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Vanguard Total Bond Index (VBTLX)
Old 04-07-2012, 07:49 AM   #1
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Vanguard Total Bond Index (VBTLX)

Hi all,
I met with a Vangaurd advisor who advised me to put 100% of my fixed income part of my portfolio in Vangaurd Total Bond Index (VBTLX). My goal in my fixed income portion is to receive 3.5% after tax. Thoughts? Thanks.
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Old 04-07-2012, 08:04 AM   #2
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IMO a 3.5% after-tax yield is not realistic in this low interest rate environment unless you are in high-yield (which has significant credit risk) or long-term bonds (which have significant interest rate risk).

The distribution yield of VBTLX is 2.87% and the SEC yield is 2.17%.

I think VBTLX is a fine choice (that is what I hold) but you may want to steer 10% of so of your fixed income allocation to the High Yield Corporate Fund (which I also hold) which has a SEC yield of 5.58% and a distribution yield of 6.52%

P.S. I love your screen name. Clever.
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Old 04-07-2012, 08:34 AM   #3
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Originally Posted by Earl E Retyre View Post
Hi all,
I met with a Vangaurd advisor who advised me to put 100% of my fixed income part of my portfolio in Vangaurd Total Bond Index (VBTLX). My goal in my fixed income portion is to receive 3.5% after tax. Thoughts? Thanks.
Like pb4uski, I think VBTLX is a good choice (I have half my bond allocation in the fund) but you can't count on 3.5% after tax in the present interest rate environment, and probably not for the next few years.

And when interest rates turn up, who knows when (2014 at the earliest IMO), there's going to be NAV price loss to deal with, offsetting yield.

There are no easy answers with fixed income these days, and cash equivalents are likely worse. You either accept lower fixed income returns, or take more risk increasing yor equity exposure. Some people are advocating putting their fixed income allocation into dividend equity funds, that's fine but it's not equivalent risk of loss. No silver bullet that I know of...
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Old 04-07-2012, 09:05 AM   #4
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Putting a lot into one fund might be the difference between admiral shares vs. investor shares, which for VBTLX is a nice .11% expense reduction over the VBMFX investor class fund. I have much of my fixed income in VBTLX.
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Old 04-07-2012, 09:06 AM   #5
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Only silver bullet I know if is having both bonds and equities. My thinking is that if interest rates rise then it will be because the economy is improving and if the economy is improving then equities will rise and offset any losses in my bond portfolio due to lower interest rates.

Not sure that will happen... but that is my story and I'm sticking to it.

That said, I have about 10-15% of my bond allocation in high yield and the remainder in VBTLX.
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Old 04-07-2012, 09:18 AM   #6
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Below is the allocation within VBTLX. Of my fixed allocation, about 1/2 is in VBTLX. I am lightening my overall allocation by moving more into high-yield. From their web site, "the fund invests about 30% in corporate bonds and 70% in U.S. government bonds of all maturities."

I'd like to know more about this topic, that is for sure.

Asset-Backed 0.2%
Commercial Mortgage-Backed 2.3%
Finance 7.3%
Foreign 5.6%
Government Mortgage-Backed 27.2%
Industrial 11.8%
Other 0.6%
Treasury/Agency 42.6%
Utilities 2.4%
Total 100.0%
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Old 04-07-2012, 09:30 AM   #7
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Only silver bullet I know if is having both bonds and equities. My thinking is that if interest rates rise then it will be because the economy is improving and if the economy is improving then equities will rise and offset any losses in my bond portfolio due to lower interest rates.
Me too, I'm 52:39:9...long term view.
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Old 04-07-2012, 09:31 AM   #8
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The TBMI is a fine choice, you could do much worse.

As mentioned all fixed income has very low yields and the capital appreciation due to falling rates over the past few years may well be over. It is a bad time to buy bonds, higher rates means capital loss, research "duration".

I bought the Ginnie Mae bond fund 5 years ago when they were in the low $10 range, not sure what I'd do if I needed to allocate to a bond fund today.

