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Post by novicegirl on Apr 12, 2022 17:20:37 GMT
Hi everyone,
I'm a pretty novice buy and hold investor with about 17 years to go. For the bond portion of my portfolio I typically buy total bond (decent quality, intermediate) type funds like BND, FTBFX, and VWIUX depending on what account I'm working in and what I have access to.
This has done okay for me but obviously this year it hurts, I'm down over 8% in some of these. My limited understanding is that when interest rates go up a percent that my fund can be expected to go down the average duration. So I'm not sure anything is out of the norm but I'm wondering if my best chance of getting money back to do nothing? In theory my funds are buying higher interest bonds now and things will eventually sort themselves out? Just seems like a long time to get back a loss that steep.
What are others doing with their bond money? What's a good choice for someone rather unsophisticated like me?
Thanks!
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Post by richardsok on Apr 12, 2022 17:39:21 GMT
novice -- We have been batting your questions around for months -- even years going back to Morningstar forum. The broader bond market flashed its first technical signals back in December, and the "Sell!" alerts were confirmed early Jan. Since then MUB or BOND, to name two, haven't had a single meaningful rally on the way down. The good news is that broad bond markets are among the easiest for small investors to trade, as they tend to be very low volatility, so when you get a change in signals, your chances of making a correct move is quite high. I don't have a dime in any broad bond funds and wouldn't own them so long as their trends remain PLUG-UGLY. But I would consider variable rate CEFs such as PHD and Pimco CEFs such as PDI and PTY, for reasons we've exhausted long ago. But even with Pimco I do wonder WIIW ---- 'what if I'm wrong" ?
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Deleted
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Post by Deleted on Apr 12, 2022 18:16:48 GMT
Seriously Richardsok, you believe a "novice" investor uncomfortable with ETF/mutual fund bond losses should consider leveraged-up CEFs? I'm no novice and don't consider them appropriate for myself!
Novicegirl, predicting long term interest rates is as problematic as predicting any other market. If you have an investment plan, I think your most valuable financial asset is the discipline to follow it. Time is on your side.
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Deleted
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Post by Deleted on Apr 12, 2022 18:39:25 GMT
CEFs required study to understand them, which takes time. I find them interesting. Most bond funds are boring, and with the 30+ year bond cycle over, they are neither providing appreciation nor ballast in a portfolio.
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galeno
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Post by galeno on Apr 12, 2022 19:14:21 GMT
For an USA person. My advice is to own ONE total bond INDEX fund paired with ONE total equity fund at your preferred asset allocation.
Non-USA persons should use WORLD bonds and equity.
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Post by alvinthechipmunk on Apr 12, 2022 20:19:07 GMT
novicegirl , At Gettysburg, General Lee was winning on the first day. He refused to listen to his subordinate General Longstreet, who urged him to pick up and leave, to re-deploy to a more advantageous location, between there and Washington. But Lee saw such a move as a retreat, and "his blood was up," so he would not do it. I'm retired. 67. Spent a good bit of time getting the portfolio to a classic, moderate-risk combination of 60 bonds and 40 stocks. Then came covid, then came supply-chain problems. Then came inflation. Then came uncle Poot-butt invading Ukraine. One thing after another. I have kept a close eye on my total performance in each mutual fund. TRP provides that statistic when you log-in. "Personal rate of return since inception." So, I have re-deployed, not retreated. I rescued a big bunch of profit from a couple of bond funds and used the proceeds to buy both stocks and bonds, in differently-tilted funds. I'm down quite a bit already in TRP High Yield. TUHYX. Poop. But let it drop another 5% and I just might buy MORE. My TRP Floating Rate/Bank Loan fund PRFRX is hugging the zero-line, still, since I got in. Meanwhile, monthly dividends continue, so there's THAT. The decades-long bond rally is dead. I've come from 60% bonds just a few weeks ago down to 35%. And 