Intermediate-Term Bond vs Total Bond
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Intermediate-Term Bond vs Total Bond
Ideally I'd like to have the Total Bond Market Index Fund in my 401k but my company 401k doesnt have it. So I replaced it with
Vanguard Intermediate-Term Bond Index Fund Signal Shares VIBSX for my bond allocation.
My AA is 80/20 with all of my bonds in VIBSX on my 401k.
1. Is VIBSX a decent substitute for Total Bond in the long term?
2. How about Harbor Bond Fund/Inst?
3. Or should I buy some percent of bonds in my Roth or Taxable if none are good options.
The funds available in my Company 401K
Wells Fargo Stable Return G
Harbor Bond Fund/Inst
T. Rowe Price Retire 2010
T. Rowe Price Retire 2020
T. Rowe Price Retire 2030
T. Rowe Price Retire 2040
Keeley Small Cap Value Fund
T. Rowe Price Real Estate
Dodge & Cox Intl Stock
T. Rowe Price Retire 2050
Royce Premier
Hartford Capital Appr R5
Vanguard Interm Term Bond Index (Signal)
Vanguard Mid-Cap Idx/Signal
Vanguard Reit Index Signal
Vanguard Small Cap Idx/Signal
Vanguard Totl Stk Mkt Indx Signal
Vanguard Total Intl Stock Index Signal
Vanguard Intermediate-Term Bond Index Fund Signal Shares VIBSX for my bond allocation.
My AA is 80/20 with all of my bonds in VIBSX on my 401k.
1. Is VIBSX a decent substitute for Total Bond in the long term?
2. How about Harbor Bond Fund/Inst?
3. Or should I buy some percent of bonds in my Roth or Taxable if none are good options.
The funds available in my Company 401K
Wells Fargo Stable Return G
Harbor Bond Fund/Inst
T. Rowe Price Retire 2010
T. Rowe Price Retire 2020
T. Rowe Price Retire 2030
T. Rowe Price Retire 2040
Keeley Small Cap Value Fund
T. Rowe Price Real Estate
Dodge & Cox Intl Stock
T. Rowe Price Retire 2050
Royce Premier
Hartford Capital Appr R5
Vanguard Interm Term Bond Index (Signal)
Vanguard Mid-Cap Idx/Signal
Vanguard Reit Index Signal
Vanguard Small Cap Idx/Signal
Vanguard Totl Stk Mkt Indx Signal
Vanguard Total Intl Stock Index Signal
Last edited by boogiewoogie on Thu Jul 26, 2012 3:17 pm, edited 5 times in total.
Re: Intermediate-Term Bond vs Total Bond
So are you 100% VIBSX? More generally you should format your question according to the guidelines so we can see your whole portfolio to comment on diversification.
Re: Intermediate-Term Bond vs Total Bond
If all of your retirement investments are in VIBSX, then no, you are not diversified enough.boogiewoogie wrote: Am I diversified enough?
Re: Intermediate-Term Bond vs Total Bond
Emphasis added. You don't need to post your whole portfolio. Your question was regarding your bond allocation.boogiewoogie wrote:So I replaced it with
Vanguard Intermediate-Term Bond Index Fund Signal Shares VIBSX for my bond allocation.
Yes, at least as far as your bond allocation goes. You can add TIPS if you want, but you certainly don't need them.boogiewoogie wrote:Am I diversified enough?
Don't assume I know what I'm talking about.
Re: Intermediate-Term Bond vs Total Bond
If VIBSX is more than 20% of your portfolio, then no, I don't think you are diversified enough.
Re: Intermediate-Term Bond vs Total Bond
Yes, the Intermediate-Term Bond Index is a reasonable -- in my opinion, preferred -- alternative to total bond index. You could consider a TIPS fund, but they are not available in your 401k,nor are they an essential holding for most investors. Unless you are saving for a very short-term expenditure, you cannot go wrong holding 100% of your 401k bond allocation in Intermediate-Term Bond Index.
Re: Intermediate-Term Bond vs Total Bond
You might also want to consider Wells Fargo Stable Return depending on its rate of return.
It does not matter how slowly you go so long as you do not stop.
Re: Intermediate-Term Bond vs Total Bond
Why? If OP were, say, 50, and wanted a 60/40 portfolio, which (IMO) wouldn't be atypical or inappropriate, I would think having VIBSX for all 40% of the bonds would be OK.mptfan wrote:If VIBSX is more than 20% of your portfolio, then no, I don't think you are diversified enough.
