Put some Total Bond Market in Treasury Notes?

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Retired2
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Put some Total Bond Market in Treasury Notes?

Post by Retired2 »

I'm 76, wife is 65. We have substantial IRA's in a Rick Ferri portfolio; total stocks and bonds, total international stock and total real estate REITS. The IRA's and Social Security are our income.

The Total Bond Market, VBTLX, has gone down, down, down.

I see Treasury Notes on the secondary market maturing in one year are paying 4%.

What if in my ROTH IRA I sold some VBTLX and bought some one-year notes?

On the one hand, I am a long-term investor with a ten-year view.

On the other hand, I don't see the total bond market recovering in one year, so why not get 4% rather than losing?

This doesn't sound very Boglehead. What am I missing?

R.
HawkeyePierce
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Re: Put some Total Bond Market in Treasury Notes?

Post by HawkeyePierce »

VBTLX already contains Treasurys. A Treasury note held individually fell by exactly as much as the same note held within VBTLX over the past year.
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whodidntante
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Re: Put some Total Bond Market in Treasury Notes?

Post by whodidntante »

Yeah. Total bond market has experienced a historically significant drawdown this year. Treasuries have experienced a drawdown as well.

If you need certainty at specific endpoints, buying individual Treasuries of whatever maturity you want and holding to maturity is a great option. It will not necessarily increase your actual returns or expected returns, though.
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vineviz
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Re: Put some Total Bond Market in Treasury Notes?

Post by vineviz »

Retired2 wrote: Thu Sep 22, 2022 3:49 pm

On the other hand, I don't see the total bond market recovering in one year, so why not get 4% rather than losing?

This doesn't sound very Boglehead. What am I missing?
What you're missing is the concept of reinvestment risk.

When the 1 year Treasury matures what is the yield that will be available next September? It MIGHT be the same as today or higher, but it could also be much lower. Remember that LAST September the yield on 1-year Treasuries was less than 0.1%.

You have a 20 or 30 year retirement ahead of you. Don't waste your retirement trying to be a bond market timer. Total Bond Market, VBTLX, is FAR less risky for you than a 1-year Treasury is.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
bog007
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Re: Put some Total Bond Market in Treasury Notes?

Post by bog007 »

yes 4 % or more. treasuries cd myga. pick 1year 2 year 3 year 5 year 7 10. much better than losing money. may I have another bond fund, NO :oops:
Don’t let anyone else ruin your portfolio. It’s your portfolio. Ruin it yourself!!!
Parkinglotracer
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Re: Put some Total Bond Market in Treasury Notes?

Post by Parkinglotracer »

As we have said before if one can match the maturity of their bond to when they expect to need the money, a bond or a ladder of bonds is a perfect investment. If one doesn’t think they will need the bond money at maturity and are going to just roll it over and buy more bonds they might as well do a bond fund. I like matching individual bonds to annual needs when possible.
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Ozonewanderer
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Re: Put some Total Bond Market in Treasury Notes?

Post by Ozonewanderer »

Retired2 wrote: Thu Sep 22, 2022 3:49 pm I'm 76, wife is 65. We have substantial IRA's in a Rick Ferri portfolio; total stocks and bonds, total international stock and total real estate REITS. The IRA's and Social Security are our income.

The Total Bond Market, VBTLX, has gone down, down, down.

I see Treasury Notes on the secondary market maturing in one year are paying 4%.

What if in my ROTH IRA I sold some VBTLX and bought some one-year notes?

On the one hand, I am a long-term investor with a ten-year view.

On the other hand, I don't see the total bond market recovering in one year, so why not get 4% rather than losing?

This doesn't sound very Boglehead. What am I missing?

R.
I am 72 and that is exactly what I am doing. I plan to move money back (into something) in a year or two. Meanwhile, I am investing in short-term Treasuries (1 yr) so that I can ladder them into higher rates. I expect rates to continue to go up as the Fed battles inflation. Recall back in 1980-1982 inflation and unemployment were very high (double digits) but so were short-term fixed income investments. At one point there were 18% CDs. My company had a layoff of upper mid-levels of management and they got 5 year 18% guaranteed income funds as part of the package. It may not have been any better than inflation rates but when that dropped they were risk free money streams.

ps. It is nice to maintain your longterm view at 76 but you may not be there at the end. Just sayin'. We ain't so young anymore...
MikeG62
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Re: Put some Total Bond Market in Treasury Notes?

Post by MikeG62 »

Parkinglotracer wrote: Thu Sep 22, 2022 7:12 pm As we have said before if one can match the maturity of their bond to when they expect to need the money, a bond or a ladder of bonds is a perfect investment. If one doesn’t think they will need the bond money at maturity and are going to just roll it over and buy more bonds they might as well do a bond fund. I like matching individual bonds to annual needs when possible.
Well said - I agree with this.
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vineviz
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Re: Put some Total Bond Market in Treasury Notes?

