VFITX For Entire Bond Allocation [Vanguard Intermediate Term Treasury]

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Boxtrap
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VFITX For Entire Bond Allocation [Vanguard Intermediate Term Treasury]

Post by Boxtrap » Wed May 16, 2018 4:37 pm

I'm considering using Vanguard's Intermediate Term Treasury Bond Fund (VFITX) as the one and only fund for the bond portion of my portfolio. So far I have been using Total Bond Market (VBTLX). Curious to know thoughts from fellow Bogleheads about the advantages and/or disadvantages of being all in VFITX. My own personal tastes are that I would like to be as conservative as possible on my bond allocation, and a fund that invests entirely in government bonds of intermediate length seems to be one of the best ways to accomplish that.

Thoughts?

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vineviz
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Re: VFITX For Entire Bond Allocation

Post by vineviz » Wed May 16, 2018 9:27 pm

Can you give us the other funds you hold and their percentage allocations?
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venkman
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Re: VFITX For Entire Bond Allocation [Vanguard Intermediate Term Treasury]

Post by venkman » Wed May 16, 2018 9:33 pm

You'll still have some duration risk; but if you're willing to give up the extra yield in exchange for the reduced credit risk, I don't see anything wrong with that.

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triceratop
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Re: VFITX For Entire Bond Allocation [Vanguard Intermediate Term Treasury]

Post by triceratop » Wed May 16, 2018 9:39 pm

Do you have a particular reason for listing the active treasury fund, or are you simply interested in targeting intermediate-term risks? I ask because Vanguard also runs an indexed product, the Vanguard Intermediate-Term Treasury Index Fund Admiral Shares (VSIGX).

Since it is an index fund the minimums for admiral shares are only $10,000, and there is an ETF too if that's your thing. Also, the fees are lower across the board.

Disclosure: I use the ETF version, ticker VGIT, for my entire bond position.
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ofckrupke
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Re: VFITX For Entire Bond Allocation [Vanguard Intermediate Term Treasury]

Post by ofckrupke » Wed May 16, 2018 9:50 pm

Boxtrap wrote:
Wed May 16, 2018 4:37 pm
Thoughts?
Why not the indexed near-equivalent VSIGX (admiral shares min $10k , 0.07%)?
Right now the difference in SEC yield is 2.77-2.65% = 0.12%, just about equal to the ER difference, and the duration on the index fund is just a hair shorter at 5.1 years vs 5.2 for VFITX/VFIUX.
(If you'd actually be buying the admiral shares VFIUX ($50k min), then the ER difference is still 0.03% in favor of the passive fund.)

edit to add: whoops, too late again.

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Taylor Larimore
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Re: VFITX For Entire Bond Allocation [Vanguard Intermediate Term Treasury]

Post by Taylor Larimore » Wed May 16, 2018 10:07 pm

Boxtrap wrote:
Wed May 16, 2018 4:37 pm
I'm considering using Vanguard's Intermediate Term Treasury Bond Fund (VFITX) as the one and only fund for the bond portion of my portfolio. So far I have been using Total Bond Market (VBTLX). Curious to know thoughts from fellow Bogleheads about the advantages and/or disadvantages of being all in VFITX. My own personal tastes are that I would like to be as conservative as possible on my bond allocation, and a fund that invests entirely in government bonds of intermediate length seems to be one of the best ways to accomplish that.

Thoughts?
Boxtrap:

I think that Vanguard's Intermediate Term Treasury Bond Fund (VFITX) is an excellent fund for the bond portion of your portfolio. Its high quality and negative correlation in a stock market downturn allows you to have a larger percent of your portfolio in stocks.

I slightly prefer Total Bond Market (VBTLX) because of its higher yield and greater diversification (the only "free lunch" in investing). Others must agree because TBM is now the largest bond fund in the world.

There is more than one road to Dublin.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Boxtrap
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Re: VFITX For Entire Bond Allocation [Vanguard Intermediate Term Treasury]

Post by Boxtrap » Thu May 17, 2018 1:53 pm

triceratop wrote:
Wed May 16, 2018 9:39 pm
Do you have a particular reason for listing the active treasury fund, or are you simply interested in targeting intermediate-term risks? I ask because Vanguard also runs an indexed product, the Vanguard Intermediate-Term Treasury Index Fund Admiral Shares (VSIGX).

Since it is an index fund the minimums for admiral shares are only $10,000, and there is an ETF too if that's your thing. Also, the fees are lower across the board.

Disclosure: I use the ETF version, ticker VGIT, for my entire bond position.
Wow, I'm so glad you mentioned this. I had thought VFITX was an index fund. I missed VSIGX entirely, which is actually what I was hoping for. I am just looking to target intermediate term risk and was also thinking that a fund composed entirely of US treasuries - as opposed to the Total Bond which has some corporate and mortgage backed too - would be safer thanks to an even lower credit risk.

