bonds general question

[marginal]

I have question regarding bonds:

1) if bond generate income from dividends and their value decrease, then in long run should diminish. Is this correct?
2) The only way to recover original principal is to keep the fund to maturation date, is this correct?
If value reduces, then principal recovery is one time event.I think rarely investors have that much patience and book keeping capability to keep track of bonds in mutual fund.
3) What is disadvantage of keeping CD in 401K or Roth IRA?
4) is Stable Value account maximize investment income while maintaining preservation of capital, considered a bond?
Thanks.

[mega317]

You may be mixing up a few concepts of individual bond and bond mutual funds.

1. Interest and value are separate. The bond will continue to pay interest as per the contract. Its value may go up and down along the way but when it matures you will get par value.

2. Well you could sell it at or above par any time before maturation date, assuming people are buying at that price.
No one would ever track each individual bond in a mutual fund. And mutual funds usually do not hold their bonds until maturity. Not sure what you're asking here.

3. I don't believe most 401ks have the ability to buy CDs. As a very general principle you'd want your assets with the largest gains in a Roth, which will not be CDs.

4. A stable value fund is not a bond. But one could include it in the "fixed income" portion of their asset allocation.

See https://www.bogleheads.org/wiki/Bond_basics

[marginal]

Mega317,
Thanks and I meant bond type is mutual fund and I have read mentioned link.

As you mentioned, buying CD or Stable Value in Roth is waste and high growth investment should be there, stock index and bond index is right.
Unfortunately Total Market bond Index is not doing well, and I wonder what to do.

For bonds :
401K/Roth : Stable Value, Vanguard Total Market Bond, Eaten Vance Trust High Yield, and Loomis Sayles Core Plus Fixed Income
I can also get other bonds from outside within 401K/IRA.
IRA: I have target fund and underlying index is total market stock and bond Index
Taxable account: I have bought municipal bond

Thanks.

[Katietsu]

When you own something like total market bond fund, your return can come from gains in the value of the fund and from the dividends paid by the fund. When interest rates go up as occurred in 2022, the price for the bond fund goes down. But the expected future dividends go up.

I would not make a different choice for fixed income unless you had a strong reason to do so. I would also want to have a better understanding of bond funds before moving to a higher risk option.

[dbr]

The problem with bonds and especially bond funds is that we tend to employ a thought process that makes us think we can know exactly what is going to happen to our investment when in fact it is just enough more complicated than that as to result in uncertainties at every turn.

Stocks are easy because we are not led to predict anything for certain except when we go down the dark hole of stock dividends.

[marginal]

Thanks so much for your points:
high yield bonds are risky and require knowledge.
Remaining choices are CD and Total market bond index.
And I get it, I should not predict, because the market will prove me wrong.

I'm 5-years away from retirement and won't touch IRA till 73 years old.
I also looked at Vanguard target funds 2030 and 2025(same allocation as for 5-years from now).
They have only 1% cash, so it means CD is for short term and bond has a longer view.

Then I looked at VBTLX (intermediate bond, total bond market index). Its last 5-years return is variable and interest is around 2%.
This gave me the idea to compare annualized returns for interest. I also calculated annualized return of capital return by NAV and interestingly it was the same as Annualized income return but -2.39% !
Year (Capital return by NAV) (Income return by NAV) (Total return by NAV) Benchmark1
2022 -15.22% 2.06% -13.16% -13.07%
2021 -3.49% 1.83% -1.67% -1.58%
2020 5.33% 2.39% 7.72% 7.75%
2019 5.74% 2.97% 8.71% 8.87%
2018 -2.77% 2.74% -0.03% -0.08%

Using this formula: https://www.investopedia.com/terms/a/an ... return.asp
Annualized Return= 0.0239 = 2.39%
CD annualized return=4.75%
difference: 4.75-2.39 = 2.36% (ignoring compounded growth 12.37%). This means if a bond falls behind by 2.36% every year, then it has to wait for a number of consecutive years of positive capital return. Let's say we were in 2017 and were speculating to buy CD (rate=4.75%) or bond, then after 3 years bond would have annualized capital return of 2.69% which is more than 2.36%.
One possibility is 2-year consecutively capital return above 2.36%. From performance VBTLX page happened 2 times back to back and 2 times 3-years back to back, so probability=2 times/15 years=7%. I ignored 3-times and 4-times back to back years as it's more risk.

