What is the long term average nominal yield of the total bond market index fund ?

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investing1012
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What is the long term average nominal yield of the total bond market index fund ?

Post by investing1012 » Fri Jan 12, 2018 6:51 pm

What is the long term average nominal annual return of the total bond market index fund ?
Last edited by investing1012 on Sat Jan 13, 2018 12:08 pm, edited 1 time in total.

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aspirit
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by aspirit » Fri Jan 12, 2018 7:40 pm

I re-call reading this thread on a targeted TBM search in the sites search box :

OP'd by Taylor Larimore:
=====================
Another board member asked: I have always wondered why you recommend TBM?

Taylor replied: I am not "hung-up" on Total Bond Market Index Fund. I think that any good quality short -term or intermediate-term bond fund should be satisfactory for providing safety and income for most portfolios. This is why we have so many discussions on the subject--it doesn't make much difference so there is no clea choice.

We had a similar question on the other forum (Conversation 58281). I gave these reasons for slightly prefering TBM to similar funds.

1. Diversification. TBM holds approximately 10,000 individual bonds of various types (short-term, long-term, intermediate-term, mortgage backed, Treasury backed, etc.). It holds no junk bonds.

2. TBM has an intermediate-term average maturity which is suitable for most retirement accounts.

3. TBM is relatively safe due, to its great diversification and high quality bond holdings. It's worst annual return was (-2.66%) in 1994.

4. It is one of the worlds largest bond funds. It is the choice of many investors.

5. Good performance. TBM ranks in the top 25% of all intermediate-term bond funds with 10-year performance.

6. Morningstar Mutual Fund's analyst wrote (11-27-06):

"All told, this is a great choice to anchor a fixed-income portfolio."

7. I speak from personal experience. We purchased Vanguard's Total Bond Market Index Fund in August, 1996 and are very satisfied with it."
-------------------------------------------------------------------------------------
Total Bond Market Index Fund is not always the best choice for a bond fund.

1. High income taxpayers should consider tax-exempt bonds (federal and state), I-bonds, and possibly Treasury bonds when it becomes necessary to place bonds in taxable accounts.

2. TBM is unsuitable for a short-term investment. A bond's maturity should not exceed the time when the money is needed.

3. For larger portfolios, the addition of an inflation-protected bond fund should be considered. (See Conversation 9792 on the M* forum)
-------------------------------------------------------------------------------
It is helpful to understand that the bond market is one of the most efficient markets in the world. Thousands of bond experts (and it takes an expert to understand bonds) are glued to computers around the clock and around the world seeking to exploit any basis point advantage by immediately buying and selling securities in their bond holdings. I have seen this myself when I visited the Shearson-Lehman bond trading floor in N.Y. while closing our Dade County Housing Bond issues.

There is no free-lunch in bonds.

Best wishes.
Taylor

No, it does not give you any numbers, just a well regarded professionals assessment.
Good luck!
Time & tides wait for no one. A man has to know his limitations.

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David Jay
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by David Jay » Fri Jan 12, 2018 7:50 pm

Just a smidgeon under 6% (total gain) since inception. (31 years, 605% gain)
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

investing1012
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by investing1012 » Fri Jan 12, 2018 9:19 pm

Is that 6% per year?

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Phineas J. Whoopee
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by Phineas J. Whoopee » Fri Jan 12, 2018 9:32 pm

investing1012 wrote:
Fri Jan 12, 2018 9:19 pm
Is that 6% per year?
Compound Annual Growth Rate, yes. Six percent each year like clockwork, no.

I'd also note that was the yield. We don't know what the yield is, nor what it will be. Conflating verb tenses can be hazardous to your wealth.

PJW

investing1012
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by investing1012 » Fri Jan 12, 2018 9:37 pm

That’s much higher than i thought. Do you know what the average nominal growth rate has been over past 5 years?

