We have some cash in our Fidelity account and I’d like to put a large portion in a relatively short duration bond ladder. We don’t have any real plans for the money but don’t want to tie any of it for up more than 1 year. Also, I want to hold the actual bonds rather than via funds as I want a guaranteed return of principal not subject to a moving valuation.

My thoughts were a % allocation ranging from an amount in their UST MM to 1 year or 6 months depending on current yields.

Any tips or suggestions so I don’t screw something up? In looking at Fidelity’s bond platform it’s a different animal than just buying stocks. TIA.

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Posted by Big Scrub TX

Member since Dec 2013

38521 posts

Posted on 5/31/23 at 9:57 am to SquatchDawg

quote:
I want a guaranteed return of principal not subject to a moving valuation.

Understood, but what is your target yield you'd like to lock in? I ask because USFR is paying 5.5% right now (that's 2-year FRNs, re-set weekly at the bill auction). If your bogey is way lower than that, I would tell you to just buy USFR and take the re-investment risk.

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Posted by SquatchDawg

Cohutta Wilderness

Member since Sep 2012

19208 posts

Posted on 5/31/23 at 11:05 am to Big Scrub TX

Okay…up front I don’t know what I don’t know.

I’m not worried about a few basis points as we’re not talking about a huge sum of money. Also, it looks like there’s no more lag time in recognizing an increase in rates than you’d have in a ladder.

Would there be a risk to principal if rates were cut or just a reduction in return? Is there any risk to principal given the short duration? Any benefits vs a standard treasury MM fund?

That my main concern but frankly a one stop solution is convenient.

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Posted by Big Scrub TX

Member since Dec 2013

38521 posts

Posted on 5/31/23 at 11:24 am to SquatchDawg

quote:

Would there be a risk to principal if rates were cut or just a reduction in return?

The yield re-sets weekly based on the bills auction. If bills started trending lower in yield, you'd just earn whatever the new lower yield was. There is no risk to principal.

quote:
Any benefits vs a standard treasury MM fund?

The main benefit is just that the rate is higher by definition. I also like that it's a tradeable ETF and not a mutual fund. See my thread on it HERE

quote:

That my main concern but frankly a one stop solution is convenient.

I agree - it's super convenient to have a hyper-liquid, one-stop shop that also pays the highest rate going and with zero duration!

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Posted by SquatchDawg

Cohutta Wilderness

Member since Sep 2012

19208 posts

Posted on 5/31/23 at 5:40 pm to Big Scrub TX

I’m sold. I’ll use this in lieu of a ladder and keep the rest in the UST MM fund. Thanks!

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Posted by Big Scrub TX

Member since Dec 2013

38521 posts

Posted on 5/31/23 at 6:02 pm to SquatchDawg

quote:
I’m sold. I’ll use this in lieu of a ladder and keep the rest in the UST MM fund. Thanks!

Awesome, happy to help. To be clear, if the shape of the yield curve changes materially, USFR might end up being sub-optimal to some other approaches. But I think it's the nearly perfect tool to exploit the exact situation we have right now.