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Old 08-02-2020, 08:14 AM   #41
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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!
+1

I just took a peak at my short and mid term bond ETF performance. YTD... from 2% - 6%+ in total returns. I get all the talk interest rates have no where to go but up, but short of individual bonds, CDs, MMs, and high yield savings accounts, just not sure where to go, so I sit on my hands and stay put.

I hear some talk about buying high quality dividend paying stocks (or funds/ETFs) and or blended funds structured to minimize volatility that pay higher dividends as the new alternative to bonds, but not sure how that will really work as a ballast in a down market??

What to do... what to do??
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Old 08-02-2020, 08:58 AM   #42
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... What to do... what to do??
John Bogle: "Don't just do something. Sit there."

Warren Buffet: "Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell. ... Lethargy bordering on sloth should remain the cornerstone of an investment style."
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Old 08-02-2020, 09:38 AM   #43
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I hear some talk about buying high quality dividend paying stocks (or funds/ETFs) and or blended funds structured to minimize volatility that pay higher dividends as the new alternative to bonds, but not sure how that will really work as a ballast in a down market??
It wouldn't work, which is why it shouldn't be done.

Equities are never a suitable replacement for fixed income.
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What's so bad about bond funds?
Old 08-02-2020, 10:44 AM   #44
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What's so bad about bond funds?

Great string. We are 50/50 in our long-term money, all indexed. I’m happy to keep our bond index funds, because:

1) All the “ifs, ands, buts and maybes” mentioned in this string reaffirm my conviction that the bond environment is complex and unpredictable and, therefore, a great thing to index and ignore.

2) A primary benefit of owning bond funds is for ballast with the stock fund allocation. That benefit hasn’t changed. If bond fund prices fall 2% and stock fund prices fall 20%, I will be elated to own bond funds. Investors love to focus on growth but it is equally important to one’s net worth to avoid loss.

3). I don’t think many here have mentioned bond fund prices as a beneficiary of an emotional “flight to safety” if things get too nutty. In fact, I believe but can’t prove that this is already happening and is one of the main reasons the VG Total Bond Index price is up 8% YTD, which is equivalent to a normal year for stock returns. It is also up 3.84% over the last 10 years, which beat the heck out of cash and even inflation.

YMMV
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Old 08-02-2020, 11:09 AM   #45
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Markola,

Sure, but the bonds you compare to the equities are very short term to have dropped only 2% right? Longer term are much more volatile - or, at least were recently?

BND fell about 8.5% (someone check my math) in March 2020 ... OTOH, high quality dividend paying stocks in same period got hammered 20-30% - both stocks and bonds have recovered.

I guess if I understood better, I might be willing to postulate that bonds once were a great counter-cyclical offset to stocks, but don't know if this makes as much sense as it once did?
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Old 08-02-2020, 11:20 AM   #46
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Sure, but the bonds you compare to the equities are very short term to have dropped only 2% right? Longer term are much more volatile - or, at least were recently? BND fell about 8.5% (someone check my math) in March 2020 ... OTOH, high quality dividend paying stocks in same period got hammered 20-30% - both stocks and bonds have recovered. I guess if I understood better, I might be willing to postulate that bonds once were a great counter-cyclical offset to stocks, but don't know if this makes as much sense as it once did?
One of the things that the behavioral finance people like Thaler and Kahneman talk about is we humans' "recency bias." "https://en.wikipedia.org/wiki/Recency_bias) WADR, this statement shows that bias -- looking back a few months and concluding that a long-term trend may no longer exist. Five years from now we might be able to look back and test that thesis. But not now.
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What's so bad about bond funds?
Old 08-02-2020, 11:24 AM   #47
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What's so bad about bond funds?

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Markola,

Sure, but the bonds you compare to the equities are very short term to have dropped only 2% right? Longer term are much more volatile - or, at least were recently?

BND fell about 8.5% (someone check my math) in March 2020 ... OTOH, high quality dividend paying stocks in same period got hammered 20-30% - both stocks and bonds have recovered.

I guess if I understood better, I might be willing to postulate that bonds once were a great counter-cyclical offset to stocks, but don't know if this makes as much sense as it once did?


I’m not seeing the 8.5% drop you mentioned. The ETF fell a tad more than the mutual fund version, probably due to active traders of the ETF.
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Old 08-03-2020, 08:21 AM   #48
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Hmmm ... perhaps my math off ...

1 Mar closed 86.53
12 Mar closed 80.33

So, closer to 7.1%?

Whoops ...

I guess my point was that bonds, especially right now - admittedly, right now - are generally following the market - sure, not as erratic as the equity market, but they don't seem like the safe counter-cyclical product that they used to be.
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Old 08-03-2020, 09:27 AM   #49
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Originally Posted by stephenson View Post
Hmmm ... perhaps my math off ...

