Vanguard Advisor suggesting 7 Bond funds for my 40%

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Webfoot
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Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by Webfoot » Sun Sep 16, 2018 12:19 pm

Decided to have Vanguard look at my all Vanguard portfolio (60% stock/40% bonds) with a push for simplification. The proposed stock changes I understand. For bonds, I previously only had 3 Vanguard bond 'funds'. Mostly the Total Bond Market Index fund, GNMA fund and one Treasury Note (TIPs). The suggestion from the Vanguard advisor is to remove the Total Bond Fund & GNMA fund and and replace with 7 Vanguard bond funds.

After researching this, I can understand how slicing and dicing bonds can be clever, but cannot tell if the added complexity would provided better yield and safety than using a 2 or 3 Bond funds or just Total Bond Market Index fund. 3 of the bond funds are tax-exempt for my higher network taxable account (others are all in IRA).

1) Questions is 7 bond funds too many?

2) Whats simpler with similar yield and safety?


8% Bonds Short Term
- VMLUX Limited Tax Exempt (Short term Muni) 6%
- VBISX Short Term Bond Index 2%
18% Bonds Intermediate Term
- VBILX Intermediate Term Bond Index (Invest grade 5-10 yrs) 10%
- VWIUX Intermediate Term Tax Exempt (Fed Tax Ex) 8%
7% Long Term Bonds
- VWLUX Long Term Tax Exempt (municipals 6-10 yrs) 6%
- VBLTX Long Term Bond Index (Corps & US > 10 yrs) 1%
6% International Bonds
- VTABX Total International Bond Index 6%
2% Other
- Other Treasury Note (TIPS)...previously had 2%
Last edited by Webfoot on Sun Sep 16, 2018 12:22 pm, edited 1 time in total.

PFInterest
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by PFInterest » Sun Sep 16, 2018 12:22 pm

That looks bat s crazy to me. What is Vanguard up to? Seen lots of weird portfolios.

Total bond in tax protected.
Munis if needed in taxable.
With 60% stocks unlikely to need tips.

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by Nate79 » Sun Sep 16, 2018 12:27 pm

I guess they have to justify that 0.3%.

mhalley
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by mhalley » Sun Sep 16, 2018 12:28 pm

Wow, this is crazy, what does 2% and 1% accomplish? Starting to look like an EJ portfolio, complexity to show that it is too complicated for you to diy.

mouth
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by mouth » Sun Sep 16, 2018 12:29 pm

errrr other than the exact mix (and I'd demand an answer on why to deviate) why not just go with Vanguard's Total World Bond Fund https://investor.vanguard.com/etf/profile/BNDW

EDIT: Or if not ETF's then just buy the right split of VTIBX and VBMFX

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by nisiprius » Sun Sep 16, 2018 12:30 pm

Crazy.

John C. Bogle has said "You simply do not need to put your money into 8 different mutual funds." And that's for the entire portfolio.

Vanguard's own all-in-one LifeStrategy funds are funds-of-funds, and the whole portfolio only uses four different funds--Total Bond Market Index Fund and Total International Bond Index fund. And a lot of Bogleheads (including me) don't think the international bond fund adds anything important.
Last edited by nisiprius on Sun Sep 16, 2018 12:47 pm, edited 3 times in total.
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vineviz
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by vineviz » Sun Sep 16, 2018 12:38 pm

Webfoot wrote:
Sun Sep 16, 2018 12:19 pm

1) Questions is 7 bond funds too many?

2) Whats simpler with similar yield and safety?
You don't tell us your age (or time to retirement), but at first pass this looks entirely reasonable an investor who has both taxable and tax-advantaged accounts AND who is nearing retirement age.

It appears to me that they have no more than 3 funds in either the taxable or tax-advantaged accounts, basically covering the three main duration classes (short, intermediate, and long-term).

A typical investor moving through the retirement age will want to gradually shorten the effective duration of their bond portfolio, so having the investment split among the three funds makes that much easier to manage.

Is is simpler to hold just one fund, like total bond? Undoubtedly. That doesn't mean that doing so is more effective.

I suspect Vanguard's recommendation is built on the premise that one of the things you're paying them for is for better risk management and better tax-efficiency than you can achieve with a simpler strategy.

