Intermediate bond index versus Total Bond Index

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
frederickj
Posts: 95
Joined: Fri Feb 29, 2008 9:53 am

Intermediate bond index versus Total Bond Index

Post by frederickj »

For the last 19 years the Admiral Intermediate Bond Index Fund has returned 5.36% a year and the Admiral Total Bond Index Fund has returned 4.4%

I have both funds in equal amounts

What would be the reasons to continue the Total Bond Index Fund

Thank you

Fred Murphy

PS

I have re=read several of Jack Bogels Finance books and, if possible, am more impressed than ever. I was so lucky to have met him at the last 10 Boglehead,s Conferences. We must take a pass on this year's Conference and I want to re-read all Jack's books to fill the huge vacuum
nix4me
Posts: 822
Joined: Sat Oct 13, 2018 9:32 am

Re: Intermediate bond index versus Total Bond Index

Post by nix4me »

There is no good reason really. Bogle would even tell you that total bond has too much govt exposure. And Swedroe would tell you that mortgage debt is risky and not to hold it. Intermediate bond index is a better fund.

Now here comes all the total bond worshippers....
sycamore
Posts: 1335
Joined: Tue May 08, 2018 12:06 pm

Re: Intermediate bond index versus Total Bond Index

Post by sycamore »

frederickj,

Either fund is good if you're looking for a low-cost, plain-vanilla intermediate-term investment grade bond fund that won't have too many surprises.

One reason to prefer Total Bond over Intermediate Bond Index is that you prefer TBM's composition
(1) TBM has a larger allocation to govt bonds (~60% vs 50% in VBILX)
(2) TBM contains bonds across the maturity spectrum including under 1 year to 20+ years (vs only bonds in 5-10 band for VBILX)
User avatar
arcticpineapplecorp.
Posts: 6461
Joined: Tue Mar 06, 2012 9:22 pm

Re: Intermediate bond index versus Total Bond Index

Post by arcticpineapplecorp. »

also VBILX has 2086 bonds and $38.2 billion in assets
https://investor.vanguard.com/mutual-fu ... file/VBILX
VBTLX has 9719 bonds and $287.2 billion in assets
https://investor.vanguard.com/mutual-fu ... file/VBTLX

also VBILX only goes back to 3/1/94 so can't compare fairly before that. That being said, there was no advantage of VBILX the first 8 years. VBILX came out ahead starting 5/31/2002. Also, it gave back that advantage (mostly) 10/31/2008 but rose again thereafter:

Image

source:
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

they're good substitutes in taxable for tax loss harvesting, though (not that losses will be large though).
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
dbr
Posts: 33842
Joined: Sun Mar 04, 2007 9:50 am

Re: Intermediate bond index versus Total Bond Index

Post by dbr »

VBTLX is 37.5% less than Aaa rated and VBILX is 48.9% less than Aaa rated. The durations are 6.6 vs 6.5 years. Apparently VBILX returns more because the credit quality is lower.

To compare the standard deviation of annual returns you get 3.05% vs 4.19%, and Sharpe ratios of 1.19 and 1.14, so total bond is slightly more efficient and slightly less risky, if that is a criterion for choosing.

But the question is what results are best suited to what you want from your bond fund?

If these bonds are held in a portfolio with stocks the respective returns are irrelevant as the return of the portfolio can easily be adjusted with the stock/bond allocation.
User avatar
grobertj
Posts: 88
Joined: Fri May 15, 2020 1:02 pm
Location: Greensboro, NC

Re: Intermediate bond index versus Total Bond Index

Post by grobertj »

I switched from BND to BIV about a week ago. I backtested both for the last 20 years and found exactly the same as you. I know past performance is no guarantee of future performance, but....past performance is the only thing we KNOW!
The only constant is CHANGE!!
User avatar
ruralavalon
Posts: 19711
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Intermediate bond index versus Total Bond Index

Post by ruralavalon »

I prefer Vanguard Intermediate-term Bond Index Fund (VBILX) because it is 1/2 government bonds, 1/2 corporate bonds, with no mortgage backed securities (MBS).
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
frederickj
Posts: 95
Joined: Fri Feb 29, 2008 9:53 am

Re: Intermediate bond index versus Total Bond Index

Post by frederickj »

Once again thank you to all 6 who joined my discussion and gave your time and smarts to help another Boglehead.
For all the reasons stated--pro and con- Switching to All Intermediate Bond Index will work better for me.

