Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 02-12-2015, 10:20 PM   #21
Thinks s/he gets paid by the post
Sunset's Avatar
 
Join Date: Jul 2014
Location: Chicago
Posts: 4,743
Quote:
Originally Posted by audreyh1 View Post
The online bank rate will be taxed too - so don't assume you get the full 1.05% after tax. You can compare pre-tax or after tax in both cases.

Look at total return when comparing. Not at NAVs. Morningstar will give you that information. The total return over the past year (ended 2/11/15) for the VCSH ETF was 1.7%, VBISX mutual fund was 1.1%. This is what you would compare to cash. So I think your fund did better than you think - 11 months isn't enough to compare to the current available 1.05% rate, you have to look at a whole year.

Vanguard Funds VBISX and VCSH 1 year chart

Yes - a corporate bond fund has a much higher credit risk than cash in addition to the interest rate risk. But you were compensated around 0.65% extra return for that additional risk last year. No guarantees going forward, of course.
I agree I would have to compare apples to apples, (taxable to taxable).
That's why I said:
Had this been in a taxable account, my rate would be 1.17% , as I was including the capital gain reported (but "fake" as fund went down) and the real loss in value of the fund if I sold it today.
It is better than the bank 1.05% but not by much considering the bank has zero risk of loss.

The problem I have with "total return" is that it is not real, my total return is including the real decrease in share value from the dividends give me a annual rate of 1.36%

So while I'm not pleased with it, the return is still better than I had imagined it was.
__________________

__________________
Sunset 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!

Old 02-12-2015, 10:25 PM   #22
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: 16,514
Quote:
Originally Posted by pb4uski View Post
I could not disagree more. A good portion of the 1.7% total return compared to ~.9% for online savings accounts is due to short corporate bond interest rates declining slightly during the past year... in other words, interest rate gains.

But nonetheless, historical returns are not necessarily indicative of future returns. What is most important is what will happen in the upcoming year. The short term bond fund has an SEC yield of .92%. If interest rates don't change in the next year then the total return will be ~.9% the same as an online savings account but with some credit risk and significant interest rate risk. If interest rates increase then the online savings account will outperform the short term bond fund.... if interest rates decline then the short term bond fund will outperform online savings. Pick your poison.
I was not saying anything about whether the bond fund was better than cash going forward. I was explaining what the past return actually was.
__________________

__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 02-13-2015, 12:32 AM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 5,327
I should add to my previous post that we are also using stable funds and for the ladders they include mainly CDs and TIPS. I agree that CDs are often probably a better bet than at least some of our short term bond funds at current rates, but because of 401K investment restrictions on some of our retirement accounts we're using the short term funds as needed. I'd buy more credit union type CDs if I could.
__________________
Even clouds seem bright and breezy, 'Cause the livin' is free and easy, See the rat race in a new way, Like you're wakin' up to a new day (Dr. Tarr and Professor Fether lyrics, Alan Parsons Project, based on an EA Poe story)
daylatedollarshort is offline   Reply With Quote
Old 02-13-2015, 02:39 AM   #24
Full time employment: Posting here.
gcgang's Avatar
 
Join Date: Sep 2012
Posts: 928
Quote:
Originally Posted by 2017ish View Post

I personally am flaunting the core tenet of indexing by staying in VFSUX on the expectation that rates have just gotta go up soon--but people have been thinking that for quite a while now.... Then again, the VFSUX money is not merely ballast for me, since it also is my emergency fund, so my answer is likely different than yours.

Really? The symbol is VFSUX? Too funny.


