One bond fund is enough?

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inveZt
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One bond fund is enough?

Post by inveZt » Mon Sep 10, 2018 3:32 pm

Hello,
I’m about to invest for the first time, with Vanguard, and spoke to one of their advisors by phone twice and he set up a plan, which I might choose to follow. He gave some recommendations for how to invest the bond portion of my portfolio, namely separated into these funds:

Vanguard Total Bond Market Index Fund Admiral Shares
Vanguard Total International Bond Index Fund Admiral Shares
Vanguard Short-Term Investment-Grade Fund Admiral Shares
Vanguard Intermediate-Term Investment-Grade Fund Admiral Shares

My question:
How important is it to have all of these bond funds vs. simply the Vanguard Total Bond Market Index Fund? I want to keep it as simple as possible, so I am keen to understand if these additional bond funds are worth getting. I have a long time horizon before retirement (about 20 years). Thanks for any feedback.

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Toons
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Re: One bond fund is enough?

Post by Toons » Mon Sep 10, 2018 3:36 pm

" I want to keep it as simple as possible"

Total Bond would suffice for me,,then again
I do not know your financial situation and I am not
a financial advisor(other than for advising myself and family members) :D
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

Silk McCue
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Re: One bond fund is enough?

Post by Silk McCue » Mon Sep 10, 2018 4:01 pm

The Vanguard Target Date Funds and LifeStrategy funds hold the bond portion of their bond holdings allocated to 70% Vanguard Total Bond Market Index Fund Admiral Shares and 30% Vanguard Total International Bond Index Fund Admiral Shares. Many here hold these fund families. Many others hold only Total Bond in a 3 fund portfolio and others hold Total and International in a 4 fund. Plus a thousand other variations.

The 70/30 approach utilized by the Target Date and LifeStrategy funds seems very reasonable and diversified to me.

In any case I think you can satisfy your bond allocation without including the other two options you listed. Keep it simple.

Cheers

3funder
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Re: One bond fund is enough?

Post by 3funder » Mon Sep 10, 2018 4:02 pm

I think so.

Ron Scott
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Re: One bond fund is enough?

Post by Ron Scott » Mon Sep 10, 2018 4:30 pm

It depends if you can keep all your bonds in your tax deferred accounts.

If your asset allocation is such that you need to keep some bond holdings in taxable accounts you can hold a 3-fund portfolio of munis: 30-40-30 in short term, intermediate term and long term, with the long term being a state fund if yours has a good one.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

BigJohn
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Re: One bond fund is enough?

Post by BigJohn » Mon Sep 10, 2018 5:06 pm

I’m seeing more and more discussions here where VG is recommending a fairly complex bond portfolio. I know they feel very strongly about the importance of international bonds so I think their most simple would be Total Bond and Total International Bond. They seem to be recommending the other two to get more exposure to corporate bonds.

As far as “need” goes, it’s a bit in the eye of the beholder. VG clearly thinks you need all four. Of the four, I’d opt for Total Bond as the only fund I needed (at least in tax advantaged accounts). Others on this forum would be somewhere in between.

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randomizer
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Re: One bond fund is enough?

Post by randomizer » Mon Sep 10, 2018 5:11 pm

Are 8457 bonds enough? (That's the number in Total Bond.)
87.5:12.5, EM tilt — HODL the course!

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midareff
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Re: One bond fund is enough?

Post by midareff » Mon Sep 10, 2018 5:23 pm

inveZt wrote:
Mon Sep 10, 2018 3:32 pm
Hello,
I’m about to invest for the first time, with Vanguard, and spoke to one of their advisors by phone twice and he set up a plan, which I might choose to follow. He gave some recommendations for how to invest the bond portion of my portfolio, namely separated into these funds:

Vanguard Total Bond Market Index Fund Admiral Shares
Vanguard Total International Bond Index Fund Admiral Shares
Vanguard Short-Term Investment-Grade Fund Admiral Shares
Vanguard Intermediate-Term Investment-Grade Fund Admiral Shares

My question:
How important is it to have all of these bond funds vs. simply the Vanguard Total Bond Market Index Fund? I want to keep it as simple as possible, so I am keen to understand if these additional bond funds are worth getting. I have a long time horizon before retirement (about 20 years). Thanks for any feedback.
Bonds are for safety. When you move away from 100% government guaranteed bonds you are adding a measure of risk. Risk can show up in many ways but the primary are market fluctuation and return. Generally, the more risk the higher the potential return. For a new investor who is learning their way around the Total Bond Market is more than adequate for this purpose. For a sophisticated investor the Total Bond Market is also adequate for this purpose. You may add a few basis points of return by going in other directions but you do so by adding risk and volatility. When the market tanks, and it does from time to time, you want your safe money to be safe.

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Peter Foley
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Re: One bond fund is enough?

Post by Peter Foley » Mon Sep 10, 2018 5:27 pm

I think it is prudent to have more than one bond fund for one's non equity allocation. Possibilities include the funds Vanguard mentioned but also TIPS, Stable Value Funds, and I-Bonds.

I think if one adds a bit of inflation protection to compliment Total Bond Fund, two funds is enough. (For me that would not be total bond and international bond.)

SoAnyway
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Re: One bond fund is enough?

Post by SoAnyway » Mon Sep 10, 2018 5:28 pm

inveZt wrote:
Mon Sep 10, 2018 3:32 pm
My question:
How important is it to have all of these bond funds vs. simply the Vanguard Total Bond Market Index Fund? I want to keep it as simple as possible, so I am keen to understand if these additional bond funds are worth getting. I have a long time horizon before retirement (about 20 years). Thanks for any feedback.
Excellent question, OP. I'd call the Vanguard advisor, and read the above text to him from your post. I'm not a Vanguard advisor - or financial advisor of any flavor.