I think CDs are a better deal. In 5 years I can move them to the total bond index. Does it make sense?
I should add I'm going to substitute bond with stock in Roth-401K. To rebalance my allocation I buy more bond in 401K in place of stock. Selection of bond applies to 401K.

Thanks

[dan7800]

Why not consider other forms of treasuries instead of CDs?

[marginal]

Treasuries rates are:

Date 1 M 2 M 3 M 4 M 6 M 1 Yr 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr
02/15/2023 4.64 4.79 4.79 4.94 4.97 4.96 4.62 4.35 4.04 3.94 3.81 3.97 3.85

broker CD rates are:

3m 6m 9m 1y 18m 2y 3y 4y 5y
4.68 4.80 4.87 5.00 5.05 5.00 4.85 4.85 4.90

Since this is about having treasury bond in 401K (tax deferred), state tax exemption of treasury is nor relevant.
CD rates for above 1y are better than treasury (1y, 2y, 5y). What duration should be each treasury?
I want some liquidity so if total bond prices goes at bottom when interest rate decrease, I buy them.
treasury has more liquidity, easier to sell in secondary market.
1 year CD @ 5.00 for 1/2 of bonds
ladder treasuries: 4m (@ 4.94%, 1/4 bond), 6m (@4.97, 1/4 bond) and every 2m start again with same duration.
Treasuries mature every 2 months four months from now at month 4, 6, 8, 10, ...

[exodusNH]

Treasuries rates are:

Date 1 M 2 M 3 M 4 M 6 M 1 Yr 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr
02/15/2023 4.64 4.79 4.79 4.94 4.97 4.96 4.62 4.35 4.04 3.94 3.81 3.97 3.85

broker CD rates are:

3m 6m 9m 1y 18m 2y 3y 4y 5y
4.68 4.80 4.87 5.00 5.05 5.00 4.85 4.85 4.90

Since this is about having treasury bond in 401K (tax deferred), state tax exemption of treasury is nor relevant.
CD rates for above 1y are better than treasury (1y, 2y, 5y). What duration should be each treasury?
I want some liquidity so if total bond prices goes at bottom when interest rate decrease, I buy them.
treasury has more liquidity, easier to sell in secondary market.
1 year CD @ 5.00 for 1/2 of bonds
ladder treasuries: 4m (@ 4.94%, 1/4 bond), 6m (@4.97, 1/4 bond) and every 2m start again with same duration.
Treasuries mature every 2 months four months from now at month 4, 6, 8, 10, ...

On the longer-duration CDs, watch out for ones that are callable.

[martincmartin]

Many people think of bonds like a savings account: the more rates go up, the more money they should make. They're surprised that when interest rates go up, the value of their existing bonds go down. Why?

A 1 year zero coupon bond is just an IOU that says "On date [1 year from today] pay the holder $100." If this sells for $99, then the interest rate is 1%. If it sells for $95, the interest rate is 5%. In other words, it's not like a bank account where the interest rate says how much money you make over the next month. Instead, once you own a bond, the interest rate is *discount* you get for selling it early.

I have question regarding bonds:

1) if bond generate income from dividends and their value decrease, then in long run should diminish. Is this correct?

Bonds are sold at auction in the open market. Like the price of housing, their value is whatever someone will pay for them. For something that will make an interest payment of $10 at 2:35 pm on Tuesday, it's value will go down by $10 just after the payout, otherwise there's an arbitrage opportunity. But that's the short run. In the long run, just before the bond pays out, it will be worth almost exactly the payout value. Before that, it will be worth less, but how much less is dependent supply and demand and animal spirits.

2) The only way to recover original principal is to keep the fund to maturation date, is this correct?