41% domestic stocks, with another 17% in foreign stocks. My best mover in '22 has been TRAMX. Strangely not much oil in that fund. Big slug of financials. ......What should you do? I'd say re-deploy. Sometimes you eat the bear, and sometimes the bear eats you. Don't stay married to your investments. But a YTD figure is not as meaningful as a 5 or 10-year performance number. You mentioned up to 8% losses in some of your bond funds. Ouch. I'm feeling it, too: one of mine is down YTD by 6%. Even my TRP Financial Services fund PRISX is down -4.73% YTD. I'd seen Financials recommended. Those institutions hold all the money, right? ? But so far, it's been a losing proposition. I'm holding, and bought a bit more last night. Miners and utilities don't seem like a bad way to go. Look at UTG. Or CCJ. Or that Postal REIT: PSTL. Or XLE. But depending on your risk tolerance, go after some real bargains. WOPEY. WFG. Or SMFG (Sumitomo Bank.) Stocks will do better than bonds, going forward. The ballast-effect of your bonds will only serve as an anchor, looking forward! But stay diversified. Don't bet the farm on stocks, ONLY. That's just my opinion, anyhow. Re- invest all profit. You have 17 years to go. www.morningstar.com/stocks/xnys/smfg/quotewww.morningstar.com/stocks/xnys/ccj/quotewww.morningstar.com/cefs/xase/utg/quotewww.morningstar.com/stocks/xnys/pstl/quotewww.morningstar.com/etfs/arcx/xle/quotewww.morningstar.com/stocks/pinx/wopey/quotewww.morningstar.com/stocks/xnys/wfg/quotewww.morningstar.com/funds/XNAS/PRFRX/quotewww.morningstar.com/funds/XNAS/TRAMX/quotewww.morningstar.com/stocks/xnys/ebr/quotewww.morningstar.com/stocks/xnas/hban/quoteOr stick to funds and ride it out with a balanced fund or two. TRP, Fidelity. Others.
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Post by richardsok on Apr 12, 2022 22:39:30 GMT
Seriously Richardsok, you believe a "novice" investor uncomfortable with ETF/mutual fund bond losses should consider leveraged-up CEFs? I'm no novice and don't consider them appropriate for myself! Novicegirl, predicting long term interest rates is as problematic as predicting any other market. If you have an investment plan, I think your most valuable financial asset is the discipline to follow it. Time is on your side. Yes, reasonable points, django. You're surely correct that CEF-land is no place for a beginner. But I would suggest with PDI and PTY beaten so far down, and run by the smartest boys & gals in the business, she shouldn't get terribly hurt as her monthly 10% dividends (+/-) buffer her from future turmoil. Better that, I'd say, than ride some bond ETF sliding down and down. Have you SEEN the MUB & DSM charts? Sheesh. Or, as alternative, take her losses and sit the mayhem out in cash with positions in XOM, COMB and FMC and FPI. ----------- Plus: learn the basics of LoVol Technical signals; specifically 20-day moving averages and Parabolic SAR and --- follow Galeno's posts carefully ..... and do the opposite. -------- Checking out now. Will be gone a few days. Good luck out there, guys.
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Post by Chahta on Apr 12, 2022 23:39:26 GMT
Bond funds have tanked and presented some buying opportunities. Not all of them and maybe not exactly yet. But in the area. What is the difference from equities?
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Post by retiredat48 on Apr 13, 2022 0:51:13 GMT
Hi everyone, I'm a pretty novice buy and hold investor with about 17 years to go. R48 comments in bold: Hi novicegirl. Does "to go" mean "to retirement date?" For the bond portion of my portfolio I typically buy total bond (decent quality, intermediate) type funds like BND, FTBFX, and VWIUX depending on what account I'm working in and what I have access to. This has done okay for me but obviously this year it hurts, I'm down over 8% in some of these. My limited understanding is that when interest rates go up a percent that my fund can be expected to go down the average duration. This is correct as a math feature. The actual performance can vary some. So I'm not sure anything is out of the norm but I'm wondering if my best chance of getting money back to do nothing? In theory my funds are buying higher interest bonds now and things will eventually sort themselves out? Just seems like a long time to get back a loss that steep. Ah, this is the key question. Important to understand what is called the BOND RULE OF THUMB. That rule is: If you hold a bond fund, reinvesting the dividends, for its "duration", your annual rate of return will very closely approximate the starting yield percentage, REGARDLESS OF THE DIRECTION OF INTEREST RATES.
