I'm not sure owning bonds has much of a payoff

Ready said:
Are you looking at the change in NAV during that time period or the total yield? Bond funds can go up and down based on changes in the market, but as long as they keep paying their dividends that's their main purpose. You only recognize the gains and losses on the NAV when you sell the funds. But the real performance measurement is the combination of the yield plus the increase or decrease in NAV.

I show a ten year return on PTRAX of 4.95%. That's not bad at all for a bond fund.
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TGLMX is 6.20

TGLMX was also +2.7% from the top of the market to the bottom of the market in 2008-2009 while SPY was down just over 50%.
 
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Clone said:
So, what is the correct play if you do not depend on your investments for retirement income? I think this is what starts some of the greatly debated discussion of 'can I interchange real estate, pension, or other fixed income for Bonds in an asset allocation.'

It seems one of the primary roles is to have a place to draw funds if the stock market tanks. In today's ZIRP environment, I see bonds with a very small upside, and some downside. So why park money there?
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I think that if you have other guaranteed income streams covering your expenses, and you really don’t need to draw on your investments, then you can invest however you want. Figure out what your priorities/goals are for those investments.

It doesn’t matter that current interest rates seem low and thus some perceive bonds as overvalued. What matters is that many folks like to have part of their portfolio invested in something more stable when equities tank.
 
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pb4uski said:
Yup. They got spanked real bad. See orange line. 4.78% annually during that 8 years 2006-2013.

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart
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An excellent illustration.

Not all bonds are the same. If your bond fund was pummeled in 2008/2009 then you were holding riskier bond funds. I understand that most folks didn’t realize this before it happened and that people tend to drift over to the riskier stuff chasing yield.

But to lump all bonds together and dismiss the entire asset class does everybody a disservice.

The point of diversification is to own the higher quality bond funds that do well when equities tank. Only those provide the desired cushion.
 
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Here's another simple illustration:

Over the period of 2008 and 2009 which was one of the most volatile 2 year period we've seen in a very long time....

If you had all your money in SPY you lost 20.3%
If you had all your money in Vanguard Wellington (60/40 mix), you lost 4.8%

Id say bonds did exactly what we need them to do.
 
Got talked into having some but no idea why I succumbed. 6% in PWZ as I live in California. Throws off what I contribute to grandkids college each term. Fortunately they're spread out so it'll continue doing so
 
utrecht said:
Here's another simple illustration:

Over the period of 2008 and 2009 which was one of the most volatile 2 year period we've seen in a very long time....

If you had all your money in SPY you lost 20.3%
If you had all your money in Vanguard Wellington (60/40 mix), you lost 4.8%

Id say bonds did exactly what we need them to do.
Click to expand...
so how did it compare 9 yrs out?
 
gayl said:
so how did it compare 9 yrs out?
Click to expand...

The standard answer is that one should not look at portfolio components in isolation. It is the total portfolio that counts. Bonds are a complement to stocks, not a replacement. And some of us (including me) do not like a wild ride. But one must accept some bumps to get the (hoped for) reward.

One of the better tools to look at AA choices is VPW which shows a set of sequences of yearly returns.
 
Yeah, just wondering as I'm sure some people here have already researched it. It really is quite individual.

I for one will not be using the money that I've set aside. Last year I went through a mindset as I entered retirement. I started the year employed saving 50% of my income, went down to investing 40% of my income, and now I'm only setting aside $1,000 a month. FWIW my income is only $50k a year so that translates into apx 25% of my income. So bonds don't have a huge draw for me (& I target all the dividends I get for one or another specific reason like grandkids education or property taxes)
 
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VTSAX? Is that the correct symbol; the correct fund?
 
If one has access to a stable value/guaranteed bond income fund it can provide some peace of mind. The majority of my bond allocation is in my 401K stable income fund whose yearly yield has dipped below 3% only once for as long as I have owned it. With retirement imminent and my target SWR to be less than 3%, it is a good balance against the volatility in the rest of my portfolio.
 
audreyh1 said:
An excellent illustration.
But to lump all bonds together and dismiss the entire asset class does everybody a disservice.
Click to expand...
My 2008-2009 "pummeled" comment came from my experience with the bond fund that was offered by my 401k. Not having paid that much attention to investing back then, I totally bought into the fairy tail of "bonds zig when stocks zag". Obviously it's more complicated than that. But what I saw was the price of the bond fund dropping at the same time as the equity fund. The bond funds were dropping much less than the equities, for sure, but just seeing minus signs everywhere is what my flawed brain remembers. I "almost" want to look up those records to see if my bond funds back then did as bad as I remember them doing.

jollystomper said:
If one has access to a stable value/guaranteed bond income fund it can provide some peace of mind. The majority of my bond allocation is in my 401K stable income fund whose yearly yield has dipped below 3% only once for as long as I have owned it. With retirement imminent and my target SWR to be less than 3%, it is a good balance against the volatility in the rest of my portfolio.
Click to expand...
I'm also taking advantage of the guaranteed income in my 401k. That's basically my "bond allocation".
 
redduck said:
VTSAX? Is that the correct symbol; the correct fund?
Click to expand...

Yes - the graph is showing VTSAX (Vanguard Total Stock Market) compared to BND which is the Vanguard Total Bond ETF, and illustrates how BND not only did not get pummeled in 2008/2009, but also stayed well ahead of VTSAX for many years until quite recently.
 
audreyh1 - If you don't mind me asking, what bond funds do you hold?
 
sengsational said:
My 2008-2009 "pummeled" comment came from my experience with the bond fund that was offered by my 401k. Not having paid that much attention to investing back then, I totally bought into the fairy tail of "bonds zig when stocks zag". Obviously it's more complicated than that. But what I saw was the price of the bond fund dropping at the same time as the equity fund. The bond funds were dropping much less than the equities, for sure, but just seeing minus signs everywhere is what my flawed brain remembers. I "almost" want to look up those records to see if my bond funds back then did as bad as I remember them doing. ....
Click to expand...