More than thank you seems much more appropriate. Simply, I'll do my best to be equally available when asked.


Frederickj
Northern Flicker
Posts: 6619
Joined: Fri Apr 10, 2015 12:29 am

Re: Intermediate bond index versus Total Bond Index

Post by Northern Flicker »

dbr wrote: Fri Aug 21, 2020 3:59 pm VBTLX is 37.5% less than Aaa rated and VBILX is 48.9% less than Aaa rated. The durations are 6.6 vs 6.5 years. Apparently VBILX returns more because the credit quality is lower.

To compare the standard deviation of annual returns you get 3.05% vs 4.19%, and Sharpe ratios of 1.19 and 1.14, so total bond is slightly more efficient and slightly less risky, if that is a criterion for choosing.

But the question is what results are best suited to what you want from your bond fund?

If these bonds are held in a portfolio with stocks the respective returns are irrelevant as the return of the portfolio can easily be adjusted with the stock/bond allocation.
VBILX exhibited a larger max drawdown and higher volatility than VBTLX, i.e. took more risk to achieve its result.

However, what matters for most investors is what the risk-return behavior looks like when used as the bond allocation of a stock and bond portfolio. An investor during the last 24 years would have preferred the intermediate-term index both in absolute and risk-adjusted terms:

https://www.portfoliovisualizer.com/bac ... tion4_3=15
Risk is not a guarantor of return.
ncbill
Posts: 901
Joined: Sun Jul 06, 2008 4:03 pm
Location: Western NC

Re: Intermediate bond index versus Total Bond Index

Post by ncbill »

What intermediate bond index do people recommend for those of us at Fidelity?
User avatar
jason2459
Posts: 616
Joined: Wed May 06, 2020 7:59 pm

Re: Intermediate bond index versus Total Bond Index

Post by jason2459 »

ncbill wrote: Tue Aug 25, 2020 5:48 pm What intermediate bond index do people recommend for those of us at Fidelity?
All those above can be bought as ETFs and fractional shares of them can be bought through the Fidelity app.

BIV or BND work well.
User avatar
ruralavalon
Posts: 19711
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Intermediate bond index versus Total Bond Index

Post by ruralavalon »

ncbill wrote: Tue Aug 25, 2020 5:48 pm What intermediate bond index do people recommend for those of us at Fidelity?
Fidelity US Bond Index Fund (FXNAX) ER 0.025%, is a total bond market index fund using the Bloomberg Barclays U.S. Aggregate Bond Index, almost identical to Vanguard Total Bond Market Market Index Fund (VBTLX) and the ETF version (BND).
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Kompass
Posts: 215
Joined: Sat Oct 01, 2016 5:42 pm

Re: Intermediate bond index versus Total Bond Index

Post by Kompass »

Is there a difference in tax efficiency between bond funds vs etfs in taxable accounts?
The large print giveth and the fine print taketh away.
User avatar
jason2459
Posts: 616
Joined: Wed May 06, 2020 7:59 pm

Re: Intermediate bond index versus Total Bond Index

Post by jason2459 »

Kompass wrote: Tue Aug 25, 2020 6:57 pm Is there a difference in tax efficiency between bond funds vs etfs in taxable accounts?
You meant mutual funds vs ETFs? Besides Vanguard mutual funds most mutual funds are not as tax efficient as ETFs.
raiderjkwong
Posts: 48
Joined: Tue Aug 25, 2020 11:27 am

Re: Intermediate bond index versus Total Bond Index

Post by raiderjkwong »

Great discussion. I like the total bond index due to its diversity. It has a stronger position in government treasuries so it's a safer investment compared to corporate bonds. That said, it will also have a lower return. The Intermediate bond index is a great fund too. I like both.
averagedude
Posts: 1209
Joined: Sun May 13, 2018 3:41 pm

