Need to dump VBTLX!!

[Closet_Gamer]

There was an interesting article in the WSJ on May 14. They interviewed small personal investors (such as most of us here) who simply did nothing this year. They are about back to where they were at the start of the 2025.

So I checked out the performance of the Vanguard Total US Stock Market Admiral fund, my stock index fund of choice. VTSAX is up 0.63% as of May 15, 2025. For the previous 12 months ending April 30, it's up over 11%.

What will happen as the year progresses? I don't know. I am simply offering another perspective. YMMV.

VTSAX-Vanguard Total Stock Market Index Fund Admiral Shares | Vanguard

investor.vanguard.com

They commented on CNBC the other day that retail investors largely just rode out the storm and did fine while a lot of institutional investors have gotten hurt trying to guess the tariff trade and getting it wrong.

I love it.

 

[Closet_Gamer]

Bonds suck. I've never met a happy bond holder. When interest rates to up, bonds go down.
Bond owners are mad. When interest rates go down, their bonds get called in. Bond owners are mad again. (I know you can buy bonds that don't get called, but you pay for that with lower rates..) Bond income is taxed as ordinary income, not LTCG like stocks. Bond owners are mad. And every so often the bond issuer goes broke. As in Lehman and others less likely. Bond owners are mad. I know one personal bond holder that lost 6 figures with the Lehman failure. $1,000,000 million even. gone...from the "safe" side of his portfolio. The poor fella also had a large stake in Enron. He lost all of that too. Poor fella lost $2 million in a 60/40 portfolio.

That's why I am most all in VG SP 500 Index with 10% cash (VG MM fund).

Over the long term everyone knows that equities will out perform bonds. Bond holders are mad again.

For the small percentage I have in safe income, give me VG MM at 3.65% or cd's for an extra half percent..... not really worth it..... Bonds are too much head ache and risk. ( Bonds do have risk folks. ) Bonds can break your heart if you're looking for guaranteed growth or income.

I understand some of your points about bond people being upset at different times, but really that just means they didn’t think thru what they were buying or why.

Bonds are great in many circumstances. Particularly liability matching.

We had our kids college funds in a 529 that linked growth to the cost of college. It was essentially a variable rate bond. During the 7 years our kids have been in college (which included the COVID shocks), I slept fine. Zero volatility and good inflation coverage in the part of my portfolio for that purpose. I just paid the bills and moved on.

We’re intending to help our nephews with colleges a bit. That money is tucked into a little muni bond ladder the pays out over a few years for them. All good.

I just bought a 10 year TIPS that will give me inflation protected income for the year 2035. I’m very happy I did that and will remain so. Couldn’t care less about any volatility between now and then.

And if people flip out about tax impacts then they should put the right asset in the right type of account.

Like many others, I ejected from bond funds a while back. I own the defined maturity Blackrock iBond ETFs, specific govt bonds and CDs now for my FI components.

Also, that 3.65% MM rate is immensely variable.

 

[pb4uski]

Bonds suck. I've never met a happy bond holder. When interest rates to up, bonds go down.
Bond owners are mad. When interest rates go down, their bonds get called in. Bond owners are mad again. (I know you can buy bonds that don't get called, but you pay for that with lower rates..) Bond income is taxed as ordinary income, not LTCG like stocks. Bond owners are mad. And every so often the bond issuer goes broke. As in Lehman and others less likely. Bond owners are mad. I know one personal bond holder that lost 6 figures with the Lehman failure. $1,000,000 million even. gone...from the "safe" side of his portfolio. The poor fella also had a large stake in Enron. He lost all of that too. Poor fella lost $2 million in a 60/40 portfolio.

That's why I am most all in VG SP 500 Index with 10% cash (VG MM fund).

Over the long term everyone knows that equities will out perform bonds. Bond holders are mad again.

For the small percentage I have in safe income, give me VG MM at 3.65% or cd's for an extra half percent..... not really worth it..... Bonds are too much head ache and risk. ( Bonds do have risk folks. ) Bonds can break your heart if you're looking for guaranteed growth or income.

Well you've met a happy bond holder now, so you can't say that anymore. There are many other happy bond holders here too.

I hold to maturity. So when interest rates rise and the market value of bonds decline I yawn. Most corporate bonds, even if callable, are usually callable six months or less before maturity to allow the issuer flexibility in refinancing so that's no big deal. Even agency bonds that are called I find easy to replace.

