vwehx [Vanguard Hi-Yield Corporate Fund]
vwehx [Vanguard Hi-Yield Corporate Fund]
Views solicited on moving cash of low six figures into VWEHX in an IRA account. Would the income from reinvested dividends be expected to offset losses from share price declines ? I'm tired of sitting on so much cash yet believe now is not the time to add to stock positions. All thoughts are gratefully welcomed. loghauler
- bertilak
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Re: vwehx
If you have six figures, go for the admiral class, VWEAX. Same fund, lower expense ratio, 0.13% vs 0.23%. Min investment $50K.
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- ruralavalon
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Re: vwehx
It's Vanguard Hi-Yield Corporate Fund Investor Shares (VWELX) ER 0.23%.
It's inconsiderate to use just the ticker, so that anyone who wants to try to help you has to start by looking up what you are referring to.
The problem with "high-yield" bond funds is the low credit quality, they hold "junk" bonds, in this case an average credit quality of B.
It's inconsiderate to use just the ticker, so that anyone who wants to try to help you has to start by looking up what you are referring to.
The problem with "high-yield" bond funds is the low credit quality, they hold "junk" bonds, in this case an average credit quality of B.
Last edited by ruralavalon on Mon Dec 28, 2015 10:53 am, edited 2 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
Re: vwehx
VWEHX is the high yield bond fund.loghauler wrote:Views solicited on moving cash of low six figures into VWEHX in an IRA account. Would the income from reinvested dividends be expected to offset losses from share price declines ? I'm tired of sitting on so much cash yet believe now is not the time to add to stock positions. All thoughts are gratefully welcomed. loghauler
The answer in general is that income from reinvested dividends would on expected average offset losses from share price declines, but that income from reinvested dividends would not offset volatile losses and gains in the short run.
I think the question is not very logically framed by talking about "income from reinvested dividends." A better framing is to reinvest the dividends and consider the expected total return, which is positive, and the volatility of the investment, which is large enough to drive the asset value into a loss position from time to time. For example, the one year trailing return of the fund is -1.72% and the three month total return is -2.19%. But, the three year return is +2.44%. None of those numbers are predictions of the future. If these concepts are not familiar, I would do more study before investing in this fund, or any fund for that matter.
Re: vwehx
Your ticker in your post is for Vanguard Wellington fund not high yield.ruralavalon wrote:It's Vanguard Hi-Yield Corporate Fund Investor Shares (VWELX) ER 0.23%.
It's inconsiderate to use just the ticker, so that anyone who wants to try to help you has to start by looking up what you are referring to.
The problem with "high-yield" bond funds is the low credit quality, they hold "junk" bonds, in this case an average credit quality of B.
Best Wishes, SpringMan
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Re: vwehx
loghauler, I think anyone who invests in a so-called "high yield" bond fund needs to be able to articulate a clear reason for wanting to invest in bonds that have low credit quality and are not considered "investment grade." A sane person certainly could want to do this, and there are respected Bogleheads who suggest an allocation to this asset class--and some who do not. I won't try to summarize the pros and cons, but I do think you owe it to yourself to explain your reasons.
I would have said the same thing a year ago, by the way. I'm not reacting to the collapse of Third Avenue Focussed Credit (which isn't a typical "high yield" bond fund). I just mean that "high yield bonds" are a slightly offbeat asset class.
I assume you understand that "high yield" is a euphemism. These are bonds from shaky companies who might not pay their bills. Investors wouldn't be willing to buy them unless they had a high interest rate, to compensate investors for the possibility of default.
OK, I said I wouldn't try to summarize the pros and cons, but I lied. I don't use "high-yield" bonds myself. They don't really behave like bonds, they are a sort of hybrid, in-between investment that has characteristics of both stocks and bonds. In particular, they have relatively high volatility. There's a problem if you categorize them as "bonds" in your asset allocation because you may be giving yourself the illusion of less risk than there really is. The big question is what, exactly, "high yield" bonds will do for you, that a small increase in stock allocation wouldn't do better.
And, for a few years now, there have been growing concerns about liquidity in bond funds, and "high yield" bonds are less liquid than investment grade bonds. One of the primary characteristics of a mutual fund is that the fund itself is liquid--it is pledged to redeem any time you like, at the close of the day, at the market NAV. When a mutual fund hold liquid securities like stocks, this is not a problem. When a mutual fund promises daily liquidity but is holding assets that are not that liquid, there is a potential problem. The potential problem became a real problem in Third Avenue Focussed Credit. For some time now, both the IMF and the SEC have been concerned about this. And "high-yield" (low quality) bonds are less liquid than high-grade corporate bonds... and corporate bonds are less liquid than government bonds.
This isn't necessarily a big concern, particularly because Vanguard's "high-yield" bond fund is somewhat more conservative than others, but it's something to think about.
I would have said the same thing a year ago, by the way. I'm not reacting to the collapse of Third Avenue Focussed Credit (which isn't a typical "high yield" bond fund). I just mean that "high yield bonds" are a slightly offbeat asset class.
I assume you understand that "high yield" is a euphemism. These are bonds from shaky companies who might not pay their bills. Investors wouldn't be willing to buy them unless they had a high interest rate, to compensate investors for the possibility of default.
OK, I said I wouldn't try to summarize the pros and cons, but I lied. I don't use "high-yield" bonds myself. They don't really behave like bonds, they are a sort of hybrid, in-between investment that has characteristics of both stocks and bonds. In particular, they have relatively high volatility. There's a problem if you categorize them as "bonds" in your asset allocation because you may be giving yourself the illusion of less risk than there really is. The big question is what, exactly, "high yield" bonds will do for you, that a small increase in stock allocation wouldn't do better.