What do you mean by "original principal"? Suppose you buy a 1 year zero coupon Treasury bond that will pay $100 one year from now. You pay $90 for it. Is $90 the original principal, or is it $100? Interest rates are the discount on that final payout value of $100. If you keep it to maturity, you're guaranteed to get all $100. Getting the full $100, or more, by selling it early is another way of saying the interest rate is zero or negative. In practice in the U.S., for actual 1 year Treasuries, this basically never happens, so yes, the only way to get the full $100 is to keep it to maturity.

If value reduces, then principal recovery is one time event.I think rarely investors have that much patience and book keeping capability to keep track of bonds in mutual fund.

There are certainly people who create their own bond ladders by buying Treasuries at TreasuryDirect.org, or through a broker, and keep to maturity, reinvesting when they mature. For those who don't, I don't think it's about "patience", but rather a calculated strategy to maximize some financial goal, like not running out of money in retirement.

Why are you holding bonds, rather than 100% stocks? Is it because, when the stock market goes down, you look at your smaller account balance and start to worry about running out of money? Then use short term Treasuries, as they'll drop least in price. Bill Bernstein has made this point. Is it to minimize the chance of running out of money in retirement? Then total bond market in tax sheltered, or intermediate term Treasuries + TIPS in taxable, are the way to go. Is it for a liability matching portfolio? Then use duration matched TIPS, also from Bill Bernstein.

[suemarkp]

The time to buy bonds was probably late last year or about now. I got out of bond around 2016 because interest rates were low and I did not think they could get much lower. I knew what would happen when interest rates rose...

My 401K bond fund returns were as follows:
2016 (year I got out): 2.6%
2017 3.5%
2018 0%
2019 8.7%
2020 7.5%
2021 -2%
2022 -12.7%

So I got out too early (and moved to stable value fund) because I did not know when the rate hikes were going to happen and I was within 5 years of retirement. I got out too soon (looked like 2018 was going to be the big drop), and should have got out in early 2021 if I had a crystal ball that worked...

The big drop in NAV during 2022 killed the 3 and 5 year return lookbacks too. What matters is now, not how past returns have changed because of a sudden large drop. I think 2022 was an inflection point, and returns that bad should not happen for a long time (and rates will have to drop first which gives you gains and a warning). Since the NAV has dropped, now is the time to buy in. Future rate increases will keep adding drag to that NAV, but the increased yields will in boost it. I just moved about $150K from my stable value back to bonds. May do another $150K after the next two Fed meetings where rate changes are announced.

[marginal]

suemarkp,
Question: What Bond did you move to in your 401K?

martincmartin,
thanks for your explanation about bonds. I learned.

I compared major issuer type and their round up percentage of Stable Value Fund vs Total bond.
Stable value fund is less Treasury, and it has Asset Backed issuers and more MBS and muni.

Stable Value Total Bond
MBS 32% 22%
Corporate 27 27
Asset Backed 14 -
Treasury 11 46
Muni 5 -

I think some percentage treasury addition helps, without all those fees.
Stable Value fund also is short to intermediate fixed income securities.
Following link compares SV to Money Market fund:
https://www.galliard.com/globalassets/g ... -vs-mm.pdf

In following link, it explains what happens to SV during rising interest rate and more during yield curve inversion.
Basically it takes time for SV to react. Same thing experienced by other bonds.
https://www.galliard.com/globalassets/g ... -rates.pdf
"In periods of rising short-term interest rates, stable value investments’ return
advantage over money market funds tends to narrow, as shorter-term investments
typically react more quickly to changes in market rates."

I also know that "If everything goes as markets expect, interest rates will fall, stocks rise and those who locked in their yield on longer-maturity corporate bonds will be happy."

WSJ article: "The Best Investment Idea Is Also the Most Obvious Why take the risk and hassle of investing, when a nice safe money-market fund or Treasury bill is so attractive", Feb 2, 2023
https://www.wsj.com/articles/the-best-i ... _permalink

[suemarkp]

My 401K funds are CITs, so there are no tickers. There is only one bond index fund, but it is similar to VBTLX (Vanguard Total Bond) in duration and return. Yield, distribution or 30 day SEC, is not advertised. My Stable Value Fund yielded about 3% last month (annualized, .25% actual for the month), but it can change daily (no guaranteed return for a given period).