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Phineas J. Whoopee
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by Phineas J. Whoopee » Fri Jan 12, 2018 9:40 pm

investing1012 wrote:
Fri Jan 12, 2018 9:37 pm
That’s much higher than i thought. Do you know what the average nominal growth rate has been over past 5 years?
You may wish to use this fishing pole.

PJW

lack_ey
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by lack_ey » Fri Jan 12, 2018 9:42 pm

Of which total bond market index fund? Vanguard's is the longest running, so maybe that one? What does "long term" mean to you?

It's difficult to find data for something like that unless you were to pay the index provider for that info, though Vanguard does show yield on the fund page under price history (yield given alongside the price), though only since 1993. The return is a lot more readily available. Investor shares (VBMFX) have returned 497.24% cumulatively since inception in 1986-12-11, going by Morningstar's data. David Jay's figure looks off by 100% and then probably used a different share class. A return of 497.24% means growing to 597.24% of the original value assuming reinvestment.

So that return over 31.083 years is 5.92% annualized.

That figure is higher than the yield, I'm assuming, because on average the yield curve was upward sloping and rates have come down over the period significantly (though the fund also lost some from credit downgrades, I'm sure), so a smallish portion of that return overall is from price appreciation rather than from the yield of the underlying securities. Some of the distributions historically are from realized capital gains, which would have come out of the share price, so no saying that the share price isn't even $11 now when it started at $10. I would struggle to provide an accurate estimate of the magnitude of this effect, though.


Anyway, are you really asking about the fund, the index, or just bonds more generally? There's plenty better (longer history) and more accessible data on Treasury bond yields over time, also corporate bonds to an extent. They just won't have exactly the characteristics of the index, which we should remember has evolved over time in terms of composition.

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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by investing1012 » Sat Jan 13, 2018 12:10 am

I’m specifically inquiring about the vanguard total bond market index fund

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David Jay
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by David Jay » Sat Jan 13, 2018 10:05 am

1012:

Let me introduce you to a great tool: Morningstar.com

1. Go to Morningstar.com
2. Type VBTLX in the search box
3. On the left side of the page is a chart that shows the gain of a 10,000 investment over time. Click on "5yr" at the top of the chart.
4. Total gain over 5 years is 10.2% (10,000 became 11,024 in 5 years), which calculates to just under a 2% compound annual growth rate.

Current SEC yield (according to my Vanguard statement) is 2.61%, so the current yield has been drifting upwards. SEC was 1.9% when I purchased in 2016.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

dbr
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by dbr » Sat Jan 13, 2018 10:12 am

The OP did ask for yield and not return. It is possible to go to Yahoo and bring up the historical data back to 1986. In that data every dividend paid and the price of a share at that time is listed. This can be downloaded and the yield tabulated by computing it at the point of payment of every dividend.

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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by saltycaper » Sat Jan 13, 2018 11:54 am

Which yield? Distribution yield? Yield to maturity of the securities held by the fund?
Quod vitae sectabor iter?

dbr
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by dbr » Sat Jan 13, 2018 11:56 am

saltycaper wrote:
Sat Jan 13, 2018 11:54 am
Which yield? Distribution yield? Yield to maturity of the securities held by the fund?
Indeed. I an somewhat making the assumption that he is interested in the dividend payout, buy absent any more detailed information, that is a question.

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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by investing1012 » Sat Jan 13, 2018 12:09 pm

dbr wrote:
Sat Jan 13, 2018 10:12 am
The OP did ask for yield and not return. It is possible to go to Yahoo and bring up the historical data back to 1986. In that data every dividend paid and the price of a share at that time is listed. This can be downloaded and the yield tabulated by computing it at the point of payment of every dividend.
I apologize, I meant return and not yield. I've corrected this.

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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by investing1012 » Sat Jan 13, 2018 12:09 pm

David Jay wrote:
Sat Jan 13, 2018 10:05 am
1012:

Let me introduce you to a great tool: Morningstar.com

1. Go to Morningstar.com
2. Type VBTLX in the search box
3. On the left side of the page is a chart that shows the gain of a 10,000 investment over time. Click on "5yr" at the top of the chart.
4. Total gain over 5 years is 10.2% (10,000 became 11,024 in 5 years), which calculates to just under a 2% compound annual growth rate.

