Investment Strategies / Mechanical Investing
No. of Recommendations: 2
Anyone here looking at Bonds? (specifically, US government bonds)
BND?
tecmo
...
No. of Recommendations: 4
Anyone here looking at Bonds? (specifically, US government bonds)
BND?Nope, not for me.
These days bonds are considered "return-free risk" by some.
Here is backtest of AGG (BND but goes back further) vs. SPY.
https://testfol.io/?s=6xy3Rkb7Y9VOver the period 2003 to 2025 you gave up $74,000 in return for lower volatility. $10,000 grew to $19,000 vs. $93,000.
$74,000 buys a lot of Tums and sleeping pills.
Add FCNTX to that backtest if you want to get really sick to your stomach.
No. of Recommendations: 2
Yes. Specifically for US government bonds, Vanguard just came out with VTG, to compete with State Street's SPTB. Both are fine IMHO.
BND has industrials (ie private sector bonds) in addition to US government.
If you are comfortable with international investing, maybe consider BNDW/BNDX/WIP.
Bonds are at their middle ground, historically speaking. Not too cheap, not terribly expensive. My wild guess (worth absolutely nothing) is they will get cheaper overall due to higher inflation in the next 1-3 years. But you truly do not have to base your investment decision on that at all. Nobody, but nobody knows where interest rates will go from now, and never have at any point in time in history. Not even the Fed.
If you do think like me, buy short duration government bonds, like SPTS, or VGSH, or even shorter duration like VBIL or TFLO. Or short duration TIPS ETFs like VTIP or STIP.
Comparing bonds to stocks is silly. They serve completely different purposes in one's portfolio. If one doesn't know that, one should not invest in bonds. Or invest, period.
No. of Recommendations: 1
VBIL Vanguard 0-3 Month Treasury Bill ETF
30 day yield 4.23%
SPAXX money market
30 day yield 3.96%
Higher yield with VBIL. Any other advantages/disadvantages?
No. of Recommendations: 4
Higher yield with VBIL. Any other advantages/disadvantages?
The advantage with SPAXX at Fidelity is that it can be set as your default cash balance holding. Money moves into and out of SPAXX automatically without any effort on your part.
For smallish sums of money, not much difference between the two.
$10,000 for 1 year earns $423 vs. $396.
If you are wanting to put away money for as long as a year, just go to the source. Buy & rollover short term T-Bills directly from the Treasury.
Recent 4 & 8 week T-bills came out at 4.354% & 4.271%. That's $436 & $427.
No. of Recommendations: 3
Expense ratio is 7 bp for VBIL and 42 bp for SPAXX. That there pretty much accounts for the difference. Why would you pay Fidelty such a high expense ratio to invest in T Bills which you can buy for free or pay a very small fee for the convenience and granularity of VBIL?
Also SPAXX holds securities and repos of government agencies which are not guaranteed by US Treasury, unlike VBIL which only holds bills guaranteed by US Treasury.
If Fidelity allows maybe you can use SPAXX as a sweep account and then invest any excess in VBIL.
Schwab too has terrible sweep accounts on which they earn huge margins. I am forced to use SWVXX and do many trades to earn a market yield on cash.
No. of Recommendations: 2
“Schwab too has terrible sweep accounts on which they earn huge margins. I am forced to use SWVXX and do many trades to earn a market yield on cash.”
Fidelity sweeps into SPAXX. We left Schwab - where we never asked to be anyway - and went to Fidelity partly for this reason. Schwab was paying 0.0-something % in the sweep account.
Aren’t there tax advantages to holding VBIL or similar? Or do you have to hold the Bills directly, as Ray suggests? Seems like a lot of work.
No. of Recommendations: 4
Aren’t there tax advantages to holding VBIL or similar? Or do you have to hold the Bills directly, as Ray suggests? Seems like a lot of work.
Investments that are in Treasuries are exempt from state income tax. VBIL and FDLXX are these. Things like SPAXX have a lot of Treasury repurchase agreements to get a slightly higher return. But repurchase agreements are not Treasuries, so they are not state tax-free.
Conveniently for me my state recently dropped the top income tax rate from 4.9% to 3.9%, so the benefit is minimal.
Buying & holding T-bills is not a lot of work. All of the major brokers let you put in an order to buy Tbills at the Treasury auction with no commission. Fidelity also lists the expected interest rate. You can also tell Fidelity to automatically roll-over your T-bills.
No. of Recommendations: 1
Aren’t there tax advantages to holding VBIL or similar?
In taxable accounts, you will have to pay Federal tax on ordinary income rates. But income is exempt from state taxes. It is the same for both T bills held directly or owning VBIL
No. of Recommendations: 7
Higher yield with VBIL. Any other advantages/disadvantages?
VBIL has all the advantages compared to SPAXX as others have mentioned. Fidelity allows fractional shares so mutual fund vs ETF is not a factor either.
However, also consider TFLO if you want ultra-short duration government bonds. Close to 0 duration. Higher expense ratio of 0.15% vs 0.97% for VBIL, compensated amply for by higher yield due to a positive FRN spread. Also exempt from state taxes, which is a big deal for me personally since I live in California.
