Are You Worried About Your Bond Index Fund?

[RHONDAVE]

Anyone else worried about YTD performance of their bond index funds?
My Vanguard VBTLX is now -2.28 for the year. Whats the deal?
I have sold everything else, why not these as well??

[jazz4cash]

Quote:

Originally Posted by RHONDAVE I have sold everything else, why not these as well??

You could if you are worried. I did. This is what happened to me every time I bought into a bond fund. So now I only have one bond fund which is a muni fund and seems more stable. The NAV is down .85% YTD. More importantly I only look at the distribution yield, ignore the NAV performance and do not reinvest dividends automatically. The dividends go into a MM fund to be spent or reinvested on a dip ( market timing I’ll admit).

[Montecfo]

When rates go up bond funds decline in value. And rates have risen quite a bit since December, though still very low by historical standards.

If you shorten duration you will have less rate risk.

[Markola]

“Time in the markets beats timing the market.”

[aja8888]

If you think it's bad now with the 10 year Treasury at 1.57%, wait until it hits 3% and see what happens to your bond fund.

[audreyh1]

No.

I just rebalance when appropriate which means buying more next year if rates continue to rise.

I’ve been through this scenario many times over the past two decades. Rates dropped dramatically last year and my bond funds appreciated a lot. Now they are giving some of that back. It comes and it goes.

I always have a chunk in cash and short-term bond index funds as well.

[Jerry1]

Quote:

Originally Posted by aja8888 If you think it's bad now with the 10 year Treasury at 1.57%, wait until it hits 3% and see what happens to your bond fund.

So, maybe worth another thread, but if rates are likely going up, which lowers the bond funds, and rates going up cause stocks to go down as well, where am I supposed to put my investments?

I have a low stock percentage “to be safe” and now it looks like I should just go to cash until things settle, which they never seem to do. I guess I could trade my bonds for cash with enough gold to hedge inflation.

[audreyh1]

Yes, all asset classes have been inflated due to uber-low interest rates. Rising rates affect everything.

I just rebalance on the way up, and on the way down. Same old same old.

[Jerry1]

Quote:

Originally Posted by audreyh1 Yes, all asset classes have been inflated due to uber-low interest rates. Rising rates affect everything. I just rebalance on the way up, and on the way down.

I’ll have to do some reading. I bought my first house when I was in my 20’s and interest rates were double digits. I’ve really only seen interest rates go down. Now that they’re zero and will likely go up, I need to have a better understanding on what to do investment wise. I always thought of bonds as a asset class that moves counter to stocks.

[Closet_Gamer]

Quote:

Originally Posted by Jerry1 I’ll have to do some reading. I bought my first house when I was in my 20’s and interest rates were double digits. I’ve really only seen interest rates go down. Now that they’re zero and will likely go up, I need to have a better understanding on what to do investment wise. I always thought of bonds as a asset class that moves counter to stocks.

This.

As a generation we've only ever lived in a low rate environment. Its been a 30 year bond bull market. If (when) it reverses, the damage will be breathtaking...but you'll also be able to get yield on your assets for less risk.

Warren Buffett summarized the 2008 implosion by saying there was a systemic mis-pricing/re-pricing of risk. Investors weren't demanding enough of a return for the risk they were taking. This may well remain true.

But timing all of this remains a fool's errand. People have been talking about a mean reversion in bonds for over a decade.

[target2019]

Quote:

Originally Posted by RHONDAVE Anyone else worried about YTD performance of their bond index funds? My Vanguard VBTLX is now -2.28 for the year. Whats the deal? I have sold everything else, why not these as well??

We haven't sold anything, and don't time the market.

We have an investing policy statement, and an AA of 50/50.

Diversification (CDs, Annuities, Stable Value Fund, Guaranteed Interest Fund, Hi-yield cash, etc.) helps. We're not swinging for the fences with the Fixed side of asset allocation.

If you don't believe in an intermediate Total Bond fund, then it shouldn't have been in the plan.

[kjpliny]

America is now Japan. The Fed will not allow rates to continue to go up because that would mean insolvency and crash. They are going to let inflation run high and they will do yield curve control and buy the long end on bonds. CBJ owns almost their entire bond and stock market. The Fed will do the same here. Zero real growth and zero short term rates forever. They have no other choice. Our entire market for the past 10 years has been a debt fueled farce.

[Time2]

I have a friend that has had money in bonds for many years, he is 77 yrs old. His bonds have appreciated considerably. Now with interest rates rising, he is watching them lose value. On the other hand he hates to sell them because he is paying about 25% in taxes already.

Rock--Hard place.

[VanWinkle]

Anyone else worried about YTD performance of their bond index funds?


No!! I had it when it made 8-9% last year, and I'll keep it while it loses 3-5 % this year. Over the long haul, it still supplies ballast for my equities which is why I have it in the first place.

VW

[Ready]

Bond funds are continually buying new bonds to replace bonds in the fund that mature. If interest rates rise, the fund will take advantage of this by buying bonds that have a higher yield. The NAV will go down a bit in the short term but interest rates have been moving so slowly that I’m not really concerned about a big drop in NAV on the funds.

[Dtail]

Quote:

Originally Posted by Ready Bond funds are continually buying new bonds to replace bonds in the fund that mature. If interest rates rise, the fund will take advantage of this by buying bonds that have a higher yield. The NAV will go down a bit in the short term but interest rates have been moving so slowly that I’m not really concerned about a big drop in NAV on the funds.

The above.
This concept gets lost sometimes in exchange for the simple price to yield inverse correlation of bonds.

[JRon]

The bond market may be in a different world than before. Buffett’s view of bonds:

https://www.businessinsider.com/warr...-market-2021-3

[pb4uski]

I jettisoned bonds in favor of CDs many years ago because of concern for interest rate risk... I was just before my time!

You could always go to individual bonds or target maturity date ETFs... they have interest rate risk but the values will converge to par.

[Ready]

Quote:

Originally Posted by pb4uski I jettisoned bonds in favor of CDs many years ago because of concern for interest rate risk... I was just before my time!

I did too back when rates were around 3.5%. But now that my CDs have matured I’m not finding that to be a viable strategy any more so I’ve gone back to municipal bonds. If I’m going to make next to nothing on yield I might as well not have to pay taxes on it.

[pb4uski]

Quote:

Originally Posted by Ready Bond funds are continually buying new bonds to replace bonds in the fund that mature. If interest rates rise, the fund will take advantage of this by buying bonds that have a higher yield. The NAV will go down a bit in the short term but interest rates have been moving so slowly that I’m not really concerned about a big drop in NAV on the funds.

As I understand it if the duration is 6 then if rates increase by 1% then it will take 6 years for the bond fund to make up for the decline in value through the higher interest rates... so you would be treading water for 6 years to offset a 1% increase in interest rates. Not for me!