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Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 3:34 am
by Milo953
Novice here. I have small part of my retirement portfolio in the bond fund of SWAGX, an intermediate bond fund from Schwab. It’s been losing money ever since I bought it 6 months ago. I want to just give up and invest in a 2% cd at synchrony instead. I thought bonds were supposed to be the stablizing force in a portfolio ? My other bond investments are mixed in with a 2035 target date fund and vanguard’s wellsley mutual fund. Should I stay the course or bail now on the SWAGX ?

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 4:22 am
by in_reality
SWAGX seems to be behaving as expected.

When rates went up, the NAV dropped.

In about six years (or the funds duration), the higher yield it's paying now as compared to before rates went up will make up for that NAV drop. After that time, you will be earning more than if rates hadn't gone up.

Stay the course unless you need the money in six months for instance. But if that were the case, you shouldn't have gone into an intermediate fund in the first place.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 5:27 am
by zuma
As noted already by in_reality, the NAV has dropped but you're now earning a higher yield.

https://vanguardblog.com/2016/11/25/bon ... ing-rates/

If your investment horizon is longer than the duration of your bond holdings, no need to worry. Stay the course.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 6:05 am
by madbrain
Milo953 wrote:
Mon Jan 22, 2018 3:34 am
Novice here. I have small part of my retirement portfolio in the bond fund of SWAGX, an intermediate bond fund from Schwab. It’s been losing money ever since I bought it 6 months ago. I want to just give up and invest in a 2% cd at synchrony instead. I thought bonds were supposed to be the stablizing force in a portfolio ? My other bond investments are mixed in with a 2035 target date fund and vanguard’s wellsley mutual fund. Should I stay the course or bail now on the SWAGX ?
Bonds and stock prices tend to move in opposite directions (though not always). Hopefully, your stocks are doing better than these bonds.
Still, stocks can drop 2.25% in a single day, so this kind of move over a 6 months period of time should not be too destabilizing.

The problem with investing in a CD is the day you want to rebalance into stocks after a drop, you may need to pay a prepayment penalty, or forfeit some interest . In theory, the bank could even disallow you from cashing it before maturity. A bond fund is usually easier to deal with - you can often do the rebalance in one step to sell the bond fund and buy a stock fund, vs having to cash the CD, transfer the money from bank to brokerage, and then placing a purchase transaction, which can take longer, by which time the "buying opportunity" might be partly gone (or have improved, of course ;)).

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 6:31 am
by carolinaman
During the next bear market when equities drop 20% to 40%, you will appreciate why you are holding bonds. You have far less risk with the intermediate bond fund than with equities. It sounds like you need to educate yourself better about equities and bonds and what your desired AA should be. What you are experiencing right now is just short term volatility of a minor sort. Determine what AA you should have and stay the course.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 6:33 am
by oldcomputerguy
Milo953 wrote:
Mon Jan 22, 2018 3:34 am
Novice here. I have small part of my retirement portfolio in the bond fund of SWAGX, an intermediate bond fund from Schwab. It’s been losing money ever since I bought it 6 months ago.
You've been exposed to one of the hardest parts of long-term investing, namely the tendency to sell losers and buy what looks like better performers. Don't do it.

I assume you have decided on an asset allocation, a percentage of your portfolio in stocks and a percentage in bonds. Look at your bond fund again six months from now. If it's still low, sell some stocks and buy some more of it to bring it back to your desired percentage. That's what rebalancing is all about. And don't get too worried about what happens in six months' time. Take the long view. Stay the course.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 6:51 am
by z3r0c00l
It is really too late now, you held through the (minor) loss and want to sell before reaping the benefits of the highers yield?! You will then lock in those losses without any compensation.

Remember that a normal bad day in stocks you might lose 2.25%. That the bond fund did this over 6 months shows it is doing exactly what is expected, reducing volatility. The worst days for stocks each decade routinely exceed the worst years for a bond fund.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 7:39 am
by nisiprius
You have to accept the idea that securities involve risk, real risk, hurts-to-think-of-it risk. A mutual fund is not a bank account. Losing 2% in 6 months is normal for a bond fund. The fluctuations in any stock fund are going to be much worse.

SWAGX is the Schwab U.S. Aggregate Bond Index Fund, and is thus essentially a clone of the Schwab SCHZ ETF and the most-often-suggested Vanguard bond fund, Vanguard Total Bond Market Index Fund, VBTLX. That is to say, it's the bond holding that would usually be recommended to novices, and the largest single mutual fund holding I hold myself.

