What do you use for your bond exposure?

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FinancialRookie
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What do you use for your bond exposure?

Post by FinancialRookie » Thu Feb 07, 2019 2:02 pm

Big picture when I look at the purpose of my bond exposure, it will be to act as ballast for my account balance, and to provide consistent guaranteed income. For me specifically, when I retire with my pension that will cover all of my basic living expenses I will use the interest from bonds and dividends from equities to fund our "lifestyle" (vacations, new ventures, etc).

The biggest threat to bonds is inflation and rate changes. Would it be unreasonable to allocate my bond position 50/50 long term treasuries and TIPS?

I figure the larger yield and lower (not perfect, I know) correlation to the market of long term treasuries accomplishes the point of owning bonds, and the TIPS protects against the largest downside. Since I will not be selling my bonds, I don't necessarily care about the increased volatility of long term bond funds.

I don't have interest in even investment grade/corporate bonds since in my opinion they are just further exposure to the equity market.

Poke holes in my theory!

TIA

bloom2708
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Re: What do you use for your bond exposure?

Post by bloom2708 » Thu Feb 07, 2019 2:20 pm

What type of account would these bond funds be in? Tax-advantaged or Taxable/Brokerage

If Tax-Advantaged, I would rather do:

50% Total US Bond (Intermediate term)
50% Int-Term Treasury Index (Intermediate Term)

These are the two funds I use at Vanguard. In Rollover IRAs. Taxable and Roths are stock index funds.

I'm not a fan of your plan. Long Treasuries have more interest rate risk. The spread between Intermediate returns and Long are not great. There is no sign of runaway inflation. TIPS returns are low. Both could change obviously. Future to be determined.
“People don’t want advice, they want confirmation.” Unknown

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FinancialRookie
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Re: What do you use for your bond exposure?

Post by FinancialRookie » Thu Feb 07, 2019 2:33 pm

bloom2708 wrote:
Thu Feb 07, 2019 2:20 pm
What type of account would these bond funds be in? Tax-advantaged or Taxable/Brokerage
All tax deferred and/or tax free for bonds.

2015
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Re: What do you use for your bond exposure?

Post by 2015 » Thu Feb 07, 2019 2:39 pm

Theory melts like candle wax when lit by the flame of reality. The one prediction that can be made with absolute certainty is that in the future the answers will change and consequently you will never be able to get off the endless "information" seeking treadmill. Hence, your time, attention, and life are doomed to be continually stolen by those having interests diametrically opposed to your own.

It is for this reason I chose total bond in order to be done with it. In my mind, risk mitigation of all kinds is massively more important than time spent creating the most clever investment strategy involving the most perfect portfolio.

yeahman
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Re: What do you use for your bond exposure?

Post by yeahman » Thu Feb 07, 2019 2:56 pm

And how will you hedge against your pension default risk?

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galeno
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Re: What do you use for your bond exposure?

Post by galeno » Thu Feb 07, 2019 3:17 pm

I'd go 50/50 INTERMEDIATE term US treasuries and TIPS. Long term US treasuries are pretty volatile.

"The biggest threat to bonds is inflation and rate changes. Would it be unreasonable to allocate my bond position 50/50 long term treasuries and TIPS?"
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

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Elric
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Re: What do you use for your bond exposure?

Post by Elric » Thu Feb 07, 2019 3:32 pm

Fairly new into bonds, so take this with a large grain of salt, but if you don't need your bonds for basic income, you could, if you want, take a bit more risk. Personally I have some investment grade municipal bonds in taxable (not relevant for you), and a 50-50 split between a treasuries ladder (out to 5 years) and Vanguard Intermediate-Term Corp Bond ETF (VCIT) in tax-deferred. I figure I'm in a position where I can afford to take a bit more risk for more return, as it sounds like you are also in a position to do. But risk tolerance is definitely a mix of financial situation and personal comfort. I'm throwing this out there as an alternative view to sticking with treasuries or the highly treasuries-weighted total bond fund.
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UpperNwGuy
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Re: What do you use for your bond exposure?