Current SEC yield (according to my Vanguard statement) is 2.61%, so the current yield has been drifting upwards. SEC was 1.9% when I purchased in 2016.
Thank you this is very helpful.

dbr
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by dbr » Sat Jan 13, 2018 12:11 pm

investing1012 wrote:
Sat Jan 13, 2018 12:09 pm
David Jay wrote:
Sat Jan 13, 2018 10:05 am
1012:

Let me introduce you to a great tool: Morningstar.com

1. Go to Morningstar.com
2. Type VBTLX in the search box
3. On the left side of the page is a chart that shows the gain of a 10,000 investment over time. Click on "5yr" at the top of the chart.
4. Total gain over 5 years is 10.2% (10,000 became 11,024 in 5 years), which calculates to just under a 2% compound annual growth rate.

Current SEC yield (according to my Vanguard statement) is 2.61%, so the current yield has been drifting upwards. SEC was 1.9% when I purchased in 2016.
Thank you this is very helpful.
Does that mean you wanted information about the return or really actually wanted a table of some form of the yield over all time?

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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by investing1012 » Sat Jan 13, 2018 12:14 pm

I wanted the information regarding return.

investing1012
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by investing1012 » Sat Jan 13, 2018 12:15 pm

What's the formula to convert compound interest over 10 or 5 years to the annual interest rate during those years?

investing1012
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by investing1012 » Sat Jan 13, 2018 12:17 pm

David Jay wrote:
Sat Jan 13, 2018 10:05 am
1012:

Let me introduce you to a great tool: Morningstar.com

1. Go to Morningstar.com
2. Type VBTLX in the search box
3. On the left side of the page is a chart that shows the gain of a 10,000 investment over time. Click on "5yr" at the top of the chart.
4. Total gain over 5 years is 10.2% (10,000 became 11,024 in 5 years), which calculates to just under a 2% compound annual growth rate.

Current SEC yield (according to my Vanguard statement) is 2.61%, so the current yield has been drifting upwards. SEC was 1.9% when I purchased in 2016.
It seems like the return for bonds over the past 10 years and especially the last 5 years has been lower than historic values. Is this due to the low interest rates?
Last edited by investing1012 on Sat Jan 13, 2018 12:27 pm, edited 1 time in total.

dbr
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by dbr » Sat Jan 13, 2018 12:18 pm

investing1012 wrote:
Sat Jan 13, 2018 12:14 pm
I wanted the information regarding return.
Indeed. You said yield in the title and return in the text. :(

dbr
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by dbr » Sat Jan 13, 2018 12:18 pm

investing1012 wrote:
Sat Jan 13, 2018 12:17 pm
David Jay wrote:
Sat Jan 13, 2018 10:05 am
1012:

Let me introduce you to a great tool: Morningstar.com

1. Go to Morningstar.com
2. Type VBTLX in the search box
3. On the left side of the page is a chart that shows the gain of a 10,000 investment over time. Click on "5yr" at the top of the chart.
4. Total gain over 5 years is 10.2% (10,000 became 11,024 in 5 years), which calculates to just under a 2% compound annual growth rate.

Current SEC yield (according to my Vanguard statement) is 2.61%, so the current yield has been drifting upwards. SEC was 1.9% when I purchased in 2016.
It seems like the yield for bonds over the past 10 years and especially the last 5 years has been lower than historic values. Is this due to the low interest rates?
Yield for bonds is interest rates, more or less with some nuances.

