why so much down VG tip should i sell now

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looking
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why so much down VG tip should i sell now

Post by looking »

vanguard tip is being downed every day I lost lots of money so what shall I do now --should I sell or wait to see if back up
Johm221122
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Re: why so much down VG tip should i sell now

Post by Johm221122 »

Is it part of your investment plan?
dbr
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Re: why so much down VG tip should i sell now

Post by dbr »

If buying that fund in the first place made sense, then you should hold it indefinitely.

If you have had a misunderstanding about bond funds and have not known that these funds can decline in price, then it could be you should sell it. Before doing that you should think through where the money should go instead.
livesoft
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Re: why so much down VG tip should i sell now

Post by livesoft »

Thanks for the opportunity to respond to your question. Here is a chart of the growth of your fund:
Image

What do you notice about this chart? Did you notice that your fund dropped in value about 3.25% in few months that were charted?

Did you notice that the chart is from TWO YEARS AGO? So I have to ask you, what did you do 2 years ago with your shares? If you sold them, why do you still have them?
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livesoft
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Re: why so much down VG tip should i sell now

Post by livesoft »

Here is the same chart, but now for this year:
Image
Did you notice that this time your fund is only down about 1% instead of more than 3%?

Please come back and comment on why 1% down is worse for you than more than 3% down?

Clearly, past performace does not predict future performance or your fund should be down much more than 3% by now. Unfortunately, I cannot get a chart for 2 years into the future.
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trasmuss
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Re: why so much down VG tip should i sell now

Post by trasmuss »

The TIPS fund has a higher duration (over 8 years) than other Vanguard intermediate funds (a little over 5 for Total Bond). This means if interest rates move up you may lose more and should have more volatility in this fund than other intermediate high quality funds. The new short term TIPS fund has a much lower duration but currently has a purchase fee. If this is in a tax deferred account you have the option to switch to a short term bond fund such as Short Term Investment Grade (with a later option of switching to the short term TIPS fund when the purchase fee is dropped).

Everyone will have to decide for themselves, of course, depending upon their own objectives.
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stilts1007
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Re: why so much down VG tip should i sell now

Post by stilts1007 »

livesoft wrote:Unfortunately, I cannot get a chart for 2 years into the future.
When you find that chart can you post it for us on the forum? Thanks!
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nisiprius
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Re: why so much down VG tip should i sell now

Post by nisiprius »

Looking, you should take a minute and go to Vanguard's website, personal.vanguard.com, type VIPSX into the search box, and look at the description of this fund's risk characteristics. You will see this:

Image
Conservative to moderate funds—Risk level 2
Vanguard funds classified as conservative to moderate are subject to low-to-moderate fluctuations in share prices. In general, such funds may be appropriate for investors with medium-term investment horizons (four to ten years).
This means that you should expect fluctuations, and that it is not appropriate to obsess over what is happening over period of time that are much less than four years.

I believe strongly that for most long-term investment purposes one should look at the total return (growth chart), not the NAV. Here is a chart of two funds. Vanguard Inflation Protected Securities (VIPSX); an a SHORT-term TIPS ETF, which I'm including because it is probably similar in behavior to Vanguard's short-term TIPS fund. The orange line starts at the point when the ETF was created, and, as you see, it is smoother than the blue line but also grows slowly.

I've circled a few previous dips. I've labeled the big one in 2008-2009 "Anomaly?" because I think that was an unusual situation.

Image

Here are my personal judgements.

a) What's happened recently to VIPSX isn't anything remarkable or out of the ordinary. It looks just like the kind of fluctuation you should expect to see in the fund.

b) "Rising rates" aren't going to hit instantly. The effect of rising rates will be to give every bond fund, TIPS or not, a downward bend. On a growth chart, plotting total return, maybe it will just slow growth, maybe it will level out and plateau for a while, maybe it will bend over and decline. Maybe something else will do better than VIPSX and people who stay it will experience remorse. Or maybe not.

c) What I really do NOT think is going to happen is a crash similar in size to the stock crash of 2008-2009. A holder of VIPSX is not going to see half of their wealth vaporized. 10%? Sure, it happened in 2009 (but was preceded by a 10% rise). A 20% loss in the value of an individual 30-year TIPS? Possibly, but that is very different from a TIPS fund with a 8.5-year duration.