Post by UpperNwGuy » Thu Feb 07, 2019 4:38 pm

Total Bond Index
Intermediate Term Tax Exempt

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Earl Lemongrab
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Re: What do you use for your bond exposure?

Post by Earl Lemongrab » Thu Feb 07, 2019 5:28 pm

I use 50/50 bond index fund and stable value in MegaCorp's 401(k). Does that help?

Broken Man 1999
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Re: What do you use for your bond exposure?

Post by Broken Man 1999 » Thu Feb 07, 2019 5:35 pm

Our portfolio bond portion is all in tax-deferred, and consists of intermediate and short term treasury index funds, some Total Bond Market Index ETFs, and Series I US Savings bonds. When the spirit moves me I intend to replace the Total Bond Market ETFs with either more treasuries, or perhaps more Savings bonds.Or, I might buy some TIPS via a fund or ETF. With DW and I combined Total Bond Market Index ETFs, I could get out of Total Bond Market with savings bonds in a couple of years if I decide to go the savings bond route.

I keep remembering Larry Swedroe's statement about taking your risk on the equity side, and US treasury offerings for that suggestion are better than Total Bond Index Fund.

Broken Man 1999
Edited for Larry's last name. @#$%_auto-correction! :x
Last edited by Broken Man 1999 on Thu Feb 07, 2019 5:51 pm, edited 1 time in total.
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4nwestsaylng
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Re: What do you use for your bond exposure?

Post by 4nwestsaylng » Thu Feb 07, 2019 5:47 pm

I agree long term bonds should be avoided in an era of interest rate increases. They are only going to go up,we are just in a pause by the Fed.
People say that if you have a long term bond fund, it is no problem, because the fund is continually unloading old bonds at lower rates and buying the higher rate bonds. While that is true, the fact is that the duration risk really can't be escaped with rising rates, it is a drag on these long term funds.
With individual bonds, yes you can hold till maturity and have no loss of principal, but again that is deceiving, because you are holding a lower interest paying bond for its duration.You are locked into the lower rate bond to its duration. Shortening the term to intermediate or less gives you less principal risk and more opportunity to move into higher rates, even if you hold to maturity.

The opposite is true in a falling rate environment, which was the case for so many years.

informal guide
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Re: What do you use for your bond exposure?

Post by informal guide » Thu Feb 07, 2019 6:05 pm

My approach is approximately as follows (all in tax-deferred accounts):
30 % Total Bond index
30% Intermediate Term Investment Grade
25% TIPs
15% Vanguard High Yield Corporate

I know many here don't want risks in their Bond allocation, but this has served me well over the last 25 years (TIPs were added 5-10 years ago).

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willthrill81
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Re: What do you use for your bond exposure?

Post by willthrill81 » Thu Feb 07, 2019 6:06 pm

FinancialRookie wrote:
Thu Feb 07, 2019 2:02 pm
The biggest threat to bonds is inflation and rate changes. Would it be unreasonable to allocate my bond position 50/50 long term treasuries and TIPS?
Unexpected inflation has been the greatest threat to fixed income investments and probably will continue to be going forward; remember that the market has theoretically already priced in expected inflation. If you want to avoid inflation risk altogether, then buy TIPS.

Rate changes are not a major threat in the long-term. Rate increases decrease the value of existing bond capital but raise the yield going forward, an effect which has historically been largely evened out over the course of a decade with intermediate-term bonds, less for short-term and more for long-term. If you don't want to take on more interest rate risk than necessary, then just go with short-term bonds.

I think that a good argument can be made for 50% individual TIPS and 50% short-term nominals. But good arguments can be made for other allocations as well.

With fixed income, the most important factor is probably for you to go with whatever makes you feel the most secure.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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willthrill81
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Re: What do you use for your bond exposure?

Post by willthrill81 » Thu Feb 07, 2019 6:08 pm

Earl Lemongrab wrote:
Thu Feb 07, 2019 5:28 pm
I use 50/50 bond index fund and stable value in MegaCorp's 401(k). Does that help?
A good stable value fund can be an 'no-brainer' when it comes to fixed income.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Clever_Username
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Re: What do you use for your bond exposure?

