Morningstar on "Cash vs. Bond Funds"
Morningstar writes, "Cash Versus Bond Fund: Which Is Better?" They ask, "Where's the best parking place for the safe part of your portfolio?" The piece explains, "If it's money that you expect to spend within the next year--or even two--the answer is easy cash all the way. Cash investments are very short-term debt obligations that are often FDIC-insured; CDs, online savings accounts, checking accounts and bank-offered money accounts, and money market mutual funds are all versions of cash instruments." It continues, "The yields on all of these investments are generally quite low relative to bonds; on the other hand, these investments promise stability of principal. If you're saving next year's tuition payment or the property tax bill that's due in October, a cash account is the best place to hold those funds." Morningstar adds, "The long-term returns of bonds are solidly ahead of cash investments.... The return differential between cash and bonds has grown even more stark in recent decades, thanks to declining interest rates, which boost bond prices but merely depress cash yields.... Cash yields tend to be enormously variable, so it pays to shop around and avoid tying up large sums in accounts that are convenient but yield next to nothing.... If you venture into bond funds, be sure to mind the relationship between expenses, yield, and risk-taking.... Risk hasn't been a big consideration for bond investors in recent years, notwithstanding occasional short, rocky patches like 2018's first quarter, but it could become a bigger deal in a weakening economy and/or rising-rate environment."