So this means if BND at start of year had a yield of 2%, 7 year duration, if you hold for the duration (reinvesting dividends) your annual return will be about 2%. Yes, your current loss will be gone. This is because, as you noted, the fund managers have higher yielding bonds available to buy, if yields are rising. It offsets past losses in NAV price.
Note however, this is also a problem. The return locked in is only 2%, and if inflation is higher, you have a NEGATIVE REAL return. You lost in purchasing power.
The Rule of thumb shows the expected return; the issue you deal with is the potential loss of purchasing power in this investment--do you want this?? What are others doing with their bond money? What's a good choice for someone rather unsophisticated like me? Perhaps more later, but read the bond thread topics.
Disclosure...I exited all my standard-issue, vanilla bond funds (like BCOIX), over a year ago.
Best wishes...
R48 in bold.Thanks!
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galeno
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Post by galeno on Apr 13, 2022 14:02:43 GMT
"follow Galeno's posts carefully ..... and do the opposite."
I AGREE! If you are trying to make money with bonds my advice is terrible.
We use bonds for ballast ONLY. And we only use investment grade bonds. Defense. Never offense. If ballast is expensive we grin and bear it.
And I will cry about it. As I have been doing since we bought our first bonds in 2006.
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Post by novicegirl on Apr 14, 2022 13:51:50 GMT
Thanks to everyone who replied. I'm still a bit unsure what to do, if anything. I figured I'd try to answer some of the questions that have come up.
Yes 17 years means to retirement and my investment plan has me buying intermediate investment grade bonds, both government and corporate. This typically leads me to choose things like FTBFX which has served me relatively well until the current environment. For lack of a better plan I'm following my investment plan and keep buying this when I have available cash. I guess I'm just questioning if my investment plan is flawed or not. I struggle to know when changing my plan is warranted or when I'm just doing market timing.
I guess I'm currently aligned with approaches mentioned by galeno where I'm using bonds for stability. I suppose the theory here is that if stocks go down I have some money in bonds I can use to rebalance and make money overall. retiredat48 raises my true fear that if an opportunity like that doesn't present itself and I sit things out for the duration of my bond, 6 or 7 years, I'll be made whole again in dollar amounts...but have gotten killed by inflation. This seems to be true of several fixed income investments, like CDs, etc.
I guess the question is where to move if anywhere. I saw some suggestions about CEF, high yield bonds and other alternatives to total bond type investments. I've been in some of these before, not CEFs, and lost money there too...I guess I'm a bit gun shy to move into something that increases risk (which is semi-comical as I'm complaining about losing money in a "safe" investment). If I were to increase risk would more stocks be stupid? I'd hate to move to something like 100% stocks but I can't see much that would keep up with inflation that doesn't increase risk and I feel I at least understand equity investments. Not sure what to do. Thanks for commenting on my question!
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Deleted
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Post by Deleted on Apr 14, 2022 15:26:18 GMT
I know it's no fun to see investments declining, but with 17 years to go and regular purchases, you need to view this as an opportunity to be buying lower. Bear markets are a great opportunity to increase long term wealth for those still accumulating.
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Deleted
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Post by Deleted on Apr 14, 2022 16:12:47 GMT
novicegirl, Time to change your financial plan if it has you buying more bond index funds. They are okay when all bond boats are rising, but that is not the case now. If you want to keep those you have, at least stop dividend reinvestment.