Boxtrap
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Re: VFITX For Entire Bond Allocation [Vanguard Intermediate Term Treasury]

Post by Boxtrap » Thu May 17, 2018 1:58 pm

Taylor Larimore wrote:
Wed May 16, 2018 10:07 pm
Boxtrap wrote:
Wed May 16, 2018 4:37 pm
I'm considering using Vanguard's Intermediate Term Treasury Bond Fund (VFITX) as the one and only fund for the bond portion of my portfolio. So far I have been using Total Bond Market (VBTLX). Curious to know thoughts from fellow Bogleheads about the advantages and/or disadvantages of being all in VFITX. My own personal tastes are that I would like to be as conservative as possible on my bond allocation, and a fund that invests entirely in government bonds of intermediate length seems to be one of the best ways to accomplish that.

Thoughts?
Boxtrap:

I think that Vanguard's Intermediate Term Treasury Bond Fund (VFITX) is an excellent fund for the bond portion of your portfolio. Its high quality and negative correlation in a stock market downturn allows you to have a larger percent of your portfolio in stocks.

I slightly prefer Total Bond Market (VBTLX) because of its higher yield and greater diversification (the only "free lunch" in investing). Others must agree because TBM is now the largest bond fund in the world.

There is more than one road to Dublin.

Best wishes.
Taylor
Thanks Taylor! Yes, I'm in VBTLX right now and perfectly happy with it. Might very well stay there. I am moreso just pontificating on any advantages and disadvantages of a bond fund that was EXCLUSIVELY US Treasuries as opposed to MOSTLY US Treasuries. On the one hand, as you point out, VBTLX has greater diversification. On the other hand, is there a benefit to having even less credit risk by holding a fund that holds ONLY US treasuries?

I should point out too that thanks to one of the other Bogleheads in this thread, I now realize that VFITX is an actively managed fund. I'm glad I know that now; I had thought it was an index. So in actuality, my comparison is between VBTLX and VSIGX.

Boxtrap
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Re: VFITX For Entire Bond Allocation [Vanguard Intermediate Term Treasury]

Post by Boxtrap » Thu May 17, 2018 2:24 pm

Taylor Larimore wrote:
Wed May 16, 2018 10:07 pm
Boxtrap wrote:
Wed May 16, 2018 4:37 pm
I'm considering using Vanguard's Intermediate Term Treasury Bond Fund (VFITX) as the one and only fund for the bond portion of my portfolio. So far I have been using Total Bond Market (VBTLX). Curious to know thoughts from fellow Bogleheads about the advantages and/or disadvantages of being all in VFITX. My own personal tastes are that I would like to be as conservative as possible on my bond allocation, and a fund that invests entirely in government bonds of intermediate length seems to be one of the best ways to accomplish that.

Thoughts?
Boxtrap:

I think that Vanguard's Intermediate Term Treasury Bond Fund (VFITX) is an excellent fund for the bond portion of your portfolio. Its high quality and negative correlation in a stock market downturn allows you to have a larger percent of your portfolio in stocks.

I slightly prefer Total Bond Market (VBTLX) because of its higher yield and greater diversification (the only "free lunch" in investing). Others must agree because TBM is now the largest bond fund in the world.

There is more than one road to Dublin.

Best wishes.
Taylor
And Taylor, further to my other reply to you, would you say that VSIGX is just as negatively correlated to the stock market in a downturn as VFITX is?

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Taylor Larimore
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Re: VFITX For Entire Bond Allocation [Vanguard Intermediate Term Treasury]

Post by Taylor Larimore » Thu May 17, 2018 9:53 pm

And Taylor, further to my other reply to you, would you say that VSIGX is just as negatively correlated to the stock market in a downturn as VFITX is?
Boxtrap:

Sorry, I don't know. VSIGX wasn't around in the last 2008 bear market so it's hard to say -- and every downturn is different.

I would stick with your low-cost, better diversified, Total Bond Market Index Fund which ranked in the top 10% of all bonds in its Intermediate-Term Bond category during the 2008 bear market. It is the world's largest bond fund for good reasons.
The enemy of a good plan is the dream of a perfect plan. -- Jack Bogle
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

venkman
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Re: VFITX For Entire Bond Allocation [Vanguard Intermediate Term Treasury]

Post by venkman » Fri May 18, 2018 12:45 am

Boxtrap wrote:
Thu May 17, 2018 2:24 pm
And Taylor, further to my other reply to you, would you say that VSIGX is just as negatively correlated to the stock market in a downturn as VFITX is?
According to Portfolio Visualizer, US Market Correlation since Jan 2010:

VSIGX: -0.41
VFITX: -0.40

And the difference in the 5-year annualized returns is only 1 basis point away from being fully explained by the difference in ER. I imagine their holdings are extremely similar.

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Re: VFITX For Entire Bond Allocation [Vanguard Intermediate Term Treasury]

Post by carguyny » Fri May 18, 2018 6:27 am

I'm not a fan of total bond and hold treasuries and some munis I buy directly.

Some stats from 2008 saw 125 Corporate Defaulters, 24 were rated Investment grade before 2008. Largest was Lehman with $124bn of Bonds that defaulted. There were a lot more negative rating transitions due to lower earnings. Then you have the Mortgage holdings in total bond, which would have been ugly. Will the next secular bear (50%+) look like 2008? Hard to say, but likely to include a deterioration in corporate earnings.

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