WSJ - Avoid Vanguard Total Bond Fund ?

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WSJ - Avoid Vanguard Total Bond Fund ?

Postby Bustoff » Sun Jan 27, 2013 8:47 am

This recent WSJ article titled, "The Risk of Safety", is annoying. First, they suggest avoiding the Vanguard Total Bond Market Index Fund. Their justification is the risk rising of interest rates. They suggest instead of investing in the Vanguard Total Bond Market Index, investors should switch to the Vanguard Short-Term Bond ETF, which has a shorter duration and a 1.6% yield. :shock:
Is the author deliberately misleading people or just lousy at giving advice ?
If the entire premise of avoiding the Vanguard Total Bond Market Fund is that it's future is risky and we should not rely on it's previous performance, then why mislead readers by advising them to jump into Vanguard Short-Term Bond ETF using the prior 12 month returns of 1.6%.
If he's so concerned about future rates, he should not use the funds TTM (trailing twelve months) return.
The Short-Term Bond ETF current SEC yield of 0.53% is the less "risky" indicator.

http://online.wsj.com/article/SB1000142 ... 91140.html
Last edited by Bustoff on Sun Jan 27, 2013 4:15 pm, edited 4 times in total.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby z3r0c00l » Sun Jan 27, 2013 9:04 am

For a very short horizon, say a few years, or the typical attention span of investors, I tend to agree with them. People are largely incapable of properly buying and holding mutual funds. Total bond works well, even in a lost decade, because if you hold it you are buying more shares at a lower price. (Although I would question the tax efficiency of this.) But it does not work when people sell it at the worst times.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Don Christy » Sun Jan 27, 2013 9:18 am

Your link requires a subscription to read the article.
:annoyed
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Taylor Larimore » Sun Jan 27, 2013 9:26 am

Don Christy wrote:Your link requires a subscription to read the article.
:annoyed


Google: "The Risk of Safety"

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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Bustoff » Sun Jan 27, 2013 9:37 am

Don Christy wrote:Your link requires a subscription to read the article.
:annoyed


You're right :confused

Now I can't retrieve the article any longer either. . . that's weird.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby NYBoglehead » Sun Jan 27, 2013 9:52 am

The author isn't misleading people. Shorter duration bond funds will not drop as much when interest rates rise because the bonds will mature much faster. The longer the duration, the more susceptible it is to decline when/if interest rates rise.

And in all honesty, I find the title "The risk of safety" to be on the mark. Bond funds have experienced excellent TOTAL RETURNS for the past ~30 years because they started out with very high interest rates and as rates have come down the prices/NAVs have risen. With only so much room to go down further, it looks like the return for the next few years will be from interest alone.

If you're getting 2% annually and inflation is running at 2%, and you have little prospects of price appreciation, you are treading water. Too frequently people confuse nominal gains with real gains. Just because the dollar amount rises does not mean you have gained anything in purchasing power.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby livesoft » Sun Jan 27, 2013 9:59 am

Bustoff wrote:If he's so concerned about the future, he should not use the funds TTM yield.
The current SEC yield of 0.53% is the less "risky" indicator.

Please send Mr Light an e-mail. I'm sure he will update his article with the proper information.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby rustymutt » Sun Jan 27, 2013 10:00 am

I feel like this is good advise. I avoided this ETF for the same concerns. Long term bonds have interest rate risk that I didn't need, or want in my portfolio. I choose both short, and intermediate term bond ETF instead. If I was younger, I might not concern myself with this risk, but at my age, the bond portion of my investments, is to stabilize the investment portfolio.
If I'd have owned this fund for long period, I'd have kept it with my written plan. But I didn't, and sure wouldn't buy into it at this point.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby livesoft » Sun Jan 27, 2013 10:07 am

For reference, some 3-month returns of some bond funds commonly mentioned on this forum:

Image

It seems like no return in 3-months in getting some people's attention.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby am » Sun Jan 27, 2013 10:15 am

