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reallyconfused
Joined: 11 Dec 2008
Posts: 19
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 Posted: Sat Nov 07, 2009 9:10 pm Post subject: Bonds - Government Income Fund or PIMCO Total Return? |
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I have the following 2 choices in my company 401k. Which one would you choose and why?
The Government fund (FGOVX) has an ER of 0.45%
Average Maturity as of 10/30/2009 5.2
Average Duration as of 10/31/2009 4.4
PIMCO (PTRAX) has an ER of 0.89%
Average Maturity 5.8
Average Duration 4.79
Thanks in advance. |
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booch221
Joined: 14 Sep 2008
Posts: 56
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| Posted: Sat Nov 07, 2009 9:55 pm Post subject: |
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| Assuming that ER stands for expense ratio, it looks like PIMCO is twice as high as FGOVX and has a slightly lower maturity and duration which it means it won't perform as well when interest rates rise. Unless the PIMCO fund has a substantially better performance, (over 10 years) I would go with FGOVX. |
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booch221
Joined: 14 Sep 2008
Posts: 56
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| Posted: Sat Nov 07, 2009 9:56 pm Post subject: |
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Assuming that ER stands for expense ratio, it looks like PIMCO is twice as high as FGOVX and has a slightly lower maturity and duration which it means it won't perform as well when interest rates rise. Unless the PIMCO fund has a substantially better performance*, (over 10 years) I would go with FGOVX.
*Past performance is not a guarantee of future returns (your mileage may vary). |
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grok87
Joined: 27 Feb 2007
Posts: 2509
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| Posted: Sat Nov 07, 2009 10:09 pm Post subject: Re: Bonds - Government Income Fund or PIMCO Total Return? |
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| reallyconfused wrote: | I have the following 2 choices in my company 401k. Which one would you choose and why?
The Government fund (FGOVX) has an ER of 0.45%
Average Maturity as of 10/30/2009 5.2
Average Duration as of 10/31/2009 4.4
PIMCO (PTRAX) has an ER of 0.89%
Average Maturity 5.8
Average Duration 4.79
Thanks in advance. |
agree. I'd go with FGOVX. Some Fidelity bond funds have had problems though (the inflation protected bond fund had subprime in it!) so I'd keep an eye on it...
cheers,
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grok, CFA |
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reallyconfused
Joined: 11 Dec 2008
Posts: 19
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| Posted: Sat Nov 07, 2009 10:17 pm Post subject: |
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| I guess it comes down to having a "purely" government fund with an implicit lower rate of return but less risk compared to the Pimco fund which has a hodgepodge of different holdings riskier but with higher rate of return. |
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grok87
Joined: 27 Feb 2007
Posts: 2509
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| Posted: Sat Nov 07, 2009 10:41 pm Post subject: |
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| reallyconfused wrote: | | I guess it comes down to having a "purely" government fund with an implicit lower rate of return but less risk compared to the Pimco fund which has a hodgepodge of different holdings riskier but with higher rate of return. |
Well I think it depends. Consider the Vanguard Bond index and the Vanguard Intermediate Treasury Fund. Over the past 10 years the treasury fund has actually outperformed the bond index fund by 70 bps (6.74% vs 6.04% average annual return). So its not always true that treasury funds have lower rates of return. Often you just don't get properly rewarded for taking extra risk on the fixed income side. That's why IMHO you should stick to treasuries/tips on the fixed income side and take any desired extra risk on the equity side (say by tilting to small and value stocks).
Now over the past 10 years the pimco fund has done 7.31%- i.e. it has beaten treasuries by 57 bps. But of course there is no guarantee that this will repeat going forward. Or even that it will beat the bond index. Last year for example PTRAX lagged the bond index by 70 bps and lagged treasuries by a ton.
Your last sentence would be correct if instead of saying higher rate of return you said higher yield. Sometimes the higher yield is an illusion that fails to materialize in the end.
cheers,
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grok, CFA |
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livesoft
Joined: 01 Mar 2007
Posts: 8010
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reallyconfused
Joined: 11 Dec 2008
Posts: 19
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| Posted: Sun Nov 08, 2009 12:58 am Post subject: |
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| Livesoft I'm assuming your still with PTRAX? |
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YDNAL
Joined: 10 Apr 2007
Posts: 3817
Location: Biscayne Bay
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| Posted: Sun Nov 08, 2009 6:47 am Post subject: Re: Bonds - Government Income Fund or PIMCO Total Return? |
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| reallyconfused wrote: | | Bonds - Government Income Fund or PIMCO Total Return? |
confused,
Last December you had $30k and it seemed as though you were going to choose a TR fund (as suggested in the Forum). | Fri Dec 19, 2008 2:04 pm, reallyconfused wrote: | Thanks again retiredjg. I'm planning on pulling the trigger on Laura's option 1 plan. I'll add complexity as i accumulate more money  |
http://www.bogleheads.org/foru....ht=#351646
What changed and why do you believe more "complexity" is necessary?