Post by Clever_Username » Thu Feb 07, 2019 6:14 pm

Any particular reason Series I bonds aren't on the table for you?

My bond allocation is about 50/50 Series I and CA-Muni (Intermediate term), with a very small amount in total bond in my 403(b).
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

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happymob
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Re: What do you use for your bond exposure?

Post by happymob » Thu Feb 07, 2019 6:17 pm

It's all over the map and my IPS allows me to use any mostly safe item yielding over 10-year treasury rates as bonds.

So we've got some total bond. We've got some TIPS index fund. We've got some 30-year (at least when I purchased the) TIPS purchased at auction. We've got some TIAA Traditional (stable value). We've got some I Bonds (though these are slowly being converted into 529 plans). Our rewards checking counted when it was paying 3% on the first $25,000, but now it only pays 2%, so that's now "cash" again. I suppose the I bonds are "cash" now under our IPS, but they'll be gone in 2020, so I'm not going to sweat that detail.

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Taylor Larimore
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Re: What do you use for your bond exposure?

Post by Taylor Larimore » Thu Feb 07, 2019 6:31 pm

What do you use for your bond exposure?
FinancialRookie:

Any good quality, low-cost, short-or intermediate-term bond fund will do the job of providing safety and income in a portfolio.

For nearly 30 years I have used Vanguard Total Bond Market Index Fund for our bond allocation. I like it's broad diversification (the only "free-lunch" in investing) and its safety (it has never had an annual loss greater than -2.66%).

It is now the largest bond fund in the world for good reasons.

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

bluquark
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Re: What do you use for your bond exposure?

Post by bluquark » Thu Feb 07, 2019 6:33 pm

I'm currently considering changing my core taxable bond holding from Total Bond (BND) to Vanguard's new Global Credit Bond Fund (VGCAX).

I'm turning into a believer in active management for bond funds and, like Jack Bogle, I'm somewhat annoyed by how BND's claim to be "Total" is hollow -- it's basically just a US treasuries fund. VGCAX is 50/50 between US and international (actually Vanguard's only bond fund that's properly diversified that way, I think) and isn't prevented from finding the best bond deals by an arbitrary index. Its current SEC yield of 3.4% sounds *very* good when considering that it doesn't include hedge return, which I expect to be a big part of the return of a 50% foreign-currency-bond fund.
Last edited by bluquark on Thu Feb 07, 2019 7:57 pm, edited 1 time in total.

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Summit111
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Re: What do you use for your bond exposure?

Post by Summit111 » Thu Feb 07, 2019 7:00 pm

Vanguard 5 year CD ladder...

Summit
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emlowe
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Re: What do you use for your bond exposure?

Post by emlowe » Thu Feb 07, 2019 7:16 pm

Fidelity U.S. Bond Index Fund (FXNAX)

hudson
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Re: What do you use for your bond exposure?

Post by hudson » Thu Feb 07, 2019 7:27 pm

FinancialRookie wrote:
Thu Feb 07, 2019 2:02 pm
Big picture when I look at the purpose of my bond exposure, it will be to act as ballast for my account balance, and to provide consistent guaranteed income. For me specifically, when I retire with my pension that will cover all of my basic living expenses I will use the interest from bonds and dividends from equities to fund our "lifestyle" (vacations, new ventures, etc).

The biggest threat to bonds is inflation and rate changes. Would it be unreasonable to allocate my bond position 50/50 long term treasuries and TIPS?

I figure the larger yield and lower (not perfect, I know) correlation to the market of long term treasuries accomplishes the point of owning bonds, and the TIPS protects against the largest downside. Since I will not be selling my bonds, I don't necessarily care about the increased volatility of long term bond funds.

I don't have interest in even investment grade/corporate bonds since in my opinion they are just further exposure to the equity market.

Poke holes in my theory!

TIA
I like your ideas about bond safety. Treasuries and TIPS are very safe. You can't go wrong there. (BALLAST!) If you are going treasuries and TIPS, you could skip buying funds and buy the individual bonds. Your plan may very well work. If inflation rares its ugly head, you could do very well. I agree...investment grade isn't for me either...too risky.