No. of Recommendations: 2
Sorry, typo, 0.97 -> 0.07
No. of Recommendations: 2
Thanks. Another arrow in my quiver.
TFLO & USFR are equal. SGOV has longer duration, thus slightly better when rates are falling.
I have been using FLRN. Still, not much difference.
testfol.io says ending values for $10,000 invested on 2/4/2014 are:
TFLO $12,292
USFR $12,293
FLRN $13,156
No. of Recommendations: 1
testfol.io says ending values for $10,000 invested on 2/4/2014 are:
TFLO $12,292
USFR $12,293
FLRN $13,156
0-ish duration bonds ate not for yield but for preserving principal. Interest is just a bonus.
FLRN yields higher because it also has corporates unlike TFLO and USFR. So some non-zero default risk, especially since companies issuing floaters don't have the best credit ratings (otherwise they would just issue 30-year fixed). (I will avoid politics here and say let's stipulate for the purposes of this thread tgat US government debt has zero default risk.)
Secondarily, state taxes on the corporate portion of the interest.
No. of Recommendations: 4
0-ish duration bonds ate not for yield but for preserving principal. Interest is just a bonus.
Exactly.
My thoughts struggle with this all the time. These bond ETFs pay about the same interest as a good bank savings account or CD. Unusual, as most banks pay much less. Much much less.
So what are you gonna do? To get meaningful interest you have to go with things that have higher risk. But it is stocks that are supposed to be the higher risk portion of your portfolio. So why are you taking risk in the "low-risk" portion?
So over the 10 year period for $10,000 FLRN gets you $86 a year more. I can get more than that by skipping one visit from my house cleaner.
No. of Recommendations: 2
Government bonds held directly are safer than a fund holding different types of 'obligations'. AFAIK, T-bills are also not subject to state tax, which is attractive. But unless your cash is under the mattress, the tax hit of liquidating a current 'safe' position and buying t-bills would be substantial. The 'savings' from the state tax would take a very long time to pay that hit off.
BTW, Schwab will roll T-bills for you automatically. Maybe other brokerages do.
Corporate bonds, particularly bond funds, are problematic.
Consider the ETF 'AGG' which tracks the total U.S.investment-grade bond market.
Here's the nominal (not inflation adjusted) and 'real' (inflation adjusted) CAGRs of AGG from 2003-09-29 through 2025-08-20 (yahoo data):
AGG:
Nominal Annualized Return 2.44%
Real Annualized Return -0.29%
You'd lose money in real terms, and eke out a slight positive return in nominal terms if you held AGG over this period.
Individual bonds held to maturity in a great company might sound good. Getting say 6% for a ten year might seem appealing. But if inflation really ticks up, then a nominal return of 6% could end up as a real return of say 2%, or worse. Default is the assumed risk. The U.S. president is reorganizing world economic order and the U.S. economy. Who knows what will happen, good or bad?
No. of Recommendations: 3
Getting say 6% for a ten year might seem appealing. But if inflation really ticks up, then a nominal return of 6% could end up as a real return of say 2%, or worse.
This and similar post by rayvt shows a slight misunderstanding of why people hold bonds.
Simply put, not for the returns but for the stability. Same reason why ships carry the "dead weight" of ballast.
Not everyone has a 10-15-20 year horizon for every investment. Sometimes, preservation of capital and a tightly capped drawdown is more important than potential returns.
No. of Recommendations: 2
To be fair, you were comparing corporate bonds to government bonds. The math about returns threw me off as to the main point.
I agree corporate bonds are not really needed unless really attractively priced as they were in the 2008 crisis (and for a good reason!)
They are on the continuum of government bonds - investment grade corporate bonds - junk bonds - stocks on the risks/returns graph, so most people can just use a barbell strategy of investing in the two extremes.
No. of Recommendations: 2
It's also important to pay attention to yield vs coupon. Inflation plays its deleterious role regardless, but yield is for traders. Folks who want a stable income look at the coupon. A $100 bond with a 6% coupon will pay $6 per year, year in and year out, whether the yield is 10% or 2%.
Eric Hines
No. of Recommendations: 0
It's also important to pay attention to yield vs coupon. Inflation plays its deleterious role regardless, but yield is for traders. Folks who want a stable income look at the coupon. A $100 bond with a 6% coupon will pay $6 per year, year in and year out, whether the yield is 10% or 2%.
Say what?
If I buy a $100 face value bond with a 3% coupon at $50, then for me it pays 6% every year.
Coupon is completely irrelevant, YTM - yield to maturity - is what matters.
No. of Recommendations: 2
If I buy a $100 face value bond with a 3% coupon at $50, then for me it pays 6% every year.
The percentage yield is not the money you're getting. You're getting $3 every year, regardless of the yield. Yield to Maturity only tells you how much cash you'll collect from purchase to maturity and relates that sum to the opportunity cost or gain from buying this bond vs any other instrument or just sitting on the cash.
Eric Hines
No. of Recommendations: 3
The percentage yield is not the money you're getting. You're getting $3 every year, regardless of the yield.
Right.
I have this argument every time with people who go on about "yield on cost" nonsense.
Stocks (and bonds) don't pay a yield, they pay a dividend.
Yield is just an artificial thing that we compute by dividing the cash dividend by a price.