I can't say whether or not that the results will justify their fee, but what they've offered isn't crazy.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by Kevin8696 » Sun Sep 16, 2018 12:44 pm

mouth wrote:
Sun Sep 16, 2018 12:29 pm
errrr other than the exact mix (and I'd demand an answer on why to deviate) why not just go with Vanguard's Total World Bond Fund https://investor.vanguard.com/etf/profile/BNDW

EDIT: Or if not ETF's then just buy the right split of VTIBX and VBMFX
Are the foreign currencies hedged in BNDW or VTIBX ?

AlphaLess
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by AlphaLess » Sun Sep 16, 2018 12:48 pm

PFInterest wrote:
Sun Sep 16, 2018 12:22 pm
That looks bat s crazy to me. What is Vanguard up to? Seen lots of weird portfolios.

Total bond in tax protected.
Munis if needed in taxable.
With 60% stocks unlikely to need tips.
Upvote!

Munis vs regular bond discussion is highly sensitive to:
- marginal tax bracket,
- availability of 401K / pre-tax room vs after-tax.

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by AlphaLess » Sun Sep 16, 2018 12:59 pm

Webfoot wrote:
Sun Sep 16, 2018 12:19 pm

8% Bonds Short Term
- VMLUX Limited Tax Exempt (Short term Muni) 6%
- VBISX Short Term Bond Index 2%
18% Bonds Intermediate Term
- VBILX Intermediate Term Bond Index (Invest grade 5-10 yrs) 10%
- VWIUX Intermediate Term Tax Exempt (Fed Tax Ex) 8%
7% Long Term Bonds
- VWLUX Long Term Tax Exempt (municipals 6-10 yrs) 6%
- VBLTX Long Term Bond Index (Corps & US > 10 yrs) 1%
6% International Bonds
- VTABX Total International Bond Index 6%
2% Other
- Other Treasury Note (TIPS)...previously had 2%
Whose classification comments are these:
- 'Short term Muni',
- 'Fed Tax Ex',
- 'Municipals 6-10 yrs'.

If advisor's: I would say by just showing such inconsistent terms to describe the funds he shows lack of consistency and professionalism.
For example:
- why use 3 different terms to describe the products: (a) 'munis', (b) 'fed tax ex', (c) 'municipals'.
- why use inconsistent adjectives to describe duration: (a) 'short term', (b) 'nothing', (c) '6-10 years'.

IMO, investment strategy requires rigor.
Rigor is achieved at the beginning: by describing things using consistent terms.

In my opinion:
- VMLUX, VWIUX, VWLUX are all tracking the same risk, of different duration.

A simple PCA (principal components analysis) of these 3, using https://www.portfoliovisualizer.com/pri ... t-analysis, demonstrates that:
- first principal component explains 94% of the variance,
- second principal component explains 6% of the variance,
- third principal component explains 0%.

Thus, there are ONLY 2 factors tracked by these 3 funds.
Conclusion: 3rd fund is COMPLETELY unnecessary.

In fact, a 94% first PCA, to me, means, that even the 2nd fund is COMPLETELY unnecessary (although someone managing an overly large portfolio might fund the nickel somewhat meaningful).

If you needed only 2 of those, you can do a bit of a study, and see WHICH one you need.

I suspect that HOLDING the middle one (VWIUX) is COMPLETELY sufficient, GIVEN the percentages that you own (or the advisor proposes that you own). Because you have positive and roughly equal weights, you are probably tracking JUST the first PCA.

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stemikger
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by stemikger » Sun Sep 16, 2018 1:03 pm

This definitely would not have Jack's blessing. One bond fund is enough for me, heck one fund is enough for me. Vanguard Balanced Index Fund end of story.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by grok87 » Sun Sep 16, 2018 1:06 pm

Nate79 wrote:
Sun Sep 16, 2018 12:27 pm
I guess they have to justify that 0.3%.
+1
Keep calm and Boglehead on. KCBO.

Kevin8696
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by Kevin8696 » Sun Sep 16, 2018 1:07 pm

stemikger wrote:
Sun Sep 16, 2018 1:03 pm
This definitely would not have Jack's blessing. One bond fund is enough for me, heck one fund is enough for me. Vanguard Balanced Index Fund end of story.
Concur. Think "broad market index"... for both stocks and bonds, and then buy the haystack !!
Last edited by Kevin8696 on Wed Sep 19, 2018 5:30 pm, edited 4 times in total.

