Who invests in Total International Bond Index Fund?

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Do you invest in the Total International Bond Index Fund?

Yes
59
40%
No
88
60%
 
Total votes: 147

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Who invests in Total International Bond Index Fund?

Post by abuss368 »

I am not seeing this fund as popular on our forum.

The poll question is simple - who invests in the Vanguard Total International Bond Index Fund?

If you do invest in the fund, please provide 1) how much of your fixed income portfolio is allocated to this fund, and 2) do you invest in this fund in a taxable, tax advantage account, or both?

Best.
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Re: Who invests in Total International Bond Index Fund?

Post by DSInvestor »

I believe the fund is now included in every Target Retirement and Lifestrategy fund. There may be lots of folks in these funds that may not even know that Total International bond is in there.

Vanguard to Further Diversify Target Retirement Funds:
https://pressroom.vanguard.com/press_re ... Funds.html
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Re: Who invests in Total International Bond Index Fund?

Post by abuss368 »

DSInvestor wrote:I believe the fund is now included in every Target Retirement and Lifestrategy fund There may be lots of folks in these funds that may not even know that Total International bond is in there.

Vanguard to Further Diversify Target Retirement Funds:
https://pressroom.vanguard.com/press_re ... Funds.html
I agree with you. I still see threads that note a Three Fund Portfolio. I wish Vanguard would have kept it so. I do remember being one of the first (if not the first) to note years ago this fund would be added to the Target line up. Many did not believe it at the time.
Last edited by abuss368 on Tue Mar 04, 2014 9:33 pm, edited 1 time in total.
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Re: Who invests in Total International Bond Index Fund?

Post by cromwell »

currently 5% of fixed income allocated to international; plan to increase gradually to 10-20%.Fund is in tax deferred account
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Re: Who invests in Total International Bond Index Fund?

Post by gkaplan »

I don't.
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Re: Who invests in Total International Bond Index Fund?

Post by abuss368 »

This may be a funny question but is this fund eligible for the foreign tax credit?
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Re: Who invests in Total International Bond Index Fund?

Post by Rob5TCP »

Most of my fixed income is in CD's (ie Pen Fed), of bonds this is 25% of my bonds (much of the balance is from Wellington, and short term bond fund).
Last edited by Rob5TCP on Sat Jan 25, 2014 9:00 pm, edited 1 time in total.
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Re: Who invests in Total International Bond Index Fund?

Post by aquifer »

The TR 2035 fund in my 401k contains the international bond fund. I did a lot of reading, mostly here, and decided I was fine with Vanguard's addition of the fund. At best it may provide some diversity, at worst it probably won't make much difference since it's currency hedged. I decided it wasn't a significant enough change for me to make a change in my 401k.
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Re: Who invests in Total International Bond Index Fund?

Post by G-Money »

Seems this question comes up every month or so, and I keep posting the same response.

Total International Bond has more interest rate sensitivity than TBM (6.6 years vs. 5.5 years duration). Total International Bond has lower average credit quality than TBM. TIBM is also more expensive than TBM (0.20% ER vs. 0.10% ER for Admiral). And TIBM's yield is now 63 bp lower than TBM's, due in part to the higher ER, but largely owing to the cost of hedging, (1.60% vs. 2.23% for Admiral Shares of each fund). Between the costs of hedging and the higher ER, I expect the drag in yield of TIBM to persist, although I was surprised to see the spread is even higher now than it was just a few months ago.

So, with Total International Bond, you get more risk and less expected return than TBM. Sounds like a lose-lose to me. :)
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Re: Who invests in Total International Bond Index Fund?

Post by shawcroft »

G-Money wrote:Seems this question comes up every month or so, and I keep posting the same response.

Total International Bond has more interest rate sensitivity than TBM (6.6 years vs. 5.5 years duration). Total International Bond has lower average credit quality than TBM. And TIBM's yield is now 63 bp lower than TBM's, largely owing to the cost of hedging, (1.60% vs. 2.23% for Admiral Shares of each fund). TIBM is also more expensive than TBM (0.20% ER vs. 0.10% ER for Admiral). Between the costs of hedging and the higher ER, I expect the drag in yield of TIBM to persist.

