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Rebalancing My Bond Allocation
Old 05-12-2018, 04:18 PM   #1
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Rebalancing My Bond Allocation

Hi. I need to rebalance my portfolio to bring it back to 60% stock 40% bond. I need to increase my bond allocation. I am concerned about rising interest rates, and how that will affect my bond allocation performance. This is the primary bond fund that I use-Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) https://personal.vanguard.com/us/fun...ect=true#tab=0 .

Do you think the duration on this bond fund is too long/short, considering the way interest rate is heading (up, I believe). Is there another vanguard bond fund that you think may be a better choice than VBTLX to serve as my bond allocation? I know some people choose to do a bond ladder, I have never done that before, so I am not familiar with a bond ladder or other options. But I think all available options carry some amount of risk, and in regard to asset allocation, my preference is to keep things as simple as possible.

Thank you for your insight.

Total Bond Mkt Index Adm
Under 1 Year 0.5%
1 - 3 Years 23.5%
3 - 5 Years 19.1%
5 - 10 Years 39.6%
10 - 20 Years 3.9%
20 - 30 Years 12.8%
Over 30 Years 0.6%
Total 100.0%
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Old 05-12-2018, 04:27 PM   #2
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If you own a government bond fund, you may want to consider trading it for a CD ladder instead. My government bond fund return over the past 5 years averaged .76%, so I sold it and bought a 5 year CD ladder.
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Old 05-12-2018, 04:58 PM   #3
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The tradeoff between holding individual bonds or CDs and owning a bond fund generates hot debate here from time to time. Personally, I don't expect to ever own a bond fund because of the fees and the possibility of losing principal as rates rise. A little searching here will probably find you one of those debates.

Someone here posted a link to quite a good explanation of ladders. I think this is it: https://www.fidelity.com/viewpoints/...adder-strategy I also found this: https://www.fidelity.com/fixed-incom...nd-ladder-tool

If you are at Fidelity or Schwab I know that their bond desks will be happy to educate and assist you. I don't know what Vanguard has in the way of support for individual bond buyers.

Be sure to ask about buying government bonds on the Treasury auctions. This is a particularly economical way to go. For CDs, buying brokered CDs is convenient and I have seen posts here that say that the brokered CDs offered by an institution often have better yield than the CDs it offers directly to its depositors. CDs are less liquid than government bonds, though, so unless you are certain to hold to maturity you may want to ask about that too.
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Old 05-12-2018, 06:01 PM   #4
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I don't think it matters much what you do now. VBTLX has already suffered lack of gains (i.e. loss) over the past year. Its yield has gone up, so the future for it could be fine. Selling now would be selling low.

I reduced my bond duration earlier this year which has allowed my portfolio to outperform its benchmarks. But now that I am ahead, I am slowly increasing my bond duration and bought some Total Bond Market shares last week.

So that's the problem with investing: Lots of people are always skating to where the puck was in hindsight. The trick is to predict the future.

I suggest you hold tight and see what happens leading into the FOMC June meeting where they are expected to increase the FFR again. That expectation is already priced into VBTLX and other bond funds.
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Old 05-13-2018, 08:53 AM   #5
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I went short and high quality and my bond funds all show positive gains YTD. I plan to slowly move to high quality intermediates as rates rise for the money I have in funds. I also own/manage a corporate bond ladder in my IRA and a Muni ladder in my taxable. I, personally, like the predictably and tax manageability of a ladder. Fidelity has great tools for purchasing and managing individual bonds.
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Old 05-13-2018, 09:09 AM   #6
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The SEC yield on VBTLX is 3.1% .. average duration is 6-8 years. 7 year cds are 3.3%

simple comparison, but, they are close.
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Old 05-13-2018, 09:19 AM   #7
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I found BFRAX and my advisor liked the idea. Also looking at ICVT but he was not
too keen on that. I'd still like to blend some in though.