And, for a few years now, there have been growing concerns about liquidity in bond funds, and "high yield" bonds are less liquid than investment grade bonds. One of the primary characteristics of a mutual fund is that the fund itself is liquid--it is pledged to redeem any time you like, at the close of the day, at the market NAV. When a mutual fund hold liquid securities like stocks, this is not a problem. When a mutual fund promises daily liquidity but is holding assets that are not that liquid, there is a potential problem. The potential problem became a real problem in Third Avenue Focussed Credit. For some time now, both the IMF and the SEC have been concerned about this. And "high-yield" (low quality) bonds are less liquid than high-grade corporate bonds... and corporate bonds are less liquid than government bonds.
This isn't necessarily a big concern, particularly because Vanguard's "high-yield" bond fund is somewhat more conservative than others, but it's something to think about.
Last edited by nisiprius on Mon Dec 28, 2015 11:31 am, edited 3 times in total.
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Re: vwehx
My fault. I should have been more clear about what I meant by framing. Framing didn't mean how you asked the question relative to proper form. It refers to how one thinks about how something works. My advice was to think about the problem in terms of expected total return (which includes reinvested dividends by definition) and about how variable that return is. When you do it that way you get a pretty straightforward answer to your question. That answer is yes in the long run and no in the short run. Trying to do this problem by thinking of reinvested dividends as income is confusing and does not relate to the available data on the fund, such as the performance data at various lengths of time available from Morningstar, for example. That data, which is the total return data, shows how over the longer run performance with dividends reinvested is generally positive but that at shorter runs can be negative. That kind of result is generally true of any investment people actually make.loghauler wrote:Sorry for my ignorance of proper form in framing my question, I was trying not to be so wordy. My bad.
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Re: vwehx
I agree with Nisi that you should have a clear rationale for choosing this segment of the bond market before jumping in, and weigh it carefully against the opposing perspectives.
I've found Rick Ferri's argument in favor the most clear. He summarizes some of it in this post, and I believe also in his books. It boils down to a belief that there are exploitable artifacts in the corporate credit rating landscape, what Rick refers to as "credit downgrade risk," that active bond fund managers can capture reliably at affordable cost. In my view, if you believe this argument then vwehx makes sense. If you don't, then what Swedroe and others say about high-yield bonds being inefficient ways to blend equity and credit risk makes sense and you should avoid vwehx.
I've found Rick Ferri's argument in favor the most clear. He summarizes some of it in this post, and I believe also in his books. It boils down to a belief that there are exploitable artifacts in the corporate credit rating landscape, what Rick refers to as "credit downgrade risk," that active bond fund managers can capture reliably at affordable cost. In my view, if you believe this argument then vwehx makes sense. If you don't, then what Swedroe and others say about high-yield bonds being inefficient ways to blend equity and credit risk makes sense and you should avoid vwehx.
Re: vwehx
The best advice I can give you is to give up the thought that you know anything about "the time to add to stock positions".loghauler wrote:I'm tired of sitting on so much cash yet believe now is not the time to add to stock positions. All thoughts are gratefully welcomed
The market has priced high yield bonds and stocks to reflect the risks they see -- and they are much better at looking than you are. On top of that pricing, your determinations to act or not are little more than flailing about on gut feelings, of the kind that costs investors multiple percentage points below the returns of the funds that they invest in. This is called "behavioral gap". It's not just amateurs that fail at market timing -- professionals do too, more often than they succeed; see "tactical allocation funds".
I see VWEHX as functionally little more than a mix of safer bonds and stocks. It will not be a magic answer to your investing dilemmas. You are much better off putting money in an allocation you can live with permanently, even if that means relatively low stock allocation.
While higher yields do generally compensate for price declines (e.g. due to market yield fluctuations), VWEHX is risky enough that you have to worry about defaults. When a bond defaults, the money is simply gone and there is no reward going forward. I.e. price drop, yield no higher.
If you want to spend time optimizing fixed income, it's much better spent looking for good bank CD deals (which rival even risky bonds sometimes, at no risk) and dealing with the logistics of moving IRA money there.
But again, most importantly -- give up the notion that you can time the market.
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Re: vwehx
Wow. So ~30% of high yield bonds are held by oil frackers, who many folks are betting will be wiped out in the next year or two. Is this fund promising a 30% dividend?
The slow drawdown of this fund over the last 8 mos (value with dividends peaked in April 2015) is presumably due to smart money heading for the exits. This could get ugly.
The enlightened opinions by others above make a lot of sense. But even in my unenlightened opinion, I wouldn't touch this thing with a 3 meter pole.
The slow drawdown of this fund over the last 8 mos (value with dividends peaked in April 2015) is presumably due to smart money heading for the exits. This could get ugly.
The enlightened opinions by others above make a lot of sense. But even in my unenlightened opinion, I wouldn't touch this thing with a 3 meter pole.
Last edited by just frank on Mon Dec 28, 2015 5:26 pm, edited 1 time in total.
Re: vwehx
Thanks to all who replied. I will try to add some requested additional info.
Current IRA portfolio:
Wellesley VWIAX 24%
Wellington VWENX 40%
Emerg. Mkt. VEMAX 7%
Money Mkt. VMMXX 29%
RMDs taken annually, taxes sent to govt. & balance reinvested in Vanguard Total Stock Market in non IRA account.
Living expenses are more than covered with SS & pension. No debt.
Reason for original question was to gain some additional return by employing some currently non-productive cash. I felt like I had plenty of high quality bonds in present holdings in VWIAX and VWENX. I had thought that Vanguard's High Yield Bond fund might be a reasonable alternative since it is ranked well ahead of the bulk of high yield bond funds and is managed by Wellington Management. You have caused me to rethink my position so I will rephrase the question. What if anything would you do with the 29% of the portfolio that is now in VMMXX?
Current IRA portfolio:
Wellesley VWIAX 24%
Wellington VWENX 40%
Emerg. Mkt. VEMAX 7%
Money Mkt. VMMXX 29%
RMDs taken annually, taxes sent to govt. & balance reinvested in Vanguard Total Stock Market in non IRA account.