So, with Total International Bond, you get more risk and less expected return than TBM. Sounds like a lose-lose to me. :)
G-Money:
Thanks for this summary. I've thought about this fund since it was introduced but hadn't found a compelling reason to use it. Your findings are very helpful.
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Re: Who invests in Total International Bond Index Fund?

Post by abuss368 »

G-Money wrote:Seems this question comes up every month or so, and I keep posting the same response.

Total International Bond has more interest rate sensitivity than TBM (6.6 years vs. 5.5 years duration). Total International Bond has lower average credit quality than TBM. TIBM is also more expensive than TBM (0.20% ER vs. 0.10% ER for Admiral). And TIBM's yield is now 63 bp lower than TBM's, due in part to the higher ER, but largely owing to the cost of hedging, (1.60% vs. 2.23% for Admiral Shares of each fund). Between the costs of hedging and the higher ER, I expect the drag in yield of TIBM to persist, although I was surprised to see the spread is even higher now than it was just a few months ago.

So, with Total International Bond, you get more risk and less expected return than TBM. Sounds like a lose-lose to me. :)
Thanks G-Money. That was an excellent post that really put this fund in perspective for me. I see no need for the fund in a portfolio.
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Re: Who invests in Total International Bond Index Fund?

Post by amitb00 »

I invest in it via target fund
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Re: Who invests in Total International Bond Index Fund?

Post by FNK »

I allocated a slice when it was first opened. In a tax advantaged account, of course. Haven't contributed more. Finding the yield to be meh. I do want a slice of the international bond market, but will need to figure out a better way. Will sit on this lot for now.
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Re: Who invests in Total International Bond Index Fund?

Post by joe8d »

I voted yes in that it is part of my Roth LS Growth fund.I would have rather seen VG do a 60 TSM/40 STIG instead.
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Re: Who invests in Total International Bond Index Fund?

Post by cromwell »

G-Money wrote:Seems this question comes up every month or so, and I keep posting the same response.

Total International Bond has more interest rate sensitivity than TBM (6.6 years vs. 5.5 years duration). Total International Bond has lower average credit quality than TBM. TIBM is also more expensive than TBM (0.20% ER vs. 0.10% ER for Admiral). And TIBM's yield is now 63 bp lower than TBM's, due in part to the higher ER, but largely owing to the cost of hedging, (1.60% vs. 2.23% for Admiral Shares of each fund). Between the costs of hedging and the higher ER, I expect the drag in yield of TIBM to persist, although I was surprised to see the spread is even higher now than it was just a few months ago.

So, with Total International Bond, you get more risk and less expected return than TBM. Sounds like a lose-lose to me. :)

Wouldn't some of these same criticisms apply to international equities? And what about diversifying away unanticipated changes in US bonds? If the future is like now your analysis is correct, if not international bonds might be useful
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Re: Who invests in Total International Bond Index Fund?

Post by 500Kaiser »

Did vanguard offer much logic on why they included in their lifestrategy funds? Quite honestly, it is one of the reasons I am trending toward a three fund portfolio versus a LS fund. I know its a small allocation, but the argument that its only a little bit of pollution doesn't work for me.
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Re: Who invests in Total International Bond Index Fund?

Post by longinvest »

As this bond fund uses currency hedging, here is an article about long term currency hedging experience North of the US border: http://www.canadiancapitalist.com/perfo ... dex-funds/
A Canadian investor who bought $100 (Canadian) worth of XSP in 2006 would have ended up with $152 at the end of 2011. A US investor who bought $100 (US) worth of IVV, on the other hand, would be left with $175. In other words, the returns in XSP trailed that of IVV by an annualized rate of 1.9%. A Canadian investor who bet that the C$ would appreciate against the USD and opted XSP over IVV would have made the right call but lost money on the bet. The C$ appreciated at an annualized 1.05% against the USD but the tracking error of XSP wiped out all of the gains and then some. Interestingly, a Canadian investor who bought $100 (Canadian) worth of IVV in 2006 would have ended 2013 with $161, which is a total of 6% more than XSP, even though the C$ gained 9% during that time period.
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Re: Who invests in Total International Bond Index Fund?