First, go to the literature you have for this fund and look for a number called the "duration." You can usually find it somewhere, for any bond fund. For SWAGX, at Schwab itself, I find this. It's 5.82 years. Call it six years.

Image

What is the duration? In rough general terms, it means that the fund is fairly safe, very unlikely to lose money, if you hold it that long. In other words, SWAGX shouldn't be thought of as a day-to-day, or week-to-week investment. It shouldn't be thought of even as a one-year investment. It should be thought of as an investment that will be held for at least six years, as part of a long-term investment program.

Try this exercise, really do it. Click on
this link right here.

You will see an image like this, representing the total return (including fund dividends, very important for any bond fund because, unlike stocks, bond returns come primarily from the bond interest payments which become fund dividends) of the Vanguard bond fund that is similar to SWAGX. It covers a period of three years.

Image

Do not just look at it, drag your mouse around it and you can watch the dollar number change. This is showing you what your moment-by-moment account balance would have been if you'd invested $10,000 in the fund on 1/22/2015.

Now, click on the word "maximum" and try it again, looking at a long period of past history. (Some of the controversy about bond funds is that, as you can see, the growth has slowed down--due to the decrease in interest rates, bond funds should not be expected to give the same returns they used to give).

Image

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 8:14 am
by The Wizard
nisiprius wrote:
Mon Jan 22, 2018 7:39 am

...What is the duration? In rough general terms, it means that the fund is fairly safe, very unlikely to lose money, if you hold it that long...
Well, sort of.
So if there's a step increase in bond rates this week, then that fund sees a NAV decline that takes 5.8 years to recover gradually.
Except that if there's another bond interest rate increase 5.5 years from now, then the NAV takes another dip...

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 8:15 am
by fundseeker
Milo953, It could be worse! See that huge dip in the chart around October 2016? That happened right after I decided to buy some of Vanguard's Intermediate Bond Fund, and it has not recovered yet! And, who knows when it will recover! I have not sold, but it is tempting to do so.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 8:18 am
by livesoft
In the past 3 weeks Total US bond index funds have dropped 1% in value. This makes them a better bargain than they were at the beginning of the year. Many people are rebalancing from their equity funds into their bond funds nowadays. That's how investing works.

If your stock funds had dropped 10%, would you be selling them in order to buy CDs? I know that I would be buying more stock fund shares in that case.

And if your bond funds dropped 3% and your stock funds dropped 15%, would you be selling your bond funds in order to buy more stock fund shares? I know that is what I would be doing.

And when my stock funds went up 5% and my bond funds dropped 1%, I was selling my stock funds in order to buy more bond fund shares last week. What are you doing?

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 8:25 am
by Toons
6 months?
Give it Ten Years.
Rates up
Nav Down.
Reinvest the dividends.
You will be fine.
Stop peeking.
:happy

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 9:18 am
by BlackStrat
"Half the time I wonder why I have so much in bonds, and the other half why so much in stocks"

-John Bogle

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 9:25 am
by westrichj312
If interest rates normalize your going to lose three times that at a minimum over the next 12 months! Question is will they.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 9:27 am
by ruralavalon
Milo953 wrote:
Mon Jan 22, 2018 3:34 am
Novice here. I have small part of my retirement portfolio in the bond fund of SWAGX, an intermediate bond fund from Schwab. It’s been losing money ever since I bought it 6 months ago. I want to just give up and invest in a 2% cd at synchrony instead. I thought bonds were supposed to be the stablizing force in a portfolio ? My other bond investments are mixed in with a 2035 target date fund and vanguard’s wellsley mutual fund. Should I stay the course or bail now on the SWAGX ?
Six months is nothing. Invest for the long-term.

Stick with Schwab U.S. Aggregate Bond Index Fund (SWAGX). It's behaving exactly as it should, in the long-term you will benefit from the higher interest earned.