Living expenses are more than covered with SS & pension. No debt.
Reason for original question was to gain some additional return by employing some currently non-productive cash. I felt like I had plenty of high quality bonds in present holdings in VWIAX and VWENX. I had thought that Vanguard's High Yield Bond fund might be a reasonable alternative since it is ranked well ahead of the bulk of high yield bond funds and is managed by Wellington Management. You have caused me to rethink my position so I will rephrase the question. What if anything would you do with the 29% of the portfolio that is now in VMMXX?
Re: vwehx
Bank CDs if you don't mind the extra effort to move IRA money. They are the one provable good deal for the small investor.loghauler wrote:You have caused me to rethink my position so I will rephrase the question. What if anything would you do with the 29% of the portfolio that is now in VMMXX?
Total Bond Market if you do mind.
More stocks: take your ideal stock allocation (if you felt good about stocks) and buy it now. By the time you're fully comfortable with stocks you might have to pay a lot more for it.
- Dale_G
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Re: vwehx
I am not sure what fund just frank is referring to, but it cannot be the Vanguard High yield fund. The semi-annual report of 7/31/15 shows the fund's total investment in the energy sector to be 10%. And I would be quite sure that not all of the energy investment is in oil frackers.just frank wrote:Wow. So ~30% of high yield bonds are held by oil frackers, who many folks are betting will be wiped out in the next year or two. Is this fund promising a 30% dividend?
The slow drawdown of this fund over the last 8 mos (value with dividends peaked in April 2015) is presumably due to smart money heading for the exits. This could get ugly.
The enlightened opinions above make a lot of sense. But even in my unenlightened opinion, I wouldn't touch this thing with a 3 meter pole.
To be unenlightened is one thing, to spread misinformation is quite another.
Confession: I have owned the Vanguard High Yield fund most of the time since 1986. It currently amounts to about 20% of my bond holdings. I recommend the fund only to those who understand the potential benefits and the possible pitfalls. The unenlightened should not invest in this fund. Neither should anyone else invest in the fund if they are unwilling to put up with occasional volatility to the downside.
I am not suggesting that I am enlightened, only that I am not unenlightened.
Dale
Volatility is my friend
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Re: vwehx
Vanguard High-Yield Corporate Fund Investor Sharesloghauler wrote:... VWEHX ...
If there exists such a thing as an identifiable time not to add to stock positions in the first place, surely it must also be a time not to add to stock-like debt positions.loghauler wrote:... I'm tired of sitting on so much cash yet believe now is not the time to add to stock positions. All thoughts are gratefully welcomed. loghauler
PJW
- just frank
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Re: vwehx
Information much appreciated!! Consistent with the OP's statement that they are higher than average quality for the group.Dale_G wrote:I am not sure what fund just frank is referring to, but it cannot be the Vanguard High yield fund. The semi-annual report of 7/31/15 shows the fund's total investment in the energy sector to be 10%. And I would be quite sure that not all of the energy investment is in oil frackers.just frank wrote:Wow. So ~30% of high yield bonds are held by oil frackers, who many folks are betting will be wiped out in the next year or two. Is this fund promising a 30% dividend?
The slow drawdown of this fund over the last 8 mos (value with dividends peaked in April 2015) is presumably due to smart money heading for the exits. This could get ugly.
The enlightened opinions above make a lot of sense. But even in my unenlightened opinion, I wouldn't touch this thing with a 3 meter pole.
To be unenlightened is one thing, to spread misinformation is quite another.
Dale
Re: vwehx
High yield bonds are more correlated to stocks than government and investment grade bonds Form your comment about now not being the time to invest in stocks, it doesn't make sense. That said, the VG High Yield fund is on the conservative side for a high yield fund.
Lar
Lar
Re: vwehx
I'd suggest reading this 2007-2014 BH.org thread featuring well known in the industry & numerous respected posters concerning VWEHX - its pros and cons/ viewtopic.php?t=2643 / Good luck!
Last edited by snowshoes on Mon Dec 28, 2015 7:15 pm, edited 1 time in total.
- ruralavalon
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Re: vwehx
Sorry for the mistake. I was typing on as tablet, so I think that I'll blame it on auto correct .SpringMan wrote:Your ticker in your post is for Vanguard Wellington fund not high yield.ruralavalon wrote:It's Vanguard Hi-Yield Corporate Fund Investor Shares (VWELX) ER 0.23%.
It's inconsiderate to use just the ticker, so that anyone who wants to try to help you has to start by looking up what you are referring to.
The problem with "high-yield" bond funds is the low credit quality, they hold "junk" bonds, in this case an average credit quality of B.
It illustrates the reason for including the fund name. It's to easy to mistype, transpose letters, etc, and wind up referring to the wrong fund.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
Re: vwehx [Vanguard Hi-Yield Corporate Fund]
I use an allocation to junk bonds as a substitute for part of my equity allocation. I do not consider them in the same category as "bonds". They tend to follow the same direction as stocks, although that has not been the case over the past year.
It's following the drop in oil, and more recently, the Third Avenue debacle. With that, prices have come down significantly. Fear is everywhere. At the same time, the yield is now over 6%.
I admit, I'm a little spooked at the price drop and disconnect from the general market. At some point, energy prices will rebound and the junk market will stabilize.
I'd rather see a drop in the equity market to come back in line with junk bonds, as there is far too large of a disconnect. If you hold for the long-term though, you continue collecting dividend payments which hopefully make up for it.
It's following the drop in oil, and more recently, the Third Avenue debacle. With that, prices have come down significantly. Fear is everywhere. At the same time, the yield is now over 6%.
I admit, I'm a little spooked at the price drop and disconnect from the general market. At some point, energy prices will rebound and the junk market will stabilize.
I'd rather see a drop in the equity market to come back in line with junk bonds, as there is far too large of a disconnect. If you hold for the long-term though, you continue collecting dividend payments which hopefully make up for it.