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Post by retiredat48 on Apr 14, 2022 16:58:03 GMT
novicegirl ,... 1) SHORTEN DURATION AND ACCEPT LOWER YIELD FOR AWHILE...ESPECIALLY NEW MONEY. I just posted on B/S/W thread my purchase of VGSH , two year treasury bond etf. In an ongoing thread on the bond forum I discuss why 2 year treasury, NOW. 2) Substitute some alternatives for traditional bond funds...such as preferred share funds, income builder funds, high yield bond funds, and yes...dabble in fixed income leveraged CEFs such as PDI, with yields over 10%. 3) Buy some higher dividend paying stock funds, such as SCHD. R48
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Post by Chahta on Apr 14, 2022 17:45:37 GMT
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galeno
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Post by galeno on Apr 14, 2022 17:49:04 GMT
Regarding investment losses it's like this: "one in the sack is worth 99 in the face."
When we buy a bond ETF our expected return is the current YTM. For us interest rates are just the flows of the tide.
The biggest problem I have with IG indexed bond funds is my EXPECTED return over the short, medium, and long term is their current, real negative yields.
Is the ballast worth the high price? Is the juice worth the squeeze?
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Post by fishingrod on Apr 14, 2022 22:51:31 GMT
novicegirl , You could stop investing in bond funds altogether for now. Just keep what you have and direct all interest payments and new monies to buy stock funds ie. total stock market fund. You are 17 years away from retirement. You could be at least 50% stocks at this point, especially with today's bond environment.
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Post by retiredat48 on Apr 15, 2022 1:40:11 GMT
I have not been following RPHIX, but some key things on why I would not buy it for holding cash, is: --RPHIX is a corporate, junk bond fund. Far different than a treasury bond fund. And if we get to where the economy may go to a recession (or downturn), credit quality may become an issue with this type of fund. Further, with a downturn, investors/institutions rush to quality...that is, treasuries. --RPHIX per M* has a low yield, 1.83%, for the junk rating risk. (VGSH is comparable-SEC yld of 2.2%). Duration of 1/2 year is good--short. Expense ratio to me is very high: 0.89%.(VGSH is 0.04%). --Per M*...RPHIX has an average weighted price of 104.27. This surprised me. This means the average bond is selling above par by 4%. So at maturity you are losing 4% for the cashback...all bonds go to maturity value, unless defaulted. These are relatively short term bonds...maturing all the time. BTW The avg wghtd price of VGSH is about 99.3%--these bonds will GAIN when mature/redeemed. That is, if the managers did nothing, letting all bonds mature within 2 years, you gain in NAV recovery price, and you collect interest as you go. ---------------------- So, what am I missing?? I see nothing special in RPHIX, and in fact see some risks and long term performance issues. I am sure there is a better 2 yr treasury bond fund around somewhere that is better than VGSH, but I do not want to spend time searching for it. With my accounts at Vanguard it became the easy choice. R48
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sgra
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Post by sgra on Apr 15, 2022 3:30:51 GMT
Per Vanguard, average duration of VGSH is 2.0 years (not 1/2 year). [ link] On a monthly schedule, you can also buy 2 year Treasuries directly for no fee on Vanguard platform per Treasury's schedule. I've started buying T-bills for cash holdings, offered weekly.