With a CD you lock yourself in to today's interest rate for the duration of the CD, so will not benefit from increases in interest rates.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 9:32 am
by Call_Me_Op
Milo953 wrote:
Mon Jan 22, 2018 3:34 am
Novice here. I have small part of my retirement portfolio in the bond fund of SWAGX, an intermediate bond fund from Schwab. It’s been losing money ever since I bought it 6 months ago. I want to just give up and invest in a 2% cd at synchrony instead. I thought bonds were supposed to be the stablizing force in a portfolio ? My other bond investments are mixed in with a 2035 target date fund and vanguard’s wellsley mutual fund. Should I stay the course or bail now on the SWAGX ?
You should understand an investment before you purchase it. All bonds (and secondary CDs) can go up and down in value prior to maturity.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 9:51 am
by dbr
Milo953 wrote:
Mon Jan 22, 2018 3:34 am
Novice here. I have small part of my retirement portfolio in the bond fund of SWAGX, an intermediate bond fund from Schwab. It’s been losing money ever since I bought it 6 months ago. I want to just give up and invest in a 2% cd at synchrony instead. I thought bonds were supposed to be the stablizing force in a portfolio ? My other bond investments are mixed in with a 2035 target date fund and vanguard’s wellsley mutual fund. Should I stay the course or bail now on the SWAGX ?
The 2017 return of Wellesley is up 10.20% and the 2017 return of SWAGX appears to be flat or up or down a percent or so. That is a perfect illustration of what a stabilizing force looks like. If you had mixed those two 50/50 in 2017 instead of having all Wellesley your return would be about 5% instead of 10%. Of course the time will come when Wellesley is down 20% and then that loss would be cut in half by your stabilizing force.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 9:56 am
by Lonestarz
I’ll admit I haven’t bought into bonds because of potential rate increases. Ally has a no penalty CD you can get into to park cash and I have a few single digest % in short term bonds.

Don’t rebalance so frequently as performance trends seem to continue for a little while... until the reverse.

My target is 20% bonds But through real estate I have a bit more in ‘stable value’ (really non stock) investments.

I do plan on rebalancing into more bonds if we make it to the end of the year without a stock crash. If I miss it, oh well.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months: Don't eat the chickens.

Posted: Mon Jan 22, 2018 10:05 am
by Sandtrap
Milo953 wrote:
Mon Jan 22, 2018 3:34 am
Novice here. I have small part of my retirement portfolio in the bond fund of SWAGX, an intermediate bond fund from Schwab. It’s been losing money ever since I bought it 6 months ago. I want to just give up and invest in a 2% cd at synchrony instead. I thought bonds were supposed to be the stablizing force in a portfolio ? My other bond investments are mixed in with a 2035 target date fund and vanguard’s wellsley mutual fund. Should I stay the course or bail now on the SWAGX ?
Think of it this way.
Funds are like fruit bearing trees. It matters not the fluctuation of the price of the trees in your orchard, only that you keep harvesting fruit (interest or dividends). Diversification is having different types of fruit bearing trees because some give more or less fruit at different times.

Also can be said for chickens in chicken coups. Doesn't matter the current price of chickens as long as "your" chickens keep laying eggs (interest or dividends) every day.

Don't sell the fruit trees, don't eat the chickens.
j :D

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 10:07 am
by pkcrafter
Milo, the bonds in the TR 2035 and Wellesley have also dropped, you just didn't notice because of the stock increases in those funds. Just ignore this minor movement.


Paul

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 10:12 am
by visualguy
I haven't seen a good reason to hold bond funds other than maybe tax exempt ones in taxable accounts. If you have access to CDs and/or good stable value funds, go with that. With bond funds, you may have to wait almost twice the duration of the funds just to get the original principal plus the original interest. There is no reward for this risk when compared to alternatives like CD ladders. At the most, maybe keep just enough in bond funds for rebalancing, but you can rebalance out of CDs and stable value funds as well.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 10:14 am
by InvisibleAerobar
Few questions for the experts here, as I've been thinking of purchasing SWAGX for the bond/fixed income portion of my Roth IRA.