I had a similar experience in my 401k with the Evergreen Core Bond Fund. I noticed that fund got pummeled... was down 20%...... turns out that the fund's managers had decided to make a bet on MBS that went wrong. :facepalm:
 
audreyh1 said:
Yes - the graph is showing VTSAX (Vanguard Total Stock Market) compared to BND which is the Vanguard Total Bond ETF, and illustrates how BND not only did not get pummeled in 2008/2009, but also stayed well ahead of VTSAX for many years until quite recently.
Click to expand...

pb4uski said:
You need to open the chart... it shows both VTSAX and BND for 2006-2013 so you can see the difference... BND is the orange line.
Click to expand...

I see and understand it now. Thanks.
 
pb4uski said:
I had a similar experience in my 401k with the Evergreen Core Bond Fund. I noticed that fund got pummeled... was down 20%...... turns out that the fund's managers had decided to make a bet on MBS that went wrong. :facepalm:
Click to expand...
Mine wasn't as bad as yours, as it turns out. I went back and looked at my "post mortem" analysis spreadsheet that I created at the time. The total bond fund dropped 7% from 12/31/2007 to 02/28/2008. That looks pretty tame when I look at the equity index, which dropped 47%. Of course, on hindsight, I'd have picked a bond fund more like "BND", but that wasn't an option for me. I just looked-up VBMFX for that time period and it was only down 2.5%. It was down around 6% for the first 11 months of 2008.

Remember when we were all calling our 401k's "201k", due to the halving effect of that time period?
 
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I remember reading an article, about five years ago, stating that there was not much point in having bonds in one's AA. The author advocated a far simpler AA of 80/0/20 - 80% stocks, 0% bonds, 20% cash.

I have ran a few tests on this site: https://www.portfoliovisualizer.com/backtest-portfolio

The test was for from 1993 to 2018 using Vanguard Total Stock Market Index, Vanguard Total Bond Market Index and Cash. For the sake of simplicity I started with 1,000,000.
No adjustments were made for taxes or inflation. Re-blancing was done annually.

$40,000 withdrawal the first year, then an annual withdrawal adjusted for inflation.

The 80/0/20 portfolio ended up with 4.16 million.
The 60/40/0 portfolio ended up with 3.93 million.

That the worst down year saw the 80/0/20 AA taking a 29% hit versus at 20% hit with the 60/40/0 AA. The difference in the best years was 1% more for the 80/0/20 AA.

Overall the graph shows them tracking each other very closely,

So for an aprox cost of $230,000 over a 25 year period, one takes a smaller hit in the down markets. Is it worth an average of $9,200 a year to have bonds provide a better buffer in the down years?
 
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Going from 60 to 80 % stocks is not something I would do. Especially in this stage of a bull market.
 
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If having bonds keep one from selling in a bear market because of the smoother ride as far as volatility, then to me it's worth it to hold bonds. It's difficult to keep the faith when the market loses 4% in a day if one has everything in stocks. A few posters have commented that one of the bond funds I hold is dangerous. I beg to differ.


I have owned it for over two years and it's nothing like some of the more aggressive bond funds out there. Yes it will go down a certain percentage to stocks, but it's nothing like stocks as far as volatility goes or even the more aggressive bond funds. Stocks are great when the market goes up, but when it goes down, it's rough. If mentally not selling securities is the advantage one gains from having bonds in a bear market, to me, that is a big advantage.


Plus bonds provide income, something stocks can do, but most stocks are not really geared for that.
 
Chuckanut said:
I remember reading an article, about five years ago, stating that there was not much point in having bonds in one's AA. The author advocated a far simpler AA of 80/0/20 - 80% stocks, 0% bonds, 20% cash.

I have ran a few tests on this site: https://www.portfoliovisualizer.com/backtest-portfolio

The test was for from 1993 to 2018 using Vanguard Total Stock Market Index, Vanguard Total Bond Market Index and Cash. For the sake of simplicity I started with 1,000,000.
No adjustments were made for taxes or inflation. Re-blancing was done annually.

$40,000 withdrawal the first year, then an annual withdrawal adjusted for inflation.

The 80/0/20 portfolio ended up with 4.16 million.
The 60/40/0 portfolio ended up with 3.93 million.

That the worst down year saw the 80/0/20 AA taking a 29% hit versus at 20% hit with the 60/40/0 AA. The difference in the best years was 1% more for the 80/0/20 AA.

Overall the graph shows them tracking each other very closely,

So for an aprox cost of $230,000 over a 25 year period, one takes a smaller hit in the down markets. Is it worth an average of $9,200 a year to have bonds provide a better buffer in the down years?
Click to expand...

I'm not sure that is a fair comparison... to me the purpose of bonds is to add some stability. See https://www.portfoliovisualizer.com...cation3_1=0&allocation3_2=40&allocation3_3=20

Portfolio 1 (60/40/0) has slightly lower total return, similiar best years but the worst year is only 2/3 the loss of Portfolio 3 (80/0/20) and better risk-adjusted returns.
 
Bonds really suck and are a drag on returns..........
Until you are retired and stocks go down 50%, like '02-3 and '08-9.

Read up on sequence of return risks.
I was <10% bonds until I was 47 (2005), then I increased bonds gradually to 40%.

That helped, a bit, in '08; I didn't have to postpone retirement, for example.

But do whatever floats your boat.

In my experience, bonds are always scorned, until the "adjustment" occurs of 30-50% in stocks.
 
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