Post by yatesd »

I own a small percentage of Total International Bond Fund since I want to track my respective TD fund using Admiral Shares. I'm hoping by following a specific glide path it will help keep me honest with my Asset Allocation.
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Re: Who invests in Total International Bond Index Fund?

Post by TheTimeLord »

I do but the amount of money I have in it currently is a rounding error in my portfolio. Same with the Emerging Market bond fund.
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Re: Who invests in Total International Bond Index Fund?

Post by dewey »

I hold about 5% of my bonds in the Total International Admiral shares, in tax advantaged. No plans to change that in the near future.
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Re: Who invests in Total International Bond Index Fund?

Post by stemikger »

I really don't know why Vanguard put this in their Target and LS funds. I look at it this way. Twenty years ago my company's 401K plan didn't even have an international option for equities, so I don't see them ever worrying about putting an international bond fund option. I think this fund really goes against the philosophy of John Bogle. It is not needed and may even hurt returns. I really wish Vanguard kept this fund out of the Target Funds. If I want to go to a one fund option, I rather go with Vanguard Balanced Index. That fund is really the true essence of what John Bogle has been teaching all these years.
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Re: Who invests in Total International Bond Index Fund?

Post by nisiprius »

I believe in leaning toward simplicity. It's tempting to try out new ideas and I think the temptation should be resisted. So I have a strong bias against adding something like Total International Bond Index (VTIBX) unless I see a really compelling case for it.

Now, if I had always thought I should have currency-hedged international bonds but just didn't like the available alternatives, then when Vanguard introduced theirs I could see saying "OK, this is the one I've always wanted." Such a situation can happen--I personally really felt that way about TIPS and series I savings bonds--they represented something I already wanted and I bought them soon after introduction.

Apart from that, I see VTIBX as "mostly harmless." Don't see why it would hurt, but why bother?

In their paper, Global fixed income: Considerations for U.S. investors, I felt that Vanguard made a strong case for saying that any international bond holdings should be currency-hedged. Unfortunately, I felt the case they made for currency-hedged international bonds was almost comically weak.

To me it doesn't make sense that there would be a strong case. Money flows across borders, bond interest rates and such ought to tend to equalize, it doesn't make sense that investors would buy bonds paying 1% in their own country if comparably safe bonds were paying 10% in some other country. Government policy could affect interest rates for a while, but not forever. So, sure, there could be some diversification benefit, if we assume that there when there is "financial repression" going on in the U.S. there won't be everywhere. But of course, long term, if we can't time the market, there will be other times there is no "financial repression" in the U.S. but you will be experiencing it somewhere overseas, and international bonds will drag. So it gets down to that very subtle argument: what's the dollar value of slightly reducing the fluctuations in your bond portfolio?

Now, the conspicuous thing that should be acknowledged is that in the 8 months that VTIBX it has existed, a $10,000 investment in Total Bond has lost $8, while one in VTIBX has made $105. While to the eyeball volatility looks about the same. So, score one for VTIBX.

Image

That means that in a 60/40 fund like LifeStrategy Moderate, its inclusion of 8% VTIBX has boosted its total return over 8 months by 0.09%, from 6.46% to 6.55%. Annualizing the rate, then,

the international bonds in LifeStrategy Moderate boosted its performance from 9.7% to 9.8%.

Is that worthwhile? Will it persist?

Now here is some free-floating ignorant paranoia or suspicion. Not as in danger, just as in of those situations where you think you are set to do just a little bit better and, surprise, you do a little bit worse.

I don't understand how currency hedging is done. What I think I understand about it is that it is complicated machinery and I wonder if it could go wrong. It costs money, it involves some sort of futures contracts or derivatives or something. Vanguard spokespersons indicated at one point that they had found it challenging to get this working at low enough cost. Can they keep it working smoothly and continuously and at low cost? Again, I'm not talking about any kind of fund collapse, I just mean something analogous to what happened in 2002 in Total Bond, lagging the index by a percent or two, and the story at the end of year was that they had some difficulty renewing the currency hedging contracts or something.
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Re: Who invests in Total International Bond Index Fund?