Sent from my iPad using Early Retirement Forum
__________________
In theory, there's no difference between theory and practice. In practice, there is. YB
gcgang is offline   Reply With Quote
Old 02-13-2015, 05:39 AM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
the last few weeks have seen rates rising on bonds. while there are no danger lights flashing yet i did move 10% more out of my bond funds and into my gowth and income mix.

it was only just a few years ago my income model was 90% bonds and bond type funds. today i am about 40% equities as bonds have been not appreciatiing at the rates they were although last year was pretty good but overall performance has been weak the last few years..
__________________
mathjak107 is offline   Reply With Quote
Old 02-13-2015, 08:42 AM   #26
Thinks s/he gets paid by the post
2017ish's Avatar
 
Join Date: Apr 2012
Posts: 1,848
Quote:
Originally Posted by gcgang View Post
Really? The symbol is VFSUX? Too funny.


Sent from my iPad using Early Retirement Forum
makes it easy to remember!
__________________
OMY * 3 2ish Done 7.28.17
2017ish is offline   Reply With Quote
Old 02-13-2015, 09:42 AM   #27
Recycles dryer sheets
 
Join Date: Jul 2013
Posts: 389
Quote:
Originally Posted by kannon View Post
Morning All -

We have accumulated funds in non-IRA Vanguards Short Term Bond Fund (VFSUX).

Read an article in Money Dec edition suggesting that with expected interest rate small change, better to go to Intermediate Term.

We have enough liquidity in other accounts to whether storms over next 3-5 yrs so this money is more longer term.

I guess I may be answering my own questions if we should go from ST to IT. As long as we have enough liquidity then better to go IT.

If we do go IT, better to go Vanguard IT (VBILX 7.2 yrs avg maturity) or Vanguard Total Bond (VBTLX - 5.5 ys avg maturity)

Would appreciate your thoughts. This forum has amazing amount of knowledge and insight.

Thanks!!

Kannon
Don't try to time the bond market. Nobody knows what's gonna happen with interest rates.

The deciding factor is your time horizon - when will you possibly need to sell the fund. I look for a fund where the average duration is between .7 and 1.0 of my time horizon. If you may not need to ever sell the fund, then just use total bond.
__________________
mrfeh is offline   Reply With Quote
Old 02-13-2015, 11:47 AM   #28
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
a duration of less than 1 is not an incvestment in my opinion ,it is justr a place to store cash until you can put it in an investment. it is like a cash return.

i have been lightening up my bond investments.

i use two portfolios both from the fidelity insight news letter. the income and preservation model is almost all boinds except a 35% stake to a balnced fund.

i use the growth and income model as well which is about 70% equities.

everytime the markets slide and the income model has a higher return i shift more money to the other model portfolio. i am at about 40% - 43% equities now. already bond rates have been slowly rising and bond fund performance stalled out . i rather take my chances with more of the growth and income model.


i would go up to about 50/50 or so as an overall allocation . but if bonds continue doing poorly i would allocatre that bond money to better types of income funds rather than conventional bonds.
__________________
mathjak107 is offline   Reply With Quote
Old 02-13-2015, 02:54 PM   #29
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: 16,514
Quote:
Originally Posted by mrfeh View Post
Don't try to time the bond market. Nobody knows what's gonna happen with interest rates.

The deciding factor is your time horizon - when will you possibly need to sell the fund. I look for a fund where the average duration is between .7 and 1.0 of my time horizon. If you may not need to ever sell the fund, then just use total bond.
+1 for bond funds held in a retirement fund. If you are owning them for decades the intermediate duration is fine.

But I don't bother with ultra-short bond funds (sub 2 year duration) because high yield savings accounts and 1 year CDs are currently offering higher yields and are much safer investments.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 02-14-2015, 05:39 AM   #30
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
just becareful as what was fine for 35 years may not be fine once bond yields turn that corner.

the last 44 years we have seen the fed push up the fed funds rate by 1% or more lots of times and 50% of the time bonds rose. in fact only in one year 1994 did they lose money.

but that was because investors saw it differently and bid bond rates down.

well with little place to go at this point that history may mean little and those bond funds falling in value may cause some real pain.

just this past 4 weeks the long treasury bond has lost 7% . intermediate term treasury lost 2.50%, , corporate bond fund lost 1.70% and total bond lost 1.00 %. most of it over the last 2 weeks .