Re: Intermediate bond index versus Total Bond Index

Post by averagedude »

Both are good and each has it's pros and cons. Intermediate bond has a bit more risk, so in theory you should get a higher return for bearing this risk. On the negative side, when the stock market crashes, Intermediate bond will not hold up as well as total bond, which is not what you want if you plan to rebalance. The most important thing on this decision is picking one and sticking with it.
Northern Flicker
Posts: 6619
Joined: Fri Apr 10, 2015 12:29 am

Re: Intermediate bond index versus Total Bond Index

Post by Northern Flicker »

raiderjkwong wrote: Tue Aug 25, 2020 8:22 pm Great discussion. I like the total bond index due to its diversity. It has a stronger position in government treasuries so it's a safer investment compared to corporate bonds. That said, it will also have a lower return. The Intermediate bond index is a great fund too. I like both.
The intermediate bond index fund has a higher allocation to treasuries than the total bond market index fund.
Risk is not a guarantor of return.
Northern Flicker
Posts: 6619
Joined: Fri Apr 10, 2015 12:29 am

Re: Intermediate bond index versus Total Bond Index

Post by Northern Flicker »

averagedude wrote: Tue Aug 25, 2020 8:51 pm On the negative side, when the stock market crashes, Intermediate bond will not hold up as well as total bond, which is not what you want if you plan to rebalance.
That was true in 2008/2009. In March 2020 it did not matter which you held. In 2000/2002 the intermediate bond index fund was preferred (both had similar drawdowns, but the intermediate index fund had a more robust recovery).

When holding with stock, treasuries have provided the best sharpe ratio, and not total bond index or intermediate bond index.

https://www.portfoliovisualizer.com/bac ... tion4_3=60
Risk is not a guarantor of return.
raiderjkwong
Posts: 48
Joined: Tue Aug 25, 2020 11:27 am

Re: Intermediate bond index versus Total Bond Index

Post by raiderjkwong »

Very good posts Northern Flicker.
Northern Flicker
Posts: 6619
Joined: Fri Apr 10, 2015 12:29 am

Re: Intermediate bond index versus Total Bond Index

Post by Northern Flicker »

raiderjkwong wrote: Tue Aug 25, 2020 10:52 pm Very good posts Northern Flicker.
Thanks, but I should add that the performance of the last 25 years should not be assumed generalizable to the future. The makeup of the total bond index has changed over the 25 years. Interest rates are very different today. And every investment period has its own unpredictable collection of drivers of return and volatility.

Either bond index is fine for a single-fund bond portfolio. If I were to hold one of these two funds as a single fund bond allocation today, I would pick the total bond index fund. My reasons are that with all of the uncertainty with current interest rates and economic conditions, the value of the diversification of total bond is likely enhanced right now. And total bond index funds are a little bit cheaper than the intermediate index fund. This does not mean I believe either fund will perform better than the other (I have no idea which will win). And again either fund is a good choice. I hold neither (I use a stable value fund, CDs, and a treasury bond fund).
Last edited by Northern Flicker on Wed Aug 26, 2020 1:55 pm, edited 1 time in total.
Risk is not a guarantor of return.
LearningAlot
Posts: 45
Joined: Thu Aug 02, 2018 8:43 am

Re: Intermediate bond index versus Total Bond Index

Post by LearningAlot »

Northern Flicker wrote: Wed Aug 26, 2020 1:59 am
raiderjkwong wrote: Tue Aug 25, 2020 10:52 pm Very good posts Northern Flicker.
Thanks, but I should add that the performance of the last 25 years should not be assumed generalizable to the future. The makeup of the total bond index has changed over the 25 years. Interest rates are very different today.And every investment period has its own unpredictable collection of drivers of return and volatility.