[Katietsu]

Let's say we were in 2017 and were speculating to buy CD (rate=4.75%) or bond, then after 3 years bond would have annualized capital return of 2.69% which is more than 2.36%.
One possibility is 2-year consecutively capital return above 2.36%. From performance VBTLX page happened 2 times back to back and 2 times 3-years back to back, so probability=2 times/15 years=7%. I ignored 3-times and 4-times back to back years as it's more risk.

Thanks

I am not sure I am following the comparison. In 2017, 60 month CD rates averages 1.1% and short term CD rates were under 0.5%. Why are you referring to a CD of 4.75%? Because you get a CD with a 4.75% rate in 2022? But then your bond return over the next 5 years is expected to be much higher than the last five years.

Don’t get me wrong, I have a lot of CDs and treasuries instead of bonds. I don’t know what will be best.

[marginal]

Instead of speculating, has ever the total bond returned of what CD pays today 5%?
I'm asking for 5 years period. Return from sell and yields.

[wetgear]

Instead of speculating, has ever the total bond returned of what CD pays today 5%?

Yep

[RyeBourbon]

Instead of speculating, has ever the total bond returned of what CD pays today 5%?

You can see Annual Total Returns for years 2002-2022 here
https://finance.yahoo.com/quote/VBTLX/performance/

[marginal]

Thanks for the link. That was eye opening. So far I'm convinced Total Bond had a return above 5% in many years. Should I buy short treasury and how much?

I can go one step forward and even see current potential capital return and income return.

I mapped periods of inflation and recession on yahoo graphs.
https://finance.yahoo.com/quote/VBTLX/performance/ and
https://www.forbes.com/advisor/investin ... e-history/

I identified recession (R) and inflation (I) periods, and identified normal periods. I call it "OK" region and I mean non-inflation/non-recession durations. There are 2 OK long durations where I identified min and max NAV.

From 9.89%-11.24% during 12/2008-12/2015
From 10.64%-11.78% during 03/2020-03/2022

This means Total Bond can potentially move to higher NAV, since Total Bond is at its almost lowest price. Looking at the graph, the economy goes from inflation to Normal and to recession. Yield and price move inversely as we know.
I can also say in the current situation:
investing in CD or treasury with 4-5.5% can shadow potential higher gain in Total Bond.

This brings me to the next question:

Question: Considering 46% of Vanguard Total Bond is treasury (0.4% short, 71.8% Intermediate, 27.8% long). Do you think buying short treasuries makes it a more balanced investment but what percentage should be? if I match duration to my investment horizon, then I need it later at 73 years old when I withdraw from IRA/401K. In that case it is 12 years away so it is a long duration.

[nisiprius]

I have question regarding bonds:

1) if bond generate income from dividends and their value decrease, then in long run should diminish. Is this correct?

That's not correct. A bond is (often) a legal contract to pay certain numbers of dollars on certain days. If you buy, say, a 5-year $1,000 Treasury bond with 4% coupon, it will pay you $20 every six months, and pay back the $1,000 at maturity.

Now let's say that after you've held the bond a year, interest rates rise to 5%/year. It turns out that the market value of your bond falls to $932. But what happens to your interest payments? Nothing at all. You still receive $20 every six months, and you still get your $1,000 back at maturity.

Now let's say that interest rates rise to 20% after you've held the bond a year. The market value of your bond falls to $700. What happens to your payments? Nothing. You still receive $20 every six months, and you still get your $1,000 back at maturity.

2) The only way to recover original principal is to keep the fund to maturation date, is this correct?

No, it depends on what interest rates do. It also depends whether you are throwing away your interest payments or keeping them, because really they are money you are receiving and you ought to count it. In the case of our 4% bond, you will be receiving a grand total of $1,200 over the life of the bond. And, as the time to maturity shortens, the market value of the bond has a strong tendency to approach the value at maturity. When the bond is a week from maturity, everybody knows that it is going to pay out $1,000 week from now, so whatever the interest rate is, the value of the bond will be close to its face value.

Even if interest rates rise, it is very possible that the sum of the money you've received from coupon payments plus the market value of the bond will reach $1,000 long before maturity.