- Mel Lindauer
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
I see the recommendation to just add equities instead of using HY lots of times. I'll play devil's advocate here.
While Vanguard's HY fund may be somewhat stock-like, I'd point out that using Vanguards HY (with higher quality bonds than most) offers something equities don't offer, and that's a 6% buffer to help offset a drop in the NAV. So for some investors, HY might be counted as part of their equity allocation.
Just trying to counter this oft-repeated recommendation to just buy more equities when a higher-quality HY bond fund like Vanguard's just might be a middle ground option between safe bonds and equities.
While Vanguard's HY fund may be somewhat stock-like, I'd point out that using Vanguards HY (with higher quality bonds than most) offers something equities don't offer, and that's a 6% buffer to help offset a drop in the NAV. So for some investors, HY might be counted as part of their equity allocation.
Just trying to counter this oft-repeated recommendation to just buy more equities when a higher-quality HY bond fund like Vanguard's just might be a middle ground option between safe bonds and equities.
Best Regards - Mel |
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Semper Fi
- Phineas J. Whoopee
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
Of course, Mel, and if I may play the (not sure of the term for the person whose job is to argue in favor of newly recognizing a Saint), what's the advantage of using an instrument which blends the characteristics of stocks and bonds when one could simply choose the division directly?
If junk corporate bonds are a blend of stock and fixed income characteristics, why get all complicated about it?
If they have characteristics not captured by being partly stock-like and partly bond-like, what are those characteristics?
I'm playing a role here, just the same as what you're doing.
PJW
If junk corporate bonds are a blend of stock and fixed income characteristics, why get all complicated about it?
If they have characteristics not captured by being partly stock-like and partly bond-like, what are those characteristics?
I'm playing a role here, just the same as what you're doing.
PJW
- Taylor Larimore
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
Loghauler:
It is nice to hear from you again. I trust that you and your wife are enjoying a comfortable retirement.
Based on the information you provided, it appears that you now have a good retirement portfolio. I would be slow to complicate it with more funds that will require more maintenance by you, your care-givers and your heirs.
It will be helpful if you would edit your post to include each of your funds as a percentage of your overall portfolio. We cannot determine the percentage of the total stock market fund or the stock/bond ratio in your portfolio (your most important portfolio decision).
If your living expenses are "covered by SS and pension, no debt," what is your portfolio goal? Is it wise to take more risk? Vanguard's Hi-Yield Bond Fund plunged 28% during 2008.
Your answers to the above questions will be helpful.
Happy Holiday!
Taylor
It is nice to hear from you again. I trust that you and your wife are enjoying a comfortable retirement.
Based on the information you provided, it appears that you now have a good retirement portfolio. I would be slow to complicate it with more funds that will require more maintenance by you, your care-givers and your heirs.
It will be helpful if you would edit your post to include each of your funds as a percentage of your overall portfolio. We cannot determine the percentage of the total stock market fund or the stock/bond ratio in your portfolio (your most important portfolio decision).
If your living expenses are "covered by SS and pension, no debt," what is your portfolio goal? Is it wise to take more risk? Vanguard's Hi-Yield Bond Fund plunged 28% during 2008.
Your answers to the above questions will be helpful.
Happy Holiday!
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Re: vwehx [Vanguard Hi-Yield Corporate Fund]
Vanguard High-Yield Corporate Inv (VWEHX)
These funds have a tendency to vary in their price per share. They are better long term than short term, so you
need to determine what sort of fluctuations you are able to live with. Take a look at a max timeline in yahoo
finance and compare these:
Vanguard High-Yield Corporate Inv (VWEHX)
Vanguard High-Yield Tax-Exempt (VWAHX)
Vanguard Interm-Term Tx-Ex Inv (VWITX)
Vanguard Short-Term Bond Index Inv (VBISX)
You will see that those with higher yields vary in price more, and so forth. I personally use a blend of VWAHX and VWITX with a small portion in short
term for a percentage of my "cash" holdings, about 33%. I have done this for long enough that it is in positive territory, though it could fluctuate
going forward and that is an understanding in my IPS.
These funds have a tendency to vary in their price per share. They are better long term than short term, so you
need to determine what sort of fluctuations you are able to live with. Take a look at a max timeline in yahoo
finance and compare these:
Vanguard High-Yield Corporate Inv (VWEHX)
Vanguard High-Yield Tax-Exempt (VWAHX)
Vanguard Interm-Term Tx-Ex Inv (VWITX)
Vanguard Short-Term Bond Index Inv (VBISX)
You will see that those with higher yields vary in price more, and so forth. I personally use a blend of VWAHX and VWITX with a small portion in short
term for a percentage of my "cash" holdings, about 33%. I have done this for long enough that it is in positive territory, though it could fluctuate
going forward and that is an understanding in my IPS.
Re: vwehx
NO! Better to spread what cash you want into Wellesley and Wellington and call it a day. They have appropriate bond holdings, just parkloghauler wrote:Thanks to all who replied. I will try to add some requested additional info.
Current IRA portfolio:
Wellesley VWIAX 24%
Wellington VWENX 40%
Emerg. Mkt. VEMAX 7%
Money Mkt. VMMXX 29%
RMDs taken annually, taxes sent to govt. & balance reinvested in Vanguard Total Stock Market in non IRA account.
Living expenses are more than covered with SS & pension. No debt.
Reason for original question was to gain some additional return by employing some currently non-productive cash. I felt like I had plenty of high quality bonds in present holdings in VWIAX and VWENX. I had thought that Vanguard's High Yield Bond fund might be a reasonable alternative since it is ranked well ahead of the bulk of high yield bond funds and is managed by Wellington Management. You have caused me to rethink my position so I will rephrase the question. What if anything would you do with the 29% of the portfolio that is now in VMMXX?
it there.
