Total Bond Market

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vest74
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Total Bond Market

Post by vest74 » Tue May 22, 2018 12:20 am

What are the pro's and con's to continue to hold this fund is this steadily upward trend in yields? :?
Thank You

z3r0c00l
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Re: Total Bond Market

Post by z3r0c00l » Tue May 22, 2018 5:30 am

The fund becomes more attractive as the yield goes up. You pay a price in lower NAV if you hold during the change.

The pros: Low volatility
The cons: Low return

I think assuming what bonds will do in the future is a losing game. What if interest rates settle out around this level and stay there for years? What if they decline soon and stay there for years?

In any event, the fund is down what, 2 percent in a year? Stock funds do that on a bad day. I doubt the annual fluctuations in a short or intermediate bond fund NAV are even worth our attention.

DarkHelmetII
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Re: Total Bond Market

Post by DarkHelmetII » Tue May 22, 2018 6:18 am

vest74 wrote:
Tue May 22, 2018 12:20 am
What are the pro's and con's to continue to hold this fund is this steadily upward trend in yields? :?
Thank You
Might I suggest rewording the question: is there a role for bonds in my portfolio, and if so, what kind? Guess my point is that bonds are thought to serve a certain purpose in a portfolio, and to other posters' points, the "need" for holding bonds doesn't just go away based on what one thinks interest rates might do. Furthermore, there are different types of bond funds (characterized by duration and credit quality) that may be more or less relevant based on your objectives.

grettman
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Re: Total Bond Market

Post by grettman » Tue May 22, 2018 6:39 am

They (and I don't know who "they" are) always say to only invest in things you understand.

For many years I have tried to understand why I should invest in bonds (where principal is at risk) and NOT a CD ladder. I am just not smart enough to understand... so I won't invest in bonds or bond funds. For stability and a guarantee not to lose principal, I will take a CD ladder any day... I understand that I am assuming inflation risk... but I am willing to do that vice invest in something that I don't fully understand.

So if you are in this situation, I suggest you get to an understanding or stay away.

aristotelian
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Re: Total Bond Market

Post by aristotelian » Tue May 22, 2018 7:04 am

Ideally, you would have sold it at the moment that interest rates bottomed out, and you will buy it at the moment that they peak again. Since the future cannot be known, the next best thing is to hold through ups and downs at a determined allocation. Plan for the risk and then stick with your plan when the risk occurs.

It is possible that the stock market crashes tomorrow. That is why you hold bonds. The risk of market crash is still there, so again, there is no reason to change your plan.

nova1968
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Re: Total Bond Market

Post by nova1968 » Tue May 22, 2018 7:59 am

TBM was up 5% during the 2008 crash, you are not likely to lose 50% when the market takes a dive.
The disadvantage would be low returns compared to equities over the long term.

Gauntlet
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Re: Total Bond Market

Post by Gauntlet » Tue May 22, 2018 8:15 am

OP, the pro is what all good short or intermediate-term bond funds provide to a portfolio. When needed, total bond market fund will provide your portfolio stability. If you were buying TBM in 2017 then I don't see any reason to stop buying it now. You are getting a better yield now than you did last year. Interest rate risk has finally showed up but it is not that bad. I own the intermediate term bond fund which is down about 3.5% so far this year but the yield has gone up to 3.5%.

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ruralavalon
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Re: Total Bond Market

Post by ruralavalon » Tue May 22, 2018 8:27 am

vest74 wrote:
Tue May 22, 2018 12:20 am
What are the pro's and con's to continue to hold this fund is this steadily upward trend in yields? :?
Thank You
The pros of continuing to hold a total bond market fund are the relative safety and stability (compared to stocks) it brings to your portfolio, the increased yield, and the possibility of further increases in yield.

The con of continuing to hold a total bond market fund is the possibility of further decrease in share value.
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Admiral
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Re: Total Bond Market

Post by Admiral » Tue May 22, 2018 10:51 am

grettman wrote:
Tue May 22, 2018 6:39 am
They (and I don't know who "they" are) always say to only invest in things you understand.

For many years I have tried to understand why I should invest in bonds (where principal is at risk) and NOT a CD ladder. I am just not smart enough to understand... so I won't invest in bonds or bond funds. For stability and a guarantee not to lose principal, I will take a CD ladder any day... I understand that I am assuming inflation risk... but I am willing to do that vice invest in something that I don't fully understand.