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Post by chang on Apr 15, 2022 5:43:54 GMT
I have not been following RPHIX, but some key things on why I would not buy it for holding cash, is: --RPHIX is a corporate, junk bond fund. Far different than a treasury bond fund. And if we get to where the economy may go to a recession (or downturn), credit quality may become an issue with this type of fund. Further, with a downturn, investors/institutions rush to quality...that is, treasuries. --RPHIX per M* has a low yield, 1.83%, for the junk rating risk. (VGSH is comparable-SEC yld of 2.2%). Duration of 1/2 year is good--short. Expense ratio to me is very high: 0.89%.(VGSH is 0.04%). --Per M*...RPHIX has an average weighted price of 104.27. This surprised me. This means the average bond is selling above par by 4%. So at maturity you are losing 4% for the cashback...all bonds go to maturity value, unless defaulted. These are relatively short term bonds...maturing all the time. BTW The avg wghtd price of VGSH is about 99.3%--these bonds will GAIN when mature/redeemed. That is, if the managers did nothing, letting all bonds mature within 2 years, you gain in NAV recovery price, and you collect interest as you go. ---------------------- So, what am I missing?? I see nothing special in RPHIX, and in fact see some risks and long term performance issues. I am sure there is a better 2 yr treasury bond fund around somewhere that is better than VGSH, but I do not want to spend time searching for it. With my accounts at Vanguard it became the easy choice. R48 You missed the videoconference with the manager! You also didn't mention the chart: www.morningstar.com/funds/xnas/rphix/performance
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Post by Chahta on Apr 15, 2022 12:29:21 GMT
I have not been following RPHIX, but some key things on why I would not buy it for holding cash, is: --RPHIX is a corporate, junk bond fund. Far different than a treasury bond fund. And if we get to where the economy may go to a recession (or downturn), credit quality may become an issue with this type of fund. Further, with a downturn, investors/institutions rush to quality...that is, treasuries. --RPHIX per M* has a low yield, 1.83%, for the junk rating risk. (VGSH is comparable-SEC yld of 2.2%). Duration of 1/2 year is good--short. Expense ratio to me is very high: 0.89%.(VGSH is 0.04%). --Per M*...RPHIX has an average weighted price of 104.27. This surprised me. This means the average bond is selling above par by 4%. So at maturity you are losing 4% for the cashback...all bonds go to maturity value, unless defaulted. These are relatively short term bonds...maturing all the time. BTW The avg wghtd price of VGSH is about 99.3%--these bonds will GAIN when mature/redeemed. That is, if the managers did nothing, letting all bonds mature within 2 years, you gain in NAV recovery price, and you collect interest as you go. ---------------------- So, what am I missing?? I see nothing special in RPHIX, and in fact see some risks and long term performance issues. I am sure there is a better 2 yr treasury bond fund around somewhere that is better than VGSH, but I do not want to spend time searching for it. With my accounts at Vanguard it became the easy choice. R48 You missed the videoconference with the manager! You also didn't mention the chart: www.morningstar.com/funds/xnas/rphix/performanceI PM'd R48 to attend.
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Post by mozart522 on Apr 15, 2022 12:57:55 GMT
RPHIX is a strange duck. 7 out of the last 10 years it has finished in the 90% percentile. the other 3 years, it is 1, 3, and 14. I assume that is because it is M* high yield category, but very low duration. And 16% equity, which there is little information about. Having said that, it has a remarkably smooth record of returns, barely dipping in March of 2000, and doing well in the rate rise years of 2017-18.
However, we haven't seen how it might react in a real recession, and with a .9% ER and a .1% YTD return, I'm not in any rush to jump in.
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Post by Chahta on Apr 15, 2022 13:33:32 GMT
I have not been following RPHIX, but some key things on why I would not buy it for holding cash, is: --RPHIX is a corporate, junk bond fund. Far different than a treasury bond fund. And if we get to where the economy may go to a recession (or downturn), credit quality may become an issue with this type of fund. Further, with a downturn, investors/institutions rush to quality...that is, treasuries.The best reason for VGSH I think. During March 2020 it barely flinched.
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Post by Chahta on Apr 15, 2022 13:40:52 GMT
RPHIX is a strange duck. 7 out of the last 10 years it has finished in the 90% percentile. the other 3 years, it is 1, 3, and 14. I assume that is because it is M* high yield category, but very low duration. And 16% equity, which there is little information about. Having said that, it has a remarkably smooth record of returns, barely dipping in March of 2000, and doing well in the rate rise years of 2017-18. However, we haven't seen how it might react in a real recession, and with a .9% ER and a .1% YTD return, I'm not in any rush to jump in. "It’s official: The Covid recession lasted just two months, the shortest in U.S. history. The Covid-19 recession ended in April 2020, the National Bureau of Economic Research said Monday. That makes the two-month downturn the shortest in U.S. history." You must mean a looooong recession. TR and yields are so low, who cares really. Keeping cash in my brokerage account is just as good as trying to second guess. However the PM believes his funds are for long term investing. With that I agree. I PM'd you as well to attend the Zoom meeting.
