Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Are You Worried About Your Bond Index Fund?
Old 03-14-2021, 07:00 PM   #81
Thinks s/he gets paid by the post
Markola's Avatar
 
Join Date: Nov 2013
Location: Twin Cities
Posts: 3,274
Are You Worried About Your Bond Index Fund?

Quote:
Originally Posted by RenoJay View Post
Iíve got to push back on this old axiom. Stocks have drifted higher over decades because earnings increased due to innovation and rising population. What would even be the theoretical reasoning behind bonds doing well over long periods of time when starting at near record low yields?


Fine to push back. My personal answers, as someone with a globally-diversified, 50/50 allocation, include:

1) The value of my bond index funds for rebalancing ballast with my stock funds has not changed.
2) What is the alternative? Even with low returns, I like my bond index funds over gold, real estate or crypto. And I prefer my dollars be working hard every day rather than sitting around in cash. A CD ladder makes sense but Iím lazy and retired.
3) Despite years and years of expertsí predictions for certain bond decimation, my Vanguard Total U.S. Bond Index Fund returned 7.2% in 2020, which beats a sharp stick, and then some. Itís been that way for years and years, except 2018, I think, after which, bonds bounced back strongly.
4) I have not lived through a period of rising interest rates in my investing life but I figure my bond index funds will rotate out the old and rotate in the new. The fundís Weighted Average Maturity is 8.5 years, so thatís a good-enough bond ladder for me, without lifting a finger.
5) What happens if we get deflation rather than the inflation that the media is so freaked out and certain about? (Speaking of axioms, one of mine is, whatever the cover of Money Magazine is worried about is usually the opposite of what will happen.) With interest rates near zero or even negative, thereís a case that the primary risk is deflation, in which case, I will love my bonds as a hedge.

Maybe Iím wrong and YMMV, of course.
Markola 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 03-14-2021, 07:42 PM   #82
Thinks s/he gets paid by the post
Ready's Avatar
 
Join Date: Mar 2013
Location: Southern California
Posts: 3,944
Quote:
Originally Posted by disneysteve View Post
I don't agree with the bolded part. People purchase bonds and collect the monthly interest payments to use toward their living expenses. When the bond matures, they take the principal and buy another bond to continue that monthly income stream. My 90-year-old mother has been doing that for 30 years. She has never sold bonds to access the principal.


The problem in recent years has been that as older bonds matured, the interest rate available on new bonds has been very low making it hard to replace the income unless you ventured into higher risk issues.
What is the ultimate goal here? If you want your heirs to inherit all of your bond fund shares I suppose that can work. But if your goal is to enjoy your money while you are alive then living off bond interest payments but never actually selling any of the bonds virtually guarantees you die with substantial assets left over.

If you are planning on a 4% withdrawal rate, there may be some years where the bond payments cover your expenses. When yields are lower you may need to sell some of the bond fund shares.

A 90 year old who is living exclusively off bond interest payments clearly is going to be leaving a large inheritance to someone. Thatís fine if itís her plan to do so. I have no desire to do that.
Ready is offline   Reply With Quote
Old 03-14-2021, 07:51 PM   #83
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 32,247
+1 I saved this money to enjoy my retirement, not to hoard it for the benefit of my heirs.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 03-14-2021, 09:34 PM   #84
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: 32,313
Quote:
Originally Posted by Dd852 View Post
@Audreyh1 I agree with you - but how often/when do you rebalance? I try to limit to twice a year and then only if my AA is out by five points or more.
Pretty much just once a year when I take my withdrawal. If itís not much out of balance I donít bother.
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 03-14-2021, 10:54 PM   #85
Thinks s/he gets paid by the post
 
Join Date: Sep 2006
Posts: 1,396
I'm not worried about my bond index fund.
JustCurious is offline   Reply With Quote
Old 03-15-2021, 06:02 AM   #86
Recycles dryer sheets
 
Join Date: Mar 2012
Posts: 386
Again no. Every single time an asset class starts to underperform a thread starts and multiple predictions about the future materialize. At this point I just chuckle because I realize it's human nature to look at short term risk or performance and extrapolate it out into the future many years. Is it smooth sailing from here on out?? I wouldn't bet on it. When the stock market looks ugly and prices are tanking is it a good time to sell? Of course not....in fact the opposite it usually true. Put things in perspective and focus on your portfolio performance, some assets might wildly over perform and others may underperfom....unfortunately there is no way to predict what will do what ahead of time. As a result, and as part of my diversified portfolio construct, a portion of my stash in intermediate term bonds....and don't forget to rebalance periodically. Carry on.
__________________
FIRE'd---4/27/2018 @ 54. DW--RE date 03/01/19.
tdv2 is offline   Reply With Quote
Old 03-15-2021, 06:47 AM   #87
Thinks s/he gets paid by the post
 