Holes: Are inflation protected bonds paying very well? I dumped mine a few years ago because they weren't paying much. Others have spoken to long bonds. If you are matching bond length with your needs, you're probably ok.

What do I actually use? VWIUX...Vang Intermed. Muni and CDs.

Depending on the rates, you might want to use CDs instead of treasuries....maybe search for KevinM's contributions.
Vang. Long Treasury Fund...SEC is 2.84%; Distribution Yield last month was 2.85%. Vanguard is showing 3.1% for a 5 year CD.
Last edited by hudson on Thu Feb 07, 2019 8:24 pm, edited 8 times in total.

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sergeant
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Re: What do you use for your bond exposure?

Post by sergeant » Thu Feb 07, 2019 7:30 pm

willthrill81 wrote:
Thu Feb 07, 2019 6:08 pm
Earl Lemongrab wrote:
Thu Feb 07, 2019 5:28 pm
I use 50/50 bond index fund and stable value in MegaCorp's 401(k). Does that help?
A good stable value fund can be an 'no-brainer' when it comes to fixed income.
Which is why we are 95%/5% Stable Value/TBM for fixed income. My SV fund has a guaranteed rate over 4%.
Lincoln 3 EOW!

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joe8d
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Re: What do you use for your bond exposure?

Post by joe8d » Thu Feb 07, 2019 7:57 pm

Short Term Investment Grade.
All the Best, | Joe

DaftInvestor
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Re: What do you use for your bond exposure?

Post by DaftInvestor » Thu Feb 07, 2019 8:04 pm

I like adding in some iBonds for inflation protection.
- Federal Tax Deferred; State Tax Free
- Can be used for Emergencies after 1-year (with EWP)
- Can be used without penalty after 5-years

elainet7
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Re: What do you use for your bond exposure?

Post by elainet7 » Fri Feb 08, 2019 9:49 am

MUNI BONDS-nothing beats totally TAX FREE PASSIVE INCOME

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Re: What do you use for your bond exposure?

Post by donaldfair71 » Fri Feb 08, 2019 9:51 am

willthrill81 wrote:
Thu Feb 07, 2019 6:08 pm
Earl Lemongrab wrote:
Thu Feb 07, 2019 5:28 pm
I use 50/50 bond index fund and stable value in MegaCorp's 401(k). Does that help?
A good stable value fund can be an 'no-brainer' when it comes to fixed income.
Agree. My entire fixed income position (about 17% of my portfolio) for retirement is in my Stable Value Fund.

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Tycoon
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Re: What do you use for your bond exposure?

Post by Tycoon » Fri Feb 08, 2019 9:53 am

Vanguard Short-Term Investment Grade Admiral
Emotionless, prognostication free investing. Ignoring the noise and economists since 1979. Some are predisposed to consistantly lose money. Don't be a sheep.

chazas
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Re: What do you use for your bond exposure?

Post by chazas » Fri Feb 08, 2019 9:57 am

VBTIX in my work plans.

Plus SWVXX in my taxable account for dribs and drabs and CDs for nearer term savings.

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TheTimeLord
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Re: What do you use for your bond exposure?

Post by TheTimeLord » Fri Feb 08, 2019 9:58 am

I use Vanguard Balanced Index Fund (VBIAX),Vanguard Prime Money Market Fund (VMMXX), I-Bonds and laddered CDs.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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unclescrooge
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Re: What do you use for your bond exposure?

Post by unclescrooge » Fri Feb 08, 2019 10:02 am

willthrill81 wrote:
Thu Feb 07, 2019 6:08 pm
Earl Lemongrab wrote:
Thu Feb 07, 2019 5:28 pm
I use 50/50 bond index fund and stable value in MegaCorp's 401(k). Does that help?
A good stable value fund can be an 'no-brainer' when it comes to fixed income.
And then there is this article from Bloomberg which states that riskier bonds outperform treasuries and gilts
https://www.bloomberg.com/opinion/artic ... s-jrvl2qh7

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ruralavalon
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Re: What do you use for your bond exposure?

