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Old 08-01-2020, 09:25 AM   #21
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If thing go south - well, the damage has already been done, so you don’t get any benefit by selling when bond funds are down.
I don't quite understand this. For example, Vanguard's Total Bond Index fund is at or near a 52 week high - 10.87 to 11.77 is the range. It would seem this a good time to take some profits in bond funds.

Am I missing something?

FWIW, I sold a lot of my medium to long term bond holdings a few weeks ago. I retained a short-term investment grade fund. And I have whatever bonds are in Vanguard Wellesley. Those Wellesley folks seem to do a good job of managing the fund. But, I will be watching them. Nothing is certain in a CV type of world.
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Old 08-01-2020, 09:27 AM   #22
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Bond funds are fine, IMO, if you hold them for a very long period, well past the average duration. And you can simply rebalance with stocks as they go up and down.
Could you explain the above statement? My understanding is that a bond fund is comprised of a multitude of funds, bought at various times such that it can have funds maturing any time. The fund manager may also choose to buy and sell bonds withing the fund. I just don't understand why it would matter if I held them longer or shorter than the average duration.
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Old 08-01-2020, 09:28 AM   #23
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I always thought it was "bond ladder".
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Old 08-01-2020, 09:30 AM   #24
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One of the negatives of bond funds is that you can lose principal if interest rates rise. This has been talked about. Another is that you pay fees, some almost negligible, some not so much.

An alternative is to simply buy bonds and hold them to maturity. This is what we have done with a small nonprofit portfolio that I am involved with. IIRC we have a couple million $ in fixed income and virtually all of it is in individual investment grade bonds that we will (by policy) hold to maturity -- no principal risk. Other than some govvies, we typically hold only $10K per issuer. So maybe 100-200 different positions. But that exposes the big disadvantage to individual corporate bonds: it takes a lot of money and a lot of work to build and maintain a diversified portfolio. That is not true, though, with govvies since there is no credit risk = no need for diversification. T-bills, T-notes, T-bonds, agencies, etc. can all be easily bought at your broker for minimal or no fees. FDIC-insured CDs, too, are functionally equivalent to government bonds.

Of course both bond funds and individual holdings have default risk dependent on the grade of bonds held. A default hurts a non-diversified bond portfolio badly, though. So that's why diversification is important.

Along those lines, I think buying individual junk bonds or international issues is foolish. In that sphere, paying a bond fund for its management expertise is probably going to be worth it. (But why would you buy risky assets into the "safe" portion of your AA? That's another thread.)

FWIW, DW and I are on the lunatic fringe here at E-R; we hold TIPS, bought individually rather than in a TIPS fund.
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Old 08-01-2020, 09:32 AM   #25
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Old 08-01-2020, 09:45 AM   #26
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Along those lines, I think buying individual junk bonds or international issues is foolish. In that sphere, paying a bond fund for its management expertise is probably going to be worth it. (But why would you buy risky assets into the "safe" portion of your AA? That's another thread.)

FWIW, DW and I are on the lunatic fringe here at E-R; we hold TIPS, bought individually rather than in a TIPS fund.
+1 on the junk and international bonds.

TIPS? Individually held? Yes, you are going to be on my list of Dangerous Radicals Who Infest This Site.
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Old 08-01-2020, 10:05 AM   #27
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I have not noticed anyone mentioning the following in this thread: But isn't one of the reasons to hold bonds (or a bond fund) is to temper the price swings of your portfolio or limit the loss when stock prices decline?
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Old 08-01-2020, 11:48 AM   #28
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I have not noticed anyone mentioning the following in this thread: But isn't one of the reasons to hold bonds (or a bond fund) is to temper the price swings of your portfolio or limit the loss when stock prices decline?
Historically, the thinking has been that regardless of what stocks do, the bonds will be throwing off interest and be more stable as a result. Further, when stocks decline, you'd suspect that flight to safety would increase fund flows to bonds and bond funds - pushing their prices/NAV higher.

