Then I don't think it matters.
So, what is the correct play if you do not depend on your investments for retirement income?
So, what is the correct play if you do not depend on your investments for retirement income?
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.
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?
I'm not that much of an old timer here, but I've always thought that bond funds were kind of a "dumb" idea for my portfolio. I can see buying a bond and holding it until maturity, but, dang, in 2008/9, bond funds got pummeled like everything else. ...
An excellent illustration.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
so how did it compare 9 yrs out?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.
so how did it compare 9 yrs out?
ThanksYup. 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
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.An excellent illustration.
But to lump all bonds together and dismiss the entire asset class does everybody a disservice.
I'm also taking advantage of the guaranteed income in my 401k. That's basically my "bond allocation".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.
VTSAX? Is that the correct symbol; the correct fund?
VTSAX? Is that the correct symbol; the correct fund?
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. ....
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.
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.
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.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.
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?