High Yield Corporate bonds are NOT a wise choice for fixed income allocation though a small allocation may be ok, like 10% of total portfolio.

It's a hard choice today.
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Old 04-07-2012, 09:43 AM   #9
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I am 59, still working, and will accumulate for 3-6 more years. Perused my allocation a bit more, and find the 40% fixed portion can be broken down like this:
12.5% VBTLX Total Bond
02.5% Short-term investment grade
18.0% Short-term bond
02.5% High Yield
04.5% State muni-fund
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Old 04-07-2012, 09:52 AM   #10
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Originally Posted by pb4uski View Post
Only silver bullet I know if is having both bonds and equities. My thinking is that if interest rates rise then it will be because the economy is improving and if the economy is improving then equities will rise and offset any losses in my bond portfolio due to lower interest rates.

Not sure that will happen... but that is my story and I'm sticking to it.

That said, I have about 10-15% of my bond allocation in high yield and the remainder in VBTLX.
The OP did say 100% of the fixed income part of his portfolio, not 100% total.
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Old 04-07-2012, 10:00 AM   #11
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The OP did say 100% of the fixed income part of his portfolio, not 100% total.
Seems to also be asking whether all in with TBM is a good strategy. I think the correct answer depends on the total invested.

For instance, if there is 100K total invested, then 100% of the fixed (whatever it is) in TBM would be acceptable, I think. There would not be much benefit in slicing and dicing?

OTOH, if there is $1M, then something else should be considered.
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Old 04-07-2012, 10:07 AM   #12
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Seems to also be asking whether all in with TBM is a good strategy. I think the correct answer depends on the total invested.

For instance, if there is 100K total invested, then 100% of the fixed (whatever it is) in TBM would be acceptable, I think. There would not be much benefit in slicing and dicing?

OTOH, if there is $1M, then something else should be considered.
+1.

As long as the portfolio isn't 100% in Fixed Income (need some equities no matter what unless one is very very wealthy and don't mind risk of not keeping up with inflation), I don't see why TBM would not be fine. In fact, for my fixed income portion, that's what I attempt to do instead of making things more involved for myself than need be.
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Old 04-07-2012, 10:18 AM   #13
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Seems to also be asking whether all in with TBM is a good strategy. I think the correct answer depends on the total invested.

For instance, if there is 100K total invested, then 100% of the fixed (whatever it is) in TBM would be acceptable, I think. There would not be much benefit in slicing and dicing?

OTOH, if there is $1M, then something else should be considered.
Why? Not a snarky question, I just want to know why you think so.
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Old 04-07-2012, 11:14 AM   #14
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Why? Not a snarky question, I just want to know why you think so.
I don't even know what snarky means.

1. If the portfolio is under 100K, then simple would seem to work. If he is 35 and following standard advice about age in bonds, he would have 35K in TBM. What would one gain by breaking that into various parts? There would be minimums in other funds, and probably not admiral shares either.

2. If 1M, then I'd think he would be close to retirement age, concerned about rising interest rates, and would have 1/2M in one fund. I think only a Bogglehead die-hard would recommend that. That would keep me up at night, as interest rates are incredibly low now.

These are opinions of course, and my advice is free, so take that into account.

On a scale of 1 to 10 I am probably a 3 when it comes to investing.
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Old 04-07-2012, 11:27 AM   #15
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I don't even know what snarky means.
Urban Dictionary: snarky, basically sarcastic and sometimes in a mean spirited way...
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Old 04-07-2012, 11:52 AM   #16
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My current bond allocation (low 7 figures):

Taxable (57.5%):
22.7% VMLUX - Vanguard Limited-Term Tax Exempt Fund (Short-Term Municipal)
21.7% diversified pool of individual municipal bonds
3.4% Series I bonds
3.3% TEGBX - Templeton Global Bond Fund (World Bond)
3.3% JSOCX - JP Morgan Strategic Income Opportunities Fund (Multisector Bond)
3.1% Bond portion of two world allocation funds