Veritas Simplex
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by Veritas Simplex » Sun Sep 16, 2018 1:08 pm

Webfoot wrote:
Sun Sep 16, 2018 12:19 pm
Decided to have Vanguard look at my all Vanguard portfolio (60% stock/40% bonds) with a push for simplification. The proposed stock changes I understand. For bonds, I previously only had 3 Vanguard bond 'funds'. Mostly the Total Bond Market Index fund, GNMA fund and one Treasury Note (TIPs). The suggestion from the Vanguard advisor is to remove the Total Bond Fund & GNMA fund and and replace with 7 Vanguard bond funds.

After researching this, I can understand how slicing and dicing bonds can be clever, but cannot tell if the added complexity would provided better yield and safety than using a 2 or 3 Bond funds or just Total Bond Market Index fund. 3 of the bond funds are tax-exempt for my higher network taxable account (others are all in IRA).

1) Questions is 7 bond funds too many?

2) Whats simpler with similar yield and safety?


8% Bonds Short Term
- VMLUX Limited Tax Exempt (Short term Muni) 6%
- VBISX Short Term Bond Index 2%
18% Bonds Intermediate Term
- VBILX Intermediate Term Bond Index (Invest grade 5-10 yrs) 10%
- VWIUX Intermediate Term Tax Exempt (Fed Tax Ex) 8%
7% Long Term Bonds
- VWLUX Long Term Tax Exempt (municipals 6-10 yrs) 6%
- VBLTX Long Term Bond Index (Corps & US > 10 yrs) 1%
6% International Bonds
- VTABX Total International Bond Index 6%
2% Other
- Other Treasury Note (TIPS)...previously had 2%
1) Yes 7 bond funds are not necessary. Apparently, you are in a higher tax bracket as previous post mentioned, which adds munis in your taxable account.
2) You could simplify to 1 fund in the taxable, VWIUX, the intermediates and skip the short and long term muni funds. Also, no need to hold 2% VBISX or the TIPS if you want to streamline further.

As a previous post suggested, if you are already well into retirement, and are trying to manage the duration of your bond allocation, you could add short term bonds to do so.

AlphaLess
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by AlphaLess » Sun Sep 16, 2018 1:11 pm

As an additional analysis, I recommend using this page:
https://www.portfoliovisualizer.com/bac ... sisResults

I recommend creating 3 portfolios:
P1. 30% VMLUX, 40% VWIUX, 30% VWLUX,
P2: 100% VWIUX,
P3: 35% VMLUX, 65% VWLUX.

Start date: 1.1.2008,
End date: 08.31.2018.
No withdrawals
No additions

Why these 3? Well: 1st portfolio is the one proposed by the advisor.
2nd portfolio is a simple substitute: just use 100% of the middle one, which will be close in duration (without addition tools, I can't be exact).
3rd portfolio is a bit different: to 'duration-match' P1 and P2 closely, but NOT use the middle one. Admittedly, the 3rd one is an academic exercise.

Notice that: (A) these portfolios are NOT that different. Of course, they have different CAGRs (ironically, P2 and P3 BOTH beat P1). However, the key metric here is the Sharpe ratio (because using bonds, in hindsight, you can always beat the performance of a given portfolio by taking LONGER duration, i.e,. more risk).

P1 has a Sharpe of 0.88, P2 has a Sharpe of 0.86, and P3 has a Sharpe of 0.87.
If you are looking for simplicity, I doubt that such tiny Sharpe differences matter to you.

Webfoot
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by Webfoot » Sun Sep 16, 2018 1:34 pm

OP here...

Age 64 and retired. They did the portfolio projection to age 100 (not sure why... very optimistic!). I was out of my element when 7 bond funds were listed as I was unfamiliar with most of the funds or the mechanics (...do tax-exempt bonds gain that much in a high network taxable account... I live in a state with a 9% state tax).

Regard reply...
Whose classification comments are these:
- 'Short term Muni',
- 'Fed Tax Ex',
- 'Municipals 6-10 yrs'.

If advisor's: I would say by just showing such inconsistent terms to describe the funds he shows lack of consistency and professionalism.
For example:
- why use 3 different terms to describe the products: (a) 'munis', (b) 'fed tax ex', (c) 'municipals'.
- why use inconsistent adjectives to describe duration: (a) 'short term', (b) 'nothing', (c) '6-10 years'.


These were my quick 2 word descriptions I got from Vanguard fund descriptions when reading through at 3 am in the morning.

