VTINX - VG target Retirement Income fund question

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mnmac1
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Joined: Sat Nov 30, 2013 9:50 am

VTINX - VG target Retirement Income fund question

Post by mnmac1 » Sat Oct 20, 2018 8:50 am

Hello, well I have hit my number (Thank you Federal Reserve loose money policy!) and have dialed way back on my equity risk.
Now I am at the point where I just need a little income to beat inflation over the next 30 years.

I am looking at VTINX to supply that growth given it's decent 3-5 year average returns.

I know its not a barn burner of a fund and am ok with that. I am really not interested in annuities at this time due to low rates.

So, to the questions.

1. Does anyone have opinions on how Vtinx would perform in a rising rate environment given that it's 70% bonds?

2. in the average annual returns i see a 1 year return of 3.31%, but ytd is only -.99%, so i presume that this year is a tough one for the fund, is that due to the bond portion being beat up?

3. Can anyone explain why the return (-.99% ytd) is so abysmal? or am i missing something in how to read returns?

Thanks

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oldcomputerguy
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Re: VTINX - VG target Retirement Income fund question

Post by oldcomputerguy » Sat Oct 20, 2018 9:48 am

1. Does anyone have opinions on how Vtinx would perform in a rising rate environment given that it's 70% bonds?
Any fund that is bond-heavy (such as VTINX) will see some price drop during rising interest rates. Bear in mind, though, that the drop in the fund's NAV due to rising interest rates is a temporary phenomenon. When bonds mature and fall out of the fund, they are replaced by newer bonds with higher interest rates, so as time goes by rising interest rates actually improve the performance of the fund. And since VTINX also holds Total Stock and Total International Stock, the effect of rising interest rates on the total fund will be diluted somewhat due to diversification.

The underlying bond funds (Total Bond, Total International Bond, and Short-term TIPS) have durations ranging from around 2 years to 7 years, so depending on what interest rates do, you may see some downturn in the fund lasting some years. But as interest rates stabilize, the fund will as well, and will actually recover in a time period roughly equal to the average duration of the bond holdings and perform better.
2. in the average annual returns i see a 1 year return of 3.31%, but ytd is only -.99%, so i presume that this year is a tough one for the fund, is that due to the bond portion being beat up?
I see on Morningstar where they show the fund as having a -0.99% return YTD. I don't know where they get that number. The price of the fund was $13.58/share at the start of the year and closed yesterday at $13.22, a decrease YTD of around 2.6%. That is price performance. One has to calculate in dividend reinvestment to get total performance, and Morningstar shows the fund total performance YTD as 1.26%. Perhaps someone smarter than I will chime in and explain.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

rkhusky
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Re: VTINX - VG target Retirement Income fund question

Post by rkhusky » Sat Oct 20, 2018 11:43 am

mnmac1 wrote:
Sat Oct 20, 2018 8:50 am
2. in the average annual returns i see a 1 year return of 3.31%, but ytd is only -.99%, so i presume that this year is a tough one for the fund, is that due to the bond portion being beat up?

3. Can anyone explain why the return (-.99% ytd) is so abysmal? or am i missing something in how to read returns?
Yes, bonds have dropped some this year. -0.99% is not abysmal. The -50% drop for stocks in 2007/2008 was abysmal.

The YTD returns have little to do with long term performance. Don't make investment decisions on short term results. Look at the long term expectations.

Flyer24
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Re: VTINX - VG target Retirement Income fund question

Post by Flyer24 » Sat Oct 20, 2018 11:58 am

Your bond fund portion will also pay more in the long term due to the higher interest rate.

mnmac1
Posts: 36
Joined: Sat Nov 30, 2013 9:50 am

Re: VTINX - VG target Retirement Income fund question

Post by mnmac1 » Sat Oct 20, 2018 7:23 pm

Thanks everyone for the replies, I will take it all under advisement.

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