Either bond index is fine for a single-fund bond fund. If I were to hold one of these two funds as a single fund bond allocation today, I would pick the total bond index fund. My reasons are that with all of the uncertainty with current interest rates and economic conditions, the value of the diversification of total bond is likely enhanced tight now. And total bond index funds are a little bit cheaper than the intermediate index fund. This does not mean I believe either fund will perform better than the other (I have no idea which will win). And again either fund is a good choice. I hold neither (I use a stable value fund, CDs, and a treasury bond fund).
Northern Flicker, thanks for your insights, very helpful, would you mind sharing which treasury bond fund you use? My approach
is similar to yours, as I use a stable value fund and CDs, with my third leg being VBTLX(intermediate bond fund). I have been thinking
about replacing the VBTLX with something less risky, like you are with the treasury bond fund.
aristotelian
Posts: 8259
Joined: Wed Jan 11, 2017 8:05 pm

Re: Intermediate bond index versus Total Bond Index

Post by aristotelian »

Some would say none of the above and overweight Treasuries.

BIV has higher volatility but higher return. Some think bonds are especially at risk with rates at all time lows. If interest rates rise, BIV has shown it can go down as much as 10% and that may be unacceptable risk to some investors.
ryman554
Posts: 1329
Joined: Sun Jan 12, 2014 9:44 pm

Re: Intermediate bond index versus Total Bond Index

Post by ryman554 »

Northern Flicker wrote: Tue Aug 25, 2020 10:09 pm
averagedude wrote: Tue Aug 25, 2020 8:51 pm On the negative side, when the stock market crashes, Intermediate bond will not hold up as well as total bond, which is not what you want if you plan to rebalance.
That was true in 2008/2009. In March 2020 it did not matter which you held. In 2000/2002 the intermediate bond index fund was preferred (both had similar drawdowns, but the intermediate index fund had a more robust recovery).

When holding with stock, treasuries have provided the best sharpe ratio, and not total bond index or intermediate bond index.

https://www.portfoliovisualizer.com/bac ... tion4_3=60
I must be missing something. FUAMX: intermediate treasury bond fund. Sounds intermediate AND treasuries to me.

I thought the intermediate bond funds the BH's recommend *were* all treasuries?
petulant
Posts: 1901
Joined: Thu Sep 22, 2016 1:09 pm

Re: Intermediate bond index versus Total Bond Index

Post by petulant »

ryman554 wrote: Wed Aug 26, 2020 8:24 am
Northern Flicker wrote: Tue Aug 25, 2020 10:09 pm
averagedude wrote: Tue Aug 25, 2020 8:51 pm On the negative side, when the stock market crashes, Intermediate bond will not hold up as well as total bond, which is not what you want if you plan to rebalance.
That was true in 2008/2009. In March 2020 it did not matter which you held. In 2000/2002 the intermediate bond index fund was preferred (both had similar drawdowns, but the intermediate index fund had a more robust recovery).

When holding with stock, treasuries have provided the best sharpe ratio, and not total bond index or intermediate bond index.

https://www.portfoliovisualizer.com/bac ... tion4_3=60
I must be missing something. FUAMX: intermediate treasury bond fund. Sounds intermediate AND treasuries to me.

I thought the intermediate bond funds the BH's recommend *were* all treasuries?
The link shows various Vanguard funds, including an investment-grade intermediate bond fund.

Some BH recommend only Treasury bonds because they have paired with stocks better in the last few downturns. This is thought to be a reliable flight-to-safety effect.

Not all BH recommend only Treasury bonds. Many BH are find with total bond and many are fine with intermediate bonds that include corporate investment-grade issues.

Another example would be Vanguard's actively managed funds, Wellesley and Wellington. They both focus on corporate investment-grade bonds. Many BH are happy with those funds.
petulant
Posts: 1901
Joined: Thu Sep 22, 2016 1:09 pm

Re: Intermediate bond index versus Total Bond Index

Post by petulant »

For our second tranche of emergency fund (the part after extremely liquid savings account balances), I recently moved to total bond. It's got a fair SEC yield but has never had a big drawdown; even the TBM simulation in the simba spreadsheet shows very low drawdowns during the 1970s and early 1980s. I knew I wanted limited drawdown but some term and credit exposure. TBM turned out to be a very efficient way to do that.

