Investing - Theory, News & General • Bonds in Portfolio? Why...I am so confused

Excerpt: ...Pros for Cash: don't go down in value. Right now, you can get pretty good yield in CDs or short term treasuries. Can deploy in rebalancing or when other type of buying opportunities arise.

Downsides for Cash: over the long haul, inflation will eat you up....

Does this mean:

The real value of holdings in a money market fund will decline during a period of higher inflation (vs. earn little or nothing).

Or:

Given periods of higher and lower inflation, MMFs will earn less over time than other fixed-income alternatives (bonds).

If MMFs do lose money during periods of inflation, is the difference evened out over time?

Related, at age 70 my "long term" is a lot shorter than someone in their 40s or 50s.

Bottom line: I own stocks for growth. But all I really want from my fixed income portfolio is to stay-even after inflation, with little volatility.

MMFs and bond funds can have negative real returns at any time, over any time. On general average the longer the duration risk and the more the credit risk the higher the average return and the greater the volatility.

The only asset I know of that stays at least even with inflation with little volatility in real dollars is I bonds. I bonds are highly volatile in nominal dollars, however. For you I bonds might indeed be a good choice even if you only get 0% real, depending on what comes on offer when you buy. You do need to have a long plan to accumulate I bonds. The next closest thing might be to just hold a short duration TIPS fund. Note that TIPS can also issue at negative real yields as see here:

https://home.treasury.gov/resource-cent ... nth=202402

Take a look at data from 2021.

Statistics: Posted by dbr — Fri Feb 09, 2024 11:58 am — Replies 378 — Views 75561

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