1 Mar closed 86.53
12 Mar closed 80.33

So, closer to 7.1%?

Whoops ...

I guess my point was that bonds, especially right now - admittedly, right now - are generally following the market - sure, not as erratic as the equity market, but they don't seem like the safe counter-cyclical product that they used to be.
I keep a chunk in an Intermediate Treasuries fund since you will see BND and AGG often fall for a bit when stocks are troubled. FUAMX rose as the others fell. Downside is less growth = less height to fall from and it still has interest rate sensitivity risk.
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Old 08-03-2020, 09:47 AM   #50
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Well, might as well stay here instead of opening a new thread.
I see a few posts on selling all equities this year, I just sold a bond fund that did well - up 12% last 12 months, up 27% over the 3 years owned and punted by buying a 3 year MYGA at 1.5%. I also bought 1 year CDs with a bit of individual bonds that came due. I'm keeping my bullet/date ending funds that make up a 6 year ladder. Not sure if I should punt with FUAMX also. FUAMX is up about 8% over the year and its tempting to take the profit, but my plan is to keep most FI in five year treasuries or a intermediate Treasury Fund.
Anyone else just pushing the issue down the road by going short term in maturing issues? How long do you think we have till rate hikes erode the bond fund principle. Thinking at least another year and that fund is earning more than 5 year Ts are now.
If course my interest rate predictions have been way off since I've started in bonds. What do you think? Punt now or try to stick with the intermediate term product as my plan has been?
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Old 08-03-2020, 10:10 AM   #51
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Glad to see someone else is a fan of Fidelity's FUAMX. When I did my 401k to IRA rollover in January - placed majority of it into this intermediate Treasury bond fund. No fees - and well, if Treasuries become worthless we are down to beans and bullets anyway. While doing nothing but pondering if/how to trade some risk and chase a higher yield, covid came along and kept me from doing anything. Very pleased with my indecisive/utterly brilliant/dumb lucky inaction and the YTD return.

Going forward, I think there is a lot of pain coming in the financial world, from zombie companies, more defaults and bankruptcies that are starting to show up, and remixing of commercial real estate as the telework becomes the new normal. Commercial bond downgrades, defaults and haircuts should start showing up in force in the second half of the year. As a result, I won't buy a mixed bond fund in the near term. Muni bond are probably going to get a whacking as tax base dries up from any tourist tax, commercial and private real estate tax. For those cities that built mega sports stadiums on taxpayers dime that are now closed down this season - ouch.

CDs are probably better, but may have some risk of being illiquid for a time if underwriters go underwater.

Recognizing that rates have to inevitably rise, I have thought about buying Treasuries direct and some other rate juicers, but will probably stick with easily bought and sold FUAMX bond fund for the time being.

Boring and conservative.
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Old 08-07-2020, 07:53 PM   #52
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Exactly.

..... Putting money in to fixed income yielding well under 2% at these levels is akin to picking up pennies in front of a steam roller. The risks are simply not worth it in my view.
Great analogy 😁 I've been thinking it's time to cash a portion of my bond fund holdings and sleep better at night...
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Old 08-07-2020, 08:02 PM   #53
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Hmmm ... perhaps my math off ...

1 Mar closed 86.53
12 Mar closed 80.33

So, closer to 7.1%?

Whoops ...

I guess my point was that bonds, especially right now - admittedly, right now - are generally following the market - sure, not as erratic as the equity market, but they don't seem like the safe counter-cyclical product that they used to be.
Looks to me like it declined 6.4% from the high on Mar 6 to the low on Mar 19, and then recovered.