If your only goal is to dampen the volatility of a 60/40 portfolio, why not just use short term bond ETF, especially in the current environment? How much in return would you really give up?
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby livesoft » Sun Jan 27, 2013 10:22 am

Here is another 3-month growth-of chart for the same funds as in the chart I previously posted:

Image

All the funds had a negative total-return over the 3-months. I don't recall so much gnashing of teeth a couple years ago about all this, so I expect I won't recall any of this next year at this time either. :)
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Cut-Throat » Sun Jan 27, 2013 10:44 am

NYBoglehead wrote:The author isn't misleading people. Shorter duration bond funds will not drop as much when interest rates rise because the bonds will mature much faster. The longer the duration, the more susceptible it is to decline when/if interest rates rise.

And in all honesty, I find the title "The risk of safety" to be on the mark. Bond funds have experienced excellent TOTAL RETURNS for the past ~30 years because they started out with very high interest rates and as rates have come down the prices/NAVs have risen. With only so much room to go down further, it looks like the return for the next few years will be from interest alone.

If you're getting 2% annually and inflation is running at 2%, and you have little prospects of price appreciation, you are treading water. Too frequently people confuse nominal gains with real gains. Just because the dollar amount rises does not mean you have gained anything in purchasing power.


Well it's still better than "Money Under Mattress' where you are losing 2%, and better than Stocks where you could lose 50% or more.

So, what do you recommend for the Bond portion of a portfolio, if not bonds?
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Bustoff » Sun Jan 27, 2013 10:47 am

I think you're missing the point.
My gripe isn't with the premise of the article regarding the risks of longer duration, but rather his use of TTM returns rather than current yield to maturity.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby am » Sun Jan 27, 2013 10:56 am

The next flight to safety will lead to higher prices and even lower yields. Still got a long way to 0.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Browser » Sun Jan 27, 2013 10:57 am

Why not just buy CDs instead of ST bond fund? That's what I did.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby YDNAL » Sun Jan 27, 2013 10:57 am

Bustoff wrote:This recent WSJ article titled, "The Risk of Safety", is annoying. First, they suggest avoiding the Vanguard Total Bond Market Index Fund. Their justification is the risk rising of interest rates. They suggest instead of investing in the Vanguard Total Bond Market Index, investors should switch to the Vanguard Short-Term Bond ETF, which has a shorter duration and a 1.6% yield. :shock:

I didn't read the link - perhaps the author improperly said "Yield" instead of "Distribution Yield." Although, even Distribution Yield dropped from 1.80% in July 2011 to 1.29% in January 2013.

Anyhow, suggesting Vanguard ST Bond IF based on need for the money..... no problem, man!
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby peppers » Sun Jan 27, 2013 11:05 am

Let's see. Not quite yet to retirement. Possibility of one of us living until 90 - 95 about 50%. So, that's at least another 35 years. Hmmm....no we'll stay put.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby SpringMan » Sun Jan 27, 2013 11:21 am

I could not read the article, no subscription, and google points me at the same link. What ETF are they suggesting? Vanguard has many short term bond ETFs. Does the short term corporate, VCSH, make sense if one already owns VFSUX, the short term investment grade actively managed fund? BSV is the ETF version of VBIRX short term index, so no need to use an ETF for that. In general, I am not a fan of bond ETFs. Their monthly dividends are slower to reinvest than that of open ended mutual funds.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Toons » Sun Jan 27, 2013 11:51 am

Last edited by Toons on Sun Jan 27, 2013 11:58 am, edited 1 time in total.
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Balanced Portfolios Shrug Off Bond-phobia

Postby EDN » Sun Jan 27, 2013 11:57 am

By the looks of the chart a few posts up, we've seen interest rates rise a bit and bond prices fall. This would be problematic for someone who needs to liquidate their portfolio in a matter of weeks or months and has allocated everything to longer-dated bonds. But that should never happen.