However, consider where we are today. Stocks are still within 10% of all-time highs and at the same time, the Fed has forced yields lower, buying bonds in the open market (via ETFs). Normally, when stocks go higher (during times of economic strength) logic would indicate that yields should go higher (bond prices lower). The Fed has altered these dynamics. What we've seen is as the stock market has gone higher, the Fed has continued pushing yields lower (bond prices even higher). On the flip side, when the stock market has fallen, the investors have raced towards bonds alongside the Fed and pushed yields even lower. So, when do yields go higher and what happens at that point?

Does anyone actually believe that yields will never go higher again? There are some who do make that case. The Fed has said they will be keeping rates at the current level through 2021. Can the Fed continue maintaining control over interest rates and keeping them unrealistically low? If they continue running the monetary printing presses at full throttle to do it, inflation will surely kick in and in a major way. Something's got to give.
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Old 08-01-2020, 11:57 AM   #29
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We are in the greatest recession since Great Depression. Unemployment is actually higher.

One would believe that something will have to go. Some people believe that stock market will crash and some people believe that dollar will be devalued. If you think first option is more likely buy bonds.

Historically Central Banks save companies (stock market) and destroy peoples savings accounts and with that bonds. Else country has nothing to go back to. BTW they will also have give some money (Print it) to all those unemployed, else we will have revolution.

Last time this happened is Argentine 2018.
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Old 08-01-2020, 12:09 PM   #30
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.... So, in essence, bonds funds have no maturity dates, only NAV - they are perpetual time wise. As opposed to individual bonds that have a finite maturity date - with a know value tied to stated yield per issue. ...
Great post... but I did want to mention that there a narrow niche of ETFs that are target maturity date bond funds... many bonds like a bond fund but in the terminal year the portfolio of bonds mature and the proceeds are paid out similar to individual bonds maturing.

Bulletshares are one brand and IIRC Blackrock has some too. Various flavors... corporates, high-yield, muni and of course various target maturity dates.

I have owned some of these in the past.

They're ok but the one thing that I dislike about them is that the yields in the terminal year are pathetic because they have bonds maturing throughout the year and reinvest the proceeds in low yielding short-term bonds until the terminal distribution in December.... however and fairly easy way around it is to just sell in January.
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Old 08-01-2020, 12:24 PM   #31
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I notice the BND has risen a lot, from roughly $79 to $89 in value.

I've been thinking of selling it to capture the 12% increase, as that seems to be equal to many years of interest earnings, and avoid the drop should interest rates rise.

Of course each week I think this, it goes up in value another 25 cents or so...

Am I totally wrong in thinking it is overpriced, and in reality the new normal price for this ETF should be $88 to $89
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Old 08-01-2020, 12:37 PM   #32
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I notice the BND has risen a lot, from roughly $79 to $89 in value.

I've been thinking of selling it to capture the 12% increase, as that seems to be equal to many years of interest earnings, and avoid the drop should interest rates rise.

Of course each week I think this, it goes up in value another 25 cents or so...

Am I totally wrong in thinking it is overpriced, and in reality the new normal price for this ETF should be $88 to $89
No - your thinking is spot on. In a scenario as we have today, selling and taking the capital gain is the only way to benefit from the rise in bonds. It's the same whether holding a fund or individual bonds.

Of course, you'll need to decide where to reinvest the proceeds. However, having captured many years of yield, there is no particular hurry in my view.
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Old 08-01-2020, 01:01 PM   #33
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If you buy bond funds, you may be somewhat oblivious to what is taking place in the bond market. I don't fault you or anyone else who takes this approach. However, if you look at the underlying bonds, there is real risk "today". The market is almost completely discounting risk at this time. This is being pushed forward by the Fed, providing demand where there really is not demand, and for those who want to remain in bonds (all the funds which continue to experience inflows), forces them to pay up and continue buying in to this overpriced bond bubble. Things are very different today than over the prior 10 years.

