What will the effect be on VBTLX after $6T Fed & gov stimulus?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
jdamo
Posts: 54
Joined: Tue Apr 30, 2019 8:47 pm

What will the effect be on VBTLX after $6T Fed & gov stimulus?

Post by jdamo » Thu May 21, 2020 5:32 pm

Dear BHs:
What will the effect be on VBTLX - Vanguard Total Bond Market Index Admiral fund after $6 Trillion (and possibly more per Powell's comments yesterday)Fed & gov stimulus /pandemic rescue works its way into the US economy?

I currently have 60% of our retirement in VBTLX Vanguard Total Bond Index Admiral Fund. I am wondering how the $6-7 T stimulus will affect the fund over time. It seems that because the avg duration of the bonds in the fund is about 6+ years, that the effect will be somewhat delayed. I checked and recent VBTLX YTD return in 5.1%. But as time goes on, when bonds do expire and they buy new ones for the mutual fund, the coupon will be lower, due to lower interest rate environment due to the FED and hence the overall coupon yield will drop of the fund. It seems also the price of the fund shares will drop also because less demand for the lower return. So overall price and return and hence the fund value will drop. So outlook is negative for longer term VBTLX (?) This may "force" folks into more equities.??? Anyway, I am wondering of the longer term outlook of 60% of our IRA. (p.s. the other 40% is split between VFIAX -SP500 admiral index and VTIAX- International Stock Admiral index.) Am I thinking of the effects right? Or, what will happen ? I appreciate your input to help my understanding on the effects on the Vanguard Total Bond Market Index Fund.

livesoft
Posts: 71369
Joined: Thu Mar 01, 2007 8:00 pm

Re: What will the effect be on VBTLX after $6T Fed & gov stimulus?

Post by livesoft » Thu May 21, 2020 5:35 pm

I have a lot of VBTLX and I can write that I have absolutely no idea what the effect will be and can confidently state that no one else does either.

I can state that in the past week, some intraday prices of bond ETFs have been up 1%.
Wiki This signature message sponsored by sscritic: Learn to fish.

User avatar
Horton
Posts: 568
Joined: Mon Jan 21, 2008 3:53 pm

Re: What will the effect be on VBTLX after $6T Fed & gov stimulus?

Post by Horton » Thu May 21, 2020 7:15 pm

Don’t fight the Fed, just plan for lower returns in the future.

User avatar
abuss368
Posts: 19642
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: What will the effect be on VBTLX after $6T Fed & gov stimulus?

Post by abuss368 » Thu May 21, 2020 7:17 pm

Who knows? I am not sure anyone does at this point.

Once thing is for sure: Don't fight the Federal Reserve.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

palanzo
Posts: 640
Joined: Thu Oct 10, 2019 4:28 pm

Re: What will the effect be on VBTLX after $6T Fed & gov stimulus?

Post by palanzo » Thu May 21, 2020 7:19 pm

abuss368 wrote:
Thu May 21, 2020 7:17 pm
Who knows? I am not sure anyone does at this point.

Once thing is for sure: Don't fight the Federal Reserve.
What does that mean? Don't fight the Federal Reserve?

averagedude
Posts: 1132
Joined: Sun May 13, 2018 3:41 pm

Re: What will the effect be on VBTLX after $6T Fed & gov stimulus?

Post by averagedude » Thu May 21, 2020 7:26 pm

No one really knows, but in my opinion don't expect your bond fund to experience 3% long term real returns like it did in the past.

User avatar
abuss368
Posts: 19642
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: What will the effect be on VBTLX after $6T Fed & gov stimulus?

Post by abuss368 » Thu May 21, 2020 7:27 pm

averagedude wrote:
Thu May 21, 2020 7:26 pm
No one really knows, but in my opinion don't expect your bond fund to experience 3% long term real returns like it did in the past.
:sharebeer
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

aristotelian
Posts: 7380
Joined: Wed Jan 11, 2017 8:05 pm

Re: What will the effect be on VBTLX after $6T Fed & gov stimulus?

Post by aristotelian » Thu May 21, 2020 9:17 pm

It will offset deflation and massive depression that would have happened with no federal action. Net result will be the rates that are currently priced into the market. At least that is my best guess.

Topic Author
jdamo
Posts: 54
Joined: Tue Apr 30, 2019 8:47 pm

Re: What will the effect be on VBTLX after $6T Fed & gov stimulus?

Post by jdamo » Fri May 22, 2020 6:02 pm

Thanks for all the replies. I didn't mean to "fight the FED". Why did it seem that way and what did you mean? I'm just trying to invest competently.

If bond funds yield potentially a lot lower return in the future, I'm wondering if I need to change my AA or not or change bond fund to shorter duration. But now I just read Nsiprius analysis/post (thanks!) on VBTLX vs Int Bond fund and duration and now feel I should stay with VBTLX.

So, I wonder if I should change my AA to 50% VBTLX/ 50% (SP500 and International stock index funds) to possibly protect and get better return over our retirement since we just started 1 year ago (now 61 yrs old) and have (hopefully) a long time to live and enjoy it and invest. Have others increased their equities allocation as a result of concerns of lower overall yield like this? Or am I just chasing yield in a bad way and stick with our original 60% VBTLX / 40% Equities?

Post Reply