Post by nedsaid »

I own a couple of International Bond Funds. I am in the category of "It looks interesting, it can't hurt, I think I will buy some." As far as I know, neither are currency hedged and I see them as another piece of the diversification strategy.

The case for International Bonds is a mild one. It is not jump up and down, pound the table, and say "buy" type of investment. I wanted to diversify away from the US Dollar a bit. I already owned International Stock Funds and I thought that pehaps I should buy International Bonds too. So I think there is a bit of a diversification benefit here but not a strong one.

My career as an investor has been marked by the willingness to branch out and try new things. If I hadn't, my retirement would still be pretty much in Certificates of Deposits at my local bank. International Bonds was just one more step.

So I see this as a "take it or leave it" type of investment. I don't think owning these will make a big difference in a portfolio over a long time period.
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Re: Who invests in Total International Bond Index Fund?

Post by am »

At first added it. But after much thought and discussion here, I got rid of it and as always went back to my good old 3 funder. Anytime I mess with my 3 funder, it usually takes less than a year to go back. I am more experienced now and fight the occasional temptations to fiddle with the portfolio which is so simple yet diverse and a thing of beauty.

Back to int. bonds. I am surprised that after the Vanguard paper, they still went ahead with the offering. There was practically no argument for adding it in most cases. They wrote similar papers on commodity futures, frontier markets and no offerings have been forthcoming. Maybe it was the pressure from advisers and certain powerful clients? But to force it down the necks of investors via life strategy and target funds imho is inappropriate.
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Re: Who invests in Total International Bond Index Fund?

Post by SpartanFan »

Yes 4.6% of my Bond/Fixed income is in this fund. I view this as diversification into Fgn mkts.
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Re: Who invests in Total International Bond Index Fund?

Post by placeholder »

No equivalent available in the 401k so not even a consideration.
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Re: Who invests in Total International Bond Index Fund?

Post by xxd091 »

xxd09-I use the UK version for the Bond part of my Portfolio -Vanguard Global Bond Index Fund[ VIGBBD] but I am a UK Boglehead and am loth to confine my Bonds to UK only.The argument for Diversifying seems to be rational for Stocks so why not Bonds? Perhaps there is more logic for its use in a UK citizens Portfolio where he is trying to diversify in a smaller market?
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Re: Who invests in Total International Bond Index Fund?

Post by brainstem »

I have some money here ... But it is interesting that in the annual report booklet from vanguard on the international bond index fund, the fund manager recommended that 20% of bond holdings should be in international bonds.

I thought that was a pretty bold statement and a bit out character for a vanguard annual report booklet.
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Re: Who invests in Total International Bond Index Fund?

Post by goonie »

I have about 3% of my portfolio in it in tax advantaged accounts. This represents about 20% of my bond holdings. The rest of my bond money is in the Total Bond Market Index Fund.
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Re: Who invests in Total International Bond Index Fund?

Post by Rysto »

longinvest wrote:As this bond fund uses currency hedging, here is an article about long term currency hedging experience North of the US border: http://www.canadiancapitalist.com/perfo ... dex-funds/
A Canadian investor who bought $100 (Canadian) worth of XSP in 2006 would have ended up with $152 at the end of 2011. A US investor who bought $100 (US) worth of IVV, on the other hand, would be left with $175. In other words, the returns in XSP trailed that of IVV by an annualized rate of 1.9%. A Canadian investor who bet that the C$ would appreciate against the USD and opted XSP over IVV would have made the right call but lost money on the bet. The C$ appreciated at an annualized 1.05% against the USD but the tracking error of XSP wiped out all of the gains and then some. Interestingly, a Canadian investor who bought $100 (Canadian) worth of IVV in 2006 would have ended 2013 with $161, which is a total of 6% more than XSP, even though the C$ gained 9% during that time period.
Yes, Canadian Capitalist has been banging that drum for many years now (and his blog is responsible for me dumping my CAD-hedging in my foreign equity allocation). However, the argument may not extend to bond funds. As he touches on in that blog post and goes into detail here, the underperformance appears to be due to correlations between the stock market and the exchange rate. Tracking error accumulates in the fund because its hedging strategy depends on the exchange rate being uncorrelated with the stock market. This correlation may well not apply to bonds I haven't seen an analysis of the issue one way or the other.
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Re: Who invests in Total International Bond Index Fund?

