Vanguard total bond market

[hotwired]

Is Vanguard total bond market a suitable "core" bond holding now with interest rates lower? I'm concerned it won't provide quite the ballast it's designed to provide at this point, though that concern is mostly a result of gaps in my knowledge vs. reality. Love your thoughts!

[Jerry1]

I was wondering the same thing. Given the environment of zero interest rates why not just take all of my fixed portfolio (the non equity piece) and just convert it to all cash. Going even a bit more crazy, wondering if I should move it all to a bank with FDIC insurance. Hoping to get some good insight from the members here.

[ER2B]

I am the opposite. I am at 60/40 with 80% of the 40 in CDs. I'd like to move the CDs to VBTLX but with yesterday's drop of almost 1.7%, I am not sure anymore. I feel like a mouse trapped in a corner with no where to run.

[ripper1]

I just moved from VBTLX to VMMXX. I was already 40% cash reserves such as stable value fund and CD's. I'm done with bonds.

[Markola]

Vanguard is pretty smart and they must think so, since they make that fund the core bond holding in their target date and life strategy funds.

[Lsbcal]

Quote:

Originally Posted by hotwired Is Vanguard total bond market a suitable "core" bond holding now with interest rates lower? I'm concerned it won't provide quite the ballast it's designed to provide at this point, though that concern is mostly a result of gaps in my knowledge vs. reality. Love your thoughts!

It depends a lot on your long term strategy. One guy I really respected has held a long term mix (for bonds) of 50% Intermediate Term Treasury and 50% Inflation Protected Treasury.

Personally I prefer a different strategy but it is not for everyone and so will not outline it here.

Right now rates are so low that bonds are not all that protective, i.e. no big rise from rate decreases. Some days back I moved the modest part of our bond portfolio that was in investment grade funds to VMFXX. Here are some of the money market fund choices at Vanguard:

1) Federal MM (the settlement fund) VMFXX, 1.17%
2) Treasury MM, VUSXX, 1.28%
3) Prime MM, VMMXX, 1.39%

I expect all 3 of these to have much lower yields in the near future.

Anyway I currently hold #1 for cash. I would favor #1 and #2 over #3 since the yields are so low anyway. Going for maximum safety for now.

[bizlady]

But then again, there is some discussion that this pandemic may put even money market funds at risk....

[aja8888]

Quote:

Originally Posted by bizlady But then again, there is some discussion that this pandemic may put even money market funds at risk....

Well, if that happens, then the run on toilet paper won't be anything like the run on more guns and ammunition.

[Lsbcal]

Quote:

Originally Posted by bizlady But then again, there is some discussion that this pandemic may put even money market funds at risk....

There are government backstops being put in place to mitigate this. Just buy a money market fund that is US government assets. Or if you are really worried buy Treasury bills directly.

[statsman]

We're heavily into bond funds, with very little in stocks, but we're getting pummeled right now. So much for our avoidance of risk and stress.

[Sunset]

Quote:

Originally Posted by statsman We're heavily into bond funds, with very little in stocks, but we're getting pummeled right now. So much for our avoidance of risk and stress.

Yes, totally amazing people are selling EVERYTHING, stocks/bonds/gold/oil it doesn't matter, it's all on sale...

[foxfirev5]

Quote:

Originally Posted by ripper1 I just moved from VBTLX to VMMXX. I was already 40% cash reserves such as stable value fund and CD's. I'm done with bonds.

Likewise here. I've gone a small step further and moved all Vanguard prime mm funds to Federal mm. IMHO slightly less risk with a minimal loss of yield.

[Lsbcal]

Quote:

Originally Posted by Sunset Yes, totally amazing people are selling EVERYTHING, stocks/bonds/gold/oil it doesn't matter, it's all on sale...

I don't really know what we will all learn going forward. Some of what we are seeing was evident in the 2008 decline. Some are selling to raise liquidity because they are more exposed in other asset classes.

One lesson from the 1930's is that longer dated corporate bonds are risky in depressions because of defaults. Lots of things are risky in depressions though. But we don't know how deep a recession is ahead.

Another wild idea is that we bounce back so vigorously because of all the world stimulus being put in place now that in a few months rates go up crushing longer dated bonds of all types. That is not a prediction just my wild imagination going berserk.

[geezee1957]

My conundrum is that with bonds at virtually no yield now, they seem to be a very poor long term or short term investment. Seems like at some point it would be better to go 100% stocks. But when

[Lsbcal]

Quote:

Originally Posted by geezee1957 My conundrum is that with bonds at virtually no yield now, they seem to be a very poor long term or short term investment. Seems like at some point it would be better to go 100% stocks. But when

If you buy a bond and are sure you can hold it to maturity then at least you don't have to worry about interest rate risk. You still have reinvestment risk and inflation risk.

The only bonds I own are TIPS and iBonds that I will hold to maturity. Some TIPS are going to mature in mid-April and at this point they will probably go into a MM fund.

At some point, yes stocks will go up. Perhaps explosively.

I wouldn't have the guts to go 100% stocks but maybe going to a higher percentage temporarily might be a tactic.