Bond fund is down 4% YTD?

[mistermike40]

I don't understand everything about bond funds (ok, I don't understand very much at all about them), but I was shocked to see how much of a hit mine took in the first six weeks of 2022. I would actually be very happy with 0% at this point.

It's in my 401k, and I've already made my annual withdrawal (to the top of the 12% tax bracket). So, withdrawing a large chuck and putting it in an online savings account isn't really an option (I *really* don't want to pay 22%+ to move it out of the 401k).

Any ideas regarding this situation, or any thoughts on the future of bond funds? There's no cash option, or other non-equity place to move it to (within my 401k). I'm guessing performance will be even worse as Fed increases interest rates...

 

[MRG]

It's about interest rates and the duration of the bonds within the fund. Do you know other options for shorter term bond funds?

 

[Montecfo]

It's all about duration. Duration is not your friend right now.

Maybe t-bills or floating rate debt.

 

[njhowie]

Buy more.

 

[audreyh1]

Buy more.

+1

 

[Exchme]

It is quite irritating that my bonds are down nearly as much as my stocks. But the blood has been in the water a long time on this, hard to know when the turnaround will be.

If folks decide current inflation is supply chain driven, it may turn around pretty soon as Omicron fades. If folks decide it's due to money printing that the Fed must fight with lots of rate hikes, then things could get worse.

I dunno, so I'm doing nothing.

 

[pb4uski]

I don't understand everything about bond funds (ok, I don't understand very much at all about them), but I was shocked to see how much of a hit mine took in the first six weeks of 2022. I would actually be very happy with 0% at th so a is point.

It's in my 401k, and I've already made my annual withdrawal (to the top of the 12% tax bracket). So, withdrawing a large chuck and putting it in an online savings account isn't really an option (I *really* don't want to pay 22%+ to move it out of the 401k).

Any ideas regarding this situation, or any thoughts on the future of bond funds? There's no cash option, or other non-equity place to move it to (within my 401k). I'm guessing performance will be even worse as Fed increases interest rates...

When interest rates go up the value of bonds go down... usually by a multiple called duration. The 10-year treasury is up ~0.45% since the start of the year so a 4% decline in value doesn't seem out of line.

Does your 401k offer a "stable value" fund and if so, what does it yield? Does it offer any short-term bond options?

If not, you could consider moving it to a tIRA which would not eb a taxable event and would have more investment options.

 

[corn18]

This is why I moved all my fixed income into my 401k stable value fund. Currently yielding 1.8%. Once all this inflation nonsense settles down and rates stabilize somewhere, I might move back into the total bond fund in my 401k.

 

[Dtail]

Not sure if he would have a Stable Value fund, as he stated no cash option or non equity type option.

 

[ejman]

It is quite irritating that my bonds are down nearly as much as my stocks. But the blood has been in the water a long time on this, hard to know when the turnaround will be.

If folks decide current inflation is supply chain driven, it may turn around pretty soon as Omicron fades. If folks decide it's due to money printing that the Fed must fight with lots of rate hikes, then things could get worse.

I dunno, so I'm doing nothing.

It may be the right thing to do at the moment. The S&P 500 is down 8.7% from 1/3/22 to 2/17/22. NASDAQ is down 13.4% Vanguard Intermediate Term Bond Index is down 3.2%. Although down 0% would be better, I'll take the bond fund performance over the stocks so far this year. Its interesting that back in the 2004-2007 time period the FED raised interest rates from 1% to 5% and Vanguard's total bond market index actually went up during that period at a 4.4% CAGR.

 

[Markola]

“Any thoughts on the future of bond funds?”

Near term, who can say, but bad years are usually followed by better years in bond funds. Long term, they’ll perform about like they always perform long term, if I had to guess. If prices fall, like many predict, yields will rise, drawing in investors and eventually raising prices.