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Post by chang on Apr 15, 2022 13:48:12 GMT
RPHIX is a strange duck. 7 out of the last 10 years it has finished in the 90% percentile. the other 3 years, it is 1, 3, and 14. I assume that is because it is M* high yield category, but very low duration. And 16% equity, which there is little information about. Having said that, it has a remarkably smooth record of returns, barely dipping in March of 2000, and doing well in the rate rise years of 2017-18. However, we haven't seen how it might react in a real recession, and with a .9% ER and a .1% YTD return, I'm not in any rush to jump in. You should ignore M* rank/percentile. It's in the wrong category (HYB). It is what it is: look at its chart.
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Post by chang on Apr 15, 2022 14:00:04 GMT
I have not been following RPHIX, but some key things on why I would not buy it for holding cash, is: --RPHIX is a corporate, junk bond fund. Far different than a treasury bond fund. And if we get to where the economy may go to a recession (or downturn), credit quality may become an issue with this type of fund. Further, with a downturn, investors/institutions rush to quality...that is, treasuries.Plot RPHIX against VBIRX, a short-term bond fund with 75% US Government treasuries. What do you see?
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Post by mozart522 on Apr 15, 2022 19:44:45 GMT
RPHIX is a strange duck. 7 out of the last 10 years it has finished in the 90% percentile. the other 3 years, it is 1, 3, and 14. I assume that is because it is M* high yield category, but very low duration. And 16% equity, which there is little information about. Having said that, it has a remarkably smooth record of returns, barely dipping in March of 2000, and doing well in the rate rise years of 2017-18. However, we haven't seen how it might react in a real recession, and with a .9% ER and a .1% YTD return, I'm not in any rush to jump in. You should ignore M* rank/percentile. It's in the wrong category (HYB). It is what it is: look at its chart. Yes, I didn't make that clear. It is a balanced (allocation if you prefer) fund with the bond portion in ST junk. It has been very smooth as I also said. But that doesn't make it a compelling buy for ME currently.
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Post by mozart522 on Apr 15, 2022 19:51:51 GMT
RPHIX is a strange duck. 7 out of the last 10 years it has finished in the 90% percentile. the other 3 years, it is 1, 3, and 14. I assume that is because it is M* high yield category, but very low duration. And 16% equity, which there is little information about. Having said that, it has a remarkably smooth record of returns, barely dipping in March of 2000, and doing well in the rate rise years of 2017-18. However, we haven't seen how it might react in a real recession, and with a .9% ER and a .1% YTD return, I'm not in any rush to jump in. "It’s official: The Covid recession lasted just two months, the shortest in U.S. history. The Covid-19 recession ended in April 2020, the National Bureau of Economic Research said Monday. That makes the two-month downturn the shortest in U.S. history." You must mean a looooong recession. TR and yields are so low, who cares really. Keeping cash in my brokerage account is just as good as trying to second guess. However the PM believes his funds are for long term investing. With that I agree. I PM'd you as well to attend the Zoom meeting. And I PMed you that I couldn't make it. I said a real recession. A two month crash is not a recession, even if the NBER decides it was. "A recession can be defined as a sustained period of weak or negative growth in real GDP (output) that is accompanied by a significant rise in the unemployment rate." The 20% drop is a symptom of a bear market.
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Post by retiredat48 on Apr 15, 2022 23:19:50 GMT
I did receive some PM's re the Zoom meeting, incl an e-mail from Chang,and in a senior moment forgot to reply to senders. Sorry. I was going to forward two questions.
I am a primary care-giver now to my spouse, and at the exact conference time I was with my wife at a kidney dialysis center; thus unable to participate. (I also am not set-up for zoom conferencing--my spouse does that for me).
R48
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Post by retiredat48 on Apr 15, 2022 23:26:48 GMT
I have not been following RPHIX, but some key things on why I would not buy it for holding cash, is: --RPHIX is a corporate, junk bond fund. Far different than a treasury bond fund. And if we get to where the economy may go to a recession (or downturn), credit quality may become an issue with this type of fund. Further, with a downturn, investors/institutions rush to quality...that is, treasuries.The best reason for VGSH I think. During March 2020 it barely flinched. Indeed. R48
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