-If I'm reading things correctly, does it appear that the OP mistook price of the bond fund for total return of the bond fund?
-I never had to worry about the Barclay Bond Aggregate previously, as I have always used the TSP G Fund (save for a very short time on the TSP Barclay equivalent). It would appear that I would need to rebalance my portfolio more frequently, as the delta between equity and bond would grew greater; correct?
-Schwab also has the Barclay Bond Aggregate as an ETF (SCHZ). What practical differences are there between the two?
-I'm also trying to understand what @nisiprius wrote re: returns from now. Historically, rates were high, so if one bought in the mid 80's, the interest was high. As the price of the bond fund went up due to decrease in interest rate, a return was essentially guaranteed. Now that we are in the opposite situation (low interest rate, with rate rising), bond fund price would go down as rates rise. But what happens to the interest/dividend generated by the bond fund? Are those interest payments "updated" only six years from now?
-Where does that bond fund interest go, and what should one do with it? In TSP, that monthly interest payment presumably got reinvested, but it would seem that this shouldn't necessarily be the case here? Whereas dividend re-invested in a stock helps to drive up long term returns, bond interest payment paid today has no bearing on future returns, as that reinvestment doesn't appear to figure in any sort of compounding (especially when bond prices go down). Am I missing anything?
-Lastly, poster @visualguy mentioned about "stable value fund." What might this be?

Many thanks in advance!

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 10:17 am
by dbr
visualguy wrote:
Mon Jan 22, 2018 10:12 am
I haven't seen a good reason to hold bond funds other than maybe tax exempt ones in taxable accounts. If you have access to CDs and/or good stable value funds, go with that. With bond funds, you may have to wait almost twice the duration of the funds just to get the original principal plus the original interest. There is no reward for this risk when compared to alternatives like CD ladders. At the most, maybe keep just enough in bond funds for rebalancing, but you can rebalance out of CDs and stable value fund as well.
Of course this goes back to when the conversation is about asset allocation that all low risk, low return investments are "bonds." It can help to call everything "fixed income," which is neither fixed nor income. At the Treasury Bonds are only the bonds with long maturities; the others are Notes and Bills, except Savings Bonds that are bonds except they aren't. Also TIPS are bonds but they are called Securities.

But, yes, the point about the usefulness of CDs and Stable Value Funds is quite right, at least under present conditions.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 10:19 am
by Sandtrap
InvisibleAerobar wrote:
Mon Jan 22, 2018 10:14 am
Few questions for the experts here, as I've been thinking of purchasing SWAGX for the bond/fixed income portion of my Roth IRA.

-If I'm reading things correctly, does it appear that the OP mistook price of the bond fund for total return of the bond fund?
-I never had to worry about the Barclay Bond Aggregate previously, as I have always used the TSP G Fund (save for a very short time on the TSP Barclay equivalent). It would appear that I would need to rebalance my portfolio more frequently, as the delta between equity and bond would grew greater; correct?
-Schwab also has the Barclay Bond Aggregate as an ETF (SCHZ). What practical differences are there between the two?
-I'm also trying to understand what @nisiprius wrote re: returns from now. Historically, rates were high, so if one bought in the mid 80's, the interest was high. As the price of the bond fund went up due to decrease in interest rate, a return was essentially guaranteed. Now that we are in the opposite situation (low interest rate, with rate rising), bond fund price would go down as rates rise. But what happens to the interest/dividend generated by the bond fund? Are those interest payments "updated" only six years from now?
-Where does that bond fund interest go, and what should one do with it? In TSP, that monthly interest payment presumably got reinvested, but it would seem that this shouldn't necessarily be the case here? Whereas dividend re-invested in a stock helps to drive up long term returns, bond interest payment paid today has no bearing on future returns, as that reinvestment doesn't appear to figure in any sort of compounding (especially when bond prices go down). Am I missing anything?
-Lastly, poster @visualguy mentioned about "stable value fund." What might this be?

Many thanks in advance!
These are excellent questions. Perhaps consider a new post to get better responses and visibility.
Or even better, post the question within the larger context of your portfolio, IE: portfolio review format. So your answers fit you in particular.
A thought.
j :D

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 10:23 am
by InvisibleAerobar
Will do, and thanks for the suggestion. Sorry if that might have been a thread hijack.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 10:28 am
by dbr
InvisibleAerobar wrote:
Mon Jan 22, 2018 10:14 am
Few questions for the experts here, as I've been thinking of purchasing SWAGX for the bond/fixed income portion of my Roth IRA.

-If I'm reading things correctly, does it appear that the OP mistook price of the bond fund for total return of the bond fund?

Probably he is looking at the price and not the return. Also he is looking at the price over a very short length of time, which is not meaningful.

-I never had to worry about the Barclay Bond Aggregate previously, as I have always used the TSP G Fund (save for a very short time on the TSP Barclay equivalent). It would appear that I would need to rebalance my portfolio more frequently, as the delta between equity and bond would grew greater; correct?