Tax-Deferred (42.5%):
24.3% VBTLX - Vanguard Total Bond Market Index Fund (Intermediate-Term Bond Index)
8.1% VAIPX - Vanguard Inflation Protected Securities Fund (Inflation-Protected Bond)
8.1% VWEAX - Vanguard High-Yield Corporate Fund (High-Yield Bond)
2.0% PTTRX - Pimco Total Return Instititutional (Intermediate-Term Bond)

In a tax-deferred account, I lean toward the 60/20/20 mix of total bond/TIPS/high yield. In a taxable account, I lean toward shorter-term munis and I bonds. This placement is fairly tax-efficient.

I agree that you cannot go wrong using VBTLX as a one-stop bond choice.
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More information from OP
Old 04-07-2012, 12:08 PM   #17
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More information from OP

First, thanks for all the replies. Let me give you a little more information about my situation. Total net worth = $2.1M. Currently planning on the following asset allocation:
(1) Total Bond Index (VBTLX) and/or other fixed income: 43%
(2) Wellesley VWIAX: 34%
(3) Total Market Index VTSAX: 10%
(4) REIT: 1%
(5) International VTIAX: 3%
(6) Cash/CDs: 9% (I know this is a lot but want to start this way)

I will be 49 years old this year and semiretiring at the end of this year. Plan to work part time to cover whatever difference I need to live/travel which I currently calculate at 4 months/year working depending on the above. So, I would be putting over $700k in VBTLX. Now that you know my situation - would you put that much in VBTLX? If not, and assuming I want to keep $700k of my portfolio in a relatively safe investment (safe from losing principal and/or large fluctations yet wanting to get as much return as possible so I can work less), what would you do?
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Old 04-07-2012, 12:32 PM   #18
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I would shade the duration of my fixed income assets to the shorter side a bit. So I would use Total Bond Market Index for half of my fixed income and something like Short-term Corporate Bond Index for the other half. All this in a tax-advantaged account. I would use I-bonds from Treasury Direct up to my annual purchase limit, too.
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Old 04-07-2012, 12:42 PM   #19
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Originally Posted by pb4uski View Post
The distribution yield of VBTLX is 2.87% and the SEC yield is 2.17%.
Ignore the distribution yield. The ~70bp difference basically represents a return of premium, not true income.

At roughly 2%, 5-yr CDs seem like they offer far better risk / return characteristics.
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Old 04-07-2012, 01:05 PM   #20
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Originally Posted by Earl E Retyre View Post
First, thanks for all the replies. Let me give you a little more information about my situation. Total net worth = $2.1M. Currently planning on the following asset allocation:
(1) Total Bond Index (VBTLX) and/or other fixed income: 43%
(2) Wellesley VWIAX: 34%
(3) Total Market Index VTSAX: 10%
(4) REIT: 1%
(5) International VTIAX: 3%
(6) Cash/CDs: 9% (I know this is a lot but want to start this way)

I will be 49 years old this year and semiretiring at the end of this year. Plan to work part time to cover whatever difference I need to live/travel which I currently calculate at 4 months/year working depending on the above. So, I would be putting over $700k in VBTLX. Now that you know my situation - would you put that much in VBTLX? If not, and assuming I want to keep $700k of my portfolio in a relatively safe investment (safe from losing principal and/or large fluctations yet wanting to get as much return as possible so I can work less), what would you do?
Those here who "know" me will be expecting the following suggestion (not advice): You haven't indicated what % of your retirement stash is tax deferred, but if it is significant, I would do a (at least a back of the envelope) calculation of the pros and cons of getting out of deferred vehicles and into Roth IRAs. As you know, you might have to pay taxes on conversions, but if you are not working (no income) you would have the opportunity to ditch the tIRAs and 401(k)s (possibly over time) and end up with Roths with relatively low (or even NO) taxes if you do it right. Personally, I think Roths have so many advantages, that it is worth the taxes (within reason). Only you (or maybe your tax guy/gal) can figure this out, so YMMV.
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