I need help in selecting a bond fund

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drmanuelrj33154
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I need help in selecting a bond fund

Post by drmanuelrj33154 »

i'm very new to investing. I've been studying bond funds/indexes for a few days, looking at risk ratings, portfolios, rate of return graphs. Why did vanguard total bond market index drop in value in March 2020 along with the sp500. Isn't that counterintuitive? Should I be eliminating bonds that show volatility in their graphs? Are morningstar and zacks good ratings companies for bonds? Is total bond market index a good buy for long term investing?
Last edited by drmanuelrj33154 on Wed Sep 16, 2020 2:29 pm, edited 1 time in total.
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Orbuculum Nongata
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Re: vanguard total bond market index.... VBTLX

Post by Orbuculum Nongata »

In the timeframe you reference:

VBTLX dropped from 11.62 to 10.87 (<10%)
S and P 500 dropped from 3373 to 2237 (apprx. 30%)

I would say VBTLX was in fact much less volatile.

Adding to that, I feel like this is an example of where VBTLX performed well in reducing the risk of any investor who held it alongside their equity allocation.
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jimkinny
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Re: vanguard total bond market index.... VBTLX

Post by jimkinny »

Check out this which is about investment planning.

viewtopic.php?f=1&t=6211

Read at least one Boglehead Guide book: the guide to investing which you will find mentioned in the investment planning topic.
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UpsetRaptor
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Re: vanguard total bond market index.... VBTLX

Post by UpsetRaptor »

Bonds don't generally move inversely to stocks, even long term treasuries don't have a perfect negative correlation with equities. The point of bonds is to reduce overall portfolio volatility, smooth out spikes in the curve.
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drmanuelrj33154
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Re: I need help in selecting a bond fund

Post by drmanuelrj33154 »

thanks for your imput
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vineviz
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Re: I need help in selecting a bond fund

Post by vineviz »

drmanuelrj33154 wrote: Wed Sep 16, 2020 12:31 pm i'm very new to investing. I've been studying bond funds/indexes for a few days, looking at risk ratings, portfolios, rate of return graphs. Why did vanguard total bond market index drop in value in March 2020 along with the sp500. Isn't that counterintuitive? Should I be eliminating bonds that show volatility in their graphs? Are morningstar and zacks good ratings companies for bonds? Is total bond market index a good buy for long term investing?
Total bond market is a fine fund and does what most people think a bond fund should do.

That said, the ideal bond fund would have a LOT volatility, to provide effective counterweight to the volatility of the sstocks in your portfolio.

If bonds are 20% or less of your portfolio, I generally recommend a long-term Treasury bond fund: it has the lowest correlation with stocks and enough volatility to provide sufficient diversification benefits.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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drmanuelrj33154
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Re: vanguard total bond market index.... VBTLX

Post by drmanuelrj33154 »

jimkinny wrote: Wed Sep 16, 2020 2:18 pm Check out this which is about investment planning.

viewtopic.php?f=1&t=6211

Read at least one Boglehead Guide book: the guide to investing which you will find mentioned in the investment planning topic.
thanks......i've been investing since july and have my money in the total market stock etf..vti........i've been reading books and technical articles and studying morningstar and zanks ratings carefully......i'm in the process of shopping for a bond etf or fund, as well as an international fund or etf if that is appropriate right now....it seems as though the international funds have been reacting to the sp500, so i'm looking for a pure international fund....thanks for your imput about the guide book, I saw that and noted it to buy it......manuel
prairieman
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Re: I need help in selecting a bond fund

Post by prairieman »

I am very interested in this for several reasons:
(1) I remember seeing that bond funds dropped more than expected back in 2008. Not happy with that. I thought then that of course markets and bonds drop together; the ability of borrowers to pay depends on some extent on how their ability to pay is affected by equity prices.
(2) Interest rates have gone about as low as they go. If the interest rates rise, bond value declines. Not only do bond holders no longer collect much, but there appears to be significant risk.
(3) I decided to hold more cash than usual - as a part of the bong “bond” portion of my investment portfolio- due to fear that bond values are more likely to drop than to stay the same or increase. So far, the bond fund that I sold dropped a lot, briefly, then increased to above where I sold, and then dropped back to where I sold it. Still worth the risk, in my opinion. I don’t like volatility in the stable portion of my portfolio.
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Re: I need help in selecting a bond fund