Instead, long-term investors should start with a diversified equity allocation and dilute the risk according to their needs and preferences by adding high quality bonds. And then realize, neither stocks nor bonds always go up. The goal is to have your bonds holding value or appreciating when stocks are declining, while allowing for bonds to disappoint during strong periods for equities. The last 3 months is a great example of this: disappointing returns for bonds but a spike for stocks as a balanced US equity split (20% S&P 500, 30% US large value, 50% mid/small value) has appreciated by almost 11%, or over 50% on an annualized basis. With a balanced portfolio somewhere between 50% and 70% in stocks, this gain more than offsets a setback in bonds.

It is important to always consider the whole picture, because salesman (brokers selling high cost bond separate accounts or tactical management schemes to quell investor fears about bonds) and the financial media will do whatever it takes to get you to focus on the trees instead of the forest.

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Re: Balanced Portfolios Shrug Off Bond-phobia

Postby dbr » Sun Jan 27, 2013 12:00 pm

EDN wrote:By the looks of the chart a few posts up, we've seen interest rates rise a bit and bond prices fall. This would be problematic for someone who needs to liquidate their portfolio in a matter of weeks or months and has allocated everything to longer-dated bonds. But that should never happen.

Instead, long-term investors should start with a diversified equity allocation and dilute the risk according to their needs and preferences by adding high quality bonds. And then realize, neither stocks nor bonds always go up. The goal is to have your bonds holding value or appreciating when stocks are declining, while allowing for bonds to disappoint during strong periods for equities. The last 3 months is a great example of this: disappointing returns for bonds but a spike for stocks as a balanced US equity split (20% S&P 500, 30% US large value, 50% mid/small value) has appreciated by almost 11%, or over 50% on an annualized basis. With a balanced portfolio somewhere between 50% and 70% in stocks, this gain more than offsets a setback in bonds.

It is important to always consider the whole picture, because salesman (brokers selling high cost bond separate accounts to quell investor fears about bonds) and the financial media will do whatever it takes to get you to focus on the trees instead of the forest.

Eric


This advice is nuts because it presumes people invest with a thoughtful long term plan. Our interest is trying to figure out how everything we buy can be protected from the critical crises of the day, any one of which could cost us everything in an instant.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Occupier » Sun Jan 27, 2013 12:04 pm

I gave up on the Wall Street Journal after Fox News bought them.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Rick Ferri » Sun Jan 27, 2013 12:07 pm

Three years ago people were telling you to avoid intermediate-term bond funds. I'm glad I stayed the course.

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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Browser » Sun Jan 27, 2013 12:08 pm

Isn't investing fun these days? We have the choice between safe investments with negative real returns or plunging deeper into risky investments and having our heads handed to us again.
If we have data, let’s look at data. If all we have are opinions, let’s go with mine. – Jim Barksdale
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby baw703916 » Sun Jan 27, 2013 12:09 pm

I guess it's a bond picker's market.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby john94549 » Sun Jan 27, 2013 12:14 pm

I know some folks regard CD ladders as stuff for grandmas and grandpas, however, a CD ladder might be one thing to consider. It's one thing to think intellectually about duration, points of indifference, yield curves, etc. It's another, I guess, to actually see your bond fund holding(s) flat-line (or, gasp, go down) for a few months. Maybe longer.
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Re: Balanced Portfolios Shrug Off Bond-phobia

Postby Doc » Sun Jan 27, 2013 12:14 pm

dbr wrote: This advice is nuts because it presumes people invest with a thoughtful long term plan. Our interest is trying to figure out how everything we buy can be protected from the critical crises of the day, any one of which could cost us everything in an instant.


I'm not quite sure what your point is here.

If you have a 60/40 portfolio and you want to rebalance into a 50% overnight drop in the equity market you only need 30% of you original FI portfolio to get you back to your 60/40 AA. That means only 30% of your FI portfolio in very low risk FI like short Treasuries and the other 70% to chase yield if thats what you want to do.