VIPSX isn't down by very much. It only looks bad if you are comparing it to a bank account. So I would make this DUAL JUDGEMENT:

d) I don't see any strong reason to sell VIPSX immediately. BUT,

e) If you're spooked by about a 1.5% loss and just really don't want to see any further loss, I don't see any particular reason not to sell, either. But before you make that move, you probably should figure out what you are going to buy to replace it with.
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Karl
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Re: why so much down VG tip should i sell now

Post by Karl »

Looks like I'll be holding what I have. Given that 73% of my bond holdings are ST (mostly ST Inv. Grade with a bit of ST Tax-Exempt -- which is really an ultra-short bond fund -- mixed in) I have only a limited amount of interest rate risk. The remainder of my bond holdings are this TIPS fund and GNMA which give me credit quality backed by the US treasury, so they won't get bashed should we have a replay of 2008 where investors decided anything not Treasury-backed is junk. Back then ST Corp got hit by folks who treated it as if it were junk. Overall, I'd say I have a very safe and reasonable mix.
z3r0c00l
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Re: why so much down VG tip should i sell now

Post by z3r0c00l »

looking wrote:vanguard tip is being downed every day I lost lots of money so what shall I do now --should I sell or wait to see if back up
Just to be clear, you wait for something to go down and then sell it? Repeat that idea in your head a few times...
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tibbitts
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Re: why so much down VG tip should i sell now

Post by tibbitts »

looking wrote:vanguard tip is being downed every day I lost lots of money so what shall I do now --should I sell or wait to see if back up
Were you asking the same question (whether to sell) when it was going up "every day"? If not, why not?

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patriciamgr2
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Re: why so much down VG tip should i sell now

Post by patriciamgr2 »

Hello Karl: Sorry for my delay in posting a response to your inquiry; other posters have answered your question, but I wanted to add something.

Because most investors think of bonds as the safe part of their portfolio, it can be disconcerting when bonds begin to lose value when (if) interest rates rise generally. You pointed out in your second post that generally you have shorter duration holdings & that you also hold TIPS and mortgage-backed.

May I suggest that you read the sections in the Wiki on Bond Duration, and on Bond Convexity (I think the latter is relevant for any mortgage-backed securities)? Personally, if I understand why a fund will go down--if and when interest rates change--it makes it easier for me to "stay the course". On bond funds, the theory is that if you stay invested even as it loses value during times of increasing interest rates, the fund will eventually begin reinvesting in higher interest rate bonds and you will benefit (I have minor quibbles with this because, unfortunately, many investors sell out after losses, so I always wonder about how liquidity needs impact that reinvestment --but that's not the key point).

No one knows for sure what is going to happen to interest rates. Because the levels are historically low, some (including me) believe that if and when the government withdraws its bond repurchases (ie QE ends), interest rates will increase. So, it's been important for me to understand how my holdings are likely to react at different interest rate increases by looking at duration & calculating the percentage loss that would be expected.

best wishes, patricia

P. S. Thanks to the author of that Wiki section!
Austintatious
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Re: why so much down VG tip should i sell now

Post by Austintatious »

patriciamgr2 wrote:

Because most investors think of bonds as the safe part of their portfolio, it can be disconcerting when bonds begin to lose value when (if) interest rates rise generally. You pointed out in your second post that generally you have shorter duration holdings & that you also hold TIPS and mortgage-backed.

May I suggest that you read the sections in the Wiki on Bond Duration, and on Bond Convexity (I think the latter is relevant for any mortgage-backed securities)? Personally, if I understand why a fund will go down--if and when interest rates change--it makes it easier for me to "stay the course". On bond funds, the theory is that if you stay invested even as it loses value during times of increasing interest rates, the fund will eventually begin reinvesting in higher interest rate bonds and you will benefit (I have minor quibbles with this because, unfortunately, many investors sell out after losses, so I always wonder about how liquidity needs impact that reinvestment --but that's not the key point).

No one knows for sure what is going to happen to interest rates. Because the levels are historically low, some (including me) believe that if and when the government withdraws its bond repurchases (ie QE ends), interest rates will increase. So, it's been important for me to understand how my holdings are likely to react at different interest rate increases by looking at duration & calculating the percentage loss that would be expected.
In addition to the sections of the Wiki referenced by Patricia re bond duration, there are a number of well written discussions re bond duration, changes in interest rates and what one might expect to occur as a result of such changes, on the http://www.longtermreturns.com website.
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