- Mel Lindauer
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
The obvious reason is for someone who doesn't feel comfortable going "all the way" to equities, where they may well lose 50% of their investment in a down market and panic and sell. With the high yield throwing off 6% (currently) to help offset some of the eventual downturns in the fund's NAV, it's very possible that the dividends will help them "stay the course".Phineas J. Whoopee wrote:Of course, Mel, and if I may play the (not sure of the term for the person whose job is to argue in favor of newly recognizing a Saint), what's the advantage of using an instrument which blends the characteristics of stocks and bonds when one could simply choose the division directly?
If junk corporate bonds are a blend of stock and fixed income characteristics, why get all complicated about it?
If they have characteristics not captured by being partly stock-like and partly bond-like, what are those characteristics?
I'm playing a role here, just the same as what you're doing.
PJW
Regards,
Mel
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
The clear answer is High Yield may work best for an investor who is not best suited to go all in with equities. The cash flow from dividends may also help.Phineas J. Whoopee wrote:Of course, Mel, and if I may play the (not sure of the term for the person whose job is to argue in favor of newly recognizing a Saint), what's the advantage of using an instrument which blends the characteristics of stocks and bonds when one could simply choose the division directly?
If junk corporate bonds are a blend of stock and fixed income characteristics, why get all complicated about it?
If they have characteristics not captured by being partly stock-like and partly bond-like, what are those characteristics?
I'm playing a role here, just the same as what you're doing.
PJW
Please see many of Rick Ferri's excellent posts regarding the High Yield fund.
Best.
John C. Bogle: “Simplicity is the master key to financial success."
Re: vwehx [Vanguard Hi-Yield Corporate Fund]
I disagree, as such an investor the OP is, with Wellesley and Wellington and only 7% in Emerg. Mkt, clearly this investor isabuss368 wrote:
The clear answer is High Yield may work best for an investor who is not best suited to go all in with equities. The cash flow from dividends may also help.
not "all in" with equities and high yield funds may NOT be the experience the OP is after!
Re: vwehx [Vanguard Hi-Yield Corporate Fund]
IMHO, an investor should look at their total fixed income holdings in context of the overall portfolio and tax situation. For example,
If you hold 90% of your fixed income in CDs, Govt Savings Bonds, and Treasuries (perhaps in taxable), adding 10% in High Yield Corporates (perhaps in IRAs) is a fine thing to do.
If you have a high value tilt on the equity side of your portfolio, probably best to avoid high yield bonds altogether.
If you hold 90% of your fixed income in CDs, Govt Savings Bonds, and Treasuries (perhaps in taxable), adding 10% in High Yield Corporates (perhaps in IRAs) is a fine thing to do.
If you have a high value tilt on the equity side of your portfolio, probably best to avoid high yield bonds altogether.
Re: vwehx
Because you said "Living expenses are more than covered with SS & pension" I'll assume you are investing for your heirs.loghauler wrote:Thanks to all who replied. I will try to add some requested additional info.
Current IRA portfolio:
Wellesley VWIAX 24%
Wellington VWENX 40%
Emerg. Mkt. VEMAX 7%
Money Mkt. VMMXX 29%
RMDs taken annually, taxes sent to govt. & balance reinvested in Vanguard Total Stock Market in non IRA account.
Living expenses are more than covered with SS & pension. No debt.
Reason for original question was to gain some additional return by employing some currently non-productive cash. I felt like I had plenty of high quality bonds in present holdings in VWIAX and VWENX. I had thought that Vanguard's High Yield Bond fund might be a reasonable alternative since it is ranked well ahead of the bulk of high yield bond funds and is managed by Wellington Management. You have caused me to rethink my position so I will rephrase the question. What if anything would you do with the 29% of the portfolio that is now in VMMXX?
Assuming Vanguard Total Stock Market is the only fund you have in taxable, I would move the IRA cash to Vanguard International Value VTRIX.
You presently have little foreign exposure. You also seem to prefer actively managed funds in your IRA (which I think is fine as long as they are low expense). I don't believe you can time the market, but expected returns on international are presently high enough to take the added risk, IMHO.
With future RMDs, and any loss (or low long-term gain) positions you might have on TSM, I would buy I-Bonds and/or bank CDs in taxable. These are subject to less inflation / interest rate risk. I assume the reason you're holding cash in your IRA rather than a bond fund now is you're concerned about interest rates.
I don't see a valuable role for high-yield in your portfolio. Wellesley and Wellington already have ample credit risk.
Last edited by Sammy_M on Tue Dec 29, 2015 8:32 am, edited 1 time in total.
Re: vwehx [Vanguard Hi-Yield Corporate Fund]
I think this comes down to a question of how much risk you are willing to take with this money. I am not in the camp that says high yield bonds are bad or that they should be avoided. They are just another segment of the market. Are they more risky than CD's? Sure, lots of things are - but you can expect a higher return to compensate you for that risk.
The Vanguard High Yield Bond fund sticks to the higher rated portions of the junk bond market. These are not necessarily companies poised to go under or in big trouble although a few may be; these are companies less well capitalized and so the market demands a higher rate on their bonds. Again, it's just a question of risk. For example, looking through the top holdings of the fund, I see Sungard Data Systems, with a bond paying 6.625%. This is a company I am somewhat familiar with; established but newer tech company, smaller but growing. Are they going to be able to issue bonds at the same rate as GE or Exxon Mobil? No, but they are not a "junk" company either - they are just a little more risky.
I do agree that this fund is somewhat impacted by the equity market. When stocks drop due to a slowing economy, people worry about these lower rated, less well capitalized companies having trouble paying back their debts. Rightfully so. But when the markets recover, this fund does as well.