That is not part of a mixed portfolio for rebalancing or performance evaluation purposes, however. If I was on a glidepath reducing stock exposure and increasing bond exposure, I would want less credit exposure on the bond side, and I would target duration with an outlook on when I was going to use the money.
dbr
Posts: 33842
Joined: Sun Mar 04, 2007 9:50 am

Re: Intermediate bond index versus Total Bond Index

Post by dbr »

ryman554 wrote: Wed Aug 26, 2020 8:24 am
I must be missing something. FUAMX: intermediate treasury bond fund. Sounds intermediate AND treasuries to me.

I thought the intermediate bond funds the BH's recommend *were* all treasuries?
It would probably be more accurate to say that there are unending discussions of the nuances of various funds that do not lead to definite recommendations of any particular kind. There can certainly be posters who have reasons to say one fund or another would be a good idea, but there is no overall BH recommendation. Different funds will be more suitable for one situation than another. Very often the differences are so small there really is no recommendation to be found. If you want a touchstone, however confusing, Mr. Bogle was saying that he did not even like total bond because there were too many Treasuries and not enough corporates.

If there is a BH recommendation about bond funds it is to use low cost funds and to attend to tax efficient investing in general. Another recommendation is probably to not pick funds based on past performance.

Disclaimer: I hold only intermediate Treasuries (FUAMX actually) and intermediate TIPS. I make no recommendation whatsoever for someone else.
User avatar
ruralavalon
Posts: 19711
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Intermediate bond index versus Total Bond Index

Post by ruralavalon »

petulant wrote: Wed Aug 26, 2020 8:36 am
ryman554 wrote: Wed Aug 26, 2020 8:24 am
Northern Flicker wrote: Tue Aug 25, 2020 10:09 pm
averagedude wrote: Tue Aug 25, 2020 8:51 pm On the negative side, when the stock market crashes, Intermediate bond will not hold up as well as total bond, which is not what you want if you plan to rebalance.
That was true in 2008/2009. In March 2020 it did not matter which you held. In 2000/2002 the intermediate bond index fund was preferred (both had similar drawdowns, but the intermediate index fund had a more robust recovery).

When holding with stock, treasuries have provided the best sharpe ratio, and not total bond index or intermediate bond index.

https://www.portfoliovisualizer.com/bac ... tion4_3=60
I must be missing something. FUAMX: intermediate treasury bond fund. Sounds intermediate AND treasuries to me.

I thought the intermediate bond funds the BH's recommend *were* all treasuries?
The link shows various Vanguard funds, including an investment-grade intermediate bond fund.

Some BH recommend only Treasury bonds because they have paired with stocks better in the last few downturns. This is thought to be a reliable flight-to-safety effect.

Not all BH recommend only Treasury bonds. Many BH are find with total bond and many are fine with intermediate bonds that include corporate investment-grade issues.

Another example would be Vanguard's actively managed funds, Wellesley and Wellington. They both focus on corporate investment-grade bonds. Many BH are happy with those funds.
In my opinion in almost any good credit quality, intermediate-term or short-term bond fund with a low expense ratio is suitable, and will do the job of reducing portfolio volatility.

Vanguard offers so many good bond fund choices just to aggravate us, and make it hard to choose :) .
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
User avatar
nisiprius
Advisory Board
Posts: 42223
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Intermediate bond index versus Total Bond Index

Post by nisiprius »

1) As implemented by Vanguard, and evaluated by past history of return and risk, the Vanguard Intermediate-Term Bond Index Fund, VBILX, has had slightly higher risk and slightly higher return than Vanguard Total Bond Market Index Fund (VBTLX). The higher risk is most visible in the form of slightly lower credit quality:

Image

And, in the past, in the form of slightly higher volatility and maximum drawdown:

Image

The slightly lower Sharpe and Sortino ratios for Intermediate-Term Bond Index indicate that the higher return was simply reward for risk, and not enough reward to justify the extra risk. But on the other hand Morningstar's performance ratings are five stars for Intermediate-Term Bond Index and only four for Total Bond, so go figure.

