Rebalancing and bond funds

[tominboise]

Our current allocation of our portfolio is:
Stock Funds - 61.1%
Bond Funds - 25.5%
Cash - 8.3%
CDs/Tbills - 5.0%

I am thinking to rebalance a bit and carve some off of the stock funds to get below 60%, since the market has recovered some lately. I was thinking of buying straight corporate AAA bonds with the rebalance dollars. That made me look and think about my current bond fund collection and does it make sense these days. The percentages listed are my holdings in these funds as a percentage of my total holdings in Bond funds.

My current bond funds are:

FIPDX	FIDELITY INFLAT-PROT BD INDEX FUND	9.00%
FUMBX	FIDELITY SHORT TERM TREASURY BOND INDEX	7.92%
VCSH	VANGUARD SCOTTSDALE FDS VANGUARD SHORT-TERM CORPORATE BD INDEX FD ETF SHS	5.97%
FUAMX	FID INTER TREASURY BOND INDEX FUND	4.85%
VCIT	VANGUARD SCOTTSDALE FUNDS VANGUARD INTER-TERM CORP BD ETF	4.17%

Do people put money in bond funds any more? Should I consolidate these somewhat into something like BND? I was contemplating leaving the FIPDX and VCSH alone, and consolidating the other three into BND.

 

[Al18]

FIPDX and FUMBX have been averaging less than 2% per year over the past 5 years according to my research. I’m not sure where you got 9.0% and 7.92%. BND total return over 5 years is -3.81% according to Vanguard Total Bond Market Index Fund ETF Shares (BND - NASDAQ)

By comparison, CD’s have been averaging about 4% per year over the past 5 years.

 

[TickTock]

There are spirited debates on individual bonds vs. bond funds. Yes, some folks use bond funds, some don't, some switch back and forth based on absolute yields, yield curve, and their own particular situation.

Too little information to advise re: BND. What duration and risk are the right ones for your situation and portfolio?

 

[tominboise]

FIPDX and FUMBX have been averaging less than 2% per year over the past 5 years according to my research. I’m not sure where you got 9.0% and 7.92%. BND total return over 5 years is -3.81% according to Vanguard Total Bond Market Index Fund ETF Shares (BND - NASDAQ)

By comparison, CD’s have been averaging about 4% per year over the past 5 years.

The percentages are what I currently hold, as a percentage of all the money in my bond funds

 

[Closet_Gamer]

I wouldn't adjust your asset allocation based on current events. Set the AA that makes sense for you and then mechanically rebalance according to a rule ... for me its a 3% variance. When my AA is out of whack by 3% I move money around. Less than that and I just use new cash to fill in whatever is low.

Doing it mechanically takes the emotion out of it.

Re bond funds ... can't comment on the ones above. I used to invest in broad based bond funds but like so many others was unhappy with how that played out during the big bond drop. I invest in Blackrock's defined maturity bond ETFs now along with individual TIPs, Muni's and CDs.

 

[COcheesehead]

I

Our current allocation of our portfolio is:
Stock Funds - 61.1%
Bond Funds - 25.5%
Cash - 8.3%
CDs/Tbills - 5.0%

I am thinking to rebalance a bit and carve some off of the stock funds to get below 60%, since the market has recovered some lately. I was thinking of buying straight corporate AAA bonds with the rebalance dollars. That made me look and think about my current bond fund collection and does it make sense these days. The percentages listed are my holdings in these funds as a percentage of my total holdings in Bond funds.

My current bond funds are:

FIPDX	FIDELITY INFLAT-PROT BD INDEX FUND	9.00%
FUMBX	FIDELITY SHORT TERM TREASURY BOND INDEX	7.92%
VCSH	VANGUARD SCOTTSDALE FDS VANGUARD SHORT-TERM CORPORATE BD INDEX FD ETF SHS	5.97%
FUAMX	FID INTER TREASURY BOND INDEX FUND	4.85%
VCIT	VANGUARD SCOTTSDALE FUNDS VANGUARD INTER-TERM CORP BD ETF	4.17%

Do people put money in bond funds any more? Should I consolidate these somewhat into something like BND? I was contemplating leaving the FIPDX and VCSH alone, and consolidating the other three into BND.

I think there are only three AAA rated corporate bonds. J&J, Apple and Microsoft. You may want to rethink just going AAA.