It is very difficult for changes in bond asset value to actually trigger rebalancing. People way overestimate how often rebalancing is actually needed. I say that in reference to a 5% bands method.

-Schwab also has the Barclay Bond Aggregate as an ETF (SCHZ). What practical differences are there between the two?

I am not really familiar with the fund, but at first order there is no difference except in how the fund is bought and sold. Someone else may know something more specific.

-I'm also trying to understand what @nisiprius wrote re: returns from now. Historically, rates were high, so if one bought in the mid 80's, the interest was high. As the price of the bond fund went up due to decrease in interest rate, a return was essentially guaranteed. Now that we are in the opposite situation (low interest rate, with rate rising), bond fund price would go down as rates rise. But what happens to the interest/dividend generated by the bond fund? Are those interest payments "updated" only six years from now?

As a fund replaces maturing or too short maturity bonds the dividend payments in dollars continuously rise. With reinvestment a point in time is reached where the holding has the same value as it would have had if interest rates had not changed. Note that is for a one-time step increase in interest rates. With a rising interest rate over time there will be a response function that eventually rises above what would have been. In general over time the investor benefits from rising interest rates. Also, during that time of falling interest rates you mention, investors would actually have been better off if the rates had not fallen. Low interest rates eventually catch up with us. There have been posters who have posted some charts of this sort of thing.

-Where does that bond fund interest go, and what should one do with it? In TSP, that monthly interest payment presumably got reinvested, but it would seem that this shouldn't necessarily be the case here? Whereas dividend re-invested in a stock helps to drive up long term returns, bond interest payment paid today has no bearing on future returns, as that reinvestment doesn't appear to figure in any sort of compounding (especially when bond prices go down). Am I missing anything?

Of course reinvestment compounds. The reinvested dividend is more shares of the fund, all paying future dividends. If you don't reinvest the dividends then the asset doesn't grow very much or the depression in NAV is permanent.

-Lastly, poster @visualguy mentioned about "stable value fund." What might this be?

https://www.bogleheads.org/wiki/Stable_value_fund also https://www.google.com/search?source=hp ... ZE6ILaiV4c

Many thanks in advance!

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 10:31 am
by The Wizard
Over last six months from 7/22/17, $10,000 of swagx has "grown" to $9963.79, per M* charts.
This is a decline of 0.36%, not 2%+...

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 10:53 am
by ruralavalon
You are probably right than OP is focussing only on the share price, and is not considering the total return which includes dividends.

InvisibleAerobar wrote:
Mon Jan 22, 2018 10:14 am
Few questions for the experts here, as I've been thinking of purchasing SWAGX for the bond/fixed income portion of my Roth IRA.

. . . . .
-I never had to worry about the Barclay Bond Aggregate previously, as I have always used the TSP G Fund (save for a very short time on the TSP Barclay equivalent). It would appear that I would need to rebalance my portfolio more frequently, as the delta between equity and bond would grew greater; correct?
Most people don't have the G Fund as a choice, I do think it's a good choice.

If your Roth IRA is at Schwab then I think that Schwab U.S. Aggregate Bond Index Fund (SWAGX) is the best bond fund choice offered there.

Using SWABX in your Roth IRA will probably not change the frequency of rebalancing much if at all. Funds based on the Bloomberg Barclays U.S. Aggregate Bond Index have been very stable, even during 2007-09.


InvisibleAerobar wrote:-Schwab also has the Barclay Bond Aggregate as an ETF (SCHZ). What practical differences are there between the two?
That is just the Schwab ETF version of the Schwab mutual fund.


InvisibleAerobar wrote:-Lastly, poster @visualguy mentioned about "stable value fund." What might this be?
A type of fixed income fund offered in some defined benefit plans, using short-term or intermediate-term bonds with insurance so that a level of returns can be guaranteed for a period of time. If the returns are high enough then a stable value fund can be used as a substitute for a bond fund in a defined benefit plan.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 11:53 am
by Milo953
Thanks everyone for the excellent advice. I’m so glad to find out I have mistaken the price of the shares with the total return (including dividends). I will definitely stay the course, and stop peaking all the time !