 

[mrfeh]

I don't understand everything about bond funds (ok, I don't understand very much at all about them), but I was shocked to see how much of a hit mine took in the first six weeks of 2022. I would actually be very happy with 0% at this point.

It's in my 401k, and I've already made my annual withdrawal (to the top of the 12% tax bracket). So, withdrawing a large chuck and putting it in an online savings account isn't really an option (I *really* don't want to pay 22%+ to move it out of the 401k).

Any ideas regarding this situation, or any thoughts on the future of bond funds? There's no cash option, or other non-equity place to move it to (within my 401k). I'm guessing performance will be even worse as Fed increases interest rates...

When it comes to investments, you should be selling high and buying low. What you are thinking about doing is the exact opposite.

Don't try to time the market. Stop looking at short-term performance.

 

[mistermike40]

When it comes to investments, you should be selling high and buying low. What you are thinking about doing is the exact opposite.

Don't try to time the market. Stop looking at short-term performance.

I agree, and I'm not trying to time the market. Just wondering there are better long-term options. I'll post a more detailed list of funds in my next post.

 

[mistermike40]

Thanks for all the replies. I should have given more info on my situation (and fund choices). My pension and SS (which I just started, I receive my first deposit next week) way more than cover all of my expenses (including dining out, entertainment, health care, etc). I also have a six-figure online savings account for unexpected expenses (that I replenish each January from my 401k). My AA was 60/40, I recently shifted to 40/60 (using just two funds - an S&P 500 index fund and the bond fund referenced in this thread).

It appears I now have a couple additional choices. Here are the three:

1) BlackRock Bond Index Fund (CURRENT BOND FUND I'M IN)
Lipper Classification*- Core Bond Funds (Funds that invest primarily in highly-rated corporate and government bonds; most of these bonds are scheduled to mature in five to ten years)
Fund Objective*- The Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of a particular index (its Underlying Index). The Underlying Index is the Bloomberg U.S. Aggregate Bond Index.
Total Expense Ratio: 0.033%
Returns:
YTD: -2.09%
1 Year: -2.99%
3 Years: +3.64%
5 Years: +3.06%

2) State Street Real Asset Index Fund (NEW OPTION, FIRST AVAILABLE TO ME LAST MONTH)
Fund Objective - The Fund seeks to provide a long-term targeted return in excess of the US Consumer Price Index (CPI) measure of inflation by offering broad exposure to commodities, global natural resource equities, global infrastructure equities, US commercial real estate securities and US inflation linked bonds (i.e., real assets).
Total Expense Ratio: 0.121%
Returns:
YTD: +2.18
1 Year: +23.02
3 Years: +10.96
5 Years: +7.63

3) Interest Income Fund (MIGHT HAVE ALWAYS BEEN AN OPTION, NOT SURE)
Fund Objective - The Fund seeks to provide safety of principal and a stable credited rate of interest, while generating competitive returns over time compared to other comparable investments.
Total Expense Ratio: 0.270%
Returns:
YTD: +0.10
1 Year: +1.36
3 Years: +1.94
5 Years: +1.88


Does anyone have any experience with the State Street Real Asset Index Fund (this fund is new to me, I first saw it available last month)? If I keep my AA at 40/60, I might move everything out of Blackrock and split it between SSRAIF and the Interest Income Fund. Any thoughts on this strategy? I appreciate having so many knowledgeable people here to bounce ideas off!

 

[Midpack]

I'm tempted to trade in a bunch of VBTLX in my IRAs for a money market fund, I'd rather have 0% than -X%. So far I haven't done it, but it's tempting...

 

[Markola]

^^^^^ Not me, as I see how well it usually does after a down or flat year, including just 3 and 4 years ago. It’s down again in 2022, so far, but the year is still young.

 

[pb4uski]

....Interest Income Fund (MIGHT HAVE ALWAYS BEEN AN OPTION, NOT SURE)
Fund Objective - The Fund seeks to provide safety of principal and a stable credited rate of interest, while generating competitive returns over time compared to other comparable investments.
Total Expense Ratio: 0.270%
Returns:
YTD: +0.10
1 Year: +1.36
3 Years: +1.94
5 Years: +1.88 ...