Most bonds $ are in IRA and some in taxable. Part of the Portfolio 'fix' is to get more bond $ into tax protected account.

Regarding reply...
I guess they have to justify that 0.3%.

... did not understand this... but then again I don't post very often.

drzzzzz
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by drzzzzz » Sun Sep 16, 2018 7:14 pm

We used them about a year ago and they recommended 4 or 5 bond funds - what I am surprised by is the low percentage of international bonds since when we talked to them then, they wanted around 20-40% of your bonds in international and most of their lifestrategy funds, target date funds, and now world bond fund have a much higher allocation to international bonds - any idea why they recommended such a low percentage?

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by Taylor Larimore » Sun Sep 16, 2018 7:36 pm

Webfoot wrote:
Sun Sep 16, 2018 12:19 pm
Decided to have Vanguard look at my all Vanguard portfolio (60% stock/40% bonds) with a push for simplification. The proposed stock changes I understand. For bonds, I previously only had 3 Vanguard bond 'funds'. Mostly the Total Bond Market Index fund, GNMA fund and one Treasury Note (TIPs). The suggestion from the Vanguard advisor is to remove the Total Bond Fund & GNMA fund and and replace with 7 Vanguard bond funds.
Webfoot:

That is a very unusual suggestion from a Vanguard advisor. I have one bond fund (Vanguard Total Bond Market) which is very diversified with good quality bonds. It has worked well.

Ask your advisor to put in writing why he recommends 7 overlapping bond funds and let us know his reasoning.

Read my "Simplicity" link below.

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

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by SlowMovingInvestor » Sun Sep 16, 2018 8:30 pm

PFInterest wrote:
Sun Sep 16, 2018 12:22 pm
With 60% stocks unlikely to need tips.
Not to go off on a tangent here, but could you expand on this comment ? Is the assumption that stocks provide sufficient inflation hedging that you don't need any TIPs ?

DeadPoets
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by DeadPoets » Sun Sep 16, 2018 10:36 pm

To me this sorta washes out the advantage of having a Vanguard portfolio in the first place (which is low cost).

hulburt1
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by hulburt1 » Sun Sep 16, 2018 11:02 pm

Why bonds. In the last 10 years what would you have made. I'm 5% mm and 95% in stocks In the last 10 years I'm up 15% per year.

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by randomguy » Mon Sep 17, 2018 1:40 am

2) You could simplify to 1 fund in the taxable, VWIUX, the intermediates and skip the short and long term muni funds. Also, no need to hold 2% VBISX or the TIPS if you want to streamline further.


[/quote]

You could. You could also hold 3 fund and get the exact duration and credit risk that you want. Personally I hold 1 fund cause I don't think it matters enough.

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by livesoft » Mon Sep 17, 2018 1:58 am

I think all of the responses assume that the OP has one taxable account and one tax-advantaged account. That's unlikely.

The OP could have a taxable trust, a joint taxable account, a couple of inherited IRAs, a spouse with their own accounts, ....

For instance, there could be a small inherited IRA with a value of only 1% of the total portfolio. Such an inherited IRA could easily be invested 100% in VBLTX in a set-and-forget mode. At least that's an idea where some of these small percentages invested in outlier funds can come from.

Real-life portfolios of investors who have been investing a long time can be quite messy.
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by inbox788 » Mon Sep 17, 2018 2:13 am

Webfoot wrote:
Sun Sep 16, 2018 12:19 pm
1) Questions is 7 bond funds too many?

2) Whats simpler with similar yield and safety?
Yikes! Yes too many.

What is the yield and safety from the 7 funds? For most, Total Bond or Intermediate Bond should be close enough if not better. There's a good chance more funds is diworsification. https://www.investopedia.com/terms/d/di ... cation.asp

If you care to share, what funds is he recommending for the stock side of things? And how many funds in total? IMO, a 3 fund portfolio is more than adequate. https://www.bogleheads.org/wiki/Three-fund_portfolio

I don't understand this coming from Vanguard PAS. Is this the service you signed up or something else? Directly at Vanguard or through workplace? How long has this guy been with Vanguard? Have others reported anything similar? I was under the impression Vanguard PAS was much simpler and better. Is that wrong?