2) Some people, notably Larry Swedroe, have a strong distaste for (government-insured) mortgage-backed securities. Total Bond includes them; Intermediate-Term Bond Index is free from them. I'm very skeptical that it matters, but if it matters to you, Intermediate-Term Bond Index is a way to avoid them.
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.
Northern Flicker
Posts: 6619
Joined: Fri Apr 10, 2015 12:29 am

Re: Intermediate bond index versus Total Bond Index

Post by Northern Flicker »

ryman554 wrote: Wed Aug 26, 2020 8:24 am
Northern Flicker wrote: Tue Aug 25, 2020 10:09 pm
averagedude wrote: Tue Aug 25, 2020 8:51 pm On the negative side, when the stock market crashes, Intermediate bond will not hold up as well as total bond, which is not what you want if you plan to rebalance.
That was true in 2008/2009. In March 2020 it did not matter which you held. In 2000/2002 the intermediate bond index fund was preferred (both had similar drawdowns, but the intermediate index fund had a more robust recovery).

When holding with stock, treasuries have provided the best sharpe ratio, and not total bond index or intermediate bond index.

https://www.portfoliovisualizer.com/bac ... tion4_3=60
I must be missing something. FUAMX: intermediate treasury bond fund. Sounds intermediate AND treasuries to me.

I thought the intermediate bond funds the BH's recommend *were* all treasuries?
Total bond index funds like VBTLX are about 42% treasuries based on the current makeup of the index. It is also about 21% agency mortgages, a mix of FNMA, FMAC, and GNMA, and about 37% credit exposure.

The intermediate bond index fund VBILX holds about 50% treasuries and 50% credit with no agency mortgages.

Intermediate-term treasury index funds include FUAMX, VSIGX, or VGIT (ETF version of VSIGX). FUAMX tracks a 5-10 yr index, and has a somewhat longer duration than VSIGX/VGIT, which tracks a 3-10 year index (6.49 year duration for FUAMX vs 5.3 for VSIGX/VGIT).

Short-term treasury index funds include VSBSX, VGSH, and FUMBX. FUMBX similarly to FUAMX tracks an index with a somewhat longer duration than VSBSX/VGIT (2.67 year duration for FUAMX vs 1.9 years for VSBSX/VGIT).

The Fidelity funds have ERs of 3bp. The Vanguard ETFs 5bp, and the Vanguard mutual funds 7bp.

You will find a large contingent of bogleheads who recommend a total bond index fund for its low cost and maximum bond diversification; there are others who prefer treasuries, and believe their superior diversification of equity risk enables a slightly higher equity allocation; and there is a contingent that avoids mortgage risks, but is nonetheless (surprisingly?) comfortable with credit risk and will hold VBILX/BIV.

I prefer bond funds that only implement a single bond subclass so that I can control the allocation. An actively managed treasury fund like VFITX/VFIUX only contractually requires 80% of the portfolio to be treasuries. The fund managers can include agency mortgages. If I want 80% treasuries and 20% agency mortgages, I'll hold 80% VSIGX or FUAMX and 20% VFIIX/VFIJX.

To choose a bond fund to hold with a stable value fund, it is good to try to understand the underlying portfolio of the SVF. This may not be easy to do. The main problem with SVF's is their opacity. In the absence of information about it, the safe assumption is to assume it is fully exposed to credit risk, and if other fixed income assets are held, consider using some combination of nominal treasuries, TIPS, and CDs, and cash to avoid additional credit exposure. Using a bond index fund is ok if the SVF solvency risk is diversified across a good number of insurance companies.
Last edited by Northern Flicker on Wed Aug 26, 2020 10:41 pm, edited 1 time in total.
Risk is not a guarantor of return.
palanzo
Posts: 1645
Joined: Thu Oct 10, 2019 4:28 pm

Re: Intermediate bond index versus Total Bond Index

Post by palanzo »

raiderjkwong wrote: Tue Aug 25, 2020 8:22 pm Great discussion. I like the total bond index due to its diversity. It has a stronger position in government treasuries so it's a safer investment compared to corporate bonds. That said, it will also have a lower return. The Intermediate bond index is a great fund too. I like both.
Not so. TBM has a lower percentage of treasuries than IT Bond Index.
raiderjkwong
Posts: 48
Joined: Tue Aug 25, 2020 11:27 am

