Vanguard Core Bond Fund
Vanguard Core Bond Fund
So I see Vanguard Core Bond is new...im looking for a bond fund to put into my tax advantage space. I see one difference between Total Bond and Core Bond that being the amount of Bonds and hence diversification and Total Bond a bit better yield..any other differences im missing. Is the point of Core Bond just the attempt at beating the market by being actively managed...Which is the better play for tax advantages space..Thanks
Re: Vanguard Core Bond Fund
They differ in the type of holdings they own. The Core fund has more corporates and generally lower quality bonds. M* ranks the Core fund as a BB while Vanguard considers it equivalent to an A. Check the M* analysis of each under "portfolio". It also seems that the Core fund still has a lot of cash and maybe it hasn't completed its announced portfolio yet. Wait another month (after July 1)for a more accurate assessment and comparison.
- Taylor Larimore
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Re: Vanguard Core Bond Fund vs. Total Bond Market
poppa23:poppa23 wrote:So I see Vanguard Core Bond is new...Im looking for a bond fund to put into my tax advantage space. I see one difference between Total Bond and Core Bond that being the amount of Bonds and hence diversification and Total Bond a bit better yield..any other differences im missing. Is the point of Core Bond just the attempt at beating the market by being actively managed...Which is the better play for tax advantages space..Thanks
Bond funds are primarily for safety. Stocks are best for higher returns (and risk).
Accordingly, I think Vanguard's Total Bond Market Index Fund, with its higher quality bonds and greater diversification, is the better choice.
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
- whodidntante
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Re: Vanguard Core Bond Fund
You'll be lucky if bonds return anything in excessive of inflation right now. I don't see any reason to add credit risk or liquidity risk to the risks you are already taking by buying bonds. If bonds are for safety, then treasury bonds are the way to go.
- Taylor Larimore
- Posts: 32842
- Joined: Tue Feb 27, 2007 7:09 pm
- Location: Miami FL
History of Total Bond Market Index Fund
Poppa23:
Below are U.S. inflation figures (CPI-U), and Vanguard Total Bond Market returns, since Mr. Bogle introduced TBM in 1986:
YEAR..INFLATION....RETURN
1986-------1.1%--------15.2%
1987-------4.4-----------2.8
1988-------4.4-----------7.9
1989-------4.6----------14.5
1990-------6.1-----------8.9 (Inflation increased 5.0% -- TBM average return 9.86%)
1991-------3.1----------16.0
1992-------2.9-----------7.4
1993-------2.7-----------9.7
1994-------2.7---------(-2.7)
1995-------2.5----------18.5
1996-------3.3-----------3.6
1997-------1.7-----------9.7
1998-------1.6-----------8.7
1999-------2.7---------(-0.8)
2000-------3.4----------11.6 (Inflation increased 1.7% --TBM average return 7.3%)
2001-------1.6-----------8.4
2002-------2.4-----------8.3
2003-------1.9-----------4.0
2004-------3.3-----------4.2
2005-------3.4-----------2.4 (Inflation increased 1.8% -- TBM average return 5.5%)
2006-------2.5-----------4.3
2007-------4.1-----------7.0
2008-------0.1-----------5.1
2009-------2.7-----------5.9
2010-------1.5-----------6.4
2011-------3.0-----------7.6 (Inflation increased 2.9% -- TBM average return 6.3%)
2012-------1.7-----------4.1
2013-------1.5---------(-2.3)
2014-------0.8-----------5.8
2015-------0.7-----------0.3
2016-------2.1-----------2.5
Observations:
* During ALL four periods of rising inflation since 1986, Total Bond Market enjoyed positive returns.
* Total Bond Market's worst annual loss was -2.7% in 1994 (It gained 18.5% in 1995).
Best wishes.
Taylor
Below are U.S. inflation figures (CPI-U), and Vanguard Total Bond Market returns, since Mr. Bogle introduced TBM in 1986:
YEAR..INFLATION....RETURN
1986-------1.1%--------15.2%
1987-------4.4-----------2.8
1988-------4.4-----------7.9
1989-------4.6----------14.5
1990-------6.1-----------8.9 (Inflation increased 5.0% -- TBM average return 9.86%)
1991-------3.1----------16.0
1992-------2.9-----------7.4
1993-------2.7-----------9.7
1994-------2.7---------(-2.7)
1995-------2.5----------18.5
1996-------3.3-----------3.6
1997-------1.7-----------9.7
1998-------1.6-----------8.7
1999-------2.7---------(-0.8)
2000-------3.4----------11.6 (Inflation increased 1.7% --TBM average return 7.3%)
2001-------1.6-----------8.4
2002-------2.4-----------8.3
2003-------1.9-----------4.0
2004-------3.3-----------4.2
2005-------3.4-----------2.4 (Inflation increased 1.8% -- TBM average return 5.5%)
2006-------2.5-----------4.3
2007-------4.1-----------7.0
2008-------0.1-----------5.1
2009-------2.7-----------5.9
2010-------1.5-----------6.4
2011-------3.0-----------7.6 (Inflation increased 2.9% -- TBM average return 6.3%)
2012-------1.7-----------4.1
2013-------1.5---------(-2.3)
2014-------0.8-----------5.8
2015-------0.7-----------0.3
2016-------2.1-----------2.5
Observations:
* During ALL four periods of rising inflation since 1986, Total Bond Market enjoyed positive returns.