Any opinions?
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Old 05-13-2018, 09:21 AM   #8
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While most of my bond position is in a total bond market fund in my 401(k), I hold Vanguard Ultra-short term Bond (VUSFX) in DWs IRA and have used it for rebalancing. SEC yield is 2.37% and duration is one year. Yield goes up in lock step with the Fed, and price has only fluctuated +/- 0.5% over the last couple of years.
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Old 05-13-2018, 09:26 AM   #9
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... simple comparison, but, they are close.
They are only close until the next rate increase. After that, the mutual fund will go down and may not recover by the maturity date of the CD. The CD will deliver exactly what was promised.
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Old 05-13-2018, 10:40 AM   #10
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O.K thanks. Question .... what happens in a taxable IRA when the short terms mature? Are you notified and prompted to re invest?
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Old 05-13-2018, 11:20 AM   #11
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O.K thanks. Question .... what happens in a taxable IRA when the short terms mature? Are you notified and prompted to re invest?
At Schwab, I get a reminder letter about a week and a half before a t-bill matures and then if I have done nothing I get a call +/- the maturity date from Chris, our area rep, at the bond desk asking me what I want to do with the money. I always buy from Chris because we can discuss yields of various choices and he helps me choose. Sometimes he waives the $25 talk-to-a-human fee, sometimes he does not. I don't mind paying; I think the fee is a good value.

My wife had some t-bills at Wells and got no notifications at all.

So, YMMV. Ask your broker.
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Old 05-13-2018, 11:28 AM   #12
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I have quite a bit of $ in brokered ladder cd's. I know what I get and they are FDIC insured.
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Old 05-13-2018, 03:44 PM   #13
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O.K thanks. Question .... what happens in a taxable IRA when the short terms mature? Are you notified and prompted to re invest?
Use the calendar function of your smart phone and put in a reminder. You can get e-mails and calls from brokers, too, but they are very easy to ignore.
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Old 05-13-2018, 04:40 PM   #14
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Hi. I need to rebalance my portfolio to bring it back to 60% stock 40% bond.
It's a choice, not a need.
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Old 05-13-2018, 04:49 PM   #15
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O.K thanks. Question .... what happens in a taxable IRA when the short terms mature? Are you notified and prompted to re invest?
Fidelity sends an email when you are about 5 weeks from maturity. Worst case, the funds go to cash.
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Old 05-13-2018, 10:06 PM   #16
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nico08 not enough info it depends on when you plan on using the funds, if your already retired then CD's and short term bonds are ok, if your more than 10 years out from retirement a mix of intermediate govt and corp bond mutual funds or ETF's are best just reinvest the dividends(interest). Looking older posts by OP he's less than 50 so forget about CD"s. Just make sure you have a low cost total bond fund some examples are SWAGX,VBMFX,or FBIDX. ETS's are BND,AGG,SCHZ. All are very low cost funds or ETF's.
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Old 05-14-2018, 05:44 AM   #17
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....he's less than 50 so forget about CD's.
Hi. Why are CDs not a good idea for people under 50 years old?
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Old 05-14-2018, 08:26 AM   #18
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No reason that I know of... just another form of taxed income instrument similar to a bond. Unless alaska55 presumes that people under 50 don't own fixed income and are all 100/0 AA.
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Old 05-14-2018, 08:50 AM   #19
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No reason that I know of... just another form of taxed income instrument similar to a bond. Unless alaska55 presumes that people under 50 don't own fixed income and are all 100/0 AA.
No I didn't recommend 100%, did you read my post. If you are more than 10 years out from retirement you don't need short term bond or cd's the duration is too short. I said we need more info maybe he's going to retire next year and maybe not for another 10 years. if next year yes maybe 3 years living expenses in short term fixed income would be fine, but if not for 10 years then intermediate bond fund would be better. The bottom line is whatever lets him sleep at night.
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Old 05-14-2018, 09:05 AM   #20
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I read your post. You do realize that they issue long-term CD's .... right? I was just on Vanguard and there are lots of them.... out to 20 years (3.921%) if you want them.

If you had written that he was less than 50 so forget about short-term CD's then that might have been more understandable..... though some people use a barbell strategy to manage interest rate risk where they buy a lot of short-term fixed income and long-term fixed income.
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