When you’re young and don’t expect to retire for more than 30 years, I can understand why you make lots of conservative investments, such as money market funds and Treasury bills.
When you retire or near retirement, this type of investment is more meaningful and protects you from the risks of an unstable stock market that is overly valuable.
Even Warren Buffett maintains a key portion of his portfolio in safe investments such as money market funds and Treasury bills when he feels the stock market is overvalued.
Personally, I maintain a large portion of my portfolio with stocks and am not trying to predict stock market highs and lows. If the return on conservative investments such as money market funds is relatively high, these investments maintain a portion of their portfolio. Do this, especially after a significant stock valuation, due to the increased volatility risk in the stock market.
When the Federal Reserve was concerned with inflation, which was a concern last year, they used their impact to lower short-term interest rates, resulting in some reduction in returns for safe, conservative investments such as financial market funds and Treasury bills in 2024.
For example, money market returns have now dropped from a return well above 5% in 2024 to just over 4.2%, with similar returns for other safe investments, such as the Treasury bill. Many financial experts feel that the stock market is currently too high, with price revenue levels being higher than expected short-term revenue forecasts.
Money market fund returns are currently lower than their peak prices in 2024, but they maintain a significant portion of their portfolio with Vanguard Money-Market funds, which currently stand at just over 4.2%. If you maintain a 100% allocation of stocks in your portfolio, you’re likely to have improved long-term performance, but as you’re interested in quitting, you’re more concerned about the stability of your portfolio and are interested in protecting your portfolio from a massive drop in stock prices.
I also maintain a significant proportion of Vanguard High-Yield bond funds in my portfolio and have done this for many years. I think this type of investment is also conservative and provides stability against the unequal prices of important falls.
Generally, Vanguard manages high-yield portfolios in a conservative way and avoids high-risk holdings. Last year, Vanguard’s High-Yield Corporate Fund Admiral shares (VWEAX) were rebates of 7.98%. The 30-day yield is currently 6.16%. I have invested in Vanguard’s High-Yield Fund for over 10 years. Since its establishment in 2001, the fund has received 6.06% returns. Revenue for 10 years was 4.67%. The annual expenses are only 0.12%, lower than most other funds.
Currently, I believe that investments in high yield funds are more likely to provide better revenue than investing in money market funds or Treasury bills. You can consider investing in other fund families, such as the Brandywineglobal High High High High Fund (BGHAX). This has averaged 6% return for the past five years and is listed in the top 2% of the category. Another option is the SPDR Bloomberg High Score Bond ETF (JNK), which generates 6.94%. This is more than 2% higher than the benchmarks for this type of fund.
Conclusion: Over the long term, portfolios can perform better with a significant proportion of the diverse stocks in the portfolio. However, if you want to protect yourself from short-term stock market volatility and the possibility of a decline in stock prices, consider using conservative alternatives for some portfolios such as money market funds, short-term investments such as Treasury invoices, and high-yield bond funds and ETFs.
Elliot Raphaelson welcomes your questions and comments at rapelliot@gmail.com.