Quote:
Total Bond Market ETF
03/01/2020-03/31/2020

Fund Inception Date 4/3/2007

High High Date Low Low Date
$88.14 03/06/2020 $82.47 03/19/2020

DateNAV
03/02/2020$86.50
03/03/2020$87.14
03/04/2020$87.03
03/05/2020$87.49
03/06/2020$88.14
03/09/2020$88.06
03/10/2020$86.99
03/11/2020$86.47
03/12/2020$85.61
03/13/2020$85.17
03/16/2020$85.92
03/17/2020$84.48
03/18/2020$83.12
03/19/2020$82.47
03/20/2020$83.59
03/23/2020$84.32
03/24/2020$84.29
03/25/2020$84.60
03/26/2020$85.18
03/27/2020$85.92
03/30/2020$85.98
03/31/2020$86.14
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Old 08-08-2020, 01:56 AM   #54
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If only using it for short term, why not used an ultra short fund, at least it would be better than MM fund? Like VUSFX?
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Old 08-08-2020, 09:45 AM   #55
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I'll never understand why people but a bond " fund " your just paying a company to choose the bonds they purchase for the fund.... just look at your favorite bond fund and look at the top 10 bonds in the fund and then just create your own bond fund... you get to choose the bonds, how many of the bonds and fine tune the maturity dates, fine tune the coupon rates and it costs less than $10 to purchase... you can add/subtract from the holdings as you go... you can take advantage of the bond values as interest rates change or just hold the bonds till maturity.... why pay a company to do what you can do yourself...
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Old 08-08-2020, 10:21 AM   #56
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why pay a company to do what you can do yourself...
As time goes on, there are more and more things I pay a company to do that I could do myself. Painting the house would be an example.
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Old 08-08-2020, 10:29 AM   #57
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I'll never understand why people but a bond " fund " your just paying a company to choose the bonds they purchase for the fund.... just look at your favorite bond fund and look at the top 10 bonds in the fund and then just create your own bond fund... you get to choose the bonds, how many of the bonds and fine tune the maturity dates, fine tune the coupon rates and it costs less than $10 to purchase... you can add/subtract from the holdings as you go... you can take advantage of the bond values as interest rates change or just hold the bonds till maturity.... why pay a company to do what you can do yourself...
Diversification would be one reason.
A bond fund could easily have 300 bonds in it.
If I buy just the top 10 (which may only account for 20% of the fund) and 2 of the top 10 go bankrupt, I've lost a large percentage, close to 20%.
In the bond fund it would only be 2-3% loss.
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Old 08-08-2020, 11:46 AM   #58
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I see numerous recent, negative comments about putting money in bonds right now.

The current 30-day SEC yield for Vanguard's short-term bond index fund is 1.33%; for the long-term index fund it's 2.17%. If that's the yield, those rates seem decent to me, much better than cash or CDs. And it's easy to transfer money out of the funds if/when things go south.

So what's wrong with parking money there until better options appear? What am I missing?

I am assuming that you are talking about VBIRX. If yes, there is nothing wrong with that. Here are the recent performances of VBIRX:

2020 1st qtr total return 2.52%, 2nd qtr total return 2.33%

2019 Capital return 2.52%, Income Return 2.33% Total Return 4.86%

These are very strong numbers for a safe bond index fund consisting mostly of US Treasuries. Heck a lot safer than Corporate Bonds since corporations can go bankrupt while the US Treasury is less likely to go bankrupt.

Looking at the past performances, VBIRX had a positive return every single year since 2005 which included the 2008 crash and the 2020 crash. Going to Corporate bonds or equities, you have to accept the risk of a negative return during some years. During a bear market, I personally like to be in Treasuries to minimize my risk. During a bull market, I personally like to be in equities to maximize my return. IMO VBIRX is where you want to be in uncertain times if you are a super conservative investor.

I personally like VUSUX or long term treasuries which carries higher risk but higher rewards during a bear market than VBRIX. The performance of VUSUX are +20.86% for 1st quarter 2020 and +0.54% for 2nd quarter 2020. The +20.86% gain for the 1st quarter 2020 occurred because treasuries are a safe haven for investors. The +0.54% gain occurred because the market rallied. If the market crashes again, I expect a similar quarterly performance to +20.86%. If the market rises which happened during the 2nd quarter, I expect a similar performance to +0.54%. VUSUX can turn negative if there is a vaccine, unemployment decreases significantly and we are back to a bull market. This is because people sell their treasuries to buy equities. However, I do not expect that situation to happen for a while.
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Old 08-08-2020, 12:41 PM   #59
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Diversification would be one reason.
A bond fund could easily have 300 bonds in it.
If I buy just the top 10 (which may only account for 20% of the fund) and 2 of the top 10 go bankrupt, I've lost a large percentage, close to 20%.
In the bond fund it would only be 2-3% loss.
I think that is the main issue with corporate bond funds. It is difficult for an individual to research and maintain research on the 100 bond positions that would move individual issue risk to the sub-1% point.

Govvies are another matter. With no credit risk there is no need for diversification. Dress a monkey in a nice suit and he could probably put together a reasonable govvie portfolio. Buying the suit would be cheaper than paying ongoing management fees.
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Old 08-08-2020, 01:31 PM   #60
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Govvies are another matter. With no credit risk there is no need for diversification. Dress a monkey in a nice suit and he could probably put together a reasonable govvie portfolio. Buying the suit would be cheaper than paying ongoing management fees.
True, but a bond fund would give you varying lengths, rates, and maturity dates, wouldn't it? It'd be a bond slide, which seems a little better than a bond ladder.
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