Post by ruralavalon » Fri Feb 08, 2019 10:03 am

In my opinion 50/50 Intermediate-term Treasury Fund and Short-term TIPS fund would be reasonable.

We use Vanguard Intermediate-term Bond Index Fund Admiral Shares (VBTLX) in my rollover IRA.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

3funder
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Re: What do you use for your bond exposure?

Post by 3funder » Fri Feb 08, 2019 10:43 am

Total Bond. If you're dollar-cost averaging into a mix of intermediate-term bonds, the interest rate argument is, for all intents and purposes, immaterial. Way overblown. I can give you a long list of other things to worry about.

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Re: What do you use for your bond exposure?

Post by OffGridder » Fri Feb 08, 2019 12:14 pm

Taylor Larimore wrote:
Thu Feb 07, 2019 6:31 pm
What do you use for your bond exposure?
FinancialRookie:

Any good quality, low-cost, short-or intermediate-term bond fund will do the job of providing safety and income in a portfolio.

For nearly 30 years I have used Vanguard Total Bond Market Index Fund for our bond allocation. I like it's broad diversification (the only "free-lunch" in investing) and its safety (it has never had an annual loss greater than -2.66%).

It is now the largest bond fund in the world for good reasons.

Best wishes.
Taylor
Taylor,
For many years your fixed income allocation was split 50% TBM, 50% TIPS. You were very happy with that allocation. A few years ago you sold your TIPS and consolidated into just TBM. I believe your reason was for simplicity purposes as part of your advocacy for the 3 Fund Portfolio. Do you believe the value of simplicity out weighs the value of any protection adding a TIPS fund provides against unexpected inflation, particularly for a retiree?

Thank you,
Dave
"Goodness is the only investment that never fails." | H.D. Thoreau

robertmcd
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Re: What do you use for your bond exposure?

Post by robertmcd » Fri Feb 08, 2019 12:17 pm

unclescrooge wrote:
Fri Feb 08, 2019 10:02 am
willthrill81 wrote:
Thu Feb 07, 2019 6:08 pm
Earl Lemongrab wrote:
Thu Feb 07, 2019 5:28 pm
I use 50/50 bond index fund and stable value in MegaCorp's 401(k). Does that help?
A good stable value fund can be an 'no-brainer' when it comes to fixed income.
And then there is this article from Bloomberg which states that riskier bonds outperform treasuries and gilts
https://www.bloomberg.com/opinion/artic ... s-jrvl2qh7
Riskier bonds do outperform treasuries because they are riskier. By combining treasuries with a small percentage of equities you can outperform riskier bonds with the same volatility.

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David Jay
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Re: What do you use for your bond exposure?

Post by David Jay » Fri Feb 08, 2019 12:28 pm

As others have said - do not use a long term bond fund.

LT bonds look good now because of the low interest rates of the last decade, making 5-year and 10-year backtests deceiving.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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TierArtz
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Re: What do you use for your bond exposure?

Post by TierArtz » Fri Feb 08, 2019 12:34 pm

I'm still accumulating and have a target of 40% bonds. I'm at 36% and trying to catch up with contributions.

The accounts used for bonds are:
TSP (100% G Fund) - a cherished souvenir from my military days
401(k) (100% US Total Bond CIT) - adding at yearly max
NQ-DCP (starting to add US Total Bond Index) - adding at 15% of income
Taxable: Tax Exempt Intermediate Muni. If stocks keep going up, I'll buy more of this whenever I have extra cash. I'm making good profits on ESPP held for 2 years and am liquidating all qualified shares to buy more VWIUX and de-risk a bit.

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TheTimeLord
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Re: What do you use for your bond exposure?