Re: Intermediate bond index versus Total Bond Index

Post by raiderjkwong »

Thanks for the info. This is a wonderful thread. I have learned a lot reading from all the responses.
palanzo
Posts: 1645
Joined: Thu Oct 10, 2019 4:28 pm

Re: Intermediate bond index versus Total Bond Index

Post by palanzo »

nisiprius wrote: Wed Aug 26, 2020 9:19 am 1) As implemented by Vanguard, and evaluated by past history of return and risk, the Vanguard Intermediate-Term Bond Index Fund, VBILX, has had slightly higher risk and slightly higher return than Vanguard Total Bond Market Index Fund (VBTLX). The higher risk is most visible in the form of slightly lower credit quality:

Image

And, in the past, in the form of slightly higher volatility and maximum drawdown:

Image

The slightly lower Sharpe and Sortino ratios for Intermediate-Term Bond Index indicate that the higher return was simply reward for risk, and not enough reward to justify the extra risk. But on the other hand Morningstar's performance ratings are five stars for Intermediate-Term Bond Index and only four for Total Bond, so go figure.

2) Some people, notably Larry Swedroe, have a strong distaste for (government-insured) mortgage-backed securities. Total Bond includes them; Intermediate-Term Bond Index is free from them. I'm very skeptical that it matters, but if it matters to you, Intermediate-Term Bond Index is a way to avoid them.
Very nice chart. I tried to do the same for IT Treasury Index VSIGX but it seems one needs an account on Morningstar. Do you think you could ad VSIGX to your chart? Thank you.
Northern Flicker
Posts: 6619
Joined: Fri Apr 10, 2015 12:29 am

Re: Intermediate bond index versus Total Bond Index

Post by Northern Flicker »

palanzo wrote:
Very nice chart. I tried to do the same for IT Treasury Index VSIGX but it seems one needs an account on Morningstar. Do you think you could ad VSIGX to your chart? Thank you.
VSIGX does not go back very far. Here are comparisons with funds that go back to the 1990's

Direct comparison with treasuries:

https://www.portfoliovisualizer.com/bac ... ion3_3=100

Comparison with treasuries when part of a 60/40 stock and bond portfolio with US stock:

https://www.portfoliovisualizer.com/bac ... tion4_3=60

Comparison with treasuries when part of a 60/40 stock and bond portfolio with US and non-US stock:

https://www.portfoliovisualizer.com/bac ... tion5_3=15
Risk is not a guarantor of return.
sycamore
Posts: 1335
Joined: Tue May 08, 2018 12:06 pm

Re: Intermediate bond index versus Total Bond Index

Post by sycamore »

Northern Flicker wrote: Wed Aug 26, 2020 10:57 pm
palanzo wrote:
Very nice chart. I tried to do the same for IT Treasury Index VSIGX but it seems one needs an account on Morningstar. Do you think you could ad VSIGX to your chart? Thank you.
VSIGX does not go back very far. Here are comparisons with funds that go back to the 1990's

Direct comparison with treasuries:

https://www.portfoliovisualizer.com/bac ... ion3_3=100

Comparison with treasuries when part of a 60/40 stock and bond portfolio with US stock:

https://www.portfoliovisualizer.com/bac ... tion4_3=60

Comparison with treasuries when part of a 60/40 stock and bond portfolio with US and non-US stock:

https://www.portfoliovisualizer.com/bac ... tion5_3=15
Thanks for adding those. Worth nothing that the above comparisons are with annual rebalancing. If you turn off rebalancing, the Intermediate-Term Bond Index fund still comes out ahead but by a little bit less.
Northern Flicker
Posts: 6619
Joined: Fri Apr 10, 2015 12:29 am

Re: Intermediate bond index versus Total Bond Index

Post by Northern Flicker »

The 4400 year history of bonds:

http://bondfunds.com/education/a-brief- ... investing/

And 10-yr treasury rates (yield and return tab) back to 1927 show just how unprecedented the current situation is:

http://people.stern.nyu.edu/adamodar/pc ... tretSP.xls
Risk is not a guarantor of return.
Post Reply