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.
Allocation: 55% Equity, 30% fixed income, 15% TIAA real estate. If the book Thousandaire Next Door was ever written, then it would be about a cop who posts on bogleheads while drinking good beer.