As it turns out, OP has previously indicated he/she is 29, with a desired AA of 80/20. I was just curious what your rationale was.
Don't assume I know what I'm talking about.
Re: Intermediate-Term Bond vs Total Bond
My rationale is that there are many different types of bonds with different terms and different risk/return characteristics, including long term treasuries and long term investment grade corporates, intermediate term treasuries and investment grade corporates, short term treasuries and investment grade corporates, high yield corporates, GNMA's, international bonds, emerging market bonds, TIPS, and municipal bonds. Of those 12 types of bonds, the intermediate bond index has 3.
Also, in my opinion, intermediate term and long term treasury bonds are a bad investment right now, given that we are near the end of a 30 year bull run for treasuries due to the lowering of interest rates to historic lows. But to be fair, that is just my opinion, and it is a reason why I want to limit my exposure to nominal treasury bonds of middle or long term duration, and it is not a knock against the intermediate bond index as being not diversified.
Also, in my opinion, intermediate term and long term treasury bonds are a bad investment right now, given that we are near the end of a 30 year bull run for treasuries due to the lowering of interest rates to historic lows. But to be fair, that is just my opinion, and it is a reason why I want to limit my exposure to nominal treasury bonds of middle or long term duration, and it is not a knock against the intermediate bond index as being not diversified.
Re: Intermediate-Term Bond vs Total Bond
Actually, by that measure, it looks like Intermediate-Term only has 2 (int-term treasuries and investment grade corporates). Of course, if you further diversify into both short- and long-, your bond allocation will still work about the same as just a plain intermediate index. Lots of folks here have noted that high yield, GNMAs, international, and emerging could and perhaps should be avoided (due to correlation and/or costs). Munis are only needed (IMO) if you run out of tax-advantaged space. Agree that TIPS could be a nice addition, but wouldn't say they're necessary.mptfan wrote:My rationale is that there are many different types of bonds with different terms and different risk/return characteristics, including long term treasuries and long term investment grade corporates, intermediate term treasuries and investment grade corporates, short term treasuries and investment grade corporates, high yield corporates, GNMA's, international bonds, emerging market bonds, TIPS, and municipal bonds. Of those 12 types of bonds, the intermediate bond index has 3.
Thanks for explaining.
Don't assume I know what I'm talking about.
Re: Intermediate-Term Bond vs Total Bond
Not quite, it has 3.2% in foreign bonds, so I gave it credit for that category.G-Money wrote:Actually, by that measure, it looks like Intermediate-Term only has 2 (int-term treasuries and investment grade corporates)
https://personal.vanguard.com/us/funds/ ... st=tab%3A2
Re: Intermediate-Term Bond vs Total Bond
I don't share that view.G-Money wrote:Lots of folks here have noted that high yield, GNMAs, international, and emerging could and perhaps should be avoided (due to correlation and/or costs).
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Re: Intermediate-Term Bond vs Total Bond
I am not sure what a noob like me should conclude from that, but how does Harbor Bond Fund/Inst shoud compared to Total Bond?
Re: Intermediate-Term Bond vs Total Bond
Well, for one thing, it invests up to 15% in junk bonds and foreign bonds, while TBM does not. It's a bit riskier. Perhaps because of this, it has outperformed TBM over the last 10 years. However, it may under-perform TBM when interest rates rise, or if there is a market crash, or you know, just randomly.boogiewoogie wrote:I am not sure what a noob like me should conclude from that, but how does Harbor Bond Fund/Inst shoud compared to Total Bond?
Actually, its manager is Bill Gross... wait a minute... its performance is nearly identical to PIMCO Total Return! This is some sort of weird clone of Total Return. If so, it's probably a solid choice, but that's a topic of endless debate. For example: http://www.bogleheads.org/forum/viewtopic.php?t=58976 and http://www.bogleheads.org/forum/viewtop ... 1&t=100105
It does not matter how slowly you go so long as you do not stop.
Re: Intermediate-Term Bond vs Total Bond
The PIMCO total return fund is managed by Bill Gross, widely regarded as one of the leading experts in fixed income investing, and that fund has some high yield bonds, foreign bonds, emerging market bonds, and municipal bonds. Therefore, this fund is much closer to being a total bond fund than the Vanguard "total bond" fund.