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by Valuethinker » Mon Sep 17, 2018 3:07 am

Webfoot wrote:
Sun Sep 16, 2018 12:19 pm
Decided to have Vanguard look at my all Vanguard portfolio (60% stock/40% bonds) with a push for simplification. The proposed stock changes I understand. For bonds, I previously only had 3 Vanguard bond 'funds'. Mostly the Total Bond Market Index fund, GNMA fund and one Treasury Note (TIPs). The suggestion from the Vanguard advisor is to remove the Total Bond Fund & GNMA fund and and replace with 7 Vanguard bond funds.

After researching this, I can understand how slicing and dicing bonds can be clever, but cannot tell if the added complexity would provided better yield and safety than using a 2 or 3 Bond funds or just Total Bond Market Index fund. 3 of the bond funds are tax-exempt for my higher network taxable account (others are all in IRA).

1) Questions is 7 bond funds too many?
Yes. With the exception of your tax position. I am not US based and gather that depends upon state of residence. The only case for more than 3 bond funds (in fact, 2 - US Treasury and US TIPS or Total Bond Market & US TIPS) is a municipal bond fund (tax exempt).

I would *not* buy a municipal bond fund that was only Illinois bonds. Illinois is now rated 1 notch above junk bonds, I believe -- the rating agencies are really saying that they would like to rate it junk but that would cause too much chaos-- remember Illinois is their client, not you as the investor.
2) Whats simpler with similar yield and safety?


8% Bonds Short Term
- VMLUX Limited Tax Exempt (Short term Muni) 6%
- VBISX Short Term Bond Index 2%
18% Bonds Intermediate Term
- VBILX Intermediate Term Bond Index (Invest grade 5-10 yrs) 10%
- VWIUX Intermediate Term Tax Exempt (Fed Tax Ex) 8%
7% Long Term Bonds
- VWLUX Long Term Tax Exempt (municipals 6-10 yrs) 6%
- VBLTX Long Term Bond Index (Corps & US > 10 yrs) 1%
6% International Bonds
- VTABX Total International Bond Index 6%
2% Other
- Other Treasury Note (TIPS)...previously had 2%
[/quote]

This is very complex as a proposal.

I would:

- hold Total Bond Market or US Intermediate Term Treasury - giving much of the yield uplift from holding longer term bonds, but also getting hit less hard than a LT bond fund if interest rates and/ or inflation spike unexpectedly

- hold TIPS as long as that was at least 5% of my total investment portfolio (less than 5% is just a distraction without benefit to final end portfolio value)

You could add tax exempt bonds if the after tax yield is equivalent or better.

Total International Bonds is, I think, a distraction. Returns will be very similar to a US Treasury bond fund (assuming currency hedged fund which it is). And there are various "iceberg" risks in international bond markets (Italy and the Eurozone in particular)-- single events which could cause huge chaos and disruption and inflict severe losses on bondholders.

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by z3r0c00l » Mon Sep 17, 2018 5:48 am

hulburt1 wrote:
Sun Sep 16, 2018 11:02 pm
Why bonds. In the last 10 years what would you have made. I'm 5% mm and 95% in stocks In the last 10 years I'm up 15% per year.
Why would a 10 year bull market be a useful time frame for deciding why bonds? Bonds: because the market doesn't always go up for 10 years.

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by Grt2bOutdoors » Mon Sep 17, 2018 6:04 am

Webfoot wrote:
Sun Sep 16, 2018 12:19 pm
Decided to have Vanguard look at my all Vanguard portfolio (60% stock/40% bonds) with a push for simplification. The proposed stock changes I understand. For bonds, I previously only had 3 Vanguard bond 'funds'. Mostly the Total Bond Market Index fund, GNMA fund and one Treasury Note (TIPs). The suggestion from the Vanguard advisor is to remove the Total Bond Fund & GNMA fund and and replace with 7 Vanguard bond funds.

After researching this, I can understand how slicing and dicing bonds can be clever, but cannot tell if the added complexity would provided better yield and safety than using a 2 or 3 Bond funds or just Total Bond Market Index fund. 3 of the bond funds are tax-exempt for my higher network taxable account (others are all in IRA).

1) Questions is 7 bond funds too many?

2) Whats simpler with similar yield and safety?