 

[mrfeh]

I wouldn't adjust your asset allocation based on current events. Set the AA that makes sense for you and then mechanically rebalance according to a rule ..

+1

Choose what you want to hold and stick with it. And yes, BND is perfectly fine, despite all the people bad mouthing it due to recency bias.

 

[Koolau]

I wouldn't adjust your asset allocation based on current events. Set the AA that makes sense for you and then mechanically rebalance according to a rule ... for me its a 3% variance. When my AA is out of whack by 3% I move money around. Less than that and I just use new cash to fill in whatever is low.

Doing it mechanically takes the emotion out of it.

Re bond funds ... can't comment on the ones above. I used to invest in broad based bond funds but like so many others was unhappy with how that played out during the big bond drop. I invest in Blackrock's defined maturity bond ETFs now along with individual TIPs, Muni's and CDs.

Right, and I base rebalancing more on a time table (once/year) than on actual variance from the plan.

 

[TickTock]

And yes, BND is perfectly fine, despite all the people bad mouthing it due to recency bias.

I'd hedge that to say that BND is perfectly fine for someone looking for an intermediate term (average duration = 5.9 years) US bond fund with ~2/3 of holdings US government issues. It's widely diversified, has a rock-bottom 0.03% expense ratio, and tends to closely track its benchmark.

BND-Vanguard Total Bond Market ETF | Vanguard

investor.vanguard.com

 

[VanWinkle]

+1

Choose what you want to hold and stick with it. And yes, BND is perfectly fine, despite all the people bad mouthing it due to recency bias.

Exactly what I was thinking mrfeh!!!

 

[jazz4cash]

The percentages are what I currently hold, as a percentage of all the money in my bond funds

I feel like I’m missing something. You listed 5 funds holding ~32% of your bond fund allocation. How many funds do you have in total? It seems like a LOT of funds.

 

[tominboise]

I feel like I’m missing something. You listed 5 funds holding ~32% of your bond fund allocation. How many funds do you have in total? It seems like a LOT of funds.

Yeah, I mistyped in my original post. Those percentages are of my total portfolio. I have 32% of my portfolio in bond funds. Those 5 funds make up that 32 %.

 

[lem1955]

I am one of those that was unhappy with bond funds during the big bond drop. I only invest in non-callable bonds, Treasuries, and CD's, mostly short term right now. I keep a spreadsheet for a list of about 30 that helps me ladder in the five IRA accounts and a taxable account. Yes, it's more work, but I like managing my investments. Total AA is 70/30.

 

[VanWinkle]

I am one of those that was unhappy with bond funds during the big bond drop. I only invest in non-callable bonds, Treasuries, and CD's, mostly short term right now. I keep a spreadsheet for a list of about 30 that helps me ladder in the five IRA accounts and a taxable account. Yes, it's more work, but I like managing my investments. Total AA is 70/30.

I'm glad that it is working for you. I am still in my one bond fund since 2014. I've still got 3 years to RMDs and am hopeful all will recover by then. Your plan is good for you, and I appreciate the way you kept from slamming people still in bond funds. I have "almost" sold the fund for a loss in my IRA several times, but have held on maybe just from stubbornness.

VW

 

[pb4uski]

Just a reminder that a good middle ground between bond funds/ETFs and individual bond ladders is a target maturity bond ETF like Blackrock iBond ETFs or Invesco Bulletshares. I'm planning to transition my corporate individual bond ladder to these over time to simplify our portfolio for DW and DS in case I get hit by a beer truck or my faculties decay.

 

[VanWinkle]

Just a reminder that a good middle ground between bond funds/ETFs and individual bond ladders is a target maturity bond ETF like Blackrock iBond ETFs or Invesco Bulletshares. I'm planning to transition my corporate individual bond ladder to these over time to simplify our portfolio for DW and DS in case I get hit by a beer truck or my faculties decay.

Good point pb!

 

[Montecfo]

Bond funds are fine. Those folks who exited bond funds after the big drop traded one risk for another. If we have another big rate drop as many expect then it will be clear they closed the barn door after the horses escaped-and recorded large losses permanently.

The real villain in the bond drop was owning duration. Short duration bonds and floaters-within funds or out-did fine.