Most of us hold bonds in tax deferred accounts where withdrawals are ordinary income anyway and we wouldn't get preferential tax rates on that money anyway.

As we've discussed before, your friend who lost big in the Lehman default lost so much because they were overly concentrated. Sucks to be them but with prudent investment practices that big loss could have been easily avoided.

I'm guessing the same thing for the Enron example that you mention. Lack of diversification is likely the culprit in both cases.

High quality bonds, held-to-maturity, are guaranteed growth and income. My bond portfolio has a weighted average yield to maturity of a little over 5%. If the market value wiggles around I don't care because I know the value will converge to par at maturity. Last time I checked the market value was 99.8% of my cost basis and the 0.2% difference doesn't bother me at all.

To say bonds can't provide guaranteed growth and income just demonstrates that you don't truly understand bonds.

 

[Koolau]

Nobody ever went broke taking a profit.

We need to add this one to our thread on Financial Sayings. Good one.

 

[Montecfo]

"Because bond markets tend to be at least as efficient as stock markets, I recommend low-expense bond index funds. Bond index funds and ETFs, which just buy and hold a broad variety of bonds, generally outperform actively managed bond funds." Burton Malkiel, A Random Walk Down Wall Street

"I lean strongly toward index investing (for both stocks and bonds) because beating the market is hard to do. Study after study shows that index investors, in both equities and fixed income, wind up doing better than the majority of investors. That's largely because index funds tend to be the least expensive funds. Index fund managers take less for themselves, and they incur far fewer trading costs." Russell Wild, Bond Investing for Dummies

I trust Malkiel's research. But the vast majority of Random Walk is devoted to equities rather than bonds, so while he states the bond index results he doesn't have the in-depth charts and analysis of equity index vs. active funds. The For Dummies book has just the one mention. It's relatively easy to find equity data for active vs. index funds over time, and it shows that most funds fail to beat their index over time periods (with more failing over longer time periods) and that of the ones that do, persistence in outperforming is roughly equal to what you'd expect from random chance. Not so easy to find the same data for bond index vs. active funds.

I think he and other "efficient market" pundits are just wrong. Markets are not efficient. Markets move based on emotion not by efficiently processing in information.

And he seems to merely extrapolate his equity views, which in terms of expense are not crazy for the average investor, to bonds without much more analysis than what you posted. He certainly did not show his work.

And this is not uncommon. Bogle and his followers have similarly done this, and it has not served them well.

Critical thinking and actual analysis are key.

 

[Tacitus]

Open ended bond funds as others noted will go down if interest rate move higher. Investors will often redeem, compelling the bond fund manager to sell at worst times and lock in losses. If instead one owns individual bonds, or term preferreds, with intention of holding until maturity or called there is no interest rate risk. If rates go up, the market value for awhile may go lower, but will return to par as the bond or term preferred approaches its maturity date or redeem at par if called. Huge difference.

 

[pb4uski]

Open ended bond funds as others noted will go down if interest rate move higher. Investors will often redeem, compelling the bond fund manager to sell at worst times and lock in losses. If instead one owns individual bonds, or term preferreds, with intention of holding until maturity or called there is no interest rate risk. If rates go up, the market value for awhile may go lower, but will return to par as the bond or term preferred approaches its maturity date or redeem at par if called. Huge difference.

+1 The other advantage of individual bonds is that if for some reason you do need to cash from the portfolio, you have choices... and in the situation described would probably just sell the shortest bond in the portfolio to minimize any interest rate loss. With a bond fund you don't have that option... by redeeming shares you are effectively selling a smidgeon of every bond in the fund's portfolio.

So for example, let's say both your individual bond portfolio and the bond fund both own bonds that mature evenly over 10 years. Interest rates have increased and the market value of the bonds have declined. You need to liquidate 10% of your portfolio for spending. With the individual bond portfolio, you just sell the bond on the first rung of the ladder (the 1 year bond) which would have the lowest interest rate loss. When you put your redemption request in, you are effectively selling 10% of each bond owned by the fund because the NAV is calculated based on the value of all the bonds in the fund's portfolio, so the loss is higher with the bond fund.

Individual bonds give you more control.

