Bond Version of Portfolio
Bond Version of Portfolio
I currently have 40% of my Portfolio in the (Vanguard Total Bond Market Index I VBTIX) fund. I am worried about interest rates going up which will decrease the value of bonds. Therefore, I was thinking of purchasing the 2 bonds below and selling the total bond fund which I feel because of its holding is more susceptible to fluctuations. Thoughts??
Vanguard Interm-Term Bond Index Adm (VBILX)
Vanguard GNMA Inv (VFIIX)
Vanguard Interm-Term Bond Index Adm (VBILX)
Vanguard GNMA Inv (VFIIX)
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Re: Bond Version of Portfolio
If i was worried about rising rates I would want a CD, savings bond, stable value fund or an individual bond
John
John
- convert949
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Re: Bond Version of Portfolio
I was thinking of something similar but with Short Term Bond Index (VBIRX) and GNMA (VFIJX)... VBIRX has the same Treasury/Corporate mix as Total Bond without GNMA as they are still considered Intermediate Term Bonds.vtanzi wrote:I currently have 40% of my Portfolio in the (Vanguard Total Bond Market Index I VBTIX) fund. I am worried about interest rates going up which will decrease the value of bonds. Therefore, I was thinking of purchasing the 2 bonds below and selling the total bond fund which I feel because of its holding is more susceptible to fluctuations. Thoughts??
Vanguard Interm-Term Bond Index Adm (VBILX)
Vanguard GNMA Inv (VFIIX)
What you propose would still be susceptible to interest rate risk similar to Total Bond...
Re: Bond Version of Portfolio
Thank you--I will take a look at the 2 funds you mentioned. Really appreciate itconvert949 wrote:I was thinking of something similar but with Short Term Bond Index (VBIRX) and GNMA (VFIJX)... VBIRX has the same Treasury/Corporate mix as Total Bond without GNMA as they are still considered Intermediate Term Bonds.vtanzi wrote:I currently have 40% of my Portfolio in the (Vanguard Total Bond Market Index I VBTIX) fund. I am worried about interest rates going up which will decrease the value of bonds. Therefore, I was thinking of purchasing the 2 bonds below and selling the total bond fund which I feel because of its holding is more susceptible to fluctuations. Thoughts??
Vanguard Interm-Term Bond Index Adm (VBILX)
Vanguard GNMA Inv (VFIIX)
What you propose would still be susceptible to interest rate risk similar to Total Bond...
Re: Bond Version of Portfolio
vtanzi wrote:I currently have 40% of my Portfolio in the (Vanguard Total Bond Market Index I VBTIX) fund. I am worried about interest rates going up which will decrease the value of bonds. Therefore, I was thinking of purchasing the 2 bonds below and selling the total bond fund which I feel because of its holding is more susceptible to fluctuations. Thoughts??
Vanguard Interm-Term Bond Index Adm (VBILX)
Vanguard GNMA Inv (VFIIX)
I think with those funds that you will be right back where you started. Combined they are very similar to the Total Bond Fund.
You should look at a funds duration to see how susceptible it is to changes to interest rates. The duration gives you the idea as to how much the share price might fall as a percentage for a sudden 1% rise in interest rates. It also tells in years how long it might take for the extra income the fund pays out to catch up to where you were.
Remember you shouldn't hold the fund unless you intend to hold it longer than the duration. Also, rising interest rates are not a bad thing in the long run because the fund will pay more interest and it will recover at some point. Also the new shares you buy will be cheaper with better interest payouts.
Never underestimate the power of the force of low cost index funds.
Re: Bond Version of Portfolio
Thank you--those are all great points. Definitely gave me something to consider and think about. I am in it for the long term and would definitely hold the funds for 10+ yearsofcmetz wrote:vtanzi wrote:I currently have 40% of my Portfolio in the (Vanguard Total Bond Market Index I VBTIX) fund. I am worried about interest rates going up which will decrease the value of bonds. Therefore, I was thinking of purchasing the 2 bonds below and selling the total bond fund which I feel because of its holding is more susceptible to fluctuations. Thoughts??
Vanguard Interm-Term Bond Index Adm (VBILX)
Vanguard GNMA Inv (VFIIX)
I think with those funds that you will be right back where you started. Combined they are very similar to the Total Bond Fund.
You should look at a funds duration to see how susceptible it is to changes to interest rates. The duration gives you the idea as to how much the share price might fall as a percentage for a sudden 1% rise in interest rates. It also tells in years how long it might take for the extra income the fund pays out to catch up to where you were.
Remember you shouldn't hold the fund unless you intend to hold it longer than the duration. Also, rising interest rates are not a bad thing in the long run because the fund will pay more interest and it will recover at some point. Also the new shares you buy will be cheaper with better interest payouts.
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Re: Bond Version of Portfolio
There is no free lunch. The risk-free rate is about zero right now (nominally speaking, negative in real terms). If you want safety of principal, you will have to stay very short and very high quality (such as CD's).
Best regards, -Op |
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Re: Bond Version of Portfolio
I would agree that adding an additional bond component to guard against unexpected inflation would be prudent. With the current negative yield on TIPs I would agree that GNMA and/or an intermediate or short term treasury might protect against such loss of principal if holding a bond fund. Unfortunately these are not likely to keep up with inflation. The best you can hope for is to maintain your purchasing power.
Re: Bond Version of Portfolio
I sold all my TIPS two weeks ago. Now mainly Total Bond which make ups 45% of my total portfolio. Cant really time interest rates and waiting for them to go up will have inflation bleeding your purchasing power. I did add PenFed's 3 yr CD at 1.85% last month but even at that rate I am still losing to inflation.
Re: Bond Version of Portfolio
If I were worried about rising rates, I'd look at the duration of the funds involved and make sure that my investing horizon was longer than the aggregate duration of my bond funds. Actually that is what I do, just in case. I accept that I don't know where rates are going.
Steve |
Semper Fi