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 12:22 pm
by grabiner
Milo953 wrote:
Mon Jan 22, 2018 3:34 am
Novice here. I have small part of my retirement portfolio in the bond fund of SWAGX, an intermediate bond fund from Schwab. It’s been losing money ever since I bought it 6 months ago. I want to just give up and invest in a 2% cd at synchrony instead. I thought bonds were supposed to be the stablizing force in a portfolio ? My other bond investments are mixed in with a 2035 target date fund and vanguard’s wellsley mutual fund. Should I stay the course or bail now on the SWAGX ?
The same thing happened to your other two funds; you just didn't see it. Wellesley and the target-date fund hold a lot of bonds, which went down, and a lot of stocks, which went up. Since the stock market went up more than the bond market went down, you had net gains in these funds, and didn't see the bond declines, nor even the declines on some of the stocks.

However, it doesn't make much sense to hold either the Schwab bond fund or CDs for retirement savings if you hold a target-date fund. The reason to hold a target-date fund is to have the fund automatically adjust your portfolio to keep the right risk level. If you have investments outside the target-date fund (and not in other balanced funds), you still have to adjust manually. Therefore, if you have a target-date fund in your 401(k), you should also use one in your IRA. If you manage your own allocation by holding separate bond and stock funds in your 401(k), you should do the same in your IRA.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 12:36 pm
by Nate79
The Wizard wrote:
Mon Jan 22, 2018 10:31 am
Over last six months from 7/22/17, $10,000 of swagx has "grown" to $9963.79, per M* charts.
This is a decline of 0.36%, not 2%+...

+1

Perhaps OP is spending the dividends.....

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 1:06 pm
by InvisibleAerobar
@dbr and @ruralavalon, many thanks for taking the time to explain everything!

Being on this site has been invaluable to my personal finance education

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 1:10 pm
by WhiteMaxima
I wont own long term bond now. I will put cash in CD or short term bond or even dividend paying stocks.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 1:42 pm
by Sandtrap
InvisibleAerobar wrote:
Mon Jan 22, 2018 1:06 pm
@dbr and @ruralavalon, many thanks for taking the time to explain everything!

Being on this site has been invaluable to my personal finance education
Glad the experts chimed in for you.
Saves the hassle of another thread.
aloha,
j :D

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 1:48 pm
by RRAAYY3
and this is why i'm probably never owning bonds

cash to buy dips/ CD's to actually lock in savings ... someone convince me otherwise, as I really struggle to see the appeal of bonds [i understand, less volatile]

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 2:19 pm
by Whakamole
I think someone here once compared bond investors to Eeyore - if rates go up, the value of their bonds goes down; but if bond prices increase, that means their rate has dropped. :oops:

The other part of this is that there is always an upside as well no matter what happens to bond prices or rates. Is this glass half full or empty? :beer

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 3:03 pm
by GibsonL6s
Milo953 wrote:
Mon Jan 22, 2018 3:34 am
Novice here. I have small part of my retirement portfolio in the bond fund of SWAGX, an intermediate bond fund from Schwab. It’s been losing money ever since I bought it 6 months ago. I want to just give up and invest in a 2% cd at synchrony instead. I thought bonds were supposed to be the stablizing force in a portfolio ? My other bond investments are mixed in with a 2035 target date fund and vanguard’s wellsley mutual fund. Should I stay the course or bail now on the SWAGX ?
They are the stabilizing force, stocks went up bonds went down, that is how it is supposed to work. If you are having a hard time with a bond fund losing 2.25%, how are you getting comfortable with any money in stocks with much greater volatility possible in equities? If you are not using bonds as a part of an overall allocation you are comfortable with you are in for a tough go. The balanced fund approach may be your best bet, but even there you need to understand and sign off on the mix of equities and bonds. This is the fundamental question for all investors. Good luck.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 3:13 pm
by visualguy
GibsonL6s wrote:
Mon Jan 22, 2018 3:03 pm
They are the stabilizing force, stocks went up bonds went down, that is how it is supposed to work. If you are having a hard time with a bond fund losing 2.25%, how are you getting comfortable with any money in stocks with much greater volatility possible in equities? If you are not using bonds as a part of an overall allocation you are comfortable with you are in for a tough go. The balanced fund approach may be your best bet, but even there you need to understand and sign off on the mix of equities and bonds. This is the fundamental question for all investors. Good luck.
Right, but why not stay away from bond funds and invest in other types of fixed income investments which have similar interest without the volatility? What's the reward you get in bond funds for the volatility?

