Ultimate Bond Portfolio

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ronney
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Joined: Sun Sep 30, 2007 2:35 pm

Ultimate Bond Portfolio

Post by ronney »

Hi,

After reading several threads about Bonds. This is what I have constructed. Let me know what you guys think.
Looking forward to all the Pros and Cons about this Bond Portfolio.
(Note: Stock Portfolio is separate, this is just Bond side of the individual asset allocation)

25% Vanguard Total Bond Market Index Fund Investor Shares (VBMFX)
25% Vanguard Intermediate-Term Bond Index Fund Investor Shares (VBIIX)
25% Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX)
25% Vanguard Short-Term Bond Index Fund Investor Shares (VBISX)

John Bogle and Taylor Larimore like Total Bond Market (VBMFX) because of its simplicity and diversification.

Larry Swedroe likes Interm-Term Bond (VBIIX) because of no Mortgage Backed Securities (MBS) and John Bogle also seems to prefer it.

If inflation raises more than expected than Short-Term Bond (VBISX) is going help.

If inflation raises less than expected than Inflation-Protected Secs (VIPSX) is going to help.

Growth Chart (Morning-star)

03/01/1994 to 06/22/2012 for Initial 10K Investment.

Vanguard Interm-Term Bond Index Inv: 34,137.86

Vanguard Total Bond Market Index Inv: 29,845.87

Vanguard Short-Term Bond Index Inv: 24,516.46

Vanguard Inflation-Protected Secs Inv: 34,993.51
Last edited by ronney on Sat Jun 23, 2012 9:38 am, edited 1 time in total.
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abuss368
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Re: Ultimate Bond Portfolio

Post by abuss368 »

Hi ronney,

You could do a lot worse. However, my opinion only, I would not have 4 bond funds.

That said, I would have the Total Bond Market Index Fund (or Intermediate Tax Exempt in taxable) and the Inflation Protected TIPS Fund. No need for Intermediate Bond Index or Short Term as these funds are already in the Total Bond Market fund. This results in overlap with no additional diversification.

I have read and watched interviews where Mr. Bogle has noted that his personal investments consist of the Total Bond Market in his tax advantaged account and Intermediate/Limited Term Tax Exempt in his taxable account. I have also read an interview where Mr. Bogle had the Inflation Protected TIPS fund.

However, there was an interview with Mr. Bogle and Steve Forbes a year or so ago at Forbes.com (you may be able to search) where they both said they cashed out of this fund for Total Bond and Intermediate Term Tax Exempt due to low yield. Point is, I am not sure if Mr. Bogle invests in the Inflation Protected fund anymore.

Now, another expert, David Swensen, author of Unconventional Success and Yale University Chief Investment Officer, recommends Treasuries and TIPS fund split 50%/50%.

The Total Bond Market fund has Treasuries, Agency, Mortgage Backed, Corporate, Foreign Bonds in US Dollars, etc.

For simplicity and effectiveness, I would rather have bigger balances in two funds, less rebalancing, less tax implications, less paperwork, less annual reports to read, higher compunding with interest, with Total Bond and Inflation Protected, than four funds with smaller balances, more paperwork and administration, more reports, more tax headaches, and a rebalancing nightmare.
John C. Bogle: “Simplicity is the master key to financial success."
shariron
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Re: Ultimate Bond Portfolio

Post by shariron »

Certainly nothing wrong with what you’ve constructed. My only thought is you’re likely to effectively accomplish the same thing with just two funds, 75% Total Bond and 25% Inflation Protected.
Last edited by shariron on Sat Jun 23, 2012 10:39 am, edited 1 time in total.
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joe8d
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Re: Ultimate Bond Portfolio

Post by joe8d »

50% TBM ( Intermediate / Gov't ) and 50 % Short Term Investment Grade ( Short / Corporate ) would be my choice.
All the Best, | Joe
mackstann
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Re: Ultimate Bond Portfolio

Post by mackstann »

10% High Yield Corporate, because that's not included in any of the other funds! That'll add some true diversification.

And a liberal dose of GNMA, because its performance has been similar to TBM but with slightly better risk-to-reward ratio.

I think it's grasping at straws. You probably won't do much, if any better than 100% TBM or 50/50 TBM/TIPS. If you do get better returns, there will be no way to prove it wasn't just luck.

If you like to tinker, this is a fairly harmless way to do that (much better than active trading). So why not? Go for it. Or not. Whichever, really...
It does not matter how slowly you go so long as you do not stop.
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G-Money
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Re: Ultimate Bond Portfolio

Post by G-Money »

ronney wrote:this is just Bond side of the individual asses allocation)[/color]
:D
ronney wrote:If inflation raises more than expected than Short-Term Bond (VBISX) is going help.

If inflation raises less than expected than Inflation-Protected Secs (VIPSX) is going to help.
I think this is backwards. In over-simplified terms, the return of TIPS = real yield + inflation. If inflation is higher than expected, TIPS can be expected to outperform nominal Treasuries of the same maturity. If inflation is lower than expected, Treasuries will underperform nominal Treasuries of the same maturity. But in this latter instance, you'd have been better off with long term nominal bonds, which pay an inflation risk premium (in this instance, for a risk that didn't show up). So long-term would have done better than short-term.