8% Bonds Short Term
- VMLUX Limited Tax Exempt (Short term Muni) 6%
- VBISX Short Term Bond Index 2%
18% Bonds Intermediate Term
- VBILX Intermediate Term Bond Index (Invest grade 5-10 yrs) 10%
- VWIUX Intermediate Term Tax Exempt (Fed Tax Ex) 8%
7% Long Term Bonds
- VWLUX Long Term Tax Exempt (municipals 6-10 yrs) 6%
- VBLTX Long Term Bond Index (Corps & US > 10 yrs) 1%
6% International Bonds
- VTABX Total International Bond Index 6%
2% Other
- Other Treasury Note (TIPS)...previously had 2%
Seriously, I would take that suggested portfolio, copy it into a nice email or snail mail letter to the CEO of Vanguard and ask the rationale for such complexity.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by nisiprius » Mon Sep 17, 2018 6:17 am

z3r0c00l wrote:
Mon Sep 17, 2018 5:48 am
hulburt1 wrote:
Sun Sep 16, 2018 11:02 pm
Why bonds. In the last 10 years what would you have made. I'm 5% mm and 95% in stocks In the last 10 years I'm up 15% per year.
Why would a 10 year bull market be a useful time frame for deciding why bonds? Bonds: because the market doesn't always go up for 10 years.
Benjamin Roth, The Great Depression: A Diary
November 26, 1937: In times of rising market the average American becomes overoptimistic: he invests his whole capital in common stocks of the most speculative variety; often extends himself on margin. Then when a slump comes he finds himself overextended... The European investor takes his capital--no matter how small--half he invests in government bonds--25% in high grade dividend paying stocks--and the remaining 25% he will use to gamble on speculative stocks offering possibility of large gains. In the long run he comes out best. His possibility of loss is limited and in an abnormally low market like in 1932 he has capital for unusual bargains.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by Grt2bOutdoors » Mon Sep 17, 2018 8:24 am

nisiprius wrote:
Mon Sep 17, 2018 6:17 am
z3r0c00l wrote:
Mon Sep 17, 2018 5:48 am
hulburt1 wrote:
Sun Sep 16, 2018 11:02 pm
Why bonds. In the last 10 years what would you have made. I'm 5% mm and 95% in stocks In the last 10 years I'm up 15% per year.
Why would a 10 year bull market be a useful time frame for deciding why bonds? Bonds: because the market doesn't always go up for 10 years.
Benjamin Roth, The Great Depression: A Diary
November 26, 1937: In times of rising market the average American becomes overoptimistic: he invests his whole capital in common stocks of the most speculative variety; often extends himself on margin. Then when a slump comes he finds himself overextended... The European investor takes his capital--no matter how small--half he invests in government bonds--25% in high grade dividend paying stocks--and the remaining 25% he will use to gamble on speculative stocks offering possibility of large gains. In the long run he comes out best. His possibility of loss is limited and in an abnormally low market like in 1932 he has capital for unusual bargains.
What page is that on? I must have missed it.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by BigJohn » Mon Sep 17, 2018 9:25 am

Taylor Larimore wrote:
Sun Sep 16, 2018 7:36 pm
That is a very unusual suggestion from a Vanguard advisor. I have one bond fund (Vanguard Total Bond Market) which is very diversified with good quality bonds. It has worked well.
Unfortunately this doesn’t seem to be unusual from VG PAS these days. This is the third or fourth thread (one started by me) where an unnecessarily complex bond portfolio with 7+ funds and lots of overlap was recommended. It’s sure does seem to me that they are falling into the mode of complexity to justify the fee.

chisey
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by chisey » Mon Sep 17, 2018 9:39 am

livesoft wrote:
Mon Sep 17, 2018 1:58 am
I think all of the responses assume that the OP has one taxable account and one tax-advantaged account. That's unlikely.

The OP could have a taxable trust, a joint taxable account, a couple of inherited IRAs, a spouse with their own accounts, ....

For instance, there could be a small inherited IRA with a value of only 1% of the total portfolio. Such an inherited IRA could easily be invested 100% in VBLTX in a set-and-forget mode. At least that's an idea where some of these small percentages invested in outlier funds can come from.

Real-life portfolios of investors who have been investing a long time can be quite messy.
I agree that this is underappreciated, and investors don't even have to be invested that long for it to become messy. I'm 39 and DW is 29, but job changes and a marriage have left us with 12 investment accounts across 7 different custodians. Implementing even a "3-fund" portfolio would require more than twice that many holdings, and making rebalancing and TLHing possible necessitates at least a couple more than that. Add in limited fund choices in employer sponsored accounts and that grows more. We slice and dice, so it turns into 18 holdings for us to maintain a 6-slice portfolio.