* Total Bond Market's worst annual loss was -2.7% in 1994 (It gained 18.5% in 1995).
Best wishes.
Taylor
Last edited by Taylor Larimore on Thu Nov 02, 2017 10:51 pm, edited 2 times in total.
"Simplicity is the master key to financial success." -- Jack Bogle
Re: Vanguard Core Bond Fund
Thanks Taylor...
Re: Vanguard Core Bond Fund
Does " The Core bond" fund also include the total international bond fund as well? If not, then it is not a truly core fund at all! Experts suggest about 30% of the bond portion of a folio be international bonds,..about 40% international in the stock portion..
SeeMoe..
SeeMoe..
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}
Re: Vanguard Core Bond Fund
Vanguard has included international bonds in their Life Strategy and Target Retirement funds but this is still a relatively new concept and has not necessarily gained as much acceptance as including international stocks. The Core Bond fund has very few, if any, international bonds.SeeMoe wrote:Does " The Core bond" fund also include the total international bond fund as well? If not, then it is not a truly core fund at all! Experts suggest about 30% of the bond portion of a folio be international bonds,..about 40% international in the stock portion..
SeeMoe..
Re: Vanguard Core Bond Fund
Vanguard is one of the only ones recommending those exact ratios, especially for international bonds, which many others don't even recommend at all. There's no kind of expert consensus you seem to be implying.SeeMoe wrote:Does " The Core bond" fund also include the total international bond fund as well? If not, then it is not a truly core fund at all! Experts suggest about 30% of the bond portion of a folio be international bonds,..about 40% international in the stock portion..
SeeMoe..
Furthermore, "core bond" is not exactly a term Vanguard came up with. Most in this well-known category—those explicitly with "core bond" in the descriptions or names, plus those regarded to be such by Morningstar and other analysts—do not have heavy international bond exposure.
iShares has a lineup of 20 relatively cheap index ETFs that they brand as Core (iShares Core ____), and none of these are global funds, containing substantial exposures of both US and ex-US securities in the same fund.
Regardless of whether or not it makes sense, there's probably not much expectation from investors that a core bond fund should be as you suggest.
-
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Re: Vanguard Core Bond Fund
I would also take a look at Vanguard's Short Term Bond Index.
Re: Vanguard Core Bond Fund
The vanguard Group of " experts" are really all the expert advice that I need. You may be surprised how many other investment companies listen to their sage, forward thinking advice and recommendations. Surely a " true" core fund would include international bonds in today's investment world, I would think. Else it ain't a core bond fund!..lack_ey wrote:Vanguard is one of the only ones recommending those exact ratios, especially for international bonds, which many others don't even recommend at all. There's no kind of expert consensus you seem to be implying.SeeMoe wrote:Does " The Core bond" fund also include the total international bond fund as well? If not, then it is not a truly core fund at all! Experts suggest about 30% of the bond portion of a folio be international bonds,..about 40% international in the stock portion..
SeeMoe..
Furthermore, "core bond" is not exactly a term Vanguard came up with. Most in this well-known category—those explicitly with "core bond" in the descriptions or names, plus those regarded to be such by Morningstar and other analysts—do not have heavy international bond exposure.
iShares has a lineup of 20 relatively cheap index ETFs that they brand as Core (iShares Core ____), and none of these are global funds, containing substantial exposures of both US and ex-US securities in the same fund.
Regardless of whether or not it makes sense, there's probably not much expectation from investors that a core bond fund should be as you suggest.
SeeMoe..
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}
Re: Vanguard Core Bond Fund
Then it's a USA centric " core" bond fund. Guess Vanguard assumes to many little investors are still shy and locally biased toward international bonds. Same as was true about 15-20 years ago regarding international stock funds. Notice many small investors here still are reluctant to invest more than10% up to 20% of their stock portions into the total international stock fund..Change is hard!lack_ey wrote:Vanguard is one of the only ones recommending those exact ratios, especially for international bonds, which many others don't even recommend at all. There's no kind of expert consensus you seem to be implying.SeeMoe wrote:Does " The Core bond" fund also include the total international bond fund as well? If not, then it is not a truly core fund at all! Experts suggest about 30% of the bond portion of a folio be international bonds,..about 40% international in the stock portion..
SeeMoe..