Post by TheTimeLord » Fri Feb 08, 2019 12:38 pm

robertmcd wrote:
Fri Feb 08, 2019 12:17 pm
unclescrooge wrote:
Fri Feb 08, 2019 10:02 am
willthrill81 wrote:
Thu Feb 07, 2019 6:08 pm
Earl Lemongrab wrote:
Thu Feb 07, 2019 5:28 pm
I use 50/50 bond index fund and stable value in MegaCorp's 401(k). Does that help?
A good stable value fund can be an 'no-brainer' when it comes to fixed income.
And then there is this article from Bloomberg which states that riskier bonds outperform treasuries and gilts
https://www.bloomberg.com/opinion/artic ... s-jrvl2qh7
Riskier bonds do outperform treasuries because they are riskier. By combining treasuries with a small percentage of equities you can outperform riskier bonds with the same volatility.
As the saying goes in golf "If you are going to lay up then lay up".
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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unclescrooge
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Re: What do you use for your bond exposure?

Post by unclescrooge » Fri Feb 08, 2019 4:48 pm

TheTimeLord wrote:
Fri Feb 08, 2019 12:38 pm
robertmcd wrote:
Fri Feb 08, 2019 12:17 pm
unclescrooge wrote:
Fri Feb 08, 2019 10:02 am
willthrill81 wrote:
Thu Feb 07, 2019 6:08 pm
Earl Lemongrab wrote:
Thu Feb 07, 2019 5:28 pm
I use 50/50 bond index fund and stable value in MegaCorp's 401(k). Does that help?
A good stable value fund can be an 'no-brainer' when it comes to fixed income.
And then there is this article from Bloomberg which states that riskier bonds outperform treasuries and gilts
https://www.bloomberg.com/opinion/artic ... s-jrvl2qh7
Riskier bonds do outperform treasuries because they are riskier. By combining treasuries with a small percentage of equities you can outperform riskier bonds with the same volatility.
As the saying goes in golf "If you are going to lay up then lay up".
Taking this at face value, I would assume that there is some truth in this statement.

However, the data begs to differ.

Adding a sliver of EM bond fund in either the equity or the bond allocation improves return and/or risk adjusted return since 2002.

https://www.portfoliovisualizer.com/bac ... ation3_3=6

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willthrill81
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Re: What do you use for your bond exposure?

Post by willthrill81 » Fri Feb 08, 2019 5:01 pm

unclescrooge wrote:
Fri Feb 08, 2019 4:48 pm
TheTimeLord wrote:
Fri Feb 08, 2019 12:38 pm
robertmcd wrote:
Fri Feb 08, 2019 12:17 pm
unclescrooge wrote:
Fri Feb 08, 2019 10:02 am
willthrill81 wrote:
Thu Feb 07, 2019 6:08 pm


A good stable value fund can be an 'no-brainer' when it comes to fixed income.
And then there is this article from Bloomberg which states that riskier bonds outperform treasuries and gilts
https://www.bloomberg.com/opinion/artic ... s-jrvl2qh7
Riskier bonds do outperform treasuries because they are riskier. By combining treasuries with a small percentage of equities you can outperform riskier bonds with the same volatility.
As the saying goes in golf "If you are going to lay up then lay up".
Taking this at face value, I would assume that there is some truth in this statement.

However, the data begs to differ.

Adding a sliver of EM bond fund in either the equity or the bond allocation improves return and/or risk adjusted return since 2002.

https://www.portfoliovisualizer.com/bac ... ation3_3=6
IIRC, EM bonds got hammered in the years immediately prior to 2002.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

bluquark
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Re: What do you use for your bond exposure?

Post by bluquark » Fri Feb 08, 2019 5:15 pm

robertmcd wrote:
Fri Feb 08, 2019 12:17 pm
unclescrooge wrote:
Fri Feb 08, 2019 10:02 am
willthrill81 wrote:
Thu Feb 07, 2019 6:08 pm
Earl Lemongrab wrote:
Thu Feb 07, 2019 5:28 pm
I use 50/50 bond index fund and stable value in MegaCorp's 401(k). Does that help?
A good stable value fund can be an 'no-brainer' when it comes to fixed income.
And then there is this article from Bloomberg which states that riskier bonds outperform treasuries and gilts
https://www.bloomberg.com/opinion/artic ... s-jrvl2qh7
Riskier bonds do outperform treasuries because they are riskier. By combining treasuries with a small percentage of equities you can outperform riskier bonds with the same volatility.
No, my understanding is that portfolio theory claims the exact opposite. More evenly distributing around your risk in uncorrelated assets improves risk-adjusted returns. And if you really took your argument to its logical conclusion, your fixed income would be all money market to avoid the duration risk of intermediate bonds.