It could be that all the slices in the OP aren't necessary but even if they are, it's still not that complicated to keep track of.

inbox788
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by inbox788 » Mon Sep 17, 2018 10:59 pm

chisey wrote:
Mon Sep 17, 2018 9:39 am
livesoft wrote:
Mon Sep 17, 2018 1:58 am
I think all of the responses assume that the OP has one taxable account and one tax-advantaged account. That's unlikely.

The OP could have a taxable trust, a joint taxable account, a couple of inherited IRAs, a spouse with their own accounts, ....

For instance, there could be a small inherited IRA with a value of only 1% of the total portfolio. Such an inherited IRA could easily be invested 100% in VBLTX in a set-and-forget mode. At least that's an idea where some of these small percentages invested in outlier funds can come from.

Real-life portfolios of investors who have been investing a long time can be quite messy.
I agree that this is underappreciated, and investors don't even have to be invested that long for it to become messy. I'm 39 and DW is 29, but job changes and a marriage have left us with 12 investment accounts across 7 different custodians. Implementing even a "3-fund" portfolio would require more than twice that many holdings, and making rebalancing and TLHing possible necessitates at least a couple more than that. Add in limited fund choices in employer sponsored accounts and that grows more. We slice and dice, so it turns into 18 holdings for us to maintain a 6-slice portfolio.

It could be that all the slices in the OP aren't necessary but even if they are, it's still not that complicated to keep track of.
Ah, that could be part of the explanation, but poor planning is also contributing to the expansion of accounts and funds. Tax advantaged accounts are easier to deal with, and rolling over accounts after leaving employers is a simplification move that should be considered. If one started taxable accounts with Total Stock and Total Bond to begin with, there wouldn't be these account management headaches. And if taxable accounts had small gains, it might be worth the tax costs to simplify 1-2% of a portfolio.

And as far as dealing with multiple custodians and accounts, that's a reason to favor global AA and keeping just one fund in each custodian. And if you cloned the fund, say used Total Stock in 3 custodians and Total Bond in 2 others, it might be 5 accounts at 5 custodians, but when you add it up, it's a 2 fund portfolio.

Keep in mind location flexibility and when and which order you'd plan to use the accounts. I think there's another page about how to shuffle funds around between tax advantaged and taxable, but I couldn't find it. A little of it is towards the bottom of this link:
https://www.bogleheads.org/wiki/Roth_IR ... gency_fund

Webfoot
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by Webfoot » Tue Sep 18, 2018 1:03 pm

OP here with some followup...

Last week I received 'Vanguards Plan' 4 days before the review. Yesterday I had the review with the Vanguard advisor who was polite and very nice.

The 'plan' provided was 34 pages in length and detailed. But ultimately a precursor for Vanguard suggesting they could manage my accounts for a quarterly fee. I was upfront saying I intended to self manage but wanted simplicity. I was hoping to get a '2nd' updated plan based on our discussion but they said they could not do this because it did not fit the Vanguard model.

Vanguard was very nice and I appreciate their insight... but I also knew I could manage my portfolio easily and cheaply.

Thanks to all who responded and especially...

- Taylor Larimore - yes for simplicity

- Livesoft - yes I do have multiple IRA accounts

- AphaLess - yes for the Portfoliovisualizer

randomguy
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by randomguy » Tue Sep 18, 2018 3:27 pm

What did the vanguard advisor say when you asked them why their were so many bond funds? It seems like that knowing their rational would allow you to make a more informed decision about if you agree with it or not. And if you can't ask this type of question, why have them?

SGM
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by SGM » Tue Sep 18, 2018 3:54 pm

I spoke with a Vanguard advisor who suggested Limited Term, Long Term and Intermediate Term muni bond funds. He advised specifically against Short Term muni bond fund as Limited Term had a higher yield and similar risk.

