Fixed Income or Cash
Many popular investment strategies usually pay more attention to risk assets than fixed income assets, especially cash. Many investors treat cash as a boring asset and thus simply let their money lying around there, picking up whatever interests paid by a brokerage or a bank. However, utilizing cash or fixed income (bond) assets smartly can make a very material difference on investment returns without incurring much additional risk.
The following portfolio P SMA 200d VFINX Total Return Bond As Cash Monthly is similar to P SMA 200d VFINX Monthly that was mentioned in our newsletter October 27, 2014: Investment Loss, Mistakes And Market Cycles. It uses 200 days simple moving average (SMA) of S&P 500 index total return (using Vanguard 500 index fund VFINX) as a signal: when VFINX is above its 200 day moving average, it buys or holds VFINX, otherwise, it buys ‘cash’. This buy or sell decision is tested once a month, on the last trading day of a month. The difference here is that when it buys ‘cash’, it actually switches to Schwab Total Return Bond, a total return bond portfolio that one can find on page Fixed Income Bond Fund Portfolios (for total return bond fund portfolios, see for example June 3, 2013: Total Return Bond Fund Portfolios For Major Brokerages).
Portfolio Performance Comparison (as of 11/10/2014):
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