So if you are in this situation, I suggest you get to an understanding or stay away.
There are numerous reasons to hold bonds or a bond fund instead of (or in addition to) CDs. Here are some:

-Liquidity. You can buy and sell as you wish, when you wish.
-Access. Many if not most employer-sponsored retirement accounts do not offer CDs.
-No penalty for early withdrawal.
-Convenience. You can hold hundreds of thousands or millions of dollars in a bond fund in one place/at one institution. The same cannot be said for a CD.
-Tax advantage. As noted, if one cannot hold CDs in a retirement account, the interest is thus subject to tax. This is not the case with CDs.

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Tyler Aspect
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Re: Total Bond Market

Post by Tyler Aspect » Tue May 22, 2018 11:22 am

Patient Waiting a solution to Yield Increases

Patient waiting is a possible solution to the net asset loss you are experiencing. 7 years of extra dividend equalizes an upfront net asset value loss for an intermediate term bond fund. You just have to hold the fund for 7 years after the fund's yield reaches the highest point. Patience!

Moving to Short Term Bond?

Moving to short term bond is a market timing move to potentially avoid the net asset loss associated with yield increases. The best case is when the investor manages to buy back intermediate term bond at the highest yield point. The worst case is being stuck with short term bond when the intermediate term yield moves downward rapidly.

I think the tricky point is the uncertainty of dealing with a dropping intermediate term yield. Is it a temporary retreat, or the definitive drop before a recession? Successful market timing moves are inherently hard.
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RCL
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Re: Total Bond Market

Post by RCL » Tue May 22, 2018 11:45 am

Tyler Aspect wrote:
Tue May 22, 2018 11:22 am
Patient Waiting a solution to Yield Increases

Patient waiting is a possible solution to the net asset loss you are experiencing. 7 years of extra dividend equalizes an upfront net asset value loss for an intermediate term bond fund. You just have to hold the fund for 7 years after the fund's yield reaches the highest point. Patience!
Just wondering, what affect would a TLH event somewhere along the rising yield period have on the 7 year waiting period you speak of? (assume buy back the same fund after the wash period has expired)

Is the only drawback of doing this the fact that you have now reset the cost basis of your shares to a lower value, thus affecting any future TLH opportunities?
Thanks
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Tyler Aspect
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Re: Total Bond Market

Post by Tyler Aspect » Tue May 22, 2018 12:13 pm

RCL wrote:
Tue May 22, 2018 11:45 am
Just wondering, what affect would a TLH event somewhere along the rising yield period have on the 7 year waiting period you speak of? (assume buy back the same fund after the wash period has expired)

Is the only drawback of doing this the fact that you have now reset the cost basis of your shares to a lower value, thus affecting any future TLH opportunities?
Thanks
For a taxable account holding a total bond market bond fund, its dividend is reduced by taxation. The waiting period is lengthened accordingly.

Any tax loss harvesting an investor performs (selling total bond market to money market; buying back total bond market after waiting 31 days) does not materially impact the waiting period. Yes, you do reset the cost basis in the total bond market.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

RCL
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Re: Total Bond Market

Post by RCL » Tue May 22, 2018 12:56 pm

Tyler Aspect wrote:
Tue May 22, 2018 12:13 pm
RCL wrote:
Tue May 22, 2018 11:45 am
Just wondering, what affect would a TLH event somewhere along the rising yield period have on the 7 year waiting period you speak of? (assume buy back the same fund after the wash period has expired)

Is the only drawback of doing this the fact that you have now reset the cost basis of your shares to a lower value, thus affecting any future TLH opportunities?
Thanks
For a taxable account holding a total bond market bond fund, its dividend is reduced by taxation. The waiting period is lengthened accordingly.

Any tax loss harvesting an investor performs (selling total bond market to money market; buying back total bond market after waiting 31 days) does not materially impact the waiting period. Yes, you do reset the cost basis in the total bond market.
Thanks, I should have mentioned, the TLH event I mentioned was applicable to a Tax Exempt bond fund.
Can I assume this does not change the fact the waiting period is probably not marginally impacted?
It Is Best To Consult Others Before Taking Unusual Actions

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