Total Bond Market vs. Intermediate-Term Investment Grade

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Total Bond Market vs. Intermediate-Term Investment Grade

Post by kobbiemandd » Thu Apr 09, 2015 7:35 am

I recently rolled over a 401-k plan from a former employer into my Vanguard IRA. In keeping close to my allocation goals,
I want to put the majority of it into Bonds. I am comparing Total Bond Fund (VBMFX) vs. Intermediate-Term Investment
Grade (VFICX) and see that VFICX has a slightly lower duration and a considerably higher yield. What stands out if the fact that Total
Bond is nearly 64% gov't issue vs 9% for the Intermediate. I would like to know what other peoples take is on this, and what their take
is on one vs. the other.



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Re: Total Bond Market vs. Intermediate-Term Investment Grade

Post by dc81584 » Thu Apr 09, 2015 7:44 am

Honestly, I think either would do the trick. Total Bond Market is passively managed; Intermediate-Term Investment Grade is actively managed. You could also consider the Intermediate-Term Bond Index Fund. Pick the one with the shortest duration, if this makes you feel better.

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Re: Total Bond Market vs. Intermediate-Term Investment Grade

Post by mptfan » Thu Apr 09, 2015 7:47 am

I also prefer VFICX for the reasons you cited, the total bond fund has too many treasury bonds for my taste. Also, the price of corporate bonds is less sensitive to interest rate increases than treasury bonds, so VFICX is expected to decrease less than the total bond fund when rates increase.

Check your numbers though...I think you are including government mortgage backed bonds in the category of "government issue," but they are not. They are issued by private companies and backed by the government, there is a difference. In my opinion, you should compare the treasury/agency numbers.

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Re: Total Bond Market vs. Intermediate-Term Investment Grade

Post by midareff » Thu Apr 09, 2015 8:32 am

It doesn't stop there since there is also the Intermediate Term Bond Index which has a duration a bit longer and is roughly 50% government and 50% corporate, and then there is the Intermediate Term Corporate Bond Index with a like duration to the first index I cited.

I think that among the differences to be aware of is the behaviors of government and corporate bonds will vary in a time of market stress or crisis. Treasuries and government bonds in general will maintain their NAV and perhaps even go up a bit. Corporate bonds will lose some of their NAV will in a time of market stress or crisis and historically this has proven to be short lived, as measured in months. to perhaps a year, until they recover their NAV value.

Other factors to consider are that the traditional rule of thumb for behavior in periods of interest rate increases a bond fun can be expected to decrease in value by the duration X the amount of the rate increase. ie: 5 year duration yielding 2% with a .5% rate rise quickly becomes a 2.5% decrease in NAV with a revised yield of 2.5%.

Larry Swedroe wrote an excellent book on bonds ... d+strategy ..... you might consider giving it a read.

Some may say that any Intermediate Term Bond Fund is OK as long as it is Investment Grade but they will behave differently based on content and duration and you should know the differences before you pick the right one, or ones for you.

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Re: Total Bond Market vs. Intermediate-Term Investment Grade

Post by Lafder » Thu Apr 09, 2015 9:06 am

I use Total Bond Market, and Total International Bond Market. I do not understand bonds enough to chose a different one, and am afraid I would choose a worse one by chance :)

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Re: Total Bond Market vs. Intermediate-Term Investment Grade

Post by powermega » Thu Apr 09, 2015 10:37 am

I use VFICX as a tilt allocation for my Target Date Fund overall allocation. I think the Total Bond Market (TBM) is just a little too Treasury heavy, so I try to compensate with VFICX since it is very light on Treasuries and heavy on corporate bonds.
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Re: Total Bond Market vs. Intermediate-Term Investment Grade

Post by tuckeverlasting » Thu Apr 09, 2015 10:40 am

My AA is 40/60 and I hold both the Vanguard Total Bond and Intermediate-Term Investment
Grade Funds.
It's Good To Be A Boglehead

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