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David Jay
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by David Jay » Sat Jan 13, 2018 12:24 pm

investing1012 wrote:
Sat Jan 13, 2018 12:17 pm
David Jay wrote:
Sat Jan 13, 2018 10:05 am
1012:

Let me introduce you to a great tool: Morningstar.com

1. Go to Morningstar.com
2. Type VBTLX in the search box
3. On the left side of the page is a chart that shows the gain of a 10,000 investment over time. Click on "5yr" at the top of the chart.
4. Total gain over 5 years is 10.2% (10,000 became 11,024 in 5 years), which calculates to just under a 2% compound annual growth rate.

Current SEC yield (according to my Vanguard statement) is 2.61%, so the current yield has been drifting upwards. SEC was 1.9% when I purchased in 2016.
It seems like the yield for bonds over the past 10 years and especially the last 5 years has been lower than historic values. Is this due to the low interest rates?
Yes, and interest rates have been slowly edging up over the last 2 years.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

investing1012
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by investing1012 » Sat Jan 13, 2018 12:28 pm

dbr wrote:
Sat Jan 13, 2018 12:18 pm
investing1012 wrote:
Sat Jan 13, 2018 12:14 pm
I wanted the information regarding return.
Indeed. You said yield in the title and return in the text. :(
I apologize, I didn't know the two were different.

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David Jay
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by David Jay » Sat Jan 13, 2018 12:32 pm

Did you get the point that "dbr" made?

"Yield" is the interest that a bond fund pays.
"NAV" is the value of the bonds in the fund
"Return" = yield + (NAV increase)
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by ruralavalon » Sat Jan 13, 2018 12:41 pm

investing1012 wrote:
Sat Jan 13, 2018 12:14 pm
I wanted the information regarding return.
The Morningstar "growth of 10k" graph gives total return net of expenses.

The "performance" table right below the graph gives annualized returns.
Last edited by ruralavalon on Sat Jan 13, 2018 12:43 pm, edited 1 time in total.
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David Jay
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by David Jay » Sat Jan 13, 2018 12:42 pm

David Jay wrote:
Sat Jan 13, 2018 12:32 pm
Did you get the point that "dbr" made?

"Yield" is the interest that a bond fund pays.
"NAV" is the value of the bonds in the fund
"Return" = yield + (NAV increase)
So a drop in NAV reduces the total return to something less than interest paid.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by Kevin M » Sat Jan 13, 2018 12:55 pm

investing1012 wrote:
Fri Jan 12, 2018 6:51 pm
What is the long term average nominal annual return of the total bond market index fund ?
Others have mentioned Morningstar, but I find Portfoliio Visualizer easier and quicker, as long as you're OK with data through the most recent complete month: Backtest Portfolio Asset Allocation

This shows the annualized return for Jan 1987 through December 2017 as 5.97%, so as already mentioned, a smidge under 6%.

However, why are you interested in this? If it's to get some idea about future returns, then it's not directly relevant, since future returns are more dependent on current yields. You can see historical SEC yields for Vanguard funds, but not as far back as 1987. However, we can look at something like the 5-year Treasury yield, and see that it was a little below 7% in January 1987, while it is about 2.3% now: https://fred.stlouisfed.org/graph/?g=hvdf. The SEC yield of VBMFX now is 2.50%. So your return over the next 10 years or so is likely to be in the 2.5% ballpark--say somewhere between 1.5% and 3.5%.

If you want to explore further about the relationship between initial yield and subsequent 5-year and 10-year returns, you might find this thread interesting: Initial SEC yield and subsequent 5yr and 10yr returns - Bogleheads.org.

Kevin
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Re: What is the long term average nominal yield of the total bond market index fund ?

Post by FactualFran » Sat Jan 13, 2018 2:17 pm

The average of the annual distributions yields of the Vanguard Total Bond Market Index fund (1987 to 2017) has been 5.38%.

The distribution yields were calculated using the NAV of the fund at the end of the previous year. For example, the yield for 2009 of 4.14% was calculate by dividing the income distributions of 0.42142 per share during 2009 by the end of 2008 NAV of 10.18, not by the end of 2009 NAV of 10.35.

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