did I screw up buying FSBIX?

[ponyespresso]

I bought some treasury bond mutual funds (FSBIX) last month in my 401(k). My company’s 401(k) is going to be moving from Fidelity to Ubiquity in the new year (we are moving from a self-employed 401(k) to a safe harbor one). We have to liquidate all our positions when we make the transfer. I had just added a lot of contributions in October, but I didn’t want to buy stock-heavy mutual funds when I have to liquidate so soon, plus I didn't want to incur fees for selling in less than 90 days.

But I didn’t want it to sit in cash reserves earning Fidelity’s excellent rate of 0% (In hindsight, I should have held most of it in my savings account earning .75% instead but some contributions were for 2014 right before I filed my taxes before the Oct 15 extension deadline)

Unfortunately the bond is going lower in price, and I’m worried that with the imminent interest rate hike that the bond will go down further. I wonder if I should cut my losses now. I have 14K invested in them, and I’ve lost $102 bucks, so it is annoying but not painful. Or is there going to be a payout I’m going to miss? After I bought it I realized I didn’t understand how the treasury bonds work. I think I had googled about something safe that would get me a little bit of interest in the short term. TIA

[Tyler]

FSBIX invests in short-term US treasuries with a weighted maturity of under three years.  It's a good fund for cash -- safe and conservative with low fees and very little counter-party risk.  No, you didn't screw up.

You're right, bonds do lose money when rates rise.  But with short-term treasuries we're talking fractions of a percent, and the result is muted by the fact that with the short maturity they quickly roll over into higher-yielding versions.  They're about as conservative as you can get without keeping your money in a savings account or CDs.  If that's too volatile for you, you should probably reevaluate your investing priorities.

[Interest Compound]

I bought some treasury bond mutual funds (FSBIX) last month in my 401(k). My company’s 401(k) is going to be moving from Fidelity to Ubiquity in the new year (we are moving from a self-employed 401(k) to a safe harbor one). We have to liquidate all our positions when we make the transfer. I had just added a lot of contributions in October, but I didn’t want to buy stock-heavy mutual funds when I have to liquidate so soon, plus I didn't want to incur fees for selling in less than 90 days.

But I didn’t want it to sit in cash reserves earning Fidelity’s excellent rate of 0% (In hindsight, I should have held most of it in my savings account earning .75% instead but some contributions were for 2014 right before I filed my taxes before the Oct 15 extension deadline)

Unfortunately the bond is going lower in price, and I’m worried that with the imminent interest rate hike that the bond will go down further. I wonder if I should cut my losses now. I have 14K invested in them, and I’ve lost $102 bucks, so it is annoying but not painful. Or is there going to be a payout I’m going to miss? After I bought it I realized I didn’t understand how the treasury bonds work. I think I had googled about something safe that would get me a little bit of interest in the short term. TIA

I think this is a moment where it will benefit you most if I'm brutally honest.

If you're freaking out and talking about market-timing after a 0.7% move down (that's 7 tenths of a single percentage point), then investing might not be for you. Treasury bonds are the safest type of bond there is, but even then it's not a straight line:

10 years:



1 year:



You're fine. This simply how bonds work. Seriously, the way you feel right now, the way you're reacting...this is why it's so hard to stay the course.

[ponyespresso]

Oh, I'm not freaking out. I'm actually use a very aggressive investment strategy and don't freak out when my stocks go down.  I dislike not having the money in stocks right now. But it's true it's so low. But I wanted to make sure my 100 loss wasn't going to become a 1000 loss, because I have to liquidate it so soon in the future. And I think maybe it's I just saved that 14K so recently, so there is something psychological going on, plus I was hoping it would mimic a money market account. But mainly I wanted to make sure that I wasn't going to lose a ton of interest rates go down but it sounds like that won't be the case.

But yeah, if say my stocks lose thousands by end of the year, I wouldn't even really think about it much. But those have good gains over the time I've held them as well.

[Heckler]

I have a similar problem in my employer matched account, which I transfer annually to my self directed to buy Vanguard ETFs.  My allocation plan has me buying a Sunlife Index bond fund, and after I transfer I will purchase the Vanguard index bond fund. 

I figure both will have similar short term losses, but I am reducing my MER by adding up small contributions that are matched off each paycheck, then transfering and buying a similar index once a year for a $9.95 ETF transaction fee.

[Heckler]

But since my asset allocation is to be a given percentage in a bond index fund, it really doesnt matter what the short term losses are.  If i transfer 6000 or 5000 at the end of the year from Sunlife bonds to Vanguard bonds, the value would still be similar.