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06-01-2011, 06:42 AM
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#21
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2005
Location: Chicago
Posts: 13,186
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Quote:
Originally Posted by okapi
Take a look at the performance of Vanguard Total Bond index the past 20 years or more.Their worst year is nothing compared to what you can lose in stocks.
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And the best year is nothing compared to what you can gain in stocks.
Over the long haul, stocks have had a higher return than bonds but with the downside of volatility.
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06-01-2011, 08:00 AM
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#22
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2006
Posts: 12,483
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Quote:
Originally Posted by youbet
And the best year is nothing compared to what you can gain in stocks.
Over the long haul, stocks have had a higher return than bonds but with the downside of volatility.
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+1
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Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)
This Thread is USELESS without pics.........:)
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06-01-2011, 08:40 AM
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#23
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Full time employment: Posting here.
Join Date: May 2010
Posts: 996
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I had the same concerns about my bond index funds so I lightened up on long & intermediate term funds and shifted to the shorter term index.
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Wherever you go, there you are.
(In other words, no whining!)
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06-01-2011, 01:21 PM
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#24
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Dryer sheet wannabe
Join Date: Apr 2010
Posts: 23
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Quote:
Originally Posted by veremchuka
A short term bond fund will react faster to interest rate changes. It will get thru the nav losses faster than intermediate and since the duration is shorter the nav loss will be less than an intermediate fund. Typically it is recommended to use a ST vs intermediate term fund in a raising rate environment but ST will have a lower yield.
VBTLX has a duration of 5.1 years so if rates rise 2% you'll loose approx 10% of nav at $10.76 that's 11 cents, not exactly earth shattering especially compared to what equities can lose!
As an example Vanguard Short-Term Investment-Grade Fund Admiral Shares (VFSUX) has a duration of 2.0 years so that 2% rise would be a 4% nav loss but the yield is 1.75% vs 2.73% currently.
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This is something I remember (from my finance classes a long time ago, so my memory may be not fully accurate) is that it how different durations bonds react also depends on the shape of the yeild curve - meaning how long-term rates are different from short-term rates. Now short-term rates are near zero (these are set by the Fed's policy) but long-term rates are determined by the market (currently at about 4% or so, on 30 year Treasury). When people talk about rates going up, I think they imply that Fed would eventually raise short-term rates rates (i.e. there is only one way to go from zero and it is up), but it most likely would do it in small increments (usually by 0.25% every quarter or so). However, it is not a sure thing that long-term rates would go up by the same amount as short-term rates, they may go up by less then short-term rates, or even not go up at all (which is known as flattening yeild curve if I remember correctly). So after all, the longer duration bonds may be no more affected than shorter duration.
Please correct me if I am wrong.
So I am (mostly) sticking with my BND (althought I did play a bit with AA within my "allowed band" which I figured about be 5% deviations from the target).
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06-01-2011, 04:18 PM
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#25
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Moderator Emeritus
Join Date: Sep 2007
Posts: 17,774
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Feeling a little better about that VBTLX today: + 0.37% vs. -2.32% for VTSAX (Vanguard Total Stock Mkt Idx Adm)?
__________________
“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
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06-03-2011, 03:16 AM
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#26
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Full time employment: Posting here.
Join Date: May 2007
Posts: 883
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Quote:
Originally Posted by tiuxiu
So I've got my asset allocation, and it is relatively simple bond index, large cap index, small cap index, and intl stock index. ... Am I putting to much faith in interest rates and ensuing results of bond index fund? What other choice is there? ...
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Another option: buy a balanced fund. Some are index funds, some are actively managed, Vanguard LifeStrategy funds are 80% index/20% active. With a balanced fund you won't have to worry if your allocation is right, or needs tweaking or if one part of it is out of favor. Relax, go balanced.
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"It is better to have a permanent income than to be fascinating". Oscar Wilde
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06-03-2011, 09:18 AM
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#27
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,809
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My opinion -- the last 30 years has been a nice ride in the bond market. But you need to consider what came before that. I don't know where rates are headed but over the longer term they're not likely to go down.