 

[Golden Mean]

Open ended bond funds as others noted will go down if interest rate move higher. Investors will often redeem, compelling the bond fund manager to sell at worst times and lock in losses. If instead one owns individual bonds, or term preferreds, with intention of holding until maturity or called there is no interest rate risk. If rates go up, the market value for awhile may go lower, but will return to par as the bond or term preferred approaches its maturity date or redeem at par if called. Huge difference.

I agree, and this is one (of two) thing(s) I think gets missed in some "BND" will go back up discussions. The 2nd, Vanguard sold (many?) bonds at a large loss (before maturity) in 2020/2021 due to the self imposed "duration" of the fund. Regardless of future interest rate changes, BND for anyone who bought in between 2015 and 2020 was, and is, worse than just holding cash (ie a MMF).

If I had a bond ladder (or just cash) in 2020/2021 when stocks dropped, I could have used some of that cash and/or a maturing bond to pay bills. Instead VBTLX was down 8%+ on top of the market being down 30%+.

I'm sticking with VMFXX until the 6 or 12 month treas pays (substantially) more, and then I may start a ladder.

 

[Montecfo]

Open ended bond funds as others noted will go down if interest rate move higher. Investors will often redeem, compelling the bond fund manager to sell at worst times and lock in losses. If instead one owns individual bonds, or term preferreds, with intention of holding until maturity or called there is no interest rate risk. If rates go up, the market value for awhile may go lower, but will return to par as the bond or term preferred approaches its maturity date or redeem at par if called. Huge difference.

This is definitely a disadvantage of open end bond funds. They also tend to keep cash to support redemptions which is a drag on returns in good markets but helps in n bad.

Closed end bond funds do not have these issues and they can be a smart alternative to open end bond funds (but as always homework is required).

 

[Montecfo]

If I had a bond ladder (or just cash) in 2020/2021 when stocks dropped, I could have used some of that cash and/or a maturing bond to pay bills. Instead VBTLX was down 8%+ on top of the market being down 30%+.

Better than a bond ladder was an open end floating rate bond fund.

Even better (maybe best?) a floating rare closed end bond fund.

Both of these had duration of a few months, high yield and the CEFs were at a discount (which began to close as rates rose).

 

[Quattro73]

Bond index funds are designed to “work” in a normalized, upward sloping yield curve that is relatively stable or experiencing falling yields.

Buy on long end, sell shorter maturities (before actual maturity) to maintain a relatively fixed duration, perpetual duration.

You dramatically increase rates, both on an absolute basis 550 bps AND as a percentage increase from 0.25 to 5.50, AND the curve inverts…..well here we are. Everytime, the BNDs of the world sold a short bond in the past 4 years, it was selling at a substantial loss further impacting NAV. And it was not “getting paid” for the duration it was buying on the long end since those rates were inverted.

Thankfully an inverted curve isn’t the norm………right? ? ?

 

[Stormy Kromer]

+1 The other advantage of individual bonds is that if for some reason you do need to cash from the portfolio, you have choices... and in the situation described would probably just sell the shortest bond in the portfolio to minimize any interest rate loss. With a bond fund you don't have that option... by redeeming shares you are effectively selling a smidgeon of every bond in the fund's portfolio.

So for example, let's say both your individual bond portfolio and the bond fund both own bonds that mature evenly over 10 years. Interest rates have increased and the market value of the bonds have declined. You need to liquidate 10% of your portfolio for spending. With the individual bond portfolio, you just sell the bond on the first rung of the ladder (the 1 year bond) which would have the lowest interest rate loss. When you put your redemption request in, you are effectively selling 10% of each bond owned by the fund because the NAV is calculated based on the value of all the bonds in the fund's portfolio, so the loss is higher with the bond fund.

Individual bonds give you more control.

Yes. Please forgive my rude comments earlier, bonds do have their place. I believe that is with the idea of holding them to maturity. If they don't get called.

My beef with bonds goes back to my grandmother who put her life savings in a stack of individual bonds back in the 1980's when interest rates were high. The Financial Advisor who sold her these bonds promised great returns until their 30 year maturity" Shortly after, interest rates fell and her bonds got callled in, one after another. The 7% return on the 30 year bond disapeared. Don't anyone tell me that "She should have known better and bought bonds that can't be called in". My response is..."How the hell is a 75 yearold widow supposed to know the bonds were callable ? She was a 75 year old widow who trusted a sales man from a company that everyone on this forum would recognize. (They used to own the biggest building in down town Minneapolis) Rymes with IDS.