There's indeed a reasonable argument that high-yield corporate bond risk might be interchangeable with equity risk. But that argument doesn't really apply to EM bonds or long bonds.

glennherwig
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Re: What do you use for your bond exposure?

Post by glennherwig » Fri Feb 08, 2019 5:22 pm

I strictly use TLT for my bond exposure. I know it’s more sensitive to rate hikes but overtime I think it will outperform all other bond funds.

pward
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Re: What do you use for your bond exposure?

Post by pward » Fri Feb 08, 2019 5:26 pm

If you want something to zig when stocks zag, as well as provide slightly higher yields, then long term treasuries can make a lot of sense (I mean all you have to do is look at 2008 and the 30%+ increase in LTT's to see this in action). Obviously, a bout of high inflation would be long term treasuries kryptonite. TIPS probably will do nothing more than blunt the effects of inflation when paired with LTT's as it just does nothing but follow the CPI (which is a very rough guesstimate). A gold allocation has proven to be a good compliment to LTT's over the years because of the way it explodes during higher than expected inflation, which would make up for any losses in LTT's in this environment. I know gold is not the most popular asset class on this forum, but it does pair well with LTT's and stocks in the context of a full portfolio that is rebalanced regularly.

For simplicity you could also just stick to short and/or intermediate treasury funds. They are not going to be as sensitive to inflation, and they will provide some decent stock hedging in a downturn (especially if you stick to treasury funds where there are no corporate bond holdings). The tradeoffs being that they will generally pay a lower yield and will not explode higher when stocks dip in quite the same way LTT's will. There is no right or wrong in your fixed income allocation, it's all varying tradeoffs that you kind of have to balance out on your own.
Last edited by pward on Fri Feb 08, 2019 5:34 pm, edited 3 times in total.

Thesaints
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Re: What do you use for your bond exposure?

Post by Thesaints » Fri Feb 08, 2019 5:27 pm

We certainly know that T-bills, CD, FDIC insured accounts have the lowest possible volatility, and that junk bonds have the highest.
Whereas, assessing "intermediate" volatility is a lot more problematic; just follow the ongoing discussion on a downgrade of BBB bonds and its consequences.
Furthermore, the low correlation of IG bonds and stocks is not guaranteed, while the about zero correlation of short-term issues and everything else is sure.

Therefore, I use a mix of the most riskless issues, where retail investors enjoy a competitive advantage over everybody else, and high-yield bonds.
I think this is the proper way to more effectively achieve "intermediate" risk in bonds, if one so desires.

hoping
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Re: What do you use for your bond exposure?

Post by hoping » Sat Feb 09, 2019 3:57 am

Vanguard funds: Total Bond Market Index, GNMA, Inflation Protected Securities and Total International Bond Index.

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SpringMan
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Location: Michigan

Re: What do you use for your bond exposure?

Post by SpringMan » Sat Feb 09, 2019 4:50 am

We use Total Bond Market Index for the lion's share of our bonds. My spouse holds 100% Intermediate Term Investment grade in her tIRA. For short term bonds I use VSCSX (corporate). Also I hold bonds in Wellesley Income.
Best Wishes, SpringMan

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SagaciousTraveler
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Re: What do you use for your bond exposure?

Post by SagaciousTraveler » Sun Feb 10, 2019 10:22 am

G FUND in the TSP.

8% of our holding.

student
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Re: What do you use for your bond exposure?

Post by student » Sun Feb 10, 2019 10:28 am

I use TIAA Traditional.

HAWK23
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Re: What do you use for your bond exposure?

Post by HAWK23 » Sun Feb 10, 2019 3:29 pm

50% Vanguard Total Bond (VBTLX)
50% I-Bonds

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