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 4:06 pm
by GibsonL6s
I don't consider bonds volatile, but to put it simply your cash does not go up when your stocks go down. So unless you like another hedge better than bonds, this is their use in my simplistic view.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 4:07 pm
by Admiral
RRAAYY3 wrote:
Mon Jan 22, 2018 1:48 pm
and this is why i'm probably never owning bonds

cash to buy dips/ CD's to actually lock in savings ... someone convince me otherwise, as I really struggle to see the appeal of bonds [i understand, less volatile]
Because cash loses value to inflation and CDs have early withdrawal penalties. That's why. Also, if you're holdings are with Vanguard, then having CDs held outside your VG portfolio is just another/step hassle in terms of rebalancing, should you want to.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 4:08 pm
by TBillT
I use PONDX and PTIAX as stronger performers. LQD might be good but I have trouble holding it due to volatility.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 5:02 pm
by visualguy
GibsonL6s wrote:
Mon Jan 22, 2018 4:06 pm
I don't consider bonds volatile, but to put it simply your cash does not go up when your stocks go down. So unless you like another hedge better than bonds, this is their use in my simplistic view.
You can't have it both ways. It's either not volatile, in which case it won't do much as a hedge for stock, or it's volatile. In reality, it's somewhat volatile, but nothing compared to stock. I don't see how it acts as a meaningful hedge, and I don't see a good reason to tolerate the volatility.

You're also likely to get a lower total return when compared to a CD ladder in a period of rising interest rates because the "double duration" rule will bite you. Regardless of whether this happens or not, no point in playing this game when there's no win, so I stay away from these funds as much as possible, and stick to other fixed income.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 6:27 pm
by bondsr4me
From Oct 2007 to Mar 2009, equities lost approximately 50% of their value.

Be very very honest and tell us what you would have done if you had invested your money on Oct 1st 2007 in the S&P 500 index fund and saw the month after month losses mounting up.

Just curious.

Don

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 6:38 pm
by GibsonL6s
visualguy wrote:
Mon Jan 22, 2018 5:02 pm
GibsonL6s wrote:
Mon Jan 22, 2018 4:06 pm
I don't consider bonds volatile, but to put it simply your cash does not go up when your stocks go down. So unless you like another hedge better than bonds, this is their use in my simplistic view.
You can't have it both ways. It's either not volatile, in which case it won't do much as a hedge for stock, or it's volatile. In reality, it's somewhat volatile, but nothing compared to stock. I don't see how it acts as a meaningful hedge, and I don't see a good reason to tolerate the volatility.

You're also likely to get a lower total return when compared to a CD ladder in a period of rising interest rates because the "double duration" rule will bite you. Regardless of whether this happens or not, no point in playing this game when there's no win, so I stay away from these funds as much as possible, and stick to other fixed income.
Volatility and correlation in my mind are two different concepts. Securities and be both volatile and correlated or non-correlated with stocks. Again CDs and Cash are not going to rise when stocks fall, bonds generally will so CDs are not a hedge against stocks. I am not suggesting that one may not prefer to hold CDs or cash as opposed to fixed income, just that they behave differently as opposed to bonds.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 6:44 pm
by metalworking
GibsonL6s wrote:
Mon Jan 22, 2018 6:38 pm
visualguy wrote:
Mon Jan 22, 2018 5:02 pm
GibsonL6s wrote:
Mon Jan 22, 2018 4:06 pm
I don't consider bonds volatile, but to put it simply your cash does not go up when your stocks go down. So unless you like another hedge better than bonds, this is their use in my simplistic view.
You can't have it both ways. It's either not volatile, in which case it won't do much as a hedge for stock, or it's volatile. In reality, it's somewhat volatile, but nothing compared to stock. I don't see how it acts as a meaningful hedge, and I don't see a good reason to tolerate the volatility.

You're also likely to get a lower total return when compared to a CD ladder in a period of rising interest rates because the "double duration" rule will bite you. Regardless of whether this happens or not, no point in playing this game when there's no win, so I stay away from these funds as much as possible, and stick to other fixed income.
Volatility and correlation in my mind are two different concepts. Securities and be both volatile and correlated or non-correlated with stocks. Again CDs and Cash are not going to rise when stocks fall, bonds generally will so CDs are not a hedge against stocks. I am not suggesting that one may not prefer to hold CDs or cash as opposed to fixed income, just that they behave differently as opposed to bonds.
It sounds like you are saying bonds generally rise when stocks fall but in other post i read that they are not correlated at all. Which is it? thanks

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 6:52 pm
by visualguy
bondsr4me wrote:
Mon Jan 22, 2018 6:27 pm
From Oct 2007 to Mar 2009, equities lost approximately 50% of their value.