You don't have to have all of your FI in one pot. Diversify.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby dmcmahon » Sun Jan 27, 2013 12:15 pm

am wrote:If your only goal is to dampen the volatility of a 60/40 portfolio, why not just use short term bond ETF, especially in the current environment? How much in return would you really give up?

Exactly my thinking FWIW. Interest rates on intermediate bonds are so low, cutting them to zero has a negligible effect on my overall return, especially on an after-tax basis. I just don't see a sufficient reward to undertake the risk - but then, I haven't for some time, during which bond investors have eked out those gains while I haven't.

I've asked bond investors to consider a thought experiment wherein the yield on the 10-year treasury was X%, where X is some arbitrary low number. The question I pose is: is there no rate below which you'd reconsider your allocation to that asset? Suppose it dropped to 1% i.e. Japanese levels. Suppose it's 0.1%. Is there not any rate at which you'd throw in the towel? If you cannot imagine a rate at which you'd stand down, I submit to you that you are being dogmatic. But if there's some level where you'd exit, then can you say why? After all, that absurdly low rate is a "market" rate, right? My answer FWIW: below 2-3% there is, for me, insufficient return to cover the opportunity cost of locking up the cash for that time period.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby SpringMan » Sun Jan 27, 2013 12:17 pm

Toons wrote:Link below,then first link that comes up works for me :happy

http://news.google.com/news/story?rlz=1 ... CDoQqgIwAA

Or

http://lmgtfy.com/?q=The+Risk+Of+Safety

Thanks, your link worked. The answer to my question about what Vanguard ETF was recommended instead of Total Bond Index was BSV. VBIRX would be the mutual fund version and I would use that, if I were following their advice which I am not.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Levett » Sun Jan 27, 2013 12:20 pm

"I guess it's a bond picker's market."

That's a good one.

Where's the smiley?! :)

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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Toons » Sun Jan 27, 2013 12:21 pm

SpringMan wrote:
Toons wrote:Link below,then first link that comes up works for me :happy

http://news.google.com/news/story?rlz=1 ... CDoQqgIwAA

Or

http://lmgtfy.com/?q=The+Risk+Of+Safety

Thanks, your linked worked. The answer to my question about what Vanguard ETF was recommended instead of Total Bond Index was BSV. VBIRX would be the mutual fund version and I would use that, if I were following their advice which I am not.


+1 Agree :happy
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Re: Balanced Portfolios Shrug Off Bond-phobia

Postby ofcmetz » Sun Jan 27, 2013 12:22 pm

Doc wrote:
dbr wrote: This advice is nuts because it presumes people invest with a thoughtful long term plan. Our interest is trying to figure out how everything we buy can be protected from the critical crises of the day, any one of which could cost us everything in an instant.


I'm not quite sure what your point is here.

If you have a 60/40 portfolio and you want to rebalance into a 50% overnight drop in the equity market you only need 30% of you original FI portfolio to get you back to your 60/40 AA. That means only 30% of your FI portfolio in very low risk FI like short Treasuries and the other 70% to chase yield if thats what you want to do.

You don't have to have all of your FI in one pot. Diversify.


I think dbr was being funny. Hopefully I'm right. Or maybe he was just reflecting on his 100x's leveraged investments aka long term capital management style investing.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby ofcmetz » Sun Jan 27, 2013 12:23 pm

OP, I agree with your point. Would be much more helpful if the writer used SEC yield when comparing and talking about bond funds.
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Re: Balanced Portfolios Shrug Off Bond-phobia

Postby Doc » Sun Jan 27, 2013 12:33 pm

ofcmetz wrote: I think dbr was being funny. Hopefully I'm right. Or maybe he was just reflecting on his 100x's leveraged investments aka long term capital management style investing.