It is a little bit riskier than Vanguard's total bond fund because it includes some of the bond asset classes that are excluded from the Vanguard fund, and which are a bit riskier. As a result, the overall performance is higher.
You can look at it another way and say the Vanguard Total Bond Market fund excludes some of the types of bonds that make up the overall bond market, therefore, the performance of the fund is almost always lower than the performance of the bond market.
It is a little bit riskier than Vanguard's total bond fund because it includes some of the bond asset classes that are excluded from the Vanguard fund, and which are a bit riskier. As a result, the overall performance is higher.
You can look at it another way and say the Vanguard Total Bond Market fund excludes some of the types of bonds that make up the overall bond market, therefore, the performance of the fund is almost always lower than the performance of the bond market.
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Re: Intermediate-Term Bond vs Total Bond
boogiewoogie wrote:Ideally I'd like to have the Total Bond Market Index Fund in my 401k but my company 401k doesnt have it. So I replaced it with
Vanguard Intermediate-Term Bond Index Fund Signal Shares VIBSX for my bond allocation.
My AA is 80/20 with all of my bonds in VIBSX on my 401k.
1. Is VIBSX a decent substitute for Total Bond in the long term?
Well both are intermediate-bond indexes.
VBIIX Intermediate: Basically 60/40 Treasury/Corporate
1311 bonds, 7.3 yr avg maturity, 6.4 yr avg duration, 4.3% avg coupon
VBMFX TBM: Basically 43/21/27 Treasury/Corporate/Securitized
5248 bonds, 7.1 yr avg maturity, 5.1 yr avg duration, 4.0% avg coupon
So you are more diversified with the TBM but their returns have been very close over the long run.
2. How about Harbor Bond Fund/Inst?
I'd rather have the VBIIX fund personally. Harbor charges 0.53% for basically the same returns.
3. Or should I buy some percent of bonds in my Roth or Taxable if none are good options.
I'd keep it simple and keep my 20% bond allocation in the 401k. No need to make things complex.
This post was brought to you by Vanguard Total World Stock Index (VTWSX/VT).
Re: Intermediate-Term Bond vs Total Bond
I have very similar questions but I do have a choice of both. If you had both and you could choose, which would you choose or would you have both?
Re: Intermediate-Term Bond vs Total Bond
Either one is an excellent choice not worth worrying over..... Since no one knows what the future holds it is impossible to be able to pick or forecast one over the other. My personal preference of the two is the Intermediate Index and I owned it in conjunction with TIPS as my bond allocation for many years. I say that since I personally do not wish to own long treasuries at this point in time due to the high interest rate risk they bring. If you have gotten this far in your asset allocation planning either will perform suitably for you.
Re: Intermediate-Term Bond vs Total Bond
Thanks for your response. You say your bond allocation used to be Intermediate Term plus TIPS. So I am curious...what is it now??
thanks!!
thanks!!
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Re: Intermediate-Term Bond vs Total Bond
Based on all the suggestions, I've decided to stick with Intermediate-Term Bond VIBSX for my bond allocation of 20%. Thank you all.
Re: Intermediate-Term Bond vs Total Bond
VIBSX is a fine bond fund; you have made an excellent choice. -- Tetboogiewoogie wrote:Based on all the suggestions, I've decided to stick with Intermediate-Term Bond VIBSX for my bond allocation of 20%. Thank you all.
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Re: Intermediate-Term Bond vs Total Bond
I am planning on using the Intermediate Bond Index as my main bond holding, instead of the Total Bond Market Index. When I was going through the startup kit on the wiki, this link influenced me. Granted, it was written in 2007, but I didn't like the idea of "non-bonds" being part of my bond allocation:
Dear Jack:
I am in the process of reading your new book”The Little Book”and in your chapter on bond funds,you state that “the intermediate-term bond index fund is a truly superior performer”.
I owned that fund along with the Long Term Bond Index Fund.Then last year Vanguard developed a financial plan for me in which they recommended that I sell those two funds and purchase the Total Bond Market Index Fund.I did just that and now I am concerned that I made a mistake and should have at least kept the Intermediate fund. I realize you are comparing that fund to Muni Bonds and Gov’t Bonds but I am wondering how you feel about the Total Bond Market Index Fund vs.Intermediate. Would it make sense to hold both? I also own the European Index Fund and it has done very well and I am considering buying the Total International Stock Index Fund and also keeping the European Fund. Again,does it make sense to hold both? Does it ever make sense to hold a part of a total index fund and still hold the total fund.