Bonds may have their place. But they aren't foolproof and risk proof. The only bond position I would ever consider is a non callable bond from a government with tax authority to back it up. Then hold it to maturity.

 

[TickTock]

I think he and other "efficient market" pundits are just wrong. Markets are not efficient. Markets move based on emotion not by efficiently processing in information.

You may be misunderstanding what 'efficient' means in this context. The weak form of the efficient-market-hypothesis (EMH) states that technical analysis (looking at past stock prices) cannot reliably aid investors in obtaining risk-adjusted returns superior to those in an appropriate broad index. The semi-strong expands that to include fundamental analysis. It doesn't mean that markets are always perfectly rationally priced (they obviously aren't) nor that markets don't move based on emotion (they obviously do) - just that those realities don't help an investor beat the market. And in the real world, 'after research, trading, and tax costs are taken into account' should always be added.

And he seems to merely extrapolate his equity views, which in terms of expense are not crazy for the average investor, to bonds without much more analysis than what you posted. He certainly did not show his work.

IMO, he didn't just extrapolate from equity to fixed income. Malkiel is, among other things, a rigorous academic researcher. You're right that he didn't show his work nor refer to where that work resides, and that irritates me.

And this is not uncommon. Bogle and his followers have similarly done this, and it has not served them well.

It's been a while since I've read Bogle, so I won't comment on that. I do think he had a blind spot on thinking that international equity is not useful as an asset class.

Critical thinking and actual analysis are key.

Absolutely! There's a lot of published data that shows that trying to outperform an appropriate broad equity index with specific mutual funds is, overall, a low-percentage shot. I imagine that the same data is out there for fixed income - probably in the Journal of Finance - but from my personal library and search-fu skills, it's not easy to find.

 

[Phroig]

Open ended bond funds as others noted will go down if interest rate move higher. Investors will often redeem, compelling the bond fund manager to sell at worst times and lock in losses. If instead one owns individual bonds, or term preferreds, with intention of holding until maturity or called there is no interest rate risk. If rates go up, the market value for awhile may go lower, but will return to par as the bond or term preferred approaches its maturity date or redeem at par if called. Huge difference.

If investors sell after NAV declines, that’s clearly bad for them and their funds.
Many here, however, sold in anticipation of the declines, since interest rate hikes were obviously forthcoming. These investors came out ahead. Investors in individual bonds probably stayed put.

 

[DEC-1982]

Yes, a money market is safe. I wouldn't even be touching my investments if it weren't for all the volatility that has happened in the last couple months. It's making me rethink things and how to keep my money safe so I don't keep worrying about it with each day that brings new chaos.

Do you have a written plan that you could look?

Bonds or bond funds are usually for stability, and they usually do better than cash over time.

 

[Tacitus]

If investors sell after NAV declines, that’s clearly bad for them and their funds.
Many here, however, sold in anticipation of the declines, since interest rate hikes were obviously forthcoming. These investors came out ahead. Investors in individual bonds probably stayed put.

Buy low, sell high. Guess depends on why buying fixed to start with. If buying to lend ballast and stability for an otherwise equity portfolio then individual safe bonds and hold till maturity seems reasonable. If buying to trade based on predicting interest rates then that is different of course. Yup buy low sell high. Maybe leveraged debt cefs great choice if know the market future. Generally speaking agree with Yogi Berra's famous quote about predicting the future : "It's tough to make predictions, especially about the future". Fed btw began raising rates in March 2022, VBMFX peaked around Mid 2020. But do agree at some point was clear Fed was in raising mode. What mode is it in now, and more importantly where do you think interest rates esp. the 10 yr Treasury will be in a year or so?

 

[Chuckanut]

Many here, however, sold in anticipation of the declines, since interest rate hikes were obviously forthcoming. These investors came out ahead. Investors in individual bonds probably stayed put.

I sold most of my long and medium term bond funds when I noticed that a High Yield account from many banks was offering interest rates in the area of 1.8%. And some foreign banks had negative yields. I asked myself how much lower interest rates could go and the answer was not much. Translation, bond fund shares were probably more likely to go down in value than up.