Also, what's the point of owning a slice of TBM here? TBM has about 30% in MBS. Holding a bond portfolio with 25% TBM reduces your MBS allocation to about 7.5% of bonds. Assuming you have a 60/40 stock/bond portfolio, MBS would constitute a whopping 3% of your total portfolio. Why bother? My recommendation would be to cut out the TBM in this case and either double up on intermediate-term, or split the remaining 3 evenly (1/3 in int, short, and TIPS).

FWIW, my bond portfolio is 50/50 TBM/TIPS.

Good luck.
Don't assume I know what I'm talking about.
Bob's not my name
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Re: Ultimate Bond Portfolio

Post by Bob's not my name »

G-Money wrote:
ronney wrote:this is just Bond side of the individual asses allocation)[/color]
:D
ronney wrote:If inflation raises more than expected than Short-Term Bond (VBISX) is going help.

If inflation raises less than expected than Inflation-Protected Secs (VIPSX) is going to help.
I think this is backwards.
Asses backwards, you might say. Inflation raises eyebrows but it doesn't raise without an object and I don't think you mean rise, either -- it is the rise in prices. I don't think you're talking about the second derivative of the price curve. Then there's the than problem. How about "If inflation is more than expected then ..."

I agree with the others that you're mixing yellow with green because you don't like blue.

Also, why fragment so much that you miss out on Admiral ER's? Maybe this is all in your employer plan and that's as good as it gets.

Keep us appraised if that doesn't jive with the affect you're expectorating. :)
Call_Me_Op
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Re: Ultimate Bond Portfolio

Post by Call_Me_Op »

ronney wrote:Hi,

After reading several threads about Bonds. This is what I have constructed. Let me know what you guys think.
Looking forward to all the Pros and Cons about this Bond Portfolio.
(Note: Stock Portfolio is separate, this is just Bond side of the individual asses allocation)

25% Vanguard Total Bond Market Index Fund Investor Shares (VBMFX)
25% Vanguard Intermediate-Term Bond Index Fund Investor Shares (VBIIX)
25% Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX)
25% Vanguard Short-Term Bond Index Fund Investor Shares (VBISX)

John Bogle and Taylor Larimore like Total Bond Market (VBMFX) because of its simplicity and diversification.

Larry Swedroe likes Interm-Term Bond (VBIIX) because of no Mortgage Backed Securities (MBS) and John Bogle also seems to prefer it.

If inflation raises more than expected than Short-Term Bond (VBISX) is going help.

If inflation raises less than expected than Inflation-Protected Secs (VIPSX) is going to help.

Growth Chart (Morning-star)

03/01/1994 to 06/22/2012 for Initial 10K Investment.

Vanguard Interm-Term Bond Index Inv: 34,137.86

Vanguard Total Bond Market Index Inv: 29,845.87

Vanguard Short-Term Bond Index Inv: 24,516.46

Vanguard Inflation-Protected Secs Inv: 34,993.51
The past performance you quote is meaningless at best. I hope you are aware of that.

Aside from that, you should not view portfolio components in isolation.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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Taylor Larimore
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Re: Ultimate Bond Portfolio

Post by Taylor Larimore »

Ronney:

Intermediate-Term and Short-Term bond funds each overlap Total Bond Market so why not just hold Total Bond Market to simplify.

Bob's not my name makes a very important point: " Why fragment so much that you miss out on Admiral ER's?."

"There seems to be some perverse human characteristic that likes to make easy things difficult."
Warren Buffett

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
bikeguyken
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Re: Ultimate Bond Portfolio

Post by bikeguyken »

Hi Ronney,
As Taylor says 'there are many roads to Dublin'. The bond road you've taken sounds just fine to me. In fact mine has an additional dimension with 10% of my bond allocation in High Yield. Here is my bond breakdown which follows my age in bonds which is 72% in 2012.

30% TBM+ITB Index--my IRA-ITB Index, wife's IRA-TBM
30% Inf Prot Index+I Bonds--IRAs + Taxable Account
30% STIG--in IRAs + Taxable Account---Note: STIG along with PMM (<0.5%) in Taxable used as my liquity account as required
10% High Yield- a Rick Ferri favorite

Best regards,
Ken
Topic Author
ronney
Posts: 134
Joined: Sun Sep 30, 2007 2:35 pm

Re: Ultimate Bond Portfolio

Post by ronney »

Hi,

Thanks for all the help. Both wiki and this forum are great help to Individual Investor.
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abuss368
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Re: Ultimate Bond Portfolio

Post by abuss368 »

Best of luck to you.

Remember the most important thing: Keep investing simple!
John C. Bogle: “Simplicity is the master key to financial success."
steve_14
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Re: Ultimate Bond Portfolio

Post by steve_14 »

Too many bonds funds, as others have said. I'd go with either 100% TBM, or 75% TBM, 25% TIPS. Simpler is usually better.
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