It is confusing to me why anyone would buy a T bill directly instead of buying a treasury money market fund like VUSXX.
You can have all the liquidity of cash and still get paid just about the same as short term T bills.
Tax efficiency? VUSXX has been lagging tbill rates by ~.2%? Ability to lock in a long term rate with a tbill?
and/or simply can't buy it on whatever platform you use
My understanding is that VUSXX lags because it holds short term T bills, many of which have rates from treasury auctions that took place a month or so ago.Quote:
Originally Posted by ghosthop
Since we're in a rising interest rate environment, VUSXX lags a little behind the most recent T bill yields. If treasury rates were to decline, VUSXX would be a little higher than the most recent T bill auctions on the way down.
52 weeks is the longest term on a t-bill. 15 months ago they yielded nothing. So you get 5% for one year. Then what? It’s called duration risk.Quote:
Originally Posted by ghosthop
LQD yields almost 4% with 9 year duration. That’s not great for that much duration.
BOND has a 6 year duration with current yield at 4.17 and a yield to maturity of 5.17. While is does have some principal risk you’ve basically locked in a 4% yield for at least 5 years.
T-bills are great but you need a longer term strategy to match your goals.
Tesla!
I’ll be tempted to sell at 300. But I won’t.