pkcrafter
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by pkcrafter » Tue Sep 18, 2018 6:22 pm

nisiprius wrote:
Mon Sep 17, 2018 6:17 am
z3r0c00l wrote:
Mon Sep 17, 2018 5:48 am
hulburt1 wrote:
Sun Sep 16, 2018 11:02 pm
Why bonds. In the last 10 years what would you have made. I'm 5% mm and 95% in stocks In the last 10 years I'm up 15% per year.
Why would a 10 year bull market be a useful time frame for deciding why bonds? Bonds: because the market doesn't always go up for 10 years.
Benjamin Roth, The Great Depression: A Diary
November 26, 1937: In times of rising market the average American becomes overoptimistic: he invests his whole capital in common stocks of the most speculative variety; often extends himself on margin. Then when a slump comes he finds himself overextended... The European investor takes his capital--no matter how small--half he invests in government bonds--25% in high grade dividend paying stocks--and the remaining 25% he will use to gamble on speculative stocks offering possibility of large gains. In the long run he comes out best. His possibility of loss is limited and in an abnormally low market like in 1932 he has capital for unusual bargains.
This might also interest you -

Boglehead Membership. A sign of the times?

Today - 75,843
5 years ago - 26,000
10 years ago - 9,400
SPIVA Report 10 years

S&P 500 outperformed 89% of all large cap funds over 10 years.
S&P composite 1500 outperformed 86% of all domestic funds over 10 years.

https://us.spindices.com/documents/spiv ... d-2017.pdf

This kind of performance is now making investors nervous and when the market goes booga-booga, investors will begin to sell and an avalanche will occur, thus fulfilling their worries. :beer

2008 was a legitimate black swan, but many market corrections and sometimes short bears have little little reason to occur expect for investor behavior.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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fandango
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by fandango » Tue Sep 18, 2018 6:41 pm

My Personal Advisor has me in three bond funds: Total Bond Index, Short Term Bond Index and International Bond Index. You may want to talk with your Account Executive and see if you can get another Personal Advisor since his/her recommendations seem a little extreme.

One reason they are "trying to earn your business" as the car salesmen say is that beginning this year "financial advisor services" will no longer be tax deductible. So you will be paying the full cost of the PA fees. I expect to see large number of customers reconsidering the purchase of these services.

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whodidntante
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by whodidntante » Tue Sep 18, 2018 7:02 pm

Did you pay for this advice?

yousha
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by yousha » Tue Sep 18, 2018 7:08 pm

I'd request another adviser!

Freefun
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by Freefun » Wed Sep 19, 2018 6:29 am

Wow. I became a BH mostly for the simplicity of the three fund portfolio. So that’s what I am implementing. Suggestions such as what is seen here maybe more optimum or may not, but it’s too complicated for me to look after long-term.
Remember when you wanted what you currently have?

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by UpperNwGuy » Wed Sep 19, 2018 6:35 am

Seems to me that you know enough to manage your own portfolio without the help of an advisor. Why not just do that?

yousha
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by yousha » Wed Sep 19, 2018 7:27 am

UpperNwGuy wrote:
Wed Sep 19, 2018 6:35 am
Seems to me that you know enough to manage your own portfolio without the help of an advisor. Why not just do that?
I agree, too!

mervinj7
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by mervinj7 » Wed Sep 19, 2018 5:04 pm

fandango wrote:
Tue Sep 18, 2018 6:41 pm
My Personal Advisor has me in three bond funds: Total Bond Index, Short Term Bond Index and International Bond Index. You may want to talk with your Account Executive and see if you can get another Personal Advisor since his/her recommendations seem a little extreme.

Did your advisor recommend differing placement for total vs short-term bonds based on whether it was a tax-advantaged or taxable account? Just curious.

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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by tibbitts » Wed Sep 19, 2018 5:44 pm

I don't see any problem with the advice, depending on the justification. Basically we are presuming the VG rep is guilty without so much as a hearing. The OP could email the rep to ask for an explanation for each holding, and then post the reply here.

I have more than seven bonds funds, although offhand I don't even know how many I have. But I have every one for a reason (or two or three.) Not everybody would agree with my reasons. The point of having an adviser is that you don't have to keep track of your holdings; that's part of the service you're paying for.

BigJohn
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Re: Vanguard Advisor suggesting 7 Bond funds for my 40%

Post by BigJohn » Wed Sep 19, 2018 6:29 pm

The real issue for me is the mix of ST, IT and LT bonds of the same/similar type. If you want an IT duration, buy IT. If you want shorter, mix in ST. If you want longer, mix in LT. What does having a mix of all three accomplish?

A friend received a similar recommendation from PAS recently (all new funds, all in the same account). When she pushed for more simplicity they agreed to revise but I haven’t seen the new, more simple version yet. To me still a bit disconcerting that you have to ask VG PAS for simplicity of portfolio design.

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