Bernstein recommends staying short (Pascal's Wager argument) ... see the recent thread at Bogleheads: Bogleheads :: View topic - For Dr. Bernstein on Bond Duration For the short version just read the posts by "wbern" there.
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06-03-2011, 12:09 PM
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#28
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2009
Posts: 5,308
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Quote:
Originally Posted by Lsbcal
My opinion -- the last 30 years has been a nice ride in the bond market. But you need to consider what came before that. I don't know where rates are headed but over the longer term they're not likely to go down.
Bernstein recommends staying short (Pascal's Wager argument) ... see the recent thread at Bogleheads: Bogleheads :: View topic - For Dr. Bernstein on Bond Duration For the short version just read the posts by "wbern" there.
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Thanks for posting the link. It was a highly interesting discussion.
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06-04-2011, 06:39 AM
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#29
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2008
Location: NC
Posts: 21,305
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You've already gotten a lot of great responses, this might help too...
https://personal.vanguard.com/us/ins...ing-Exc4-Bonds
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No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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06-04-2011, 07:25 AM
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#30
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2007
Posts: 5,072
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06-04-2011, 08:58 AM
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#31
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
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Quote:
Originally Posted by veremchuka
VBTLX has a duration of 5.1 years so if rates rise 2% you'll loose approx 10% of nav at $10.76 that's 11 cents, not exactly earth shattering especially compared to what equities can lose!
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Better check your math.
Short-term bond funds are up more than 2% so far this year, so even if they drop in value, I expect them to outperform money market funds for the year and perhaps even many CDs. It's that wall-of-worry that helps.
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06-04-2011, 09:54 AM
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#32
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,809
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Quote:
Originally Posted by LOL!
Better check your math.
Short-term bond funds are up more than 2% so far this year, so even if they drop in value, I expect them to outperform money market funds for the year and perhaps even many CDs. It's that wall-of-worry that helps.
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The Vanguard Short Term Investment Grade fund has a current yield of 1.6% whereas the ST Treasury is only 0.4%. So the spread is 1.2% and it was 1.4% at the start of the year. Returns year to date are ST IG (admiral) 1.7% and ST Treasury 0.5%.
Generally when the spread is that high the returns for ST IG are better because the spread narrows as times get better and investor risk tolerance increases. But it's not a sure thing like a CD.
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06-04-2011, 10:27 AM
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#33
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Full time employment: Posting here.
Join Date: Nov 2008
Posts: 728
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anyone in tax free muni funds or doing any laddering of individual bonds? In long term nuni's (no intention on selling) I get a return of over 6%, the same income each month; yes, prices go up or down but monthly dividends are relatively constant. I've been doing this for 10 years and lost less than 1% in all those years on investment, while averaging over 6% after tax income.
I'd like to ladder, bought some individual muni's from Fidelity but I'm not knowedgeable on price, purchase premium or safety. Anyone know a good source to buy muni's that they really trust? And, if so, how did you or should I evaluate.
I agree will all above; bonds need to be a part of a portfolio. But, again, very few talk about muni's........Why? thanks to all.
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06-04-2011, 10:42 AM
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#34
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,809
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Quote:
Originally Posted by jerome len
...(snip)... I've been doing this for 10 years and lost less than 1% in all those years on investment, while averaging over 6% after tax income.
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I agree will all above; bonds need to be a part of a portfolio. But, again, very few talk about muni's........Why? thanks to all.
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Sorry, don't know about muni's as all our money is in tax advantaged accounts. But a general observation that holds over all the bond market instruments is: over the last 10 years yields have come down tremendously (muni yields too, Vanguard Intermediate Tax Exempt yield = 2.8%). One cannot expect the next 10 years to be so kind. Bernstein makes a good case for staying short here.
I do have old I bonds yielding 3.4% inflation adjusted. Got lucky in the year 2000. Those bargains are long gone.
