I have a significant investment in the Vanguard Total Bond Market Index Fund Admiral Shares(VBTLX). I have always used this fund as the fixed income portion of my asset allocation. The smart people got out when interest rates started going up and the value of this fund started dropping. Not me as I stuck with it in the anticipation that as the fund replaced its lower interest bonds with new bonds at the higher interest rates the fund would recover. This doesn’t seem to be happening. The current NAV is only $9.36 and it has been as high as $11.64.
To compound the issue, I am fully invested and when I take my annual RMD, I am forced to sell at a loss and use some of my RMD to pay taxes. What is left of the RMD, I use to buy additional shares in the same fund in a taxable account.
I am now very nervous of this fund. Should I continue to hold the course and keep this investment anticipating that it will go up eventually or should I sell and absorb the losses and invest the proceeds in CD’s or Money Market.
I would be interested in hearing suggestions.
Our IRAs are in a single Target Date fund that is part stocks, part bonds. It's a "set it and forget it" approach that I'm TRYING to maintain (didn't do that in 2020 and regret it).
Sure, I guess I could have sold the bond fund part and tried to figure out what's better, but every time I do that, things tend to not work out (2020).
I agree with the Sunk Cost philosophy and I probably wouldn't sell the bond funds at this point. Yields will probably continue to increase and at some point, rates will probably go down which would make the NAV go up. The biggest part of the loss is behind you.
Not saying you might not make better returns doing some of the things others are talking about (individual bonds, treasuries, CD's, etc), but I value simplicity at this point in my life and since we won't touch our IRAs for many years, it's not worth the effort or stress to mess with changing them to eek out a little more return.
I should add that all of our spending money is in taxable brokerage accounts - about 50% stocks and 50% money market funds. The MMFs are currently yielding 5.28%. At some point, I'll probably bite the bullet and invest that money in CDs, etc. Not in a hurry at this point.