Bond Allocation Review: No Total Bond

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Dulocracy
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Bond Allocation Review: No Total Bond

Post by Dulocracy » Wed May 07, 2014 2:38 pm

I have sought out input on my equities side of the portfolio multiple times. Now, my question lies in the bond portion. I would honestly have trouble staying the course with Mortgage Backed Securities. This has less to do with the overall economy and more to do with other factors, but the fact remains that I would not feel comfortable having Mortgage Backed Securities. Also, having read several of Larry Swedroe's books, I do not want the increased risk of Corporate Bonds. For that reason, I am not going with a Total Bond Fund. I do, however, want to keep it simple. Is there any reason that the following would be a bad idea:

50% VIPSX (Vanguard Treasury Inflation Protected Securities)
50% VFITX (Vanguard Interim Term Treasury Fund)

As time passes, I will likely add Municipal Bonds to this to expand tax-advantaged space, but I am not to that point yet.

Thoughts on this strategy?
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

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abuss368
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Re: Bond Allocation Review: No Total Bond

Post by abuss368 » Wed May 07, 2014 2:44 pm

You could go that route and there is nothing wrong with it. In fact, David Swensen, CIO of the Yale University, and the author of the excellent book "Unconventional Success" recommends a 50% allocation to each. However, in these low rate times, Treasuries are paying next to nothing. TIPS have been paying even less. The Vanguard TIPS fund has a very high duration (interest rate risk) of 8+- and had a 9% or so loss last year. I will take Total Bond over that any day. You will have to determine if that is important to you.

Vanguard recommends Total Bond Index and Total International Bond Index and has included these funds in the Target and Life Strategy offerings.

During the financial crisis, Total Bond Market Index was up unlike TIPS and corporate bonds.

Total Bond Market Index has worked very well for us for a long period of time and continues to do so. We plan to stay the course. Thank you Jack Bogle!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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LH
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Re: Bond Allocation Review: No Total Bond

Post by LH » Wed May 07, 2014 5:28 pm

Sounds good enough.

I do a 50/50 split with tips and aggregate. Some mbs and high grade corporate is fine by me.

I like having tips, though I dont expect the CPI to really track inflation if things go really bad, I think it will be somewhere along the gradient of the us now, and argentenia official inflation now. But tips hopefully will be better than nominals in high inflation. (has to be unexpected too)

Bonds are for safety, for return of principal, your split looks safe.

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abuss368
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Re: Bond Allocation Review: No Total Bond

Post by abuss368 » Thu May 08, 2014 3:19 pm

LH wrote:Sounds good enough.

I do a 50/50 split with tips and aggregate. Some mbs and high grade corporate is fine by me.

I like having tips, though I dont expect the CPI to really track inflation if things go really bad, I think it will be somewhere along the gradient of the us now, and argentenia official inflation now. But tips hopefully will be better than nominals in high inflation. (has to be unexpected too)

Bonds are for safety, for return of principal, your split looks safe.
I am still on the fence with TIPS and specifically the Vanguard Intermediate TIPS Fund due to the high duration (i.e. 8+-) and the 9% decline last year. Is this the fund you invest in for TIPS?
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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nisiprius
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Re: Bond Allocation Review: No Total Bond

Post by nisiprius » Thu May 08, 2014 8:19 pm

Once upon a time, some people were discussing how to make lemonade. Everyone agreed that lemon juice by itself, even if sweetened, was not to the taste of most people. True, a few of them insisted that they had no problem tolerating straight lemon juice, and some even claimed to like drinking concentrated essential oil--neat. But most people agreed that the lemon juice needed to be mixed with some sort of water.

There was spirited discussion about the best water. The less sophisticated said "Gee--I heard 'use water' and so I just used plain old tap water and never gave it a second thought."

Some expressed concerns about the safety of tap water, and preferred to run it through a filter first.