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06-04-2011, 05:29 PM
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#35
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Full time employment: Posting here.
Join Date: Mar 2008
Posts: 654
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Quote:
Originally Posted by jerome len
anyone in tax free muni funds or doing any laddering of individual bonds? In long term nuni's (no intention on selling) I get a return of over 6%, the same income each month; yes, prices go up or down but monthly dividends are relatively constant. I've been doing this for 10 years and lost less than 1% in all those years on investment, while averaging over 6% after tax income.
I'd like to ladder, bought some individual muni's from Fidelity but I'm not knowedgeable on price, purchase premium or safety. Anyone know a good source to buy muni's that they really trust? And, if so, how did you or should I evaluate.
I agree will all above; bonds need to be a part of a portfolio. But, again, very few talk about muni's........Why? thanks to all.
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I'm not recommending these guys but you can do some reading here:
Tax Exempt municipal bonds and corporate bond investments at Stoever Glass & Co., Inc.
Also there are a few people over at bogleheads.org that speak highly of stoever.
http://www.bogleheads.org/forum/view...194244a3de4c9b
Just reading material, once again, hope it interest you.
Steve
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06-04-2011, 10:00 PM
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#36
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,376
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I read recently about a new style of fund that is being offered by Guggenheim. It sounds like a share in a portfolio of bonds with a defined maturity year and they offer various maturity years so one can construct a ladder fitting one's needs.
Expense ratio is 24 bps for the corporate bond varieties and 42 bps for the high yield variety.
Has anyone looked into these? Seems to me it would have less interest rate risk than a traditional bond index fund since it would have the advantages of laddering but with more diversification at a relatively modest cost.
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06-05-2011, 04:52 PM
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#37
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Recycles dryer sheets
Join Date: Dec 2005
Posts: 93
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Oh yeah, did I mention that managing multiple accounts and trying to maintain the
strategic allocation is a big PITA![/QUOTE]
Morningstar has "Portfolio Xray" that lets you put all in and it tells the allocation amounts. My local library subscribes so it can be done right from home. HTH
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06-05-2011, 05:08 PM
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#38
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2009
Posts: 5,308
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After reading this thread and the long thread with Bernstein over on bogleheads and looking at it all some more I decided to split the baby a bit. I took 60% of what I had in the Vanguard total bond fund and put it in the Short term investment grade admiral fund.
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06-06-2011, 09:35 PM
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#39
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Recycles dryer sheets
Join Date: Nov 2007
Posts: 103
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Quote:
Originally Posted by Nords
Bonds help an AA by reducing volatility. They give you the same stream of income whether they're up by 10% or down by 10%. Other than that, I'm not sure what they contribute to a portfolio.
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This captures their purpose and value in a certain manner of speaking, but I think it understates it somewhat. I think it's important to mention that volatility is reduced with them as compared to, say, stocks because they are doing a better job of stabilizing one's principal. A stable principal is a better preserved principle.
I'm reminded of Twain who said something to the effect of being more interested in a return of his money than a return on his money. So to get back to the original poster's concerns, yeah a sudden rise in interest rates could hurt these pretty noticeably. But that hurt would most likely be in a bond sort of way. Usually if bonds don't break at least even in one year, that's a noteworthy event for bonds.
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06-06-2011, 09:44 PM
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#40
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Moderator Emeritus
Join Date: Dec 2002
Location: Oahu
Posts: 26,860
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Quote:
Originally Posted by slazenger
This captures their purpose and value in a certain manner of speaking, but I think it understates it somewhat. I think it's important to mention that volatility is reduced with them as compared to, say, stocks because they are doing a better job of stabilizing one's principal. A stable principal is a better preserved principle.
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If an investor's concerned about loss of bond value (not loss of income but the unrealized capital losses) then it might perhaps be better to reduce a portfolio's volatility by replacing the bond asset allocation with cash for the next year or two.
Of course then we'd all stop complaining about dropping bond prices and kvetch about minimal yields on our CDs.
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