Asset Allocation Changes - Which Bond Funds

[Yipper]

Getting much closer to FIRE - probably late 2020 or perhaps early 2021 depending on how many more days I'm willing to stay with MegaCorp and all the BS that goes along with that...

My portfolio mix has been 70/30 for the last 10 years and it's been a great ride as we all know. I'm ready to dial things back now and looking at a 60/40 or even 50/50 mix going forward as I want to lock-in some gains and reduce some risk. Age is 56 now and likely to unplug at 57 unless something dramatic changes. I know all the 100/110/120 minus age formulas and feel comfortable with no more than 60% equities (VTI, VNQ, etc.).

That said - my current 30% is split between two Vanguard US Gov't funds - VIPSX and VUSTX. I'm strongly considering moving away from these into an even mix of short/intermediate/long ETFs like Vanguard BSV, BIV and BLV.

Thoughts? I'm not nearly as experienced with bonds as I am with stocks and looking for insights into why one type vs. another.

 

[mrfeh]

Getting much closer to FIRE - probably late 2020 or perhaps early 2021 depending on how many more days I'm willing to stay with MegaCorp and all the BS that goes along with that...

My portfolio mix has been 70/30 for the last 10 years and it's been a great ride as we all know. I'm ready to dial things back now and looking at a 60/40 or even 50/50 mix going forward as I want to lock-in some gains and reduce some risk. Age is 56 now and likely to unplug at 57 unless something dramatic changes. I know all the 100/110/120 minus age formulas and feel comfortable with no more than 60% equities (VTI, VNQ, etc.).

That said - my current 30% is split between two Vanguard US Gov't funds - VIPSX and VUSTX. I'm strongly considering moving away from these into an even mix of short/intermediate/long ETFs like Vanguard BSV, BIV and BLV.

Thoughts? I'm not nearly as experienced with bonds as I am with stocks and looking for insights into why one type vs. another.

Why not total US bond?

 

[pb4uski]

+1 I was thinking the same thing even though I currently prefer CDs because of interest rate risk.

 

[Yipper]

Why not total US bond?

Good question - looking at returns it seems an even blended mix of short/intermediate/long performs better than the total fund/etf. That was my only decision point - what am I missing doing that?

 

[pb4uski]

You would need to dive deep but any disparity in return is probably a result of disparity in risk.... my guess would be that the blended credit risk of the 3 funds is a tad higher than the credit risk of BND.... there is no such thing as a free lunch.

BND's ER is 0.035% vs 0.07% for the others but that isn't a huge difference.

https://personal.vanguard.com/us/funds/vanguard/compare?navigatingFrom=6

 

[audreyh1]

Getting much closer to FIRE - probably late 2020 or perhaps early 2021 depending on how many more days I'm willing to stay with MegaCorp and all the BS that goes along with that...

My portfolio mix has been 70/30 for the last 10 years and it's been a great ride as we all know. I'm ready to dial things back now and looking at a 60/40 or even 50/50 mix going forward as I want to lock-in some gains and reduce some risk. Age is 56 now and likely to unplug at 57 unless something dramatic changes. I know all the 100/110/120 minus age formulas and feel comfortable with no more than 60% equities (VTI, VNQ, etc.).

That said - my current 30% is split between two Vanguard US Gov't funds - VIPSX and VUSTX. I'm strongly considering moving away from these into an even mix of short/intermediate/long ETFs like Vanguard BSV, BIV and BLV.

Thoughts? I'm not nearly as experienced with bonds as I am with stocks and looking for insights into why one type vs. another.

I think you can skip the long bond ETF, and use short and intermediate only.

I do not believe there is a efficient frontier curve benefit to using long bonds, and that staying shorter and high quality works better.

I use short and intermediate index funds. Mostly intermediate, but I keep a good chunk in short-term index because I like to manage my duration and have some staging/laddering. So I have cash/short term CDs, short-term bond index and intermediate bond index.

 

[Yipper]

I think you can skip the long bond ETF, and use short and intermediate only.

I do not believe there is a efficient frontier curve benefit to using long bonds, and that staying shorter and high quality works better.

I use short and intermediate index funds. Mostly intermediate, but I keep a good chunk in short-term index because I like to manage my duration and have some staging/laddering. So I have cash/short term CDs, short-term bond index and intermediate bond index.

Thanks audreyh1 - what's the reason to skip long bond? apologies for my lack of knowledge of bonds here... it's probably obvious.

I currently have a good sized stash of cash (reserved living expenses) in an ultra short-term bond fund... thinking it's safe and returns more than money market.

 

[audreyh1]

The Frank Armstrong papers on asset allocation available on the internet very long ago (but haven’t seen for a long while now) demonstrated that long bonds didn’t really provide that much diversification benefit compared to short term. Maybe it’s because they get hit so much harder and take longer to recover during rising interest rate periods. Armstrong felt that staying short-term (duration around 2.6 years) high qualify was best overall.

I have tended to use a combination of cash equivalents, short-term bond fund and intermediate term bond fund on the principle that if I were to draw exclusively on fixed income for a number of years, the cash can cover a couple of years, which gives short-term bond fund a couple of years to recover if needed, and then intermediate term bond fund around 5 years to recover, if needed.

And I have never invested in a long term bond fund. My index funds surely hold some, but I aim for an overall short to intermediate duration.

Ultra short-term bond funds - maybe they are better now, but some were severely hurt during the 2008 credit crisis, as they did not hold very high quality paper, so you have to pay attention to that.