Full disclosure, I have held this fund for a long period of time, along with other funds holding bonds of higher quality. I have heard all the arguments - too risky, too much like equities, etc. But this fund keeps churning out the dividends year after year - currently 6+%. It is not without its risks and I am not trying to sway you one way or the other, but I really think it comes down to how much risk you wish to take with this money vs. the potential reward. Looking at 15 year returns of the Vanguard Bond funds I own:
Vanguard High Yield Corporate 6.14%
Vanguard Total Bond Market Index 4.86%
Vanguard Intermediate Term Municipal 4.41%
I would say I was rewarded for the greater risk of this fund. The next 15 years? Who knows. That's what risk is and why this fund pays a higher yield. It's also why I also hold the other funds.
Each of the bond funds I listed above has its pluses and minuses. For example, some say the Total Bond Index holds too many Treasury Bonds; the Municipal bond market was supposed to crater a couple of years ago, etc. I just tune all of that out, make sure I understand WHY I think the funds I buy are good or not for me and then stick to the plan hoping it all balances out in the end. That's it.
The Vanguard High Yield Bond fund sticks to the higher rated portions of the junk bond market. These are not necessarily companies poised to go under or in big trouble although a few may be; these are companies less well capitalized and so the market demands a higher rate on their bonds. Again, it's just a question of risk. For example, looking through the top holdings of the fund, I see Sungard Data Systems, with a bond paying 6.625%. This is a company I am somewhat familiar with; established but newer tech company, smaller but growing. Are they going to be able to issue bonds at the same rate as GE or Exxon Mobil? No, but they are not a "junk" company either - they are just a little more risky.
I do agree that this fund is somewhat impacted by the equity market. When stocks drop due to a slowing economy, people worry about these lower rated, less well capitalized companies having trouble paying back their debts. Rightfully so. But when the markets recover, this fund does as well.
Full disclosure, I have held this fund for a long period of time, along with other funds holding bonds of higher quality. I have heard all the arguments - too risky, too much like equities, etc. But this fund keeps churning out the dividends year after year - currently 6+%. It is not without its risks and I am not trying to sway you one way or the other, but I really think it comes down to how much risk you wish to take with this money vs. the potential reward. Looking at 15 year returns of the Vanguard Bond funds I own:
Vanguard High Yield Corporate 6.14%
Vanguard Total Bond Market Index 4.86%
Vanguard Intermediate Term Municipal 4.41%
I would say I was rewarded for the greater risk of this fund. The next 15 years? Who knows. That's what risk is and why this fund pays a higher yield. It's also why I also hold the other funds.
Each of the bond funds I listed above has its pluses and minuses. For example, some say the Total Bond Index holds too many Treasury Bonds; the Municipal bond market was supposed to crater a couple of years ago, etc. I just tune all of that out, make sure I understand WHY I think the funds I buy are good or not for me and then stick to the plan hoping it all balances out in the end. That's it.
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
http://www.fiercefinanceit.com/story/fi ... 2015-08-13kenschmidt wrote: For example, looking through the top holdings of the fund, I see Sungard Data Systems, with a bond paying 6.625%. This is a company I am somewhat familiar with; established but newer tech company, smaller but growing. Are they going to be able to issue bonds at the same rate as GE or Exxon Mobil? No, but they are not a "junk" company either - they are just a little more risky..
They were owned by Private Equity which used leverage to achieve the LBO. Hence the junk rating (at that time).
Now owned by Fair Isaacs, they may well have had a debt upgrade. When HY bonds reach investment grade territory, there is usually an option by the issuer to redeem at par (so they can reissue investment grade debt at a lower coupon).
Perhaps, since it is an actively managed fund, the VG managers skillfully avoided bonds with that option arrangement, and so the fund holders are benefiting from the upgrade in credit quality?
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
Look at that chart for 2008-09 before you buy. Had the Fed and various government entities not bailed out the world economy, it would not have risen the way it has.loghauler wrote:Views solicited on moving cash of low six figures into VWEHX in an IRA account. Would the income from reinvested dividends be expected to offset losses from share price declines ? I'm tired of sitting on so much cash yet believe now is not the time to add to stock positions. All thoughts are gratefully welcomed. loghauler
If you are OK with that kind of a roller coaster ride, then it's an OK place to put money. Just riskier than bonds, generally.
Certainly now has been a much better time to buy HY bonds than, say, 8-12 weeks ago.
Re: vwehx [Vanguard Hi-Yield Corporate Fund]
Thank you Mr. Larimore, I had hoped you would chime in. Yes my wife and I are enjoying our retirement and thankful for the Boglehead advice that helped us get there. As per your note, our total portfolio follows:
IRA
Wellesley (VWIAX)-----------------18%
Wellington (VWENX)---------------30%
Emerg. Mkts. (VEMAX)------------- 5%
Money Mkt. (VMMXX)--------------24%
Non IRA
Total Stock Mkt (VTSAX)------------8%
Bank Demand Deposits-------------15%
Total---------------------------------100%
Goals: (1) Provide for our dotage when current income may not cover our needs
(2) Leave some little something for our two sons upon our demise
Your advice and of course that of others is gratefully appreciated.
To those who have cautioned about volatility, I think I understand your concerns. I did ride out that 2007-2008 decline without panic primarily because most of the portfolio was then, as now, mostly in Wellesley, Wellington, and cash.
Loghauler
IRA
Wellesley (VWIAX)-----------------18%
Wellington (VWENX)---------------30%
Emerg. Mkts. (VEMAX)------------- 5%
Money Mkt. (VMMXX)--------------24%
Non IRA
Total Stock Mkt (VTSAX)------------8%
Bank Demand Deposits-------------15%
Total---------------------------------100%
Goals: (1) Provide for our dotage when current income may not cover our needs
(2) Leave some little something for our two sons upon our demise
Your advice and of course that of others is gratefully appreciated.
To those who have cautioned about volatility, I think I understand your concerns. I did ride out that 2007-2008 decline without panic primarily because most of the portfolio was then, as now, mostly in Wellesley, Wellington, and cash.
