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Old 06-27-2010, 07:56 AM   #21
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No expert here, but I agree that total bond index is a fine place.

However, be aware that it is 35% in GNMA and similar, and you may not like that. That was the reason I switched to Vgd intermediate bond index. I'll keep my RE exposure in the REIT fund.

Just something to consider.
Uhh, help me out here: what exactly is the problem with an allocation to agency MBS?
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Old 06-27-2010, 12:35 PM   #22
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Uhh, help me out here: what exactly is the problem with an allocation to agency MBS?
There have been numerous threads over at bogleheads about this issue for VBMFX. As I understand it there is ~38% in MBS, a mixture of Fannie, Freddie and Ginnie and no way to tease out how much of each. There has been criticism there about the amount of MBS and how they performed during the crisis and risks going forward which may be what Rich is referring to. As they are all essentially backed by the full faith of the gubm't at this point default risk seems minimal. Interest rate risks still apply but the team at VBMFX seems to try and keep the durations relatively short.

DD
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Old 06-27-2010, 01:16 PM   #23
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There have been numerous threads over at bogleheads about this issue for VBMFX. As I understand it there is ~38% in MBS, a mixture of Fannie, Freddie and Ginnie and no way to tease out how much of each. There has been criticism there about the amount of MBS and how they performed during the crisis and risks going forward which may be what Rich is referring to. As they are all essentially backed by the full faith of the gubm't at this point default risk seems minimal. Interest rate risks still apply but the team at VBMFX seems to try and keep the durations relatively short.

DD
Perhaps, but within the realm of an index fund. We hold our MBS directly in Vanguard GNMA which IS managed quite well.
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Old 06-27-2010, 02:50 PM   #24
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Perhaps, but within the realm of an index fund. We hold our MBS directly in Vanguard GNMA which IS managed quite well.
If you have access to it and want that slice that is a good choice, but for someone who wants to keep it simple or lack choice in their tax deferred account VBMFX is a reasonable fund to hold.

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Old 06-27-2010, 05:26 PM   #25
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There have been numerous threads over at bogleheads about this issue for VBMFX. As I understand it there is ~38% in MBS, a mixture of Fannie, Freddie and Ginnie and no way to tease out how much of each. There has been criticism there about the amount of MBS and how they performed during the crisis and risks going forward which may be what Rich is referring to. As they are all essentially backed by the full faith of the gubm't at this point default risk seems minimal. Interest rate risks still apply but the team at VBMFX seems to try and keep the durations relatively short.

DD
I have no interest in bogleheads, since I a, not in the market for a new religion.

Uh, I still do not see a cogent or even coherent reason why one would get up in arms about agency MBS exposure in an index fund. Anyone else want to take a crack?
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Old 06-27-2010, 06:44 PM   #26
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I think the total bond market index is fine. That is what I have my 401k in right now. In theory, I am not a fan of mortgage backed securities, because people are typically going to refinance when rates are low. However, it doesn't seem like it has caused any problems so far. If I had my choice I'd rather use an intermediate investment grade corporate bond fund.

If the yield is right I think junk bond funds can be a good buy. My roth ira is now in a junk bond fund that historically should give me a 3% real return, for now.
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Old 06-28-2010, 11:34 AM   #27
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I have no interest in bogleheads, since I a, not in the market for a new religion.

Uh, I still do not see a cogent or even coherent reason why one would get up in arms about agency MBS exposure in an index fund. Anyone else want to take a crack?
The issue wasn't about the presence of the MBS in the index fund. The issue was do you want exposure to them at all if you could just be in short/int treasuries +/- TIP's. This debate was all taking place during the meltdown when short/int treasuries were the only asset class with (-) correlation. My take home was it just doesn't matter that much. Slice or dice or just hold TBMFX and get on with your life.

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Old 06-28-2010, 12:35 PM   #28
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The issue wasn't about the presence of the MBS in the index fund. The issue was do you want exposure to them at all if you could just be in short/int treasuries +/- TIP's. This debate was all taking place during the meltdown when short/int treasuries were the only asset class with (-) correlation. My take home was it just doesn't matter that much. Slice or dice or just hold TBMFX and get on with your life.

DD
Gotcha. Sounds like I would never have the patience to deal with the bogleheads crowd...
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Old 06-28-2010, 12:36 PM   #29
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Gotcha. Sounds like I would never have the patience to deal with the bogleheads crowd...
Anything worth doing is worth overdoing! Especially on the internets...
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Old 06-28-2010, 07:16 PM   #30
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Gotcha. Sounds like I would never have the patience to deal with the bogleheads crowd...
No ignore poster feature over there - although the idea of implimenting one was raised recently. Given your knowledge base I don't think it has much to offer you. For us investing amateurs lots of good information and hand holding help with ignoring the noise and the financial experts talking heads.

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