Mid to long duration bonds and TIPS did terribly, both in and outside of funds. Owners of individual bonds could ignore the drop mentally but it happened. And by holding lower yield in nh bonds to maturity, the "hold to maturity" crowd was late the to party buying higher yielding funds. It's a very mixed bag.

As far as funds, I am not especially familiar with those funds...
But...
My standard view of things is not to do a bond index such as BND. The case for indexing stocks does not transfer to bonds. Instead you want active, expert management by those experienced enough to buy sectors with the greatest value.
Above all, research and understand what you own.

PIMIX is one to look at in my view.

Good investing!

 

[engineernerd]

My standard view of things is not to do a bond index such as BND. The case for indexing stocks does not transfer to bonds. Instead you want active, expert management by those experienced enough to buy sectors with the greatest value.
Above all, research and understand what you own.

PIMIX is one to look at in my view.

Good investing!

Thanks, but is PIMIX available to individual investors? Wouldn't we have to buy PONAX instead?

I do notice that the expense ratio is 1.23% for PONAX, and according to the description it is higher-risk than VBTLX (the mutual fund version of BND), which is restricted to investment-grade bonds and has an expense ratio of 0.04%.

 

[Montecfo]

Thanks, but is PIMIX available to individual investors? Wouldn't we have to buy PONAX instead?

I do notice that the expense ratio is 1.23% for PONAX, and according to the description it is higher-risk than VBTLX (the mutual fund version of BND), which is restricted to investment-grade bonds and has an expense ratio of 0.04%.

I think you are trapping yourself with expense ratio dogma. Look at overall performance and compare.

Risk is relative but if lowest risk is your objective you should buy treasuries.

If you are in investing through a brokerage PIMIX should be available but PONAX is not a bad way to go

 

[audreyh1]

Personally I prefer bond funds because I rebalance occasionally and thus liquidity is important to me. I don’t care about yield at all.

Personally I prefer a combination of short and intermediate duration bond index funds because of their higher credit quality and very low cost.

 

[pb4uski]

Personally I prefer bond funds because I rebalance occasionally and thus liquidity is important to me. I don’t care about yield at all.

Personally I prefer a combination of short and intermediate duration bond index funds because of their higher credit quality and very low cost.

Individual bonds, particularly US Treasuries are highly liquid. You can't get better credit quality, or lower cost or better liquidity than a US Treasury ladder.

With a bond fund, when you rebalance you effectively buy or sell a smidgen of each bond in the fund. With a ladder, when you rebalance you have choices. You can defer a little and use the proceeds from the next maturity to rebalance or you can chose what bonds in "you bond fund" to sell to rebalance... you can't do that with a bond fund or bond ETF.

The main problem that I have with bond funds is that you can't hold a bond fund to maturity but you can hold individual bonds to maturity. Big advantage.

 

[Lorenzo]

The main problem that I have with bond funds is that you can't hold a bond fund to maturity but you can hold indivial bonds to maturity. Big advantage.

With the exception you pointed out above of "a target maturity bond ETF like Blackrock iBond ETFs or Invesco Bulletshares," I guess?

 

[SteveTX]

Thanks, but is PIMIX available to individual investors? Wouldn't we have to buy PONAX instead?

I do notice that the expense ratio is 1.23% for PONAX, and according to the description it is higher-risk than VBTLX (the mutual fund version of BND), which is restricted to investment-grade bonds and has an expense ratio of 0.04%.

If you have a Fidelity account you can buy PIPNX instead of PONAX. It has a lower expense ratio (though not quite as low as PIMIX), but Fidelity charges a one time $50 fee to purchase shares. That's the one I use.

 

[pb4uski]

With the exception you pointed out above of "a target maturity bond ETF like Blackrock iBond ETFs or Invesco Bulletshares," I guess?

Yes. While technically those target maturity bond ETFs are bond ETFs, I view them as a different animal from "conventional" bond funds or bond ETFs.

 

[Montecfo]

Personally I prefer bond funds because I rebalance occasionally and thus liquidity is important to me. I don’t care about yield at all.

Personally I prefer a combination of short and intermediate duration bond index funds because of their higher credit quality and very low cost.

I Think holding funds with the differing maturities as you do gives you some optionality when rebalancing.

The short maturities are very stable with little rare risk.