Post by tibbitts »

drmanuelrj33154 wrote: Wed Sep 16, 2020 12:31 pm i'm very new to investing. I've been studying bond funds/indexes for a few days, looking at risk ratings, portfolios, rate of return graphs. Why did vanguard total bond market index drop in value in March 2020 along with the sp500. Isn't that counterintuitive? Should I be eliminating bonds that show volatility in their graphs? Are morningstar and zacks good ratings companies for bonds? Is total bond market index a good buy for long term investing?
In general despite some gyrations you'll probably end up with somewhat close to the current yield on an investment grade or government bond fund like TBM after holding for its duration. So roughly 1%/yr after whatever the current duration is, maybe 6 years or so, I haven't checked lately. Given the prospects I don't think I'd waste a lot of time researching nuances.
raiderjkwong
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Re: I need help in selecting a bond fund

Post by raiderjkwong »

BND is a great total bond fund. It has returned 6.51 this year, 5.13 in 3 years, 4.36 in 5 years and 3.58 n 10 years.

It fell in March because investors sold off everything including stocks and bonds, but as others has commented it only when down 10% when stocks went down 35%, thus giving your portfolio more security when the market crashed.
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Re: I need help in selecting a bond fund

Post by dru808 »

drmanuelrj33154 wrote: Wed Sep 16, 2020 12:31 pm i'm very new to investing. I've been studying bond funds/indexes for a few days, looking at risk ratings, portfolios, rate of return graphs. Why did vanguard total bond market index drop in value in March 2020 along with the sp500. Isn't that counterintuitive? Should I be eliminating bonds that show volatility in their graphs? Are morningstar and zacks good ratings companies for bonds? Is total bond market index a good buy for long term investing?
A treasury bond fund is a better bet to zig when stocks zag. I use govt.
60% US equity | 25% International equity | 15% total US Treasury bond
Figuring_it_out
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Re: I need help in selecting a bond fund

Post by Figuring_it_out »

AGG is a go to index bond fund.
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Re: I need help in selecting a bond fund

Post by Grt2bOutdoors »

drmanuelrj33154 wrote: Wed Sep 16, 2020 12:31 pm i'm very new to investing. I've been studying bond funds/indexes for a few days, looking at risk ratings, portfolios, rate of return graphs. Why did vanguard total bond market index drop in value in March 2020 along with the sp500. Isn't that counterintuitive? Should I be eliminating bonds that show volatility in their graphs? Are morningstar and zacks good ratings companies for bonds? Is total bond market index a good buy for long term investing?
Look under the hood of the fund. The composition of the fund is US Treasuries, US government agency bonds, agency MBS (mortgages) and corporates bonds. If the perceived value of a company declines, what do you think the likelihood of repayment might be? Again- perceived is the key word because very rarely does the value of a corporation evaporate during a few hours. So there is a sell off of corporate bonds. In addition, people are selling bonds for cash because in a panic you aren’t stashing bonds in your house, you are wiring cash to your bank account. The onslaught of selling affects price in the short run. You should not worry too much about the Total Bond fund but if you demand absolutely safe credit then you should focus on US Treasury only bond funds which hold highly rated direct obligations of the tax collecting US Government who also happens to own a printing press.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Taylor Larimore
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Re: I need help in selecting a bond fund

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drmanuelrj33154 wrote: Wed Sep 16, 2020 12:31 pm i'm very new to investing. I've been studying bond funds/indexes for a few days, looking at risk ratings, portfolios, rate of return graphs. Why did vanguard total bond market index drop in value in March 2020 along with the sp500. Isn't that counterintuitive? Should I be eliminating bonds that show volatility in their graphs? Are morningstar and zacks good ratings companies for bonds? Is total bond market index a good buy for long term investing?
drmanuelrj33154:

It will help you understand Vanguard Total Bond Market Index, and how it interacts with domestic and international stock funds, if you study the historical data below:

It is important for investors to understand the past performance and interaction of inflation, bonds and stocks (U.S. and International). Below are long term U.S. Inflation Rates; Aggregate Bond Index Returns; S&P 500 Total Return Index; and the MSCI EAFE Total Return Index (updated 6-15-2020):