I thought he was being funny also. It was just a good foil to emphasize that all you FI does not need to go into one pot and that it really takes a lot less FI to rebalance than a quick look might indicate.
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Re: Balanced Portfolios Shrug Off Bond-phobia

Postby dbr » Sun Jan 27, 2013 1:13 pm

Doc wrote:
ofcmetz wrote: I think dbr was being funny. Hopefully I'm right. Or maybe he was just reflecting on his 100x's leveraged investments aka long term capital management style investing.


I thought he was being funny also. It was just a good foil to emphasize that all you FI does not need to go into one pot and that it really takes a lot less FI to rebalance than a quick look might indicate.


I don't think it is funny at all when people abandon well thought out long term plans that make sense based on investment fundamentals to chase every worry, panic, trend, guess, headline, etc. in making investment decisions.

Obviously I am fully in support of the the post by Eric (EDN).
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Two good posts

Postby Taylor Larimore » Sun Jan 27, 2013 1:25 pm

DBR wrote:
I don't think it is funny at all when people abandon well thought out long term plans that make sense based on investment fundamentals to chase every worry, panic, trend, guess, headline, etc. in making investment decisions.

Obviously I am fully in support of the the post by Eric (EDN).

Bogleheads:

I am fully in support of the post by Eric AND the post by DBR.

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Re: Balanced Portfolios Shrug Off Bond-phobia

Postby Doc » Sun Jan 27, 2013 1:34 pm

dbr wrote:
EDN wrote:By the looks of the chart a few posts up, we've seen interest rates rise a bit and bond prices fall. This would be problematic for someone who needs to liquidate their portfolio in a matter of weeks or months and has allocated everything to longer-dated bonds. But that should never happen.

Instead, long-term investors should start with a diversified equity allocation and dilute the risk according to their needs and preferences by adding high quality bonds. And then realize, neither stocks nor bonds always go up. The goal is to have your bonds holding value or appreciating when stocks are declining, while allowing for bonds to disappoint during strong periods for equities. The last 3 months is a great example of this: disappointing returns for bonds but a spike for stocks as a balanced US equity split (20% S&P 500, 30% US large value, 50% mid/small value) has appreciated by almost 11%, or over 50% on an annualized basis. With a balanced portfolio somewhere between 50% and 70% in stocks, this gain more than offsets a setback in bonds.

It is important to always consider the whole picture, because salesman (brokers selling high cost bond separate accounts to quell investor fears about bonds) and the financial media will do whatever it takes to get you to focus on the trees instead of the forest.

Eric


This advice is nuts because it presumes people invest with a thoughtful long term plan. Our interest is trying to figure out how everything we buy can be protected from the critical crises of the day, any one of which could cost us everything in an instant.


Doc in response to dbr wrote:I'm not quite sure what your point is here.


dbr wrote:Obviously I am fully in support of the the post by Eric (EDN).


:confused Doc

I guess that "nuts" was in reference to the "well thought out plan". That "well thought out plan" with regard to FI seems to come down to invest in TBM and diversified equities. The problem is that so many people think that you don't need to diversify FI in more than one fund because VBMFX happens to hold some 15000 different securities.

I think we may be having a problem with English rather than investing philosophy. Maybe we should switch to "bond speak".
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Re: Balanced Portfolios Shrug Off Bond-phobia

Postby dbr » Sun Jan 27, 2013 1:43 pm

Doc wrote:I guess that "nuts" was in reference to the "well thought out plan". That "well thought out plan" with regard to FI seems to come down to invest in TBM and diversified equities. The problem is that so many people think that you don't need to diversify FI in more than one fund because VBMFX happens to hold some 15000 different securities.

I think we may be having a problem with English rather than investing philosophy. Maybe we should switch to "bond speak".


It's all about having a rational, fundamentally based long term plan and not making investment decisions based on panic about some current condition or another.

I couldn't care less exactly what bonds people think they should invest in. There are just a very few really stupid things one might do in bonds, and those don't come up here, mostly.