the benchmark us aggregate bond index fell 1.25% the last month . we may have reached the point that bond yields are on the rise and bonds may act more as a dead weight than adding to the party .

worse yet is it may take away.

equities and cash may be the best way to go according to quite a few top researchers .
__________________
mathjak107 is offline   Reply With Quote
Old 02-14-2015, 05:59 AM   #31
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,626
If one is going to own VCSH instead of VSCSX, then one might as well do some trading with it. Sell when it goes above 80.20 and buy back when it goes below 79.9 or something like that. But do not be fooled when it goes ex-dividend every month.
__________________
LOL! is offline   Reply With Quote
Old 02-14-2015, 07:11 AM   #32
Recycles dryer sheets
 
Join Date: Jul 2013
Posts: 389
Quote:
Originally Posted by mathjak107 View Post
just becareful as what was fine for 35 years may not be fine once bond yields turn that corner.

the last 44 years we have seen the fed push up the fed funds rate by 1% or more lots of times and 50% of the time bonds rose. in fact only in one year 1994 did they lose money.

but that was because investors saw it differently and bid bond rates down.

well with little place to go at this point that history may mean little and those bond funds falling in value may cause some real pain.

just this past 4 weeks the long treasury bond has lost 7% . intermediate term treasury lost 2.50%, , corporate bond fund lost 1.70% and total bond lost 1.00 %. most of it over the last 2 weeks .


the benchmark us aggregate bond index fell 1.25% the last month . we may have reached the point that bond yields are on the rise and bonds may act more as a dead weight than adding to the party .

worse yet is it may take away.

equities and cash may be the best way to go according to quite a few top researchers .
Just so folks remember - if you aren't selling your bond fund shares, none of this matters. If you're holding bond funds for the long term, you want rates to go up, so that you are earning more money.

I don't plan on selling my intermediate bond funds for 10+ years, and I'm rooting for rates to go up, and the sooner the better.
__________________
mrfeh is offline   Reply With Quote
Old 02-14-2015, 07:46 AM   #33
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: 16,514
Bond are just back to where they started at the beginning of this year. So it's just noise! We often go through periods of "rush to quality" when world events look scary, then rush out again when things look rosy. Repeated ad infinitum!
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 02-14-2015, 08:22 AM   #34
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
Quote:
Originally Posted by mrfeh View Post
Just so folks remember - if you aren't selling your bond fund shares, none of this matters. If you're holding bond funds for the long term, you want rates to go up, so that you are earning more money.

I don't plan on selling my intermediate bond funds for 10+ years, and I'm rooting for rates to go up, and the sooner the better.
sorry but you are confused. rising rates do eventually cause the bond fund rates to rise for existing shareholders as older bonds are retired and new ones bought however that increase comes at a price and your nav falls to compensate.

getting 3% on a fund that fell 4% is a poor investment whether you are selling or not.

even if you stay for as long as the funds duration you can only get back to what your origonal deal was. if rates climbed to 3% your fund would have fallen enough to only get back to the origonal rate you had .

a bond fund that has a duration of 5 and an interest rate of 5% that cost 10 dollars will fall to 9.50 if rates go to 6% . you will get an extra 1% interest over 5 years but that offsets the 5% drop so you end up with the same deal.

in the real world though you always stay behind the curve when rates rise.


your net worth and value of the fund couldn't care less if you sell or not anymore than your equity performance cares if you sell. your worth is your worth.
__________________
mathjak107 is offline   Reply With Quote
Old 02-14-2015, 08:25 AM   #35
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
Quote:
Originally Posted by audreyh1 View Post
Bond are just back to where they started at the beginning of this year. So it's just noise! We often go through periods of "rush to quality" when world events look scary, then rush out again when things look rosy. Repeated ad infinitum!
it isn't the fact they are where they started this year as much as the fact there seems to have been a big change in what investors are demanding as compensation for buying bonds in just the last 2 weeks.