Post by Boglenaut »

I want to invest in it. I tried to talk myself into it. I read the Vanguard paper. I read some newer discussion they had on it. But logically I just cannot justify it.

Maybe someday, but that day is not this day.
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Re: Who invests in Total International Bond Index Fund?

Post by wjo »

Boglenaut wrote:I want to invest in it. I tried to talk myself into it. I read the Vanguard paper. I read some newer discussion they had on it. But logically I just cannot justify it.

Maybe someday, but that day is not this day.
Ditto.

I own a little of it b/c I hold a LifeStrategy fund in a small inherited IRA - the easiest way to get diversification and automatic rebalancing in a small account that has distributions. I'd rather they did 3 funds with TBM instead of 4, but not really going to have a meaningful difference.
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Re: Who invests in Total International Bond Index Fund?

Post by RadAudit »

I'm in international bonds inside a tax advantaged account.

My kids are at the beginning of their careers and new to investing. Very new, quite uninterested, and low salaries. OK, interested enough to ask what should they invest in inside their 403(b)s. My recommendation to both was VG TR. And since VG had international bonds in those portfolios, I couldn't put my kids in a portfolio that I wasn't willing to try. Lousy reason, lousy logic - but there it is. So, I'm in international bonds to ~ the same % as my kids are.
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Re: Who invests in Total International Bond Index Fund?

Post by Julieta »

50/50 stocks/fixed income

Total Stock Market Index 50%
Total International Market Index 50%


Pen Fed 5 yr 3% CDs
I bonds
TBM
Money market .85% for expenses


Keep it simple...
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Re: Who invests in Total International Bond Index Fund?

Post by Quasimodo »

From Vanguard's website:

https://personal.vanguard.com/us/insigh ... ity-102013

excerpt:

"international fixed income instruments have grown to become the largest investable asset class—larger than domestic stocks, international stocks, and domestic bonds."

Make of it what you will.

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Re: Who invests in Total International Bond Index Fund?

Post by nisiprius »

Quasimodo wrote:..."international fixed income instruments have grown to become the largest investable asset class—larger than domestic stocks, international stocks, and domestic bonds."...
"Buy a Ford from Mike Finnin because we sell more Fords than any other dealer in Dubuqueland." Both are the kind of statement that sound convincing, but part of the syllogism is missing.

a) International fixed income instruments have grown to become the largest investable asset class
b) You should invest in the largest investable asset class <--- Why?
c) Ergo, you should invest in international fixed income.

The absurdity becomes more obvious if you state it this way:

a) International fixed income represents 35/(23 + 35) = 60% of the world fixed income market.
b) Your portfolio should resemble the world fixed income market <--- Why?
c) Ergo, you should invest 20% of your fixed income allocation in international fixed income.

How about this syllogism:

a) International fixed income represents 35/(23 + 35) = 60% of the world fixed income market.
b) "There is no right or wrong allocation to foreign bonds." --Vanguard's Christopher Philips, May, 2013.
c) Ergo, according to Vanguard's Christopher Philips, 0% is not the wrong allocation to foreign bonds.
Last edited by nisiprius on Mon Jan 27, 2014 11:09 am, edited 2 times in total.
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Re: Who invests in Total International Bond Index Fund?

Post by Sriracha »

The bulk of my bonds are located in the 401k and there's no international bond offering available there. I could stick some in the much smaller tIRAs, but I prefer using the space for my TIPS allocation. Thus, no international bond fund for me -- a fact Vanguard will remind me of whenever I use their Portfolio Watch feature.
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