Your experience with bond fund?

[aciranger]

I have failed constantly with bond fund, and was told it less reliable than individual bonds. Earlier this year I tried again with BKLN, and its recent falling price has wiped out the dividends so far.
For reliable return in midterm, should I avoid bond funds and buy bonds instead?

 

[latexman]

I recommend reading We are entering a "Golden Period" for fixed income investing

 

[jebmke]

Bond funds duration should be aligned with the duration that is most relevant for you. If you are looking at short term results, the best fund is probably a MM fund.

 

[mrfeh]

Bond funds duration should be aligned with the duration that is most relevant for you. If you are looking at short term results, the best fund is probably a MM fund.

This.

There's absolutely nothing wrong with bond funds. But, they can lose value, like most assets.

Know what you're buying and consider when you will want to sell.

 

[audreyh1]

Bond funds have been rallying big time this year. Things have changed. Just pick an allocation and keep it simple.

Bank loan funds are a different animal and can definitely burn you in this environment where the economy appears to be weakening. They behave differently from regular bond funds. I avoid bank loan funds and any junk oriented bond fund as they are highly correlated with equities - better to just own the equities instead.

 

[scrabbler1]

I have been in bond funds for 34 years. I buy them for the diversification and the income, not for any price appreciation or depreciation. I have owned munis, corporates, intermediate-term, long-term, investment-grade, borderline investment-grade (they hold some slightly-below-investment-grade bonds). One bond fund supplies most of my annual income in my ER going back to 2008 when I retired at 45. Another bond fund has checkwriting privileges, a handy feature when I need a large amount of money in a hurry, which has happened a few times over the years (it's my second-tier emergency fund).

Bond funds have served me quite well since 1990.

 

[yakers]

The 'Golden Period' thread I remember, it pointed out (IMHO) correctly that bond INDEX funds do not operate like equity index funds. I think they will still work as part of a 2/3/4 fund hands off approach to accumulation and decumulation. But unlike equities, bonds are (more) predictable. Focused bond funds have different properties.
The question is how much effort does one want to take to learn about and manage bonds.
I do not understand bonds so I leave it to Vanguard as the largest funds I hold are VG Global Wellington VGWAX, VG Wellsley and VG Wellington. (Also some CDs, MMFs))They have worked for me.

 

[Golden Mean]

I'll never own another one (sold out of VBTLX in 2022) and I'm currently (slowly) selling out of my target fund(s). I prefer to have my fixed asset allocation preserve capital.

 

[Midpack]

Bond funds just went through a down period when the Fed started increasing treasury yields - as predicted. They are rebounding now, and will as the Fed cuts rates. I did very well with VBTLX for more than 10 years, but sold it all and put the $ in treasuries in 2021, where I've stayed since as many of us did. Bond funds are good when rates are going down, but they'll take a hit when rates are going up. I you just buy and hold bond funds, you'll probably do just fine if you stay the course - takes patience like equity funds.

VBTLX.

 

[njhowie]

Our 99/1 self-directed portfolios hold only individual (municipal) bonds, no bond funds. Over the course of the interest rate hikes, the maximum decline we saw was never more than 5% to 6% and has rebounded and currently sits at all-time highs.

DWs 401k/457b only offers funds. We've been accumulating PTTRX there for the past two years, and it's begun moving nicely higher as many funds have. Just this week, plan administrator advised all current holdings and future contributions are being moved to ITBVX. I'm liking that move, as the new fund has same focus as the old, has performed better, and has lower fees.

 

[target2019]

I just charted the mix we have of funds bond/cd/mmf from 2007 through 2023. That covers 15 years of serious saving towards retirement. Total Bond Market was 70% of fixed/bond at one time. But we diversified to CD's, MMF, and so on.

 

[aciranger]

I also owned vbtlx like for many years and exited with a loss still. I have done better with individual corp bond . So I guess that will be my strategy if I do need bond in the future

 

[Chuckanut]

I have Wellesley Income fund shares. They are still down due to the higher interest rates, but it is coming back. Up 5% year to date. The fund still kicks out descent dividends every quarter

It is made up mostly of bonds and income oriented equities. It’s not strictly a bond fund.

 

[Montecfo]

Bond funds are fine. Owning bond funds or bonds with duration was resulted in huge losses during the Fed's dramatic and historic rise in rates, which is exactly what the finance textbooks say.

Know what you own. There is no magic to bonds or bond funds.Both are useful if you understand their purposes and what you own.

I think your problem is you owned duration during the rate hike cycle, resulting in losses as expected. This was mislabeled by some as a problem with bond funds, but it was not the vehicle you held it was duration that was the issue.