Post by vineviz »

Ozonewanderer wrote: Thu Sep 22, 2022 9:42 pm
Retired2 wrote: Thu Sep 22, 2022 3:49 pm I'm 76, wife is 65. We have substantial IRA's in a Rick Ferri portfolio; total stocks and bonds, total international stock and total real estate REITS. The IRA's and Social Security are our income.

The Total Bond Market, VBTLX, has gone down, down, down.

I see Treasury Notes on the secondary market maturing in one year are paying 4%.

What if in my ROTH IRA I sold some VBTLX and bought some one-year notes?

On the one hand, I am a long-term investor with a ten-year view.

On the other hand, I don't see the total bond market recovering in one year, so why not get 4% rather than losing?

This doesn't sound very Boglehead. What am I missing?

R.
I am 72 and that is exactly what I am doing. I plan to move money back (into something) in a year or two. Meanwhile, I am investing in short-term Treasuries (1 yr) so that I can ladder them into higher rates.
A typical 72-year old investor should be planning for 20 to 25 more years of retirement. If you’re buying more 1 year bills than 15 year bonds, you’re probably taking more risk than you realize.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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goodenyou
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Re: Put some Total Bond Market in Treasury Notes?

Post by goodenyou »

vineviz wrote: Fri Sep 23, 2022 6:59 am
Ozonewanderer wrote: Thu Sep 22, 2022 9:42 pm
Retired2 wrote: Thu Sep 22, 2022 3:49 pm I'm 76, wife is 65. We have substantial IRA's in a Rick Ferri portfolio; total stocks and bonds, total international stock and total real estate REITS. The IRA's and Social Security are our income.

The Total Bond Market, VBTLX, has gone down, down, down.

I see Treasury Notes on the secondary market maturing in one year are paying 4%.

What if in my ROTH IRA I sold some VBTLX and bought some one-year notes?

On the one hand, I am a long-term investor with a ten-year view.

On the other hand, I don't see the total bond market recovering in one year, so why not get 4% rather than losing?

This doesn't sound very Boglehead. What am I missing?

R.
I am 72 and that is exactly what I am doing. I plan to move money back (into something) in a year or two. Meanwhile, I am investing in short-term Treasuries (1 yr) so that I can ladder them into higher rates.
A typical 72-year old investor should be planning for 20 to 25 more years of retirement. If you’re buying more 1 year bills than 15 year bonds, you’re probably taking more risk than you realize.
I agree and there is irrefutable mathematical argument to support it. Hard to wrap your head around this. Bonds are sophisticated instruments that are often thought to “simplify” a portfolio. Emotional and behavioral investing often trumps analytics.
"Ignorance more frequently begets confidence than does knowledge" | “At 50, everyone has the face he deserves”
dbr
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Re: Put some Total Bond Market in Treasury Notes?

Post by dbr »

I can't predict the future, but the move you are suggesting is about a year too late to be astute. It is not usually a good idea to close the barn door after the horses are out because then they can't get back in. Long term investors should not usually change things around because something just happened.

Objectively it might be a wash, it might be there will be more yet to lose in bond funds, or it might be you will get the downsides of reinvestment risk.
1moreyr
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Re: Put some Total Bond Market in Treasury Notes?

Post by 1moreyr »

I am retired and 59. I have/in the process of laddered T bills/notes/Ibonds for 5 years to get me to where I expect to take SS. (although I may wait longer). I still have to finish the ladders for years 3, and 4 (year 5 loaded with Ibonds) Years 3 and 4 are partially loaded but I have been waiting for higher rates. One can call it market timing but when the guy in charge of the rates (the fed) is broadcasting more increases on the way, it seems like waiting has paid off.

So with a 60/40 portfolio I have 40% made up of 20% in these laddered instruments, and 15% in VBTLX and 5% cash.

Since the VBTLX duration is at 6 years, it ties in with the end of the laddered 5 year instruments. (if my logic is missing something here, I am sure someone will tell me). I keep looking at adding 5 year tips but just don't feel I fully understand them.

all my money was locked to a maturity 3 months ago.... Overall, when I lookyields at the mix of Ibonds, treasuries, VBTLX and cash at Ally (@2%), I am averaging 4.5% for the next 12 months across all money. (I am too lazy to calculate my total bond portfolio beyond that. , I just did it for a sanity check). I bonds will most likely be lower and t Bills rates will be higher (when some mature in early 2023) so I am not sure if it gets better than this. Am I beating last 12 months inflation? no, but nothing I own is at the moment, VTSAX is cratering

OP, In general I agree with your approach but I would tie it to specific needs.

* please note, I looked at Yield on VBTLX not the losses. I know this isn't completely accurate as I am not counting the loss, but I don't plan on using it for 6 years so it may or may not be a loss (no on knows anything?)

AS I said, figuring out a 12 month yield was more of a sanity check of what all my gymnastics yielded vs something I am beating my chest over.
One thing I can say, it seems to be working better in total than just standing there watching VBTLX fall.
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Ozonewanderer
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Re: Put some Total Bond Market in Treasury Notes?