Smart or lucky? I don’t know. Had I been really smart I would have also dumped my short term bond funds and my small Wellesley holdings which took a nice sized hit when interest rates did rise later.

 

[Montecfo]

You may be misunderstanding what 'efficient' means in this context. The weak form of the efficient-market-hypothesis (EMH) states that technical analysis (looking at past stock prices) cannot reliably aid investors in obtaining risk-adjusted returns superior to those in an appropriate broad index. The semi-strong expands that to include fundamental analysis. It doesn't mean that markets are always perfectly rationally priced (they obviously aren't) nor that markets don't move based on emotion (they obviously do) - just that those realities don't help an investor beat the market. And in the real world, 'after research, trading, and tax costs are taken into account' should always be added.

The theory fails. Here is an example: the Fed in 2021 for much of the year and very clearly in last 6.months signaled that rate hikes were coming. The market knew this. The market also knew that historically one rate hike leads to several more. The Fed also signaled this so this was clearly known.

But the market reaction was very muted initially. Asset values were not quickly adjusted to reflect this information.

It was very easy for market timers such as myself and others to sell intermediate term bond funds and buy floating rate bonds for example.

Floating rate bonds in closed end funds traded at large discounts even after the Fed's path became clear.

If the bond market is efficient and all known information is immediately reflected in asset values, this could not happen.

IMO, he didn't just extrapolate from equity to fixed income. Malkiel is, among other things, a rigorous academic researcher. You're right that he didn't show his work nor refer to where that work resides, and that irritates me.

Well there is theory and there is practice. He may have great theory but it seems to not hold up with respect to bonds at least.

Absolutely! There's a lot of published data that shows that trying to outperform an appropriate broad equity index with specific mutual funds is, overall, a low-percentage shot. I imagine that the same data is out there for fixed income - probably in the Journal of Finance - but from my personal library and search-fu skills, it's not easy to find.

There seems to be this view that expenses are all that matter. What you are holding matters a lot too.

If you are considering two different Investment vehicles holding the same investments, the lower cost choice is better. That is easy math.

But in the bond world things are seldom that clear.

 

[FD1000]

Kat07, your analysis is correct - bond fund performance is terrible over the past 5+ years. Some on this forum more knowledge than me mentioned on this forum in 2022 that bond funds behave quite differently than individual bonds. I’ve switched to CD’s, whose 5 year total return has been about 20%. Some on this forum also like Treasuries.

VBTLX performance has been dismal for 10 and 15 years too, at 1.5% and 2.4%

 

[Lorenzo]

VBTLX performance has been dismal for 10 and 15 years too, at 1.5% and 2.4%

What is the 10-year performance if 2022, when it lost about 13 percent, is excluded? What I'm thinking is that there may have been 10 and 15-year periods during which its performance was more like what an investor might have expected.

 

[FD1000]

Even for 10 years prior to 2022, I would not call about 3% annually a great performance. Inflation ate 2/3 of that. If you you want to eliminate 2022, I want to eliminate 2019-21.
Between 2012 and 2019, VBTLX just barely beat inflation

 

[TickTock]

There seems to be this view that expenses are all that matter. What you are holding matters a lot too.

I'll leave efficient markets alone for now.

I've also seen the view that expenses are all that matter. They do matter, yes. But they aren't all that matter - you have to look at what you're getting for those expenses. Agree with you on this.

 

[Lorenzo]

Even for 10 years prior to 2022, I would not call about 3% annually a great performance. Inflation ate 2/3 of that. If you you want to eliminate 2022, I want to eliminate 2019-21.
Between 2012 and 2019, VBTLX just barely beat inflation

Well, I just posed the question--I really don't know if index bond fund investors expect "great" performance, i.e., much above the inflation rate. I follow all the bond threads in my attempt to learn. There was so much talk a few years ago about how awful bond funds are that any thread in which some counter-arguments are mentioned deserves my attention.

 

[TickTock]

I don't know what index bond fund investors expect. I do know that average compounded real bond returns from 1926-2018 were:

Long-term corporate 3.0%
Long-term government 2.5%
Intermediate-term government 2.1%
30-day treasury bills 0.4%

Also, over that period intermediate-term gov't bonds had the lowest correlation coefficients, although t-bills and long-term gov't bond coefficients were very similar to intermediate gov'ts.

 

[Al18]

Ignoring bad performing years is just lying to yourself.