Now, had you continued to hold high duration funds they would be recovering now. Instead you moved into BKLN, which has a duration of .50 or so-very low as the loans yields float with interest rates. It will not benefit much from the rate cut cycle due to low duration.

Having said that, I sold intermediate bond funds heading into hike cycle and bought bank loans (FRA until it traded at a premium and now PRFRX). They did very well, as you would expect as they are low duration.

Now I prefer duration with rates heading lower, as bonds should appreciate (they have been).

Fixed income is not a set and forget thing when rates are moving a lot as they have been.

 

[Golden Mean]

Bond funds are fine. Owning bond funds or bonds with duration was resulted in huge losses during the Fed's dramatic and historic rise in rates, which is exactly what the finance textbooks say.

Holding a bond only resulted in a huge loss if you didn't hold until maturity. Not so with a bond fund.

Fixed income is not a set and forget thing when rates are moving a lot as they have been.

I would say that's the case with bond funds but not a bond ladder. I'm not interested in trying to time my fixed income allocation.

 

[audreyh1]

I don’t worry about rate ups and down, I just rebalance when warranted. Never pay attention to NAV.

 

[foxfirev5]

I hold both bond funds and ladders of nominal treasuries, CD's and TIPS. I honestly see no difference in market values over time. Changes in market value prevail in both cases. Just because I choose to ignore market value fluctuations does not mean it's not there.

Each holding serves a purpose. I use the ladders to ensure that I have a predicable cash flow to cover annual expenses I know will occur. The bond funds give flexibility to the plan. Simply reinvest the dividends and take some out when needed. Using a liability matching plan I let the equities ride. Over the last few years the percentage of equities has held pretty steady in the 45-55% range.

 

[jebmke]

I'll never own another one (sold out of VBTLX in 2022) and I'm currently (slowly) selling out of my target fund(s). I prefer to have my fixed asset allocation preserve capital.

so, all cash

 

[Montecfo]

Holding a bond only resulted in a huge loss if you didn't hold until maturity. Not so with a bond fund.

I would say that's the case with bond funds but not a bond ladder. I'm not interested in trying to time my fixed income allocation.

The gain or loss is similar If you hold the bond fund until rates turn around. But with bond ladders held to maturity there are no gains either if you follow the mental math.

It is true that bond ladders have advantages over funds. But they also have disadvantages such as lack of diversity, reinvestment risk, less liquid. One is not better than the other in all cases though preferences are noted.

It is like saying a screw driver is better than a crescent wrench. Depends on the task.

It is fine to not try to time the bond market. But when rate moves are so obvious and so heavily telegraphed it seems we easy to do.

I did not "time" until this hike cycle.

 

[Golden Mean]

so, all cash

Right now yes, since it's paying >5%. I'll ladder into bonds eventually, if/when the yield difference between a MMF and bonds is great enough. And I won't sell them before maturity.

 

[Golden Mean]

The gain or loss is similar If you hold the bond fund until rates turn around. But with bond ladders held to maturity there are no gains either if you follow the mental math.

Not following you here. If I buy a bond with a 4% coupon and hold to maturity I get my capital back plus 4%. How is that not a gain?

It is true that bond ladders have advantages over funds. But they also have disadvantages such as lack of diversity, reinvestment risk, less liquid. One is not better than the other in all cases though preferences are noted.

Sure, and in my IMHO a basic feature of fixed income should be capital preservation.

It is like saying a screw driver is better than a crescent wrench. Depends on the task.

One reason I chime in on these bond fund posts is because I see many people using 'bond' when they mean 'bond fund' and/or are saying they are 'the same' and I agree, they aren't the same thing.

 

[Montecfo]

Not following you here. If I buy a bond with a 4% coupon and hold to maturity I get my capital back plus 4%. How is that not a gain?

It is interest. It is not a capital gain.

Sure, and in my IMHO a basic feature of fixed income should be capital preservation.

One reason I chime in on these bond fund posts is because I see many people using 'bond' when they mean 'bond fund' and/or are saying they are 'the same' and I agree, they aren't the same thing.

I understand the approach and I do not disagree with it as far as it goes.

But you should realize there are things you lose with a bond ladder compared to a fund. There are also things you gain and vice versa.

 

[Quattro73]

Holding a fixed duration bond index fund in an inverted yield curve is definitely trying to swim upstream. Bond funds will rebound with falling rates and the un-inversion will help overall behavior and not provide an added head wind.

 

[ducky911]

I been in PIMIX for some time. Really not a large part of my holdings but does seem to do good.

 

[Montecfo]

The bullet shares can be a way to straddle the fund vs bond ladder issue.