YEAR--INFLATION--BOND INDEX--S&P 500 T.R. INDEX--MSCI EAFE INDEX
1976-------4.9%--------15.6%------------23.8%--------------------3.6%
1977-------6.7-----------3.0-------------(-7.2)-------------------17.5
1978-------9.0-----------1.4---------------6.6--------------------33.1
1979------13.3-----------1.9--------------18.4-------------------10.9 (Highest Annual Inflation Rate)
1980------12.5-----------2.7--------------32.4-------------------25.4
1981-------8.9-----------6.3-------------(-4.9)------------------(-2.5)
1982-------3.8----------32.6--------------21.6------------------(-0.3) (Highest Bond Index Return)
1983-------3.8-----------8.4--------------22.6-------------------24.8
1984-------3.9----------15.2---------------6.3--------------------3.5
1985-------3.8----------22.1--------------31.7-------------------51.4
1986-------1.1----------15.2--------------18.7-------------------65.8 (Vanguard Total Bond Market Inception )
1987-------4.4-----------2.8----------------5.2-------------------24.6
1988-------4.4-----------7.9---------------16.6-------------------27.8
1989-------4.6----------14.5---------------31.7------------------11.4
1990-------6.1-----------8.9---------------(-3.1)---------------(-22.8)
1991-------3.1----------16.0---------------30.5------------------12.4
1992-------2.9-----------7.4-----------------7.6----------------(-11.9) (Vanguard Total Stock Market Inception)
1993-------2.7-----------9.7----------------10.1------------------32.6
1994-------2.7---------(-2.9)----------------1.3--------------------7.6 (Lowest Bond Index Return)
1995-------2.5----------18.5---------------37.6-------------------11.8 (Highest S&P Index Return)
1996-------3.3-----------3.6----------------23.0--------------------7.2 (Vanguard Total International Stock Market Inception
1997-------1.7-----------9.7----------------33.4--------------------2.6
1998-------1.6-----------8.7----------------28.6-------------------19.1
1999-------2.7---------(-0.8)---------------21.0-------------------28.3
2000-------3.4----------11.6---------------(-9.1)----------------(-15.8)
2001-------1.6-----------8.4--------------(-11.9)----------------(-19.8)
2002-------2.4----------10.3-------------(-22.1)----------------(-15.3)
2003-------1.9-----------4.1----------------28.7-------------------40.4
2004-------3.3-----------4.3----------------10.9-------------------20.9
2005-------3.4-----------2.4-----------------4.9-------------------15.8
2006-------2.5-----------4.3----------------15.8------------------26.8
2007-------4.1-----------7.0-----------------5.5------------------11.6
2008-------0.1-----------5.2--------------(-37.0)---------------(-43.1) (Lowest U.S. and International Stock Returns)
2009-------2.7-----------5.9----------------26.5------------------32.5
2010-------1.5-----------6.5----------------15.1-------------------8.2
2011-------3.0-----------7.7-----------------2.1----------------(-11.7)
2012-------1.7-----------4.3----------------16.0------------------17.9
2013-------1.5---------(-2.0)---------------32.4------------------23.3
2014-------1.6-----------6.0----------------13.7-----------------(-4.5)
2015-------0.7-----------0.5-----------------1.4-----------------(-0.4)
2016-------2.1-----------2.6----------------12.0-------------------1.5
2017-------2.1-----------3.5----------------21.8------------------25.6
2018-------2.5---------(-0.1)--------------(-4.4)---------------(-13.4)
2019 ------2.3-----------8.7----------------31.5------------------22.7

Sources: U.S. Labor Department (CPI-U); Bloomberg Barclays Aggregate Bond Index; Standard & Poors; and dfturner

Lessons learned:

* Past performance does not forecast future performance.

* The Aggregate Bond Index (benchmark for Vanguard Total U.S.Bond Market Index Fund) had only four negative years (all small) reflecting very low risk.

* In 2008 the S&P 500 Stock Index plunged (-38.5%). During the next 2 years it gained +41.52% (stay-the-course).

* Foreign Stocks enjoyed the highest annual return (1986).

* Table demonstrates the futility of using past performance to forecast future performance.

* Diversification is important.

* Inflation climbed from 4.9% in 1976 to 13.3% in 1976. During that period a combination of Total Bond Market and stocks beat inflation.

* Think long-term.

Consider The Three-Fund Portfolio which uses the funds above.

Best wishes
Taylor
Jack Bogle's Words of wisdom: "The Vanguard Total Stock Market Index fund and its Total Bond Market cousin represent the purest form of common-sense investing."
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HenryPorter
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Re: I need help in selecting a bond fund

Post by HenryPorter »

Here is a link for a bond and SP500 table of data since 1927:

http://people.stern.nyu.edu/adamodar/pc ... tretSP.xls

I look at it from to time to see how much bonds have been a distant runner up to stocks.
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Re: I need help in selecting a bond fund

Post by Taylor Larimore »

HenryPorter wrote: Thu Sep 17, 2020 10:31 pm Here is a link for a bond and SP500 table of data since 1927:

http://people.stern.nyu.edu/adamodar/pc ... tretSP.xls

I look at it from to time to see how much bonds have been a distant runner up to stocks.
HenryPorter:

Bonds are primarily for safety--not high return. Higher returning bonds are nearly always higher risk (junk bonds are an extreme example).

In my opinion, the best way to judge a bond fund (in addition to low-cost) is to see how it performed during a bear market in stocks.

