VCADX or VMLUX?

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michaeljmroger
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VCADX or VMLUX?

Post by michaeljmroger » Wed Nov 14, 2018 12:51 am

Is it foolish to invest in intermediate-term bonds in today’s rising rate environment?

VCADX would be a better option for me than VMLUX as I live in California and I’m in a high-tax bracket, but I keep reading it’s a particularly bad time to go any longer than short-term right now, even in places like here where timing the market is widely considered a bad idea.

I already have some CDs and money market funds, but I’d like to have some bonds as well to diversify my portfolio.

Thank you!

typical.investor
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Re: VCADX or VMLUX?

Post by typical.investor » Wed Nov 14, 2018 7:30 am

How long will you hold them for? If I recall correctly, in a continually rising environment, it's about twice the duration (2 * 5.4 years)before you are even. If it's only one or two more hikes, then it'd be before that (perhaps equal to the duration but the duration might increase as rates go up since bonds won't get called). So I view intermediates as a good option if your intended holding period is long.

The muni curve is steeper too, so actually I've heard long is the place to buy. Not sure if I buy that but here it is https://www.bloomberg.com/opinion/artic ... muni-bonds

Also, muni's don't react exactly the same to short term rate hikes.

For me, I'd go VMLUX if I might need the money in the next five years. And VCADX if I didn't need it for 10. In between, I'd think about when my CD's mature and how much I have in cash, etc.

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oldcomputerguy
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Re: VCADX or VMLUX?

Post by oldcomputerguy » Wed Nov 14, 2018 7:33 am

michaeljmroger wrote:
Wed Nov 14, 2018 12:51 am
Is it foolish to invest in intermediate-term bonds in today’s rising rate environment?
If it is, I'm a fool. The majority of our fixed-income is held in aggregate bonds in our tax-deferred accounts.
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.

michaeljmroger
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Re: VCADX or VMLUX?

Post by michaeljmroger » Wed Nov 14, 2018 9:56 am

typical.investor wrote:
Wed Nov 14, 2018 7:30 am
How long will you hold them for?
Approximately 8 years.

michaeljmroger
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Re: VCADX or VMLUX?

Post by michaeljmroger » Wed Nov 14, 2018 1:46 pm

oldcomputerguy wrote:
Wed Nov 14, 2018 7:33 am
If it is, I'm a fool. The majority of our fixed-income is held in aggregate bonds in our tax-deferred accounts.
In my case it'd be in a taxable account though.

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oldcomputerguy
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Re: VCADX or VMLUX?

Post by oldcomputerguy » Wed Nov 14, 2018 2:27 pm

michaeljmroger wrote:
Wed Nov 14, 2018 1:46 pm
oldcomputerguy wrote:
Wed Nov 14, 2018 7:33 am
If it is, I'm a fool. The majority of our fixed-income is held in aggregate bonds in our tax-deferred accounts.
In my case it'd be in a taxable account though.
As I understand it, your question was regarding maturity / duration, not tax-efficiency. In my aggregate bond funds, the majority of bonds have durations between 3 and 8 years and maturities between 3 and 10 years. Any concerns you might have over bond maturities or durations in a rising interest rate environment would, it seems to me, be equally valid for bonds held in tax-deferred and bonds held in taxable.
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.

michaeljmroger
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Re: VCADX or VMLUX?

Post by michaeljmroger » Wed Nov 14, 2018 2:48 pm

oldcomputerguy wrote:
Wed Nov 14, 2018 2:27 pm
As I understand it, your question was regarding maturity / duration, not tax-efficiency. In my aggregate bond funds, the majority of bonds have durations between 3 and 8 years and maturities between 3 and 10 years. Any concerns you might have over bond maturities or durations in a rising interest rate environment would, it seems to me, be equally valid for bonds held in tax-deferred and bonds held in taxable.
Sure, I was just clarifying my own situation for the sake of completeness :wink:

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Artsdoctor
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Re: VCADX or VMLUX?

Post by Artsdoctor » Wed Nov 14, 2018 6:38 pm

michaeljmroger wrote:
Wed Nov 14, 2018 9:56 am
typical.investor wrote:
Wed Nov 14, 2018 7:30 am
How long will you hold them for?
Approximately 8 years.
If your time-frame is in the 8-year frame, or so, then investing in an intermediate-term bond fund is reasonable, especially if you're considering reinvesting the dividends all along the way (intermediate being defined as having a maturity between 4-10 years).

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dwickenh
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Re: VCADX or VMLUX?

Post by dwickenh » Wed Nov 14, 2018 7:45 pm

I think that your timeline for the funds would warrant short term or intermediate term bond funds. I have the same timeline(about 8 years) and have settled on Intermediate bond funds(Total Bond and Investment grade Corporate) for my IRA. Depending on tax rates and state taxes, Muni bond funds may work to your advantage.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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