Join Date: Feb 2021
Posts: 1,531
Quote:
Originally Posted by Ready View Post
A 90 year old who is living exclusively off bond interest payments clearly is going to be leaving a large inheritance to someone. Thatís fine if itís her plan to do so. I have no desire to do that.
She doesn't just live on bond interest. She also gets SS, dividends from individual stocks, dividends and capital gains from mutual funds, interest from CDs, etc.


The more I thought about it, though, she has taken out money over the years. Sometimes when bonds redeemed, she didn't roll over the full amount so I misspoke on that.


At 90, though, her expenses are pretty minimal. She lives in a subsidized senior apartment. She stopped driving a few years ago. And especially since COVID hit but even before that, she really didn't do much other than the occasional dinner out or tickets to a local community theater. So even with low interest rates, her income is more than enough to fund her lifestyle.
disneysteve is offline   Reply With Quote
Old 03-15-2021, 08:31 AM   #88
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
street's Avatar
 
Join Date: Nov 2016
Posts: 6,939
No.
street is offline   Reply With Quote
Old 03-18-2021, 03:09 PM   #89
Recycles dryer sheets
 
Join Date: Aug 2018
Posts: 262
Quote:
Originally Posted by JRon View Post
The bond market may be in a different world than before. Buffettís view of bonds:

https://www.businessinsider.com/warr...-market-2021-3
Thank you for the article. I sold VGTBX too. It was lower than this low interest banking interest. held less than 1 year and loss $3000. Was wondering about my decision, but this article showed it was righting to do.
retire to nature is offline   Reply With Quote
Old 03-18-2021, 05:51 PM   #90
Thinks s/he gets paid by the post
 
Join Date: Oct 2012
Location: Reno
Posts: 1,181
For the last 3 months, once it started to become clear that vacccines would be effective and that we would be in a lengthy 0 yield environment (and before the Dalio article), I've pondered the function of intermediate and long-term bonds in a zero yield environment.
This is in a traditional portfolio, but in a zero-yield environment that I suspect will extend to 2023 to 2024, given unemployment and under-employment coming out of the COVID crash.

I have no answers, and in fact yuge risks are

a) stocks may crash
b) the Fed could go negative yield (in which case intermediate/long bonds will do fine).

Alternatives are
a) Tips/Ibonds (already mentioned)
b) Developing/Emerging market bonds
c) High Yield bonds
d) Real estate/REITS

Save Tips, these all have obvious risks similar to stocks, but I am looking at (gradually) using cash/some bond funds to gradually increase REIT holdings and TIPS. I probably will fund next years withdrawals out of bonds/cash rather than stock gains, if any. This is a lot easier than most of you since I'm at 50-27-23 allocation and I intend to gradually go back up to a 60% stock allocation by the time I'm at SS FRA in 4 years. Just holding on to bonds may make more sense for most of you, and I think the bond losses will cool down in a month or two since I think the market has over-reacted with immediate inflation expectations, but I do think long-term US govt bonds may be painful to hold.
RobLJ is offline   Reply With Quote
Old 03-18-2021, 07:09 PM   #91
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: 32,313
I’ll just be buying more when I rebalance next Jan, that is if stocks aren’t negative at that time.
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 04-25-2021, 11:06 AM   #92
Thinks s/he gets paid by the post
skyking1's Avatar
 
Join Date: Feb 2021
Location: Puget Sound
Posts: 1,999
Our AA is a mess and I have been doing some research, and this place once again delivers! What a great read this thread has been. My gut going in was to look into Vanguard's bond funds and this thread confirmed it. It will be a small measured start to fixing our AA, which is very cash heavy due to indecision.
We will also be opening an index fund there.
__________________
Class of 2023
skyking1 is offline   Reply With Quote
Old 04-25-2021, 11:19 AM   #93
Thinks s/he gets paid by the post
 