Furthermore, "core bond" is not exactly a term Vanguard came up with. Most in this well-known category—those explicitly with "core bond" in the descriptions or names, plus those regarded to be such by Morningstar and other analysts—do not have heavy international bond exposure.
iShares has a lineup of 20 relatively cheap index ETFs that they brand as Core (iShares Core ____), and none of these are global funds, containing substantial exposures of both US and ex-US securities in the same fund.
Regardless of whether or not it makes sense, there's probably not much expectation from investors that a core bond fund should be as you suggest.
SeeMoe..
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}
Re: Vanguard Core Bond Fund
Let's back up a second on the assumption that seems to have crept into this thread about the Core Bond fund being super risky. Let's look at the facts:
--It has the same duration as Total Bond, with a somewhat lower average maturity. That suggests that it has somewhat less extension risk.
--It has a lower yield than total bond even after adjusting for the slightly higher ER. That suggests that the market has adjudicated that Core Bond has less risk than Total Bond, not more.
17% of the Core Bond fund is composed of unrated bonds--I assume these these are the commercial mortgage-backed securities or other asset-backed bonds. M* in calculating it's average rating treats all of these as being lower than junk in terms of credit quality. Again, the market doesn't agree.
While I don't see anything to suggest that anyone should switch from Total to Core, there isn't additional risk in doing so. If one is looking to bonds soley for safety, they should use Treasuries only or CDs and use neither Total nor Core bond.
--It has the same duration as Total Bond, with a somewhat lower average maturity. That suggests that it has somewhat less extension risk.
--It has a lower yield than total bond even after adjusting for the slightly higher ER. That suggests that the market has adjudicated that Core Bond has less risk than Total Bond, not more.
17% of the Core Bond fund is composed of unrated bonds--I assume these these are the commercial mortgage-backed securities or other asset-backed bonds. M* in calculating it's average rating treats all of these as being lower than junk in terms of credit quality. Again, the market doesn't agree.
While I don't see anything to suggest that anyone should switch from Total to Core, there isn't additional risk in doing so. If one is looking to bonds soley for safety, they should use Treasuries only or CDs and use neither Total nor Core bond.
- Dale_G
- Posts: 3466
- Joined: Tue Feb 20, 2007 4:43 pm
- Location: Central Florida - on the grown up side of 85
Re: Vanguard Core Bond Fund
From the March 31 semiannual report:
Dale
No doubt most of the NR holdings are/were in the Market Liquidity fund awaiting investment in rated bonds.Credit-quality ratings are obtained from Moody's and S&P, and the
higher rating for each issue is shown. "Not Rated" is used to
classify securities for which a rating is not available. Not rated
securities include a fund's investment in Vanguard Market Liquidity
Fund or Vanguard Municipal Cash Management Fund, each of
which invests in high-quality money market instruments and may
serve as a cash management vehicle for the Vanguard funds,
trusts, and accounts.
Dale
Volatility is my friend
Re: Vanguard Core Bond Fund
Agree with Dale's conclusion- and which is why I suggested above to wait till after July 1 to get a better picture of what the holdings are/will be.Dale_G wrote:From the March 31 semiannual report:No doubt most of the NR holdings are/were in the Market Liquidity fund awaiting investment in rated bonds.Credit-quality ratings are obtained from Moody's and S&P, and the
higher rating for each issue is shown. "Not Rated" is used to
classify securities for which a rating is not available. Not rated
securities include a fund's investment in Vanguard Market Liquidity
Fund or Vanguard Municipal Cash Management Fund, each of
which invests in high-quality money market instruments and may
serve as a cash management vehicle for the Vanguard funds,
trusts, and accounts.
Dale
Re: Vanguard Core Bond Fund
Taylor's post of inflation vs Total Bond total return is very instructive. I hope that type of performance holds going forward. Total Bond did well during the 08-09 recession.
I wonder how much of the total return was due to declining interest rates which don't seem to have the same opportunity going forward. Unless we get into negative rates.
Global low interest rates are a challenge for retirees, banks, pension funds, insurance companies, endowments, etc. and I don't know that we have seen all the harmful side effects of it especially if the unusually low inflation environment changes. I certainly hope the Total Bond fund does well.
I wonder how much of the total return was due to declining interest rates which don't seem to have the same opportunity going forward. Unless we get into negative rates.
Global low interest rates are a challenge for retirees, banks, pension funds, insurance companies, endowments, etc. and I don't know that we have seen all the harmful side effects of it especially if the unusually low inflation environment changes. I certainly hope the Total Bond fund does well.
Re: Vanguard Core Bond Fund
We've had a 30 year bull market in bonds. 10-year Treasuries have steadily fallen from over 15% in 1981 to where they are today. Rates have nowhere to go but flat or up. I agree that this is not a reason to avoid bond index funds like TBM, because if you hold the fund for more than 4 or 5 years, capital losses from rate increases are offset by new higher rate bonds. However, I doubt the huge gains of the past 30 years will be repeated. TBM is not the slam dunk I wish it was.
Roth was a Senator, not an acronym. Please, stop writing it in all caps.