1 to 2% drops in intermediate term funds and 7% in longer term does trigger a concern .
__________________
mathjak107 is offline   Reply With Quote
Old 02-14-2015, 08:57 AM   #36
Full time employment: Posting here.
 
Join Date: Jan 2013
Posts: 660
Quote:
Originally Posted by mathjak107 View Post
1 to 2% drops in intermediate term funds and 7% in longer term does trigger a concern .
Perhaps you are concerned, but I fail to see why most other investors should be. I think a number of posts in this thread were from people who were holding intermediate term bond funds in tax deferred accounts and had a time frame of over a decade. For this type of investor, a rise in interest rates should be a cause for rejoicing, not for concern. The higher interest rates will inevitably translate into better bond returns well before they expect to need the money.

As always, I am somewhat bemused by investors that are so risk averse that they are concerned by 1%-2% declines in intermediate term bonds, but at the same time are willing to hold substantial portions of their portfolios in stocks, which can be subject to 10%-20% declines in a similar time frame.
__________________
karluk is offline   Reply With Quote
Old 02-14-2015, 09:07 AM   #37
Recycles dryer sheets
 
Join Date: Jul 2013
Posts: 389
Quote:
Originally Posted by mathjak107 View Post

getting 3% on a fund that fell 4% is a poor investment whether you are selling or not.
This is where we disagree.

If I'm not selling a fund, why would I care what the NAV is?

Please look at the NAV of intermediate bond funds over large periods of time. You will see it wobble, but not stray very far, even when there are large changes in interest rates.
__________________
mrfeh is offline   Reply With Quote
Old 02-14-2015, 09:09 AM   #38
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
well how about i give you 3% and i keep all your principal. it is more than you are getting now .
__________________
mathjak107 is offline   Reply With Quote
Old 02-14-2015, 09:10 AM   #39
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
Quote:
Originally Posted by mrfeh View Post
This is where we disagree.

If I'm not selling a fund, why would I care what the NAV is?

Please look at the NAV of intermediate bond funds over large periods of time. You will see it wobble, but not stray very far, even when there are large changes in interest rates.
do not look at a 35 year old bull market where you could sit static in bonds during our lifetime with what will happen when the cycle reverses and goes up .
__________________
mathjak107 is offline   Reply With Quote
Old 02-14-2015, 09:12 AM   #40
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
Quote:
Originally Posted by karluk View Post
Perhaps you are concerned, but I fail to see why most other investors should be. I think a number of posts in this thread were from people who were holding intermediate term bond funds in tax deferred accounts and had a time frame of over a decade. For this type of investor, a rise in interest rates should be a cause for rejoicing, not for concern. The higher interest rates will inevitably translate into better bond returns well before they expect to need the money.

As always, I am somewhat bemused by investors that are so risk averse that they are concerned by 1%-2% declines in intermediate term bonds, but at the same time are willing to hold substantial portions of their portfolios in stocks, which can be subject to 10%-20% declines in a similar time frame.
the concern now is just for the reasons i mention above. a reversing interest rate cycle is something we have not seen in our investing lifetime yet but we are darn close now.

as they say this new period of cycles reversing possibly for the rest of our lives isn't going to be what we ever had before.

wee had rates rise for a year and fall but basically for 35 years the trend was down. the next long term poeriod can be trending up.
__________________

__________________
mathjak107 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
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
Are CDs and Short Term Bonds Cash or Bonds ? Live And Learn FIRE and Money 33 01-27-2014 09:46 PM
Work dilema regarding Megacorp request to plan long term when I only have short term Al in Ohio FIRE and Money 32 07-05-2013 04:10 PM
Cash, CDs, Short term bonds, I-Bonds and ER Income nun FIRE and Money 9 04-27-2013 04:29 PM
Short term vs Long term Bonds bank5 Stock Picking and Market Strategy 17 03-24-2009 04:40 PM
Short Term vs. Intermd Term Bonds TromboneAl FIRE and Money 35 07-21-2006 08:58 AM

 

 
All times are GMT -6. The time now is 10:38 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.