Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Bond holdings - thoughts on switching funds?
Old 04-03-2007, 06:52 PM   #1
Full time employment: Posting here.
Lusitan's Avatar
 
Join Date: Jan 2006
Location: Boston
Posts: 620
Bond holdings - thoughts on switching funds?

I already have an asset allocation that works for me and that includes a US bonds portion. For reasons of convenience and flexibility (and probably laziness ...) I have been using a Vanguard index fund to hold the bond portion of my asset allocation.

My investment horizon is 25+ years before I would consider touching the money.

Right now my bond fund is the Vanguard Total Bond Market Index Fund (VBMFX), because a few years back I was limited in the funds I could choose from in my 401k plan. This fund holds a mix of short/mid/long term bonds.

But now that I no longer have that constraint, I am planning to switch to the Vanguard Long Term Bond Index Fund (VBLTX) since my investment is long-term oriented.

The expense ratio is a bit lower (0.18% compared to 0.20%) and it would seem to me that long term bonds are more aligned with my savings goals and investment horizon.

But before I make the switch I just thought I'd ask what you guys think. Do those of you who use bond index funds as part of your asset allocation stick with a mid-range bond index fund or go with a long/mid/short fund as is appropriate for your timeline?

Lusitan is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Bond holdings - thoughts on switching funds?
Old 04-03-2007, 09:24 PM   #2
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,455
Re: Bond holdings - thoughts on switching funds?

My preference is short to intermediate bond funds since their returns are slightly lower but their risks are significantly lower than those of long-term bond funds.
__________________
May we live in peace and harmony and be free from all human sufferings.
Spanky is offline   Reply With Quote
Re: Bond holdings - thoughts on switching funds?
Old 04-04-2007, 03:36 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
Re: Bond holdings - thoughts on switching funds?

VG bond funds are fine. Better than fine due to the low expense ratio.

By the way... Sorry for putting my opinion out there... I have no way of knowing your strategy. I am sure it is sound and well reasoned.

But, I would like to express my thoughts on the matter of bonds in a portfolio with years left before intended harvest.

At times, I have somewhat blindly followed the consensus advice without fully understanding why I might go that route... other than smart people say I should diversify into bonds.


IMHO... If I had 25+ years before I intended to use the money, I would keep the majority of my portfolio in equity index funds diversified across countries and capitalization. Keeping some money in bonds is reasonable. keeping some cash in a Money Market makes sense for emergencies (6 months living expenses).

I would probably only put 10-15% in Bonds with 25 years to go. The only reason I would hold any bonds would be in case an unexpected event changed our plans and we needed money right away. The lower correlation between bonds and equity increases your chances that if the unexpected event occurred in a down market, we have some assets that we can sell without damaging our portfolio. By the way, this is where slice dice is superior to an all in one fund approach.

In other words... with 25 years to go, I would view the bonds as a hedge against an unexpected life event. The majority of the holdings would be (in a rational way) pedal to the metal for growth... which probably should include some value stocks.

I am sure the rest of the smart folks on this board are probably saying Duh! Just want to share an insight.


We did not use bonds early on. With two incomes in two different Industries, DW and I did not feel we would not need to tap into the money... We could easily make it on one pay check. We have been 100% equity up till a month ago. (except for cash emergency fund). And possibily, we have benefited from luck since we did not have a catastrophic event that required money to be taken form the portfolio. But we have a LBYM lifestyle and do not put ourselves in situations with large finanacial overhang that would cause us to need the money. We decided to diversify into bond now because we are preparing to ER in about 4 years. We had flexibility to delay ER, so the Bond move was not viewed as a neccessity till this late stage. Stated differently, if the stock market tanked and we had to delay ER, we would not have a problem. I am not chomping at the bit to quit work (although, DW is ready). The move into bonds now is to hedge against delaying ER. There are other ways to hedge... but getting fancy has alway caused me to lose money.
chinaco is offline   Reply With Quote
Re: Bond holdings - thoughts on switching funds?
Old 04-04-2007, 04:42 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,012
Re: Bond holdings - thoughts on switching funds?

Quote:
Originally Posted by Spanky
My preference is short to intermediate bond funds since their returns are slightly lower but their risks are significantly lower than those of long-term bond funds.
They are also less correlated to stocks (making them a better balance).

Audrey
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Re: Bond holdings - thoughts on switching funds?
Old 04-04-2007, 05:30 AM   #5
Thinks s/he gets paid by the post
saluki9's Avatar
 
Join Date: Feb 2005
Posts: 2,032
Re: Bond holdings - thoughts on switching funds?

Long bonds? Why? So you can lock in those wonderful rates in the mid 4's?

Long bonds are great if you are trying to immunize a future liability, but you pay a price for that. It's a market best left to insurance companies and pension funds. stay with the short maturities.

saluki9 is offline   Reply With Quote
Re: Bond holdings - thoughts on switching funds?
Old 04-04-2007, 06:06 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,588
Re: Bond holdings - thoughts on switching funds?

As I recall, there does not seem to be an advantage to owning bonds with maturities longer than 5 years. Little increase in yield to compensate for the increased volatility.

I am a lot closer to retirement than 25 years and I am still more or less 100% in equities. Rethinking this lately, however. Equities can be underwater for up to ten years. The problem is that it is hard to call the turn. Standing pat at the moment.
__________________
I have outlived most of the people I don't like and I am working on the rest.
Ed_The_Gypsy is offline   Reply With Quote
Re: Bond holdings - thoughts on switching funds?
Old 04-04-2007, 11:39 AM   #7
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,455
Re: Bond holdings - thoughts on switching funds?

Quote:
Originally Posted by Ed_The_Gypsy
I am a lot closer to retirement than 25 years and I am still more or less 100% in equities. Rethinking this lately, however. Equities can be underwater for up to ten years. The problem is that it is hard to call the turn. Standing pat at the moment.
You are brave.
__________________
May we live in peace and harmony and be free from all human sufferings.
Spanky is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Ultra short-term bond funds safari FIRE and Money 32 11-20-2007 07:44 AM
What's going to happen w/ Bond Funds renferme FIRE and Money 3 08-29-2006 07:13 PM
Municipal Bond Funds ? renferme FIRE and Money 14 12-30-2003 05:20 AM
Is now a good or bad time for bond funds LA_Newsboy FIRE and Money 34 12-27-2003 08:23 AM
short term bond funds eytonxav FIRE and Money 4 09-30-2003 05:35 PM

» Quick Links

 
All times are GMT -6. The time now is 08:42 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.