This sounds like a stable value fund other than the expense ratio seems high for a stable value fund. If it is, you want to find out what the current crediting rate is.

If it is a stable value fund, the nice thing is that there is no interest rate risk... it is like a savings account that pays x% interest, but can't go down. If this interest rate is decent, then I would seriously consider it in this rising interest rate environment. Better x% than -y%.

 

[iloveyoga]

I'm tempted to trade in a bunch of VBTLX in my IRAs for a money market fund, I'd rather have 0% than -X%. So far I haven't done it, but it's tempting...

I think about doing this every day. I have always used an asset allocation, so I am trying to stick with it.

 

[daylatedollarshort]

We dumped all the bond funds and any target date bond funds earlier in the year. Our 401Ks all either have stable value funds or brokerage account options. The yields to maturity on the one year TIPS aren't half bad compared to the alternatives. I was buying a few 1 -2 year TIPS in the brokerage accounts on the secondary market every day or so until Fidelity changed the minimums to cost over $100K per order. I guess a lot of other people had the same idea so they are pandering to their bigger clients.

The mantra to hold your AA in bond mutual funds in a low real return, rising interest rate environment comes largely from people who make money managing large bond funds. Unlike stocks, there doesn't seem to be any potential upside to staying the course with bond funds right now. I've got some cash set aside to buy more individual TIPS when yields go up later this year.

 

[Lsbcal]

First, I don't know where this is going. My strategy is probably not relevant though I do not currently hold bonds or bond funds with nominal interest rate risk.

Some history: 1994 is know to be one of the worst bond market years. The annual results for 1994 were:
Total bond market VBMFX = -2.7% (currently at -3.7% YTD)
Short term investment grade VFSTX = -0.08% (currently down -2.0 YTD)

Here is a chart of the 1994 market:

I don't know if this helps.
BTW, 1995 was a great year for these bond funds. VBMFX = +18.2%, VFSTX = +12.7%

 

[Montecfo]

First, I don't know where this is going. My strategy is probably not relevant though I do not currently hold bonds or bond funds with nominal interest rate risk.

Some history: 1994 is know to be one of the worst bond market years. The annual results for 1994 were:
Total bond market VBMFX = -2.7% (currently at -3.7% YTD)
Short term investment grade VFSTX = -0.08% (currently down -2.0 YTD)

Here is a chart of the 1994 market:

I don't know if this helps.
BTW, 1995 was a great year for these bond funds. VBMFX = +18.2%, VFSTX = +12.7%

In 1994 rates rose from much much higher levels than we are at now, due to Fed tightening.

Are you suggesting rates will decline sharply in 2023 causing a large rally in bonds?

Given our starting point, that seems unlikely unless the Fed overcorrects and creates a recession deep enough to return rates to zero or below.

It is certainly possible but seems unlikely.

It is easy to say "bonds usually have a good year after a bad one" but it is a bit harder to construct the scenario that would cause that to be true in our current situation.

 

[Lsbcal]

As I said above I am agnostic on the future. Will have to watch events unfold just like everyone.

 

[audreyh1]

My portfolio was pretty close to balanced at the end of 2021.

So far rebalancing would have me selling bonds to buy stocks, because the stock funds are down even more YTD. But my asset allocation overall is only off by 2%, so not enough yet.

 

[ychuck46]

Better option than a bond fund

Rather than a bond fund just purchase I Bonds. Current six month interest north of 7%. No bond fund will touch that.

 

[mrfeh]

Rather than a bond fund just purchase I Bonds. Current six month interest north of 7%. No bond fund will touch that.

The $10K per person annual purchase limit prevents I Bonds from having a material effect on most people's portfolio.

Not saying they shouldn't be purchased, but this isn't a solution for the current fixed income quandary.