My favorite bond fund, and the one I selected for The Three-Fund Portfolio is very diversified (a "free-lunch") Vanguard Total Bond Market Index Fund (VBTLX).

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "For most investors, intermediate-term bond funds or a combination of long-term and short-term bond funds will probably be appropriate."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: I need help in selecting a bond fund

Post by tibbitts »

A theoretical downside of total bond, or any fund incorporating treasury bonds, in a tax-advantaged account (or if you live in a state without income tax) is that presumably you are paying for a feature (state tax exemption) you aren't using.
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Re: vanguard total bond market index.... VBTLX

Post by ruralavalon »

Welcome to the forum :) .

An excellent book for any beginning investor is Dr. Bernstein's free, short pdf "If You Can" .

drmanuelrj33154 wrote: Wed Sep 16, 2020 12:31 pm i'm very new to investing. I've been studying bond funds/indexes for a few days, looking at risk ratings, portfolios, rate of return graphs. Why did vanguard total bond market index drop in value in March 2020 along with the sp500. Isn't that counterintuitive? Should I be eliminating bonds that show volatility in their graphs? Are morningstar and zacks good ratings companies for bonds? Is total bond market index a good buy for long term investing?
Total Bond Market is a good bond fund for long-term investing. A treasury bond fund is also a good choice. Morningstar (7/8/2020), "What's the Best Diversifier for Stocks?".

"Of the major asset classes, Treasury bonds have historically exhibited some of the lowest correlations with equities. The Bloomberg Barclays U.S. Aggregate Bond Index, which total bond market index funds track, has also been a serviceable equity diversifier, albeit not as robust as pure Treasuries. That owes to the Aggregate Index's heavy weighting in Treasuries and other government-issued bonds."

For a bond fund you could consider Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) or the ETF share class which is Vanguard Total Bond Market ETF (BND), and consider Vanguard Intermediate-Term Treasury Index Fund Admiral Shares (VSIGX) or the ETF share class which is Vanguard Intermediate-Term Treasury ETF (VGIT).

drmanuelrj33154 wrote: Wed Sep 16, 2020 6:02 pm
jimkinny wrote: Wed Sep 16, 2020 2:18 pm Check out this which is about investment planning.

viewtopic.php?f=1&t=6211

Read at least one Boglehead Guide book: the guide to investing which you will find mentioned in the investment planning topic.
thanks......i've been investing since july and have my money in the total market stock etf..vti........i've been reading books and technical articles and studying morningstar and zanks ratings carefully......i'm in the process of shopping for a bond etf or fund, as well as an international fund or etf if that is appropriate right now....it seems as though the international funds have been reacting to the sp500, so i'm looking for a pure international fund....thanks for your imput about the guide book, I saw that and noted it to buy it......manuel
If interested in international stocks consider Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) or the ETF share class which is Vanguard Total International Stock ETF (VXUS).

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities", available as an archived pdf. Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). The diversification benefit has varied over time.
Last edited by ruralavalon on Fri Sep 18, 2020 9:59 am, edited 1 time in total.
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jvini
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Re: I need help in selecting a bond fund

Post by jvini »

I've help Vanguard Total Bond Fund for many many years. It's great and pretty steady but I did notice this year that it dropped fairly quickly in March along with equities. It concerned me and I switched half of my bond allocation to Vanguard intermediate term treasury fund, VGIT, which has outperformed The Total Bond fund by a bit over the life of the funds.

I believe the reason the total bond market fund is a bit more risky is because of the corporate bonds and mortgage backed securities in the fund. If the economy really tanks and mortgages and corporations go with it, this fund could get hit a bit. It mostly holds treasuries, but is a bit more volatile. I was happy the Fed stepped in on behalf of corporate bonds, but that was just lucky. Who knows what the future holds.
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Re: I need help in selecting a bond fund

Post by abuss368 »

drmanuelrj33154 wrote: Wed Sep 16, 2020 12:31 pm i'm very new to investing. I've been studying bond funds/indexes for a few days, looking at risk ratings, portfolios, rate of return graphs. Why did vanguard total bond market index drop in value in March 2020 along with the sp500. Isn't that counterintuitive? Should I be eliminating bonds that show volatility in their graphs? Are morningstar and zacks good ratings companies for bonds? Is total bond market index a good buy for long term investing?
Been with Total Bond for ages. It does the job.

Vanguard investment experts recommend a two fund bond strategy. 70% to Total Bond and 30% to Total International Bond.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: I need help in selecting a bond fund

Post by abuss368 »

Total Bond is also the largest bond fund on the PLANET now and for good reason.
John C. Bogle: “Simplicity is the master key to financial success."
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