Loghauler
Re: vwehx [Vanguard Hi-Yield Corporate Fund]
How are you considering the role of that cash position in the portfolio? If you are retired, can we assume part of the cash is for current expenses or for emergencies?
There is no free lunch.
Re: vwehx [Vanguard Hi-Yield Corporate Fund]
What's your overall desired fixed income allocation?loghauler wrote: IRA
Wellesley (VWIAX)-----------------18%
Wellington (VWENX)---------------30%
Emerg. Mkts. (VEMAX)------------- 5%
Money Mkt. (VMMXX)--------------24%
Non IRA
Total Stock Mkt (VTSAX)------------8%
Bank Demand Deposits-------------15%
Total---------------------------------100%
I'd estimate about 55-60% is fixed income now between the cash and these:
Wellesley (VWIAX)-----------------18% (38% interm. term, med quality bonds)
Wellington (VWENX)---------------30% (34% interm. term, med quality bonds)
Is that what you're seeking? I note earlier you said your living expenses are more than covered with SS & pension. Is the pension inflation adjusted?
- Taylor Larimore
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- Joined: Tue Feb 27, 2007 7:09 pm
- Location: Miami FL
A very good portfolio
Logholder:loghauler wrote:Thank you Mr. Larimore, I had hoped you would chime in. Yes my wife and I are enjoying our retirement and thankful for the Boglehead advice that helped us get there. As per your note, our total portfolio follows:
IRA
Wellesley (VWIAX)-----------------18%
Wellington (VWENX)---------------30%
Emerg. Mkts. (VEMAX)------------- 5%
Money Mkt. (VMMXX)--------------24%
Non IRA
Total Stock Mkt (VTSAX)------------8%
Bank Demand Deposits-------------15%
Total---------------------------------100%
Goals: (1) Provide for our dotage when current income may not cover our needs
(2) Leave some little something for our two sons upon our demise
Your advice and of course that of others is gratefully appreciated.
To those who have cautioned about volatility, I think I understand your concerns. I did ride out that 2007-2008 decline without panic primarily because most of the portfolio was then, as now, mostly in Wellesley, Wellington, and cash.
Loghauler
Your overall portfolio is 38% stocks and 62% fixed-income. This is your most important portfolio decision.
In the next serious bear market your portfolio will probably decline about 19% (1/2 your stock allocation) or even more. Adjust your stock allocation accordingly. I keep my fixed-income allocation equal to money I cannot afford to lose. It lets me sleep well.
I see nothing wrong with your portfolio assuming you have a suitable stock/bond ratio. Your portfolio is low-cost, very diversified, tax-efficient and simple to understand and maintain--all the earmarks of a superior portfolio!
Use this Vanguard Questionnaire to help you decide the stock/fixed income ratio that is best for you. https://personal.vanguard.com/us/FundsI ... unds/tools
Congratulations and enjoy a Happy Holiday!
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
Hi loghauler,loghauler wrote:Thank you Mr. Larimore, I had hoped you would chime in. Yes my wife and I are enjoying our retirement and thankful for the Boglehead advice that helped us get there. As per your note, our total portfolio follows:
IRA
Wellesley (VWIAX)-----------------18%
Wellington (VWENX)---------------30%
Emerg. Mkts. (VEMAX)------------- 5%
Money Mkt. (VMMXX)--------------24%
Non IRA
Total Stock Mkt (VTSAX)------------8%
Bank Demand Deposits-------------15%
Total---------------------------------100%
Goals: (1) Provide for our dotage when current income may not cover our needs
(2) Leave some little something for our two sons upon our demise
Your advice and of course that of others is gratefully appreciated.
To those who have cautioned about volatility, I think I understand your concerns. I did ride out that 2007-2008 decline without panic primarily because most of the portfolio was then, as now, mostly in Wellesley, Wellington, and cash.
Loghauler
Remember that the most important decision an investor will make is the allocation between stocks and bonds. Select and allocation based on your goals, time frame, and tolerance for risk. Your investment portfolio appears to have a reasonable allocation to bonds.
Keep your costs low and stay the course.
Best.
John C. Bogle: “Simplicity is the master key to financial success."
- Phineas J. Whoopee
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
Mel, in your post, and abuss368, in yours, you write of using junk bonds to avoid going "all the way," and "all in," respectively, by which I can only assume you mean 100% equities.
If OP's question was about investing the entire portfolio in equities versus putting all of it into junk bonds, I can understand your responses.
I don't read OP's question as referring to such an all-or-nothing situation. Maybe I'm misinterpreting it.
I agree 100% junk bonds for some investors could possibly a better holding than 100% stocks or 100% investment-grade bonds, but unless one is restricted to one asset class only, which of course one is not, I find your responses unconvincing. One can always mix stocks and highly-rated bonds.
I'll quote my own question:
PJW
If OP's question was about investing the entire portfolio in equities versus putting all of it into junk bonds, I can understand your responses.
I don't read OP's question as referring to such an all-or-nothing situation. Maybe I'm misinterpreting it.
I agree 100% junk bonds for some investors could possibly a better holding than 100% stocks or 100% investment-grade bonds, but unless one is restricted to one asset class only, which of course one is not, I find your responses unconvincing. One can always mix stocks and highly-rated bonds.
I'll quote my own question:
If the only such characteristic is they may be less psychologically disturbing for an investor than 100% stocks, then I'd say it is one captured by being partly stock-like and partly bond-like.PJW wrote:...
If they [high-yield bonds] have characteristics not captured by being partly stock-like and partly bond-like, what are those characteristics?
...
PJW
Re: vwehx [Vanguard Hi-Yield Corporate Fund]
I think Mel is just saying that if an investor is going to look at assets in isolation, high-yield should be less volatile than stocks. Of course a counter point is that assets should not be looked at in isolation, but that is easier to say than for some people to do.
Here's the crux though: The OP is holding 39% in cash. That's clearly the driver in the OP's inquiry about hi-yield bonds. So I reframe the question as: is holding 39% of one's portfolio in cash a good idea? I think no. Others seem to think yes.