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Landy
“The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.” - Warren Buffett |
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livesoft
Joined: 01 Mar 2007
Posts: 8010
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| Posted: Sun Nov 08, 2009 7:31 am Post subject: |
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| reallyconfused wrote: | | Livesoft I'm assuming your still with PTRAX? |
I own FBIDX. My spouse has 100% PTTBX in her 401(k) since it has one of the lowest expense ratios of all the funds offered in her plan. I do not own any PTRAX at the moment, but have owned it and may own some shares of it in the future. I do not own any shares of FGOVX.
[edit to update PTTBX ticker]
Last edited by livesoft on Sun Nov 08, 2009 9:59 pm; edited 1 time in total |
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reallyconfused
Joined: 11 Dec 2008
Posts: 19
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| Posted: Sun Nov 08, 2009 11:32 am Post subject: Re: Bonds - Government Income Fund or PIMCO Total Return? |
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| YDNAL wrote: | | reallyconfused wrote: | | Bonds - Government Income Fund or PIMCO Total Return? |
confused,
Last December you had $30k and it seemed as though you were going to choose a TR fund (as suggested in the Forum). | Fri Dec 19, 2008 2:04 pm, reallyconfused wrote: | | Thanks again retiredjg. I'm planning on pulling the trigger on Laura's option 1 plan. I'll add complexity as i accumulate more money |
http://www.bogleheads.org/foru....ht=#351646
What changed and why do you believe more "complexity" is necessary? |
At the end of the day I wanted the ability to look up the price on the mutual funds to see how I was doing. More for fun and motivation than anything else. I ended up going to Laura's Plan 2, but as I've learned and read on this forum Trev's S&D seems intriguing. By the way I'm up to 80k (including emergency fund) now so I've made some good progress. |
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YDNAL
Joined: 10 Apr 2007
Posts: 3817
Location: Biscayne Bay
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| Posted: Sun Nov 08, 2009 12:34 pm Post subject: Re: Bonds - Government Income Fund or PIMCO Total Return? |
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| reallyconfused wrote: | | At the end of the day I wanted the ability to look up the price on the mutual funds to see how I was doing. More for fun and motivation than anything else. I ended up going to Laura's Plan 2, but as I've learned and read on this forum Trev's S&D seems intriguing. By the way I'm up to 80k (including emergency fund) now so I've made some good progress. |
confused,
Congrats!... the market surely helped everyone of late.
The more you look and tinker, the more likely to negatively impact your plan (IPS) and results. Certainly, early on investing for the long-term, the AA and especially the difference between PTRAX and FGOVX is that much less significant than your savings rate.
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Landy
“The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.” - Warren Buffett |
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stratton
Joined: 04 Mar 2007
Posts: 6216
Location: Puget Sound
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| Posted: Sun Nov 08, 2009 4:34 pm Post subject: |
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I looked up the Fido Gov fund and it went up 11% last year so it has lots of treasuries and appears to be 90+% AAA. It is the lower risk fund. However if flight-to-quality abates the NAV could go down.
Paul |
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Doc
Joined: 24 Feb 2007
Posts: 1299
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| Posted: Sun Nov 08, 2009 5:19 pm Post subject: |
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| stratton wrote: | | I looked up the Fido Gov fund and it went up 11% last year so it has lots of treasuries and appears to be 90+% AAA. It is the lower risk fund. However if flight-to-quality abates the NAV could go down.Paul |
It may already have done so. See http://finance.yahoo.com/echar....=undefined
Using VFITX as a benchmark the 5% NAV gain from two years ago is about what you would expect from the change in interest rate alone. The corporate funds have also recovered. This all indicates to me that the major part of the liquidity (flight to quality) is about over. The PIMCO fund does have a somewhat lower credit quality but it has outperformed the Fido fund over the last ten years. If you could get the lower e/r PIMCO share class or the Gross managed fund from Harbor I would go there but with the choices here is is probably a toss up.
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Regards,
Doc
"Share the Harvest" |
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stratton
Joined: 04 Mar 2007
Posts: 6216
Location: Puget Sound
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| Posted: Sun Nov 08, 2009 5:42 pm Post subject: |
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Split the difference. Use both funds in some combination. Also check out the retirement income fund as it's probably 25 or 30% stock and the rest in bonds. It might be less expensive to take that work equity around it.
Paul |
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reallyconfused
Joined: 11 Dec 2008
Posts: 19
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| Posted: Sun Nov 08, 2009 9:49 pm Post subject: |
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| I appreciate everyone's thoughts. I am leaning towards splitting the difference as Paul suggested. |
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