If you're seeking a 3-fund portfolio, Total Bond Market Index is fine for most situations, but perhaps your situation is different based on the specifics you provided to the advisor that understandably you've not shared here. Just ask him, and make clear to him that simplicity is a priority for you, and you'd like to understand the reasons for the difference from just putting all the fixed-income into Total Bond Market Index vs. the recommended allocation.

Keep an open mind; the reasons might be good ones, based on your specific situation. Or, maybe he just started. Who knows.
BTW, the good news is that all of the recommended funds are low-cost vs. the fully-loaded [*expletive*] from other financial firm sales folks "advisors". ; )

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JoMoney
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Re: One bond fund is enough?

Post by JoMoney » Mon Sep 10, 2018 5:32 pm

Vanguard seems to be pushing "International Bonds" pretty heavy for some reason. I don't see anyone else in the investment punditry that I hold with any regard advising international bonds, least of all the currency hedged ones in Vanguard's fund.
There is overlap between Total Bond and the other funds you mentioned, the only reason I can see to hold them is you want to 'tilt' your bond portfolio to corporate bonds and to a lower duration, which may be justifiable, but if you don't know why you're doing that... Why are you doing that?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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ruralavalon
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Re: One bond fund is enough?

Post by ruralavalon » Mon Sep 10, 2018 6:30 pm

inveZt wrote:
Mon Sep 10, 2018 3:32 pm
Hello,
I’m about to invest for the first time, with Vanguard, and spoke to one of their advisors by phone twice and he set up a plan, which I might choose to follow. He gave some recommendations for how to invest the bond portion of my portfolio, namely separated into these funds:

Vanguard Total Bond Market Index Fund Admiral Shares
Vanguard Total International Bond Index Fund Admiral Shares
Vanguard Short-Term Investment-Grade Fund Admiral Shares
Vanguard Intermediate-Term Investment-Grade Fund Admiral Shares

My question:
How important is it to have all of these bond funds vs. simply the Vanguard Total Bond Market Index Fund? I want to keep it as simple as possible, so I am keen to understand if these additional bond funds are worth getting. I have a long time horizon before retirement (about 20 years). Thanks for any feedback.
In my opinion one well diversified, low expense bond fund is enough, and Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) is a good choice.

A different intermediate-term or short-term Vanguard bond fund would also be a good choice.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

venkman
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Re: One bond fund is enough?

Post by venkman » Mon Sep 10, 2018 10:05 pm

inveZt wrote:
Mon Sep 10, 2018 3:32 pm
My question:
How important is it to have all of these bond funds vs. simply the Vanguard Total Bond Market Index Fund? I want to keep it as simple as possible, so I am keen to understand if these additional bond funds are worth getting. I have a long time horizon before retirement (about 20 years). Thanks for any feedback.
If you're investing for a long time horizon, you might want to consider VG's Intermediate Bond Index (VBIIX/VBILX). It's similar in average duration/maturity to the Total Bond Market fund, but historically has a slightly higher return, along with slightly higher volatility. More importantly, it has about the same correlation (or non-correlation) to the US stock market that TBM does.

inbox788
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Re: One bond fund is enough?

Post by inbox788 » Tue Sep 11, 2018 12:25 am

JoMoney wrote:
Mon Sep 10, 2018 5:32 pm
Vanguard seems to be pushing "International Bonds" pretty heavy for some reason. I don't see anyone else in the investment punditry that I hold with any regard advising international bonds, least of all the currency hedged ones in Vanguard's fund.
There is overlap between Total Bond and the other funds you mentioned, the only reason I can see to hold them is you want to 'tilt' your bond portfolio to corporate bonds and to a lower duration, which may be justifiable, but if you don't know why you're doing that... Why are you doing that?
Why would they leave trillions in sales on the table or half the marketplace to their competitors? The fact that they have to push the product makes me think there is large supply of international bonds and less demand for it. It's not a bad product, but IMO total bond is good enough for most folks.

2015
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Re: One bond fund is enough?

Post by 2015 » Tue Sep 11, 2018 9:02 am

I pass all decisions through the simplicity filter of Occam's Razor as I believe simplicity supports one in not doing anything stupid. For this reason, I remain with Total Bond.

I subscribe to the Buffet/Munger approach of achieving consistent, compounded success through avoiding brilliance by not being stupid. Complexity by its very nature increases the opportunity for fraud, resource misallocation, and for any system's failure. This concept is supported by a number of fields, including game theory, philosophy, systems theory, tennis, baseball, risk theory, etc.

wolf359
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Re: One bond fund is enough?

Post by wolf359 » Tue Sep 11, 2018 9:45 am

I am unconvinced of the need for international bonds. I stick with Total Bond Market.

In taxable, I use Intermediate-Term Tax-Exempt (muni bonds).

UpperNwGuy
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Re: One bond fund is enough?

Post by UpperNwGuy » Tue Sep 11, 2018 9:55 am

The two investment grade bond funds are unnecessary because Total Bond already includes those bonds. Buying the investment grade funds would be tilting toward corporate bonds. Similarly, buying only Treasury bond funds would be tilting hard in the opposite direction. You need to ask yourself whether you want to invest in the market, or whether you want to tilt.

Whether or not to hold international bonds is a different question, as there is no overlap with Total Bond. Similarly, a municipal bond fund would have no overlap with Total Bond.

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