If interest rates fall, the value of the bond could rise higher than $1,000--and then sink as you approach maturity

What is true is that holding the bond to maturity is the only way to be guaranteed of getting your coupon payments plus principal back, no matter what interest rates do.

If value reduces, then principal recovery is one time event.I think rarely investors have that much patience and book keeping capability to keep track of bonds in mutual fund.

Nobody does that. With a mutual fund you can't sell the individual bonds anyway. Vanguard says that a suitable holding period for Total Bond fund "may be 4 to 10 years," and over that period of time it is unlikely that you will lose money. Meanwhile, the value fluctuates, but much less than stocks.

3) What is disadvantage of keeping CD in 401K or Roth IRA?

It depends what kind of CD you are talking about. The familiar CD's you buy at a bank pay out principal and interest at maturity just like a bond. If you want money before that, there is often a small penalty which is known in advance. If a 5-year Treasury is paying 4%, and you can find 5-year bank CD that is paying 5% with no early withdrawal penalty, then most people would say sure, the CD is better.

Here are the disadvantages.

Not always, but often, the CDs will pay less than bonds of similar terms. You would expect this, because due to interest rate risk, the bank CD is less risky. The penalty for early withdrawal is usually small, it's known in advance, and it doesn't depend on interest rate fluctuations. Less risk usually comes with less return.

You must hold the bank CD at the bank. It can be a Roth IRA, but it is separate from your brokerage account or 401(k). As far as I know, there is no way to hold a bank CD that allows early withdrawals in a 401(k) or in a brokerage account.

It's true that brokerages offer "brokered CDs," but they don't give you the possibility of making an early withdrawal and paying a known small penalty. These brokered CDs behave almost exactly like bonds and fluctuate in value just the way bonds do. If interest rates rise, they may be "CDs" but they will lose value.

4) is Stable Value account maximize investment income while maintaining preservation of capital, considered a bond?

It's not a bond, but it can do the same job as bonds in a retirement savings portfolio.

[Tom_T]

One of the concerns I have with bond funds is that the quoted yield is not what I get monthly. If I'm trying to decide which vehicle will throw off the most monthly interest (assuming I want to spend it), than a money market fund currently pays more, month to month, than Total Bond (which has yet to crack 3% for monthly interest, pending February.)

I guess I'm asking if the decision to own a bond fund will differ based on what one wants to do with the monthly income.

[dbr]

One of the concerns I have with bond funds is that the quoted yield is not what I get monthly. If I'm trying to decide which vehicle will throw off the most monthly interest (assuming I want to spend it), than a money market fund currently pays more, month to month, than Total Bond (which has yet to crack 3% for monthly interest, pending February.)

I guess I'm asking if the decision to own a bond fund will differ based on what one wants to do with the monthly income.

Yes, indeed so.

Or maybe with understanding what the monthly income will be. Various "quoted" yields for bond funds are not statements regarding what will be disbursed to you in interest. As far as that goes MM fund yields vary by the day, so those quotes are also not statements regarding what you will get in the future. You might estimate the near future dividends from a bond fund from the immediate past payments, and likewise for MM interest rates. On the other hand a CD does quote what you will get for the term of the CD, and the coupon payment from an individual bond is indeed a fixed amount of periodic payment until the bond matures and the face value is indeed what you will get as final payment. An MYGA for short term and a life annuity for long term also contract for a known payment.

Generally the actual dividend payment from a bond fund us irrelevant. It is more practical to estimate a return, but if you want money for income you can set that payout at anything you want any time you want it by a combination of collecting dividends and selling shares. A withdrawal has the same effect no matter how you implement it and future value is a result of compounding return less withdrawals. Naturally less return and more withdrawal will result in a declining asset value and vice-versa.

[Tom_T]

One of the concerns I have with bond funds is that the quoted yield is not what I get monthly. If I'm trying to decide which vehicle will throw off the most monthly interest (assuming I want to spend it), than a money market fund currently pays more, month to month, than Total Bond (which has yet to crack 3% for monthly interest, pending February.)

I guess I'm asking if the decision to own a bond fund will differ based on what one wants to do