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VG Bond funds
Old 09-24-2022, 05:27 PM   #1
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VG Bond funds

I have holdings in VCADX and VWIUX, have had them for years.

Combined, they produce about $1300-1600 a month in dividends and I've been reinvesting them.

My AA is about 74/23 and the rest in cash.

I kept reinvesting because they were mainstays in my fixed allocation. Maybe the wrong ones but low maintenance. That and my AA is probably too equities heavy.

But looking at them more closely, they pay the same amount of dividends regardless of how may shares I've added to them. I looked at my tax returns from last year and 7 years ago and the amount of tax exempt dividends were a bit higher 7 years ago than in 2021.

Looks like I've been wasting money reinvesting dividends. Certainly buys more shares a month now because of lower NAV prices.


Generally, the NAV of these funds go up slightly or are flat on days when equities take a tumble, so they seemed to have served as counterweights for most of the time I've had them, which is about 10-15 years.

But in the last couple of years, the NAV has gone down as equities have gone down. Probably not as much as equities funds like VTSAX or VFWAX.

I wonder now if I should stop the reinvestment at least, though certainly adding more shares now than years ago.
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Old 09-24-2022, 05:36 PM   #2
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Perhaps you have been a victim of the Federal Reserves so-called War on Savers.

Interest rates have gone down quite a bit over the last five years (not including the recent increases, of course). Even with 2% inflation, we have not had a real positive return after taxes for quite a while. For example, I recently had an 18 month 0.6% CD mature. Maybe these recent historically low interest rates were the problem?
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Old 09-24-2022, 05:54 PM   #3
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When I look at the charts for these two funds, their all-time highs were around Jan or Feb 2021.

Their all-time lows were in October/November 2008.

So I imagine their charts look similar to some equities funds? Though equities really peaked around the end of 2021.

Also, the difference between their current prices and their all-time high prices is only about $2 or less.

So the 5 year chart isn't quite some steady declining slope.

I know that this past week, they talked about I think the 2-year and 5-year treasuries hitting the highest yields since Oct 2008, so that would track with the NAVs of these funds having their all-time lows then.
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Old 09-24-2022, 06:03 PM   #4
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Just curious, but with 1 year Treasuries over 4% and rising, with no risk to principal, and interest rates seem headed up even further, what keeps you sticking with lower yielding, higher risk bond funds?
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Old 09-24-2022, 06:06 PM   #5
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Just curious, but with 1 year Treasuries over 4% and rising, with no risk to principal, and interest rates seem headed up even further, what keeps you sticking with lower yielding, higher risk bond funds?
Probably inertia.

Would have to sell a lot of shares, probably figure out gains or losses over a decade, then manage different lots of treasuries.
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Old 09-25-2022, 04:33 AM   #6
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Unless you need the money in these funds for living expenses in the near future, just continue reinvesting dividends.

Buying things when the price is low is a good thing.
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Old 09-25-2022, 04:56 AM   #7
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You are just seeing the effect of moving interest rates. When bond (or bond fund) prices are higher, interest rate returns are lower.
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Old 09-25-2022, 06:11 AM   #8
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Unless you need the money in these funds for living expenses in the near future, just continue reinvesting dividends.

Buying things when the price is low is a good thing.
+1

My logic also. Good to buy when thing are on sale.
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Old 09-25-2022, 07:48 AM   #9
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Bond funds also have a drag factor that individual bonds do not, management expenses and forced redemptions at low market prices. As people exit these funds, the funds NAV drops even more with no par value, unlike a bond, for the fund to return to. Thus over time your total return declines.
I encourage you to read some of the individual bond threads on here. As one poster puts it, itís the golden age of fixed income right now and may even improve a bit before the opportunity evaporates.
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VG Bond funds
Old 09-25-2022, 08:34 AM   #10
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VG Bond funds

I am only interested in total returns, so no comment on the dividends question. However, it seems to me that VG Bond index funds are, more or less, performing their job as portfolio ballast this year. Blue line is 100% VG total bond index fund, red line is 100% VG total stock index fund, and gold is a 50/50 blend, which is what we have.

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Old 09-25-2022, 12:09 PM   #11
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Originally Posted by mrfeh View Post
Unless you need the money in these funds for living expenses in the near future, just continue reinvesting dividends.

Buying things when the price is low is a good thing.

Could you show the math on that? I don't get how buying more of a fund with 2.5% yield and falling NAV beats 4% yield and no risk of principal. Aren't you buying more of a fund that continues to lose NAV and has lower returns than Treasuries? The buying on sale works with stocks and stock funds, but I don't see the math at all in bond funds.
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Old 09-25-2022, 01:36 PM   #12
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VCADX and VWIUX are down 7.22% and 7.32% YTD. The Fed is not done increasing the interest rate - I would expect these bond funds to lose more. I’d rather have some 2 year treasuries that are paying just over 4% guaranteed.
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Old 09-25-2022, 01:38 PM   #13
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Originally Posted by daylatedollarshort View Post
Could you show the math on that? I don't get how buying more of a fund with 2.5% yield and falling NAV beats 4% yield and no risk of principal. Aren't you buying more of a fund that continues to lose NAV and has lower returns than Treasuries? The buying on sale works with stocks and stock funds, but I don't see the math at all in bond funds.
No, I'm not getting in to yet another discussion about bond funds. All I can do is suggest that you think about the assumptions you are making in the statements above.