In my mind, it's not just about "waiting", it's about looking around and making a judgement about what is taking place. Artificial support is being applied. This is not what the Fed does or where it is supposed to operate. In the corporate bond market, you have plenty of zombie companies that should be out of business, but because money is so cheap to borrow and there is an entire market of yield chasers, they just keep borrowing playing a financial shell game. It very likely doesn't end well.

In any case, if you are comfortable holding bond funds, more power to you.
I’m sure you’ll be right one day, but people have been saying similar things for 10+ years - sorta like perma bears who’re wrong for years and finally have a turn in the sun eventually, and want us to forget all the years their advice was ill timed. The Fed did some abnormal things after the 2008-09 financial crisis too, yet index bond funds have beaten any cash alternative over the past 10 years. There are no good alternatives and haven’t been for about 10 years, bonds and cash are a choice between two sad options. I’m not saying their isn’t NAV risk in bond funds, but some people have been on the sidelines making much less for 10 years...
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Old 08-01-2020, 01:12 PM   #34
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Great post... but I did want to mention that there a narrow niche of ETFs that are target maturity date bond funds... many bonds like a bond fund but in the terminal year the portfolio of bonds mature and the proceeds are paid out similar to individual bonds maturing.

Pb4uski,
Does Fidelity offer any of these ETF target maturity date bond funds?


Thanks,


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Old 08-01-2020, 02:19 PM   #35
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He is talking about these: https://www.invesco.com/us/financial..._tab3-products

Quote:
Invesco BulletShares 2021 Corporate Bond ETF BSCL
Invesco BulletShares 2022 Corporate Bond ETF BSCM
Invesco BulletShares 2023 Corporate Bond ETF BSCN
Invesco BulletShares 2024 Corporate Bond ETF BSCO
Invesco BulletShares 2025 Corporate Bond ETF BSCP
Invesco BulletShares 2026 Corporate Bond ETF BSCQ
Invesco BulletShares 2027 Corporate Bond ETF BSCR
Invesco BulletShares 2028 Corporate Bond ETF BSCS
Invesco BulletShares 2029 Corporate Bond ETF BSCT
They can certainly be purchased in a brokerage account at Fidelity, but they are not Fidelity funds.


As PB4 says, BlackRock also offers funds like these: https://www.ishares.com/us/strategie...r-bond-ladders However, I don't believe anyone else does.

There are also high-yield versions, muni versions, and Treasury versions.
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Old 08-01-2020, 02:42 PM   #36
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I notice the BND has risen a lot, from roughly $79 to $89 in value.

I've been thinking of selling it to capture the 12% increase, as that seems to be equal to many years of interest earnings, and avoid the drop should interest rates rise.

Of course each week I think this, it goes up in value another 25 cents or so...

Am I totally wrong in thinking it is overpriced, and in reality the new normal price for this ETF should be $88 to $89

Is this in effect an illustration of the supply and demand equation? There is enough demand that prices are rising, even though there is not any real underlying financial reason for it to be happening.
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Old 08-01-2020, 08:08 PM   #37
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If you hold bonds and need to sell before maturity you can select issues that are not impaired but If you have a fund you will have to sell some of the impaired bonds along with non impaired.
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Old 08-02-2020, 06:25 AM   #38
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So what's wrong with parking money there until better options appear? What am I missing?
Nothing, as long as you're willing to stay invested for several years.

If "parking money there" implies a short time frame, then no, bond funds aren't a good option. Just use online savings for that purpose.
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Old 08-02-2020, 07:27 AM   #39
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Broad numbers ... VFSUX NAV is about $0.25 higher now than just prior to C19 turbulence?

So, figure 2.5% increase? If bought now, and the NAV goes back to 10.75, then you lose 2.5%, and the underlying interest rate does not increase?

Iím sitting on way too much low interest MM cash right now ... but, other than picking solid, dull companies like ATT for the dividend, donít know what else to do.
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Old 08-02-2020, 07:51 AM   #40
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And I thought bonds provided ballast for ones portfolio when the stock market goes to hell in hand basket. Silly me!
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