Join Date: Feb 2021
Posts: 1,531
Quote:
Originally Posted by skyking1 View Post
My gut going in was to look into Vanguard's bond funds and this thread confirmed it. It will be a small measured start to fixing our AA, which is very cash heavy due to indecision.
We will also be opening an index fund there.
VBTLX or the ETF version BND will serve your purpose well. They are currently yielding 1.32 or 1.33% which is probably over double what your cash is earning. If you want to boost your return but not take on more equity risk, it's a perfectly sensible way to go.
disneysteve is offline   Reply With Quote
Old 04-25-2021, 11:26 AM   #94
Thinks s/he gets paid by the post
skyking1's Avatar
 
Join Date: Feb 2021
Location: Puget Sound
Posts: 1,999
Thanks Steve. The CD ladder is going flat over the next 6~12 months, so it will be a gradual move which I am coming to see it always best.
__________________
Class of 2023
skyking1 is offline   Reply With Quote
Old 04-25-2021, 02:21 PM   #95
Thinks s/he gets paid by the post
 
Join Date: Aug 2016
Location: Northern Virginia
Posts: 4,837
Quote:
Originally Posted by disneysteve View Post
VBTLX or the ETF version BND will serve your purpose well. They are currently yielding 1.32 or 1.33% which is probably over double what your cash is earning. If you want to boost your return but not take on more equity risk, it's a perfectly sensible way to go.
well, -2.54% YTD total return for VBTLX and duration of 6.6.

Too risky for me in a rising rate environment.
Montecfo is offline   Reply With Quote
Old 04-25-2021, 02:47 PM   #96
Thinks s/he gets paid by the post
VanWinkle's Avatar
 
Join Date: Oct 2017
Location: Morton
Posts: 2,177
Quote:
Originally Posted by Montecfo View Post
well, -2.54% YTD total return for VBTLX and duration of 6.6.

Too risky for me in a rising rate environment.
What's the clue for rates turning around so we can sell short term
and buy back into Total Bond? It's too risky for me to hear the
noise at the right time, so I stick to my plan.

Best to you,

VW
__________________
Retired May 13th(Friday) 2016 at age 61.
VanWinkle is offline   Reply With Quote
Old 04-25-2021, 03:01 PM   #97
Thinks s/he gets paid by the post
 
Join Date: Jul 2013
Posts: 1,549
Quote:
Originally Posted by VanWinkle View Post
What's the clue for rates turning around so we can sell short term
and buy back into Total Bond? It's too risky for me to hear the
noise at the right time, so I stick to my plan.

Best to you,

VW
+1

If you're holding such funds long term (as you should be), you don't care that rates are probably going to rise. In fact, you want rates to rise.
mrfeh is offline   Reply With Quote
Old 04-25-2021, 03:26 PM   #98
Thinks s/he gets paid by the post
skyking1's Avatar
 
Join Date: Feb 2021
Location: Puget Sound
Posts: 1,999
+2
You've all been helpful.
__________________
Class of 2023
skyking1 is offline   Reply With Quote
Old 04-25-2021, 03:52 PM   #99
Thinks s/he gets paid by the post
 
Join Date: Feb 2021
Posts: 1,531
Someone once said that if some part of your portfolio isn’t under-performing at any given time you aren’t adequately diversified.

Yes, bonds aren’t doing great right now. That’s not a reason not to own them.

Especially if you are investing over time, having the NAV be down is a good thing so your money buys more shares.
disneysteve is offline   Reply With Quote
Old 04-25-2021, 03:54 PM   #100
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
steelyman's Avatar
 
Join Date: Feb 2011
Location: NC Triangle
Posts: 5,468
Quote:
Originally Posted by disneysteve View Post
Someone once said that if some part of your portfolio isnít under-performing at any given time you arenít adequately diversified.

Yes, bonds arenít doing great right now. Thatís not a reason not to own them.

Especially if you are investing over time, having the NAV be down is a good thing so your money buys more shares.

Thatís how I feel. Come rebalancing time Iíll add more.
__________________

steelyman 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
Inflation-Protected Bond Index and Total Bond Index retire-early FIRE and Money 8 02-03-2021 01:06 PM
Focused Bond, Bond Mutual Fund, And Bond ETF Questions clobber FIRE and Money 15 05-10-2020 12:10 PM
Bond index funds ( to bond fund or not) rollergrrl Young Dreamers 32 04-10-2019 12:40 PM
TIPs index vs. Total Bond index kevink FIRE and Money 3 04-15-2005 04:45 AM

» Quick Links

 
All times are GMT -6. The time now is 02:10 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2022, vBulletin Solutions, Inc.