The number of people on this board that have been overwhelmed by recency bias is astounding.
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Old 09-25-2022, 03:01 PM   #14
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No, I'm not getting in to yet another discussion about bond funds. All I can do is suggest that you think about the assumptions you are making in the statements above.

The number of people on this board that have been overwhelmed by recency bias is astounding.
I bring up showing the math every time someone says they will come out ahead with bond funds vs individual bonds, in our current rising rate environment in 7 years, and to date I have never gotten an actual math answer to the question. This Kiplinger article lays out the math for individual bonds in a rising rate environment, and fund when rates are declining: Bonds Are Having a Rough Year. Here Are 3 Actions That Can Help | Kiplinger - "When the Federal Reserve cut interest rates to near 0% overnight two years ago to offset the impact of the COVID-19 crisis, we advocated investing in bond funds and decreased our investment in individual bonds where it made sense. We did this because the bonds in those funds were already providing higher yields than if we had purchased individual bonds....Now, as rates have started to rise, the reverse could make sense. Investors may look to replace these bond funds with individual bonds, which have a better yield since the funds now hold bonds with lower yields."
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Old 09-25-2022, 03:36 PM   #15
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Originally Posted by daylatedollarshort View Post
I bring up showing the math every time someone says they will come out ahead with bond funds vs individual bonds, in our current rising rate environment in 7 years, and to date I have never gotten an actual math answer to the question. This Kiplinger article lays out the math for individual bonds in a rising rate environment, and fund when rates are declining: Bonds Are Having a Rough Year. Here Are 3 Actions That Can Help | Kiplinger - "When the Federal Reserve cut interest rates to near 0% overnight two years ago to offset the impact of the COVID-19 crisis, we advocated investing in bond funds and decreased our investment in individual bonds where it made sense. We did this because the bonds in those funds were already providing higher yields than if we had purchased individual bonds....Now, as rates have started to rise, the reverse could make sense. Investors may look to replace these bond funds with individual bonds, which have a better yield since the funds now hold bonds with lower yields."
+1
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Old 09-27-2022, 08:23 AM   #16
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I kept reinvesting because they were mainstays in my fixed allocation. Maybe the wrong ones but low maintenance. That and my AA is probably too equities heavy.

But looking at them more closely, they pay the same amount of dividends regardless of how may shares I've added to them. I looked at my tax returns from last year and 7 years ago and the amount of tax exempt dividends were a bit higher 7 years ago than in 2021.

Looks like I've been wasting money reinvesting dividends. Certainly buys more shares a month now because of lower NAV prices.
I believe you are looking at things the wrong way. The reason your dividends remained the same was that interest rates had been going lower.

However, because you were reinvesting, you were accumulating more shares. Now with interest rates headed higher, your dividend payments should be up and going higher.
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Old 09-27-2022, 09:17 AM   #17
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While both funds have had price declines of about 9%, distributions and (surprisingly) distribution yields haven't changed much. For example, the distribution yield for VCADX went up from 2% on 12/31/21 to 2.3% on 8/31/22. Distributions for the funds will certainly improve as bonds mature and get replaced. If, however, you're looking for more current income, the individual bonds discussed in the fixed income and municipal bond threads may offer better opportunities.
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Old 09-27-2022, 09:28 AM   #18
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I believe you are looking at things the wrong way. The reason your dividends remained the same was that interest rates had been going lower.

However, because you were reinvesting, you were accumulating more shares. Now with interest rates headed higher, your dividend payments should be up and going higher.
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While both funds have had price declines of about 9%, distributions and (surprisingly) distribution yields haven't changed much. For example, the distribution yield for VCADX went up from 2% on 12/31/21 to 2.3% on 8/31/22. Distributions for the funds will certainly improve as bonds mature and get replaced. If, however, you're looking for more current income, the individual bonds discussed in the fixed income and municipal bond threads may offer better opportunities.
I'm talking about over a period of 5-7 years.

I have way more shares too, over 10% more of each.

Yet the total payout is about the same from 5-7 years ago.
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Old 09-27-2022, 11:54 AM   #19
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Originally Posted by mrfeh View Post
No, I'm not getting in to yet another discussion about bond funds. All I can do is suggest that you think about the assumptions you are making in the statements above.

The number of people on this board that have been overwhelmed by recency bias is astounding.
I agree with most all of this. I would add that in addition to recency bias, there is a lack of understanding. The math is easy once assumptions are set. Hypotheticals are often that way & folks tend to assume things that confirm their bias. My bigger concern is for those trying to understand that get lost in the misdirections
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Old 09-27-2022, 12:55 PM   #20
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This chart on VCADX historical performance vs benchmarks is actually pretty easy to understand - Vanguard California Intermediate-Term Tax-Exempt Fund Admiral Shares (VCADX) Performance History - Yahoo Finance.
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