Here's the crux though: The OP is holding 39% in cash. That's clearly the driver in the OP's inquiry about hi-yield bonds. So I reframe the question as: is holding 39% of one's portfolio in cash a good idea? I think no. Others seem to think yes.
- Phineas J. Whoopee
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
I think for the sorts of portfolios often posted here at bogleheads.org the answer, in most cases, is no to lots of cash, but I believe it depends entirely on individual circumstances.
I also think Mel, at least, is a skilled enough writer to post what he means, not to say something else which needs to be translated.
PJW
I also think Mel, at least, is a skilled enough writer to post what he means, not to say something else which needs to be translated.
PJW
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
Consider Total Bond Market Index and Total International Bond Index for low cost and diversification. Vanguard experts now recommend these two funds in research.
Best.
Best.
John C. Bogle: “Simplicity is the master key to financial success."
- Mel Lindauer
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
Hi PJW:Phineas J. Whoopee wrote:Mel, in your post, and abuss368, in yours, you write of using junk bonds to avoid going "all the way," and "all in," respectively, by which I can only assume you mean 100% equities.
If OP's question was about investing the entire portfolio in equities versus putting all of it into junk bonds, I can understand your responses.
I don't read OP's question as referring to such an all-or-nothing situation. Maybe I'm misinterpreting it.
I agree 100% junk bonds for some investors could possibly a better holding than 100% stocks or 100% investment-grade bonds, but unless one is restricted to one asset class only, which of course one is not, I find your responses unconvincing. One can always mix stocks and highly-rated bonds.
I'll quote my own question:If the only such characteristic is they may be less psychologically disturbing for an investor than 100% stocks, then I'd say it is one captured by being partly stock-like and partly bond-like.PJW wrote:...
If they [high-yield bonds] have characteristics not captured by being partly stock-like and partly bond-like, what are those characteristics?
...
PJW
The recommendation I often see repeated seems to be that if you're willing to take on more risk, "avoid high-yield and just go with more equities in your portfolio instead". My post suggested that HY may well be an "in-between" option for the investor who wants to take on more risk in their portfolio in the search for higher returns, but who doesn't wish to go "all the way" by adding some or more equities to his/her portfolio. Risk is a personal (as you say, psychological) decision.
Let's color HY bonds as "grey" in an otherwise black and white (stocks and/or IG bonds) world. Whatever works for you.
Best Regards - Mel |
|
Semper Fi
- abuss368
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
Hi Mel,Mel Lindauer wrote:Hi PJW:Phineas J. Whoopee wrote:Mel, in your post, and abuss368, in yours, you write of using junk bonds to avoid going "all the way," and "all in," respectively, by which I can only assume you mean 100% equities.
If OP's question was about investing the entire portfolio in equities versus putting all of it into junk bonds, I can understand your responses.
I don't read OP's question as referring to such an all-or-nothing situation. Maybe I'm misinterpreting it.
I agree 100% junk bonds for some investors could possibly a better holding than 100% stocks or 100% investment-grade bonds, but unless one is restricted to one asset class only, which of course one is not, I find your responses unconvincing. One can always mix stocks and highly-rated bonds.
I'll quote my own question:If the only such characteristic is they may be less psychologically disturbing for an investor than 100% stocks, then I'd say it is one captured by being partly stock-like and partly bond-like.PJW wrote:...
If they [high-yield bonds] have characteristics not captured by being partly stock-like and partly bond-like, what are those characteristics?
...
PJW
The recommendation I often see repeated seems to be that if you're willing to take on more risk, "avoid high-yield and just go with more equities in your portfolio instead". My post suggested that HY may well be an "in-between" option for the investor who wants to take on more risk in their portfolio in the search for higher returns, but who doesn't wish to go "all the way" by adding some or more equities to his/her portfolio. Risk is a personal (as you say, psychological) decision.
Let's color HY bonds as "grey" in an otherwise black and white (stocks and/or IG bonds) world. Whatever works for you.
I understand your post and that makes sense for some investors who may not be as willing or open to additional equities.
Thank you!
John C. Bogle: “Simplicity is the master key to financial success."
- Phineas J. Whoopee
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
Mel Lindauer wrote:...
Let's color HY bonds as "grey" in an otherwise black and white (stocks and/or IG bonds) world. Whatever works for you.
Grey works for me.Edna St. Vincent Millay wrote:I shall go back again to the bleak shore
And build a little shanty on the sand
In such a way that the extremest band
Of brittle seaweed shall escape my door
But by a yard or two; and nevermore
Shall I return to take you by the hand.
I shall be gone to what I understand,
And happier than I ever was before.
The love that stood a moment in your eyes,
The words that lay a moment on your tongue,
Are one with all that in a moment dies,
A little under-said and over-sung.
But I shall find the sullen rocks and skies
Unchanged from what they were when I was young.
PJW
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
Vanguard experts have not included High Yield in either the Target or Life Strategy funds and have research on the website on this topic.
John C. Bogle: “Simplicity is the master key to financial success."
- Mel Lindauer
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
Actually, a small dose of HY is going to be included in the new Vanguard active "total bond fund".abuss368 wrote:Vanguard experts have not included High Yield in either the Target or Life Strategy funds and have research on the website on this topic.
Best Regards - Mel |
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Semper Fi
- abuss368
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Re: vwehx [Vanguard Hi-Yield Corporate Fund]
Hi Mel,Mel Lindauer wrote:Actually, a small dose of HY is going to be included in the new Vanguard active "total bond fund".abuss368 wrote:Vanguard experts have not included High Yield in either the Target or Life Strategy funds and have research on the website on this topic.
Wow! I was unaware of that. Do you happen to know if the new active total bond fund is going to replace the index offering in the Target and Life Strategy funds?
Best.
John C. Bogle: “Simplicity is the master key to financial success."