As you can see I am confused so anything you can do to shed some light on all of this would REALLY be appreciated.
I look forward to hearing from you,
John D
Hi, John,
Thanks for asking about our bond funds. I like the (taxable) IT bond index fund because it provides more stability than the LT index fund, and more income than the ST index fund. The Total Bond Market Index Fund is fine, but I vaguely wonder about a bond fund that has 35% of its portfolio in non-bonds (i.e., GNMA securities, with their risk of being prepaid early, when interest rates tumble).
That said, TBMF happens to have a maturity profile that is intermediate-term on balance, and so differs from IT largely in its holdings of GMNAs and Treasurys. Their ten-year records are similar, based on the tabulation I’m sending separately (IT 6.49%, TBM 5.96%, which included a single year–2002–in which we sort of forgot to stick to index principles, costing 2.00%, or about 0.20% per year. I’m assured by management that such an aberration will not recur.)
As it happens your previous 50LT/50IT strategy was a winning one, as the tabulation shows. Of course we have no idea which of the above strategies will work best in the coming ten years, but it’s comforting to realize that the results of all six of those shown are almost certain to differ only in degree.
There’s no particular reason NOT to hold two overlapping index funds. In your case, adding a similar investment in Total International to your present European would simply lower your European exposure from 100% to about 80% of your Intl holdings. Not much difference, for Eur is about 60% of Intl.
I don’t know nearly enough about your assets and goals to advise you, but I hope this note helps clarify the issues. Perhaps your Vanguard adviser can explain the reasoning behind your allocations, and discuss possible changes.
Best,
Jack Bogle
Dear Jack:
I am in the process of reading your new book”The Little Book”and in your chapter on bond funds,you state that “the intermediate-term bond index fund is a truly superior performer”.
I owned that fund along with the Long Term Bond Index Fund.Then last year Vanguard developed a financial plan for me in which they recommended that I sell those two funds and purchase the Total Bond Market Index Fund.I did just that and now I am concerned that I made a mistake and should have at least kept the Intermediate fund. I realize you are comparing that fund to Muni Bonds and Gov’t Bonds but I am wondering how you feel about the Total Bond Market Index Fund vs.Intermediate. Would it make sense to hold both? I also own the European Index Fund and it has done very well and I am considering buying the Total International Stock Index Fund and also keeping the European Fund. Again,does it make sense to hold both? Does it ever make sense to hold a part of a total index fund and still hold the total fund.
As you can see I am confused so anything you can do to shed some light on all of this would REALLY be appreciated.
I look forward to hearing from you,
John D
Hi, John,
Thanks for asking about our bond funds. I like the (taxable) IT bond index fund because it provides more stability than the LT index fund, and more income than the ST index fund. The Total Bond Market Index Fund is fine, but I vaguely wonder about a bond fund that has 35% of its portfolio in non-bonds (i.e., GNMA securities, with their risk of being prepaid early, when interest rates tumble).
That said, TBMF happens to have a maturity profile that is intermediate-term on balance, and so differs from IT largely in its holdings of GMNAs and Treasurys. Their ten-year records are similar, based on the tabulation I’m sending separately (IT 6.49%, TBM 5.96%, which included a single year–2002–in which we sort of forgot to stick to index principles, costing 2.00%, or about 0.20% per year. I’m assured by management that such an aberration will not recur.)
As it happens your previous 50LT/50IT strategy was a winning one, as the tabulation shows. Of course we have no idea which of the above strategies will work best in the coming ten years, but it’s comforting to realize that the results of all six of those shown are almost certain to differ only in degree.
There’s no particular reason NOT to hold two overlapping index funds. In your case, adding a similar investment in Total International to your present European would simply lower your European exposure from 100% to about 80% of your Intl holdings. Not much difference, for Eur is about 60% of Intl.
I don’t know nearly enough about your assets and goals to advise you, but I hope this note helps clarify the issues. Perhaps your Vanguard adviser can explain the reasoning behind your allocations, and discuss possible changes.
Best,
Jack Bogle