Be very very honest and tell us what you would have done if you had invested your money on Oct 1st 2007 in the S&P 500 index fund and saw the month after month losses mounting up.

Just curious.

Don
This is not specific to bond funds - there are other fixed-income investments and other non-stock investments.

However, this is a good question, and the reason investing a big lump sum is extremely hard to do. If your money has been in the market for a while, and you have some decent gains under your belt, a drop like this is less painful. For example, if you gained 30% over the last 3 years, and the market now drops 50%, your stock is down "only" 35% over last 3 years. If you have a 60/40 allocation between stock and fixed income, you're down maybe 15% over the last 3 years overall (when counting fixed income returns). Still hard to stomach, but not psychologically devastating like a 50% overall drop.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 6:56 pm
by whodidntante
You own bonds? In this market? :twisted:

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 7:13 pm
by GibsonL6s
metalworking wrote:
Mon Jan 22, 2018 6:44 pm
GibsonL6s wrote:
Mon Jan 22, 2018 6:38 pm
visualguy wrote:
Mon Jan 22, 2018 5:02 pm
GibsonL6s wrote:
Mon Jan 22, 2018 4:06 pm
I don't consider bonds volatile, but to put it simply your cash does not go up when your stocks go down. So unless you like another hedge better than bonds, this is their use in my simplistic view.
You can't have it both ways. It's either not volatile, in which case it won't do much as a hedge for stock, or it's volatile. In reality, it's somewhat volatile, but nothing compared to stock. I don't see how it acts as a meaningful hedge, and I don't see a good reason to tolerate the volatility.

You're also likely to get a lower total return when compared to a CD ladder in a period of rising interest rates because the "double duration" rule will bite you. Regardless of whether this happens or not, no point in playing this game when there's no win, so I stay away from these funds as much as possible, and stick to other fixed income.
Volatility and correlation in my mind are two different concepts. Securities and be both volatile and correlated or non-correlated with stocks. Again CDs and Cash are not going to rise when stocks fall, bonds generally will so CDs are not a hedge against stocks. I am not suggesting that one may not prefer to hold CDs or cash as opposed to fixed income, just that they behave differently as opposed to bonds.
It sounds like you are saying bonds generally rise when stocks fall but in other post i read that they are not correlated at all. Which is it? thanks
https://www.portfoliovisualizer.com/ass ... ingDays=60

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 7:30 pm
by ruralavalon
metalworking wrote:
Mon Jan 22, 2018 6:44 pm
GibsonL6s wrote:
Mon Jan 22, 2018 6:38 pm
visualguy wrote:
Mon Jan 22, 2018 5:02 pm
GibsonL6s wrote:
Mon Jan 22, 2018 4:06 pm
I don't consider bonds volatile, but to put it simply your cash does not go up when your stocks go down. So unless you like another hedge better than bonds, this is their use in my simplistic view.
You can't have it both ways. It's either not volatile, in which case it won't do much as a hedge for stock, or it's volatile. In reality, it's somewhat volatile, but nothing compared to stock. I don't see how it acts as a meaningful hedge, and I don't see a good reason to tolerate the volatility.

You're also likely to get a lower total return when compared to a CD ladder in a period of rising interest rates because the "double duration" rule will bite you. Regardless of whether this happens or not, no point in playing this game when there's no win, so I stay away from these funds as much as possible, and stick to other fixed income.
Volatility and correlation in my mind are two different concepts. Securities and be both volatile and correlated or non-correlated with stocks. Again CDs and Cash are not going to rise when stocks fall, bonds generally will so CDs are not a hedge against stocks. I am not suggesting that one may not prefer to hold CDs or cash as opposed to fixed income, just that they behave differently as opposed to bonds.
It sounds like you are saying bonds generally rise when stocks fall but in other post i read that they are not correlated at all. Which is it? thanks
Bonds and stocks do not have a negative correlation.

Bonds and stocks have a low correlation. Total Stock Market ETF and Total Bond Market ETF have a correlation of 4, where 100 equals a perfect correlation.

Re: Ready to give up on bond fund, Lost 2.25% past 6 months

Posted: Mon Jan 22, 2018 7:40 pm
by metalworking
thanks for the link. Cool website