Post by Ozonewanderer »

vineviz wrote: Fri Sep 23, 2022 6:59 am
Ozonewanderer wrote: Thu Sep 22, 2022 9:42 pm
Retired2 wrote: Thu Sep 22, 2022 3:49 pm I'm 76, wife is 65. We have substantial IRA's in a Rick Ferri portfolio; total stocks and bonds, total international stock and total real estate REITS. The IRA's and Social Security are our income.

The Total Bond Market, VBTLX, has gone down, down, down.

I see Treasury Notes on the secondary market maturing in one year are paying 4%.

What if in my ROTH IRA I sold some VBTLX and bought some one-year notes?

On the one hand, I am a long-term investor with a ten-year view.

On the other hand, I don't see the total bond market recovering in one year, so why not get 4% rather than losing?

This doesn't sound very Boglehead. What am I missing?

R.
I am 72 and that is exactly what I am doing. I plan to move money back (into something) in a year or two. Meanwhile, I am investing in short-term Treasuries (1 yr) so that I can ladder them into higher rates.
A typical 72-year old investor should be planning for 20 to 25 more years of retirement. If you’re buying more 1 year bills than 15 year bonds, you’re probably taking more risk than you realize.
You are missing my key point that I am parking my money in 1 year t-bills then "I plan to move money back (into something) in a year or two." I don't plan on investing in 1 year t-bills for 25 years, (I don't think). I basically sold all my holdings in Fidelity Total Bond Fund and moved them into a short term bond ladder. I stopped the bleeding in my bond fund. [Note: I did all this trading in an IRA]. I still have 30% of my portfolio in stocks.

I am admittedly timing the market. I believe that interest rates will continue to rise for another year and stocks will likely fall further over that same time span. I will revisit the situation in a year. To keep money in a bond fund during this period will work if you hold it for longer than the fund's average duration. But that takes a strong stomach. My whole investment strategy is about being able to sleep at night.
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vineviz
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Re: Put some Total Bond Market in Treasury Notes?

Post by vineviz »

Ozonewanderer wrote: Fri Sep 23, 2022 12:22 pm You are missing my key point that I am parking my money in 1 year t-bills then "I plan to move money back (into something) in a year or two." I don't plan on investing in 1 year t-bills for 25 years, (I don't think). I basically sold all my holdings in Fidelity Total Bond Fund and moved them into a short term bond ladder. I stopped the bleeding in my bond fund. [Note: I did all this trading in an IRA]. I still have 30% of my portfolio in stocks.

I am admittedly timing the market. I believe that interest rates will continue to rise for another year and stocks will likely fall further over that same time span. I will revisit the situation in a year. To keep money in a bond fund during this period will work if you hold it for longer than the fund's average duration. But that takes a strong stomach. My whole investment strategy is about being able to sleep at night.
My comments were aimed at investors, not gamblers.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Ozonewanderer
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Re: Put some Total Bond Market in Treasury Notes?

Post by Ozonewanderer »

Trading a bond fund for a bond ladder does not change one's asset allocation, just the investment vehicle. Use the one that you think will give you the best risk-reward return.

And yes, I am willing to bet that interest rates will continue to go up and stay up for at least a year.
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Re: Put some Total Bond Market in Treasury Notes?

Post by sleepysurf »

Retired2 wrote: Thu Sep 22, 2022 3:49 pm ...What if in my ROTH IRA I sold some VBTLX and bought some one-year notes?

On the one hand, I am a long-term investor with a ten-year view.

On the other hand, I don't see the total bond market recovering in one year, so why not get 4% rather than losing?

This doesn't sound very Boglehead. What am I missing?

R.
OP, just curious why you're holding VBTLX in a Roth IRA? Typically we recommend investing Roth $$ in (theoretically) the highest growth long-term assets, such as Total Stock Market, Small Cap Value, and perhaps Emerging Markets. It might be more productive (long term) to convert some/all of your Roth VBTLX to equities. You could convert some VBTLX from a non-Roth account (IRA, taxable) to T-Bills/Notes for $$ needed sooner than the VBTLX duration, and convert tax-deferred equities to fixed income, if needed, to re-balance your overall portfolio.

Edited for clarification
Last edited by sleepysurf on Fri Sep 23, 2022 3:09 pm, edited 2 times in total.
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homebuyer6426
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Re: Put some Total Bond Market in Treasury Notes?

Post by homebuyer6426 »

Retired2 wrote: Thu Sep 22, 2022 3:49 pm The Total Bond Market, VBTLX, has gone down, down, down.
Another way to reduce max drawdowns is to replace some of your Total Stock Market with Consumer Staples. The max drawdown of 100% Consumer Staples since 2005 is the same as the max drawdown of a 60/40 Total Stock/Bond portfolio (30%), though with higher real returns (7% vs 4.7%).
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