Some said that tap water was basically OK but that it was lazy and naïve to accept the proportions of minerals that just happened to arrive at the faucet. They thought it was well worth paying just a bit more for water from which all the minerals had been removed, and then added back in just the optimum amounts, which were slightly different from the amounts naturally present in the water.

Some preferred to get their water directly from a local spring, even though it was on private land and the landowner charged them a small admissions fee to drive in and get the water.

Some liked exotic spring water flavors: Lithia water, and Carlsbad water, and Saratoga water in beautiful blue cobalt glass bottles.

Some were fond of imported waters. Mellow Perrier, exotic Volvic, fizzy San Pellegrino. The emerging consensus seemed to favor mixing at least some imported water in with the domestic, although nobody could agree on how much.

There was a fad for effervescent water, but skeptics said it was a bubble.

And then some pesky person decided to conduct blind taste tests, and, marvelous to tell... people could tell the water apart when it was just water, but in lemonade, nobody could taste the difference at all. It all tasted good, and refreshing on a hot summer day.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

pingo
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Re: Bond Allocation Review: No Total Bond

Post by pingo » Thu May 08, 2014 10:45 pm

^ Marvelous!

Streptococcus
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Re: Bond Allocation Review: No Total Bond

Post by Streptococcus » Fri May 09, 2014 8:15 am

nisiprius wrote:Once upon a time, some people were discussing how to make lemonade. Everyone agreed that lemon juice by itself, even if sweetened, was not to the taste of most people. True, a few of them insisted that they had no problem tolerating straight lemon juice, and some even claimed to like drinking concentrated essential oil--neat. But most people agreed that the lemon juice needed to be mixed with some sort of water.

There was spirited discussion about the best water. The less sophisticated said "Gee--I heard 'use water' and so I just used plain old tap water and never gave it a second thought."

Some expressed concerns about the safety of tap water, and preferred to run it through a filter first.

Some said that tap water was basically OK but that it was lazy and naïve to accept the proportions of minerals that just happened to arrive at the faucet. They thought it was well worth paying just a bit more for water from which all the minerals had been removed, and then added back in just the optimum amounts, which were slightly different from the amounts naturally present in the water.

Some preferred to get their water directly from a local spring, even though it was on private land and the landowner charged them a small admissions fee to drive in and get the water.

Some liked exotic spring water flavors: Lithia water, and Carlsbad water, and Saratoga water in beautiful blue cobalt glass bottles.

Some were fond of imported waters. Mellow Perrier, exotic Volvic, fizzy San Pellegrino. The emerging consensus seemed to favor mixing at least some imported water in with the domestic, although nobody could agree on how much.

There was a fad for effervescent water, but skeptics said it was a bubble.

And then some pesky person decided to conduct blind taste tests, and, marvelous to tell... people could tell the water apart when it was just water, but in lemonade, nobody could taste the difference at all. It all tasted good, and refreshing on a hot summer day.
Awesome! There should be nothing to add to this thread.

dbr
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Re: Bond Allocation Review: No Total Bond

Post by dbr » Fri May 09, 2014 8:21 am

Streptococcus wrote:
Awesome! There should be nothing to add to this thread.
Could a bot be written that automatically posts this as a reply to a set list of queries about "What bond fund . . . ."?

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R-Man
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Re: Bond Allocation Review: No Total Bond

Post by R-Man » Fri May 09, 2014 8:28 am

Nisiprius - A better summary can not be written. I proclaim you the Shakespeare of Bogleheads!! :happy
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Dulocracy
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Re: Bond Allocation Review: No Total Bond

Post by Dulocracy » Fri May 09, 2014 10:58 am

Of course, then you have Harry. Harry would enjoy the total lemonade if it were not for his irrational fear of certain minerals. Harry knew the fear was irrational, but it made him avoid the lemonade.

Nisiprius- I got one of two messages from what you wrote. EITHER, you are saying that it does not really matter what goes into the lemonade and we should take it with all that comes with it (total bond), OR you are saying it does not matter how I make my lemonade and picking the two bond funds I have selected would be ok. Please clarify.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

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