My resolution for today is that from now on I am not participating in any threads on bonds.
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Re: Two good posts

Postby Doc » Sun Jan 27, 2013 1:58 pm

Taylor Larimore wrote:DBR wrote:
I don't think it is funny at all when people abandon well thought out long term plans that make sense based on investment fundamentals to chase every worry, panic, trend, guess, headline, etc. in making investment decisions.

Obviously I am fully in support of the the post by Eric (EDN).

Bogleheads:

I am fully in support of the post by Eric AND the post by DBR.

Best wishes.
Taylor


I am in fully in support of Eric and DBR but, Taylor, aren't you the advocate of the three fund, keep it simple, portfolio which uses TBM FI fund which it seem that Eric, DBR (maybe) and I are questioning?

dbr wrote:It's all about having a rational, fundamentally based long term plan and not making investment decisions based on panic about some current condition or another.


I agree. The question is does a single TBM fund meet that objective? I think not and I think Eric agrees.

If a single TBM fund was that "rational, fundamentally based long term plan" we would have a lot fewer of these bond threads.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby baw703916 » Sun Jan 27, 2013 2:08 pm

Levett wrote:"I guess it's a bond picker's market."

That's a good one.

Where's the smiley?! :)

Lev


Good point :)
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Don Christy » Sun Jan 27, 2013 2:23 pm

Toons wrote:Link below,then first link that comes up works for me :happy

http://news.google.com/news/story?rlz=1 ... CDoQqgIwAA

Or

http://lmgtfy.com/?q=The+Risk+Of+Safety


Thanks Toons and Taylor.

Very strange, it works now, but not earlier. I first followed the OP link and couldn't access w/o subscription. So I googled, and the first link was the story, but the link took me to same subscription block.

I wonder if it takes a while before the google link accesses a sub-free version?
Ah, make the most of what we may yet spend, Before we too into the Dust descend; Dust into Dust, and under Dust, to lie; Sans Wine, sans Song, sans Singer, and -- sans End! ... Omar Khayyam
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Karl » Sun Jan 27, 2013 2:26 pm

NYBoglehead wrote:If you're getting 2% annually and inflation is running at 2%, and you have little prospects of price appreciation, you are treading water.


Reality is even worse than that.

Total Bond Admiral is yielding 1.60%. Take off the income taxes owed on that yield and it becomes even more pathetic. Sounds more like slowly drowning rather than merely treading water.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Default User BR » Sun Jan 27, 2013 2:59 pm

When I set up the portfolio in 2007, I decided on 50/50 aggregate bond and stable-value, specifically so I wouldn't have to think about bonds. A central tenet of my investing philosophy is that I don't know enough to market time anything.


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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Bradley » Sun Jan 27, 2013 3:04 pm

livesoft wrote:Here is another 3-month growth-of chart for the same funds as in the chart I previously posted:

Image

All the funds had a negative total-return over the 3-months. :)



The same referenced chart shows Vanguard's Corporate VWEAX returning 3.23% over the same short 3 month time frame. VWEAX has been a FI diversifier that has been helpful for over a decade. Will it continue? Are the spreads becoming too thin to continue holding? Is it a suitable choice for other investors? Where is Carnac the Magnificent when we need him?

Bradley
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High Yield Continues to Disappoint

Postby EDN » Sun Jan 27, 2013 3:32 pm

Bradley wrote:
livesoft wrote:Here is another 3-month growth-of chart for the same funds as in the chart I previously posted:

Image

All the funds had a negative total-return over the 3-months. :)



The same referenced chart shows Vanguard's Corporate VWEAX returning 3.23% over the same short 3 month time frame. VWEAX has been a FI diversifier that has been helpful for over a decade. Will it continue? Are the spreads becoming too thin to continue holding? Is it a suitable choice for other investors? Where is Carnac the Magnificent when we need him?

Bradley


That is almost 70% less than a diversified portfolio of US stocks* (+11%) and about 50% less than a 60/40 mix of that diversified stock portfolio and high-quality bonds** (+6.5%). For the risk (HY was -20%+ in 2008, more than the 60/40 decline), that ain't so hot.

Eric

*20% S&P 500, 30% US large value, 50% US small value
** 12% S&P 500, 18% US large value, 30% US small value, 40% Int'd Government
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby rustymutt » Sun Jan 27, 2013 3:41 pm

Browser wrote:Why not just buy CDs instead of ST bond fund? That's what I did.



BSV did better last year than any CD I could have purchased.
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Is TBM Optimal

Postby EDN » Sun Jan 27, 2013 3:43 pm

Doc wrote:
Taylor Larimore wrote:DBR wrote:
I don't think it is funny at all when people abandon well thought out long term plans that make sense based on investment fundamentals to chase every worry, panic, trend, guess, headline, etc. in making investment decisions.

Obviously I am fully in support of the the post by Eric (EDN).

Bogleheads:

I am fully in support of the post by Eric AND the post by DBR.

Best wishes.
Taylor


I am in fully in support of Eric and DBR but, Taylor, aren't you the advocate of the three fund, keep it simple, portfolio which uses TBM FI fund which it seem that Eric, DBR (maybe) and I are questioning?

dbr wrote:It's all about having a rational, fundamentally based long term plan and not making investment decisions based on panic about some current condition or another.


I agree. The question is does a single TBM fund meet that objective? I think not and I think Eric agrees.

If a single TBM fund was that "rational, fundamentally based long term plan" we would have a lot fewer of these bond threads.


If I can understand this recent back-and-forth, the question is if everyone should have everything in TBM?

My answer would be no, but I'm not sure there is a single bond holding everyone should have everything in. TBM is good (about 5yr maturity, relatively high quality holdings) and will work well for many--clearly it is the default choice for a "total market" allocation. Some prefer less interest rate risk (and will opt for ST Bond Index), others prefer less credit risk (and will opt for Int'd Government funds), still others want/need more protection from unexpected inflation (will use TIPS).

With bonds, it's easier to discuss what almost no one should own: below investment grade bonds, preferred stocks, convertible bonds, any bonds of long-term maturity.

And, of course, no one should be altering their bond allocation based on media chatter or crystal ball gazing about the future of interest rates or credit spreads unless you hold a fund that is employing some sort of disciplined "variable" maturity or credit approach (under which case you aren't making changes, the fund is).

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"Abandoning well thought out long term plans."

Postby Taylor Larimore » Sun Jan 27, 2013 4:27 pm

DBR wrote:
I don't think it is funny at all when people abandon well thought out long term plans that make sense based on investment fundamentals to chase every worry, panic, trend, guess, headline, etc. in making investment decisions.

Obviously I am fully in support of the the post by Eric (EDN).


I wrote:
I am fully in support of the post by Eric AND the post by DBR.

Doc wrote:
Taylor, aren't you the advocate of the three fund, keep it simple, portfolio which uses TBM FI fund which it seem that Eric, DBR (maybe) and I are questioning?


Doc: I was agreeing with the above quote by DBR which is not "funny." It is fundamental to the Boglehead Philosophy of stay-the-course.

If investors think that adding additional bond funds to already diversified Total Bond Market Index Fund is worth the complexity, they could be right (or wrong). I don't know.

There is more than one road to Dublin.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby Bustoff » Sun Jan 27, 2013 4:50 pm

Anecdotal evidence and colloquialisms aside, is there any real evidence to support the notion that there is a significant advantage to diversifying FI beyond Total Bond Fund ?
From what I've read on this forum and in the two Boglehead books, I got the impression that the TBM was a perfectly safe port for all storms.
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Re: WSJ - Avoid Vanguard Total Bond Fund ?

Postby livesoft » Sun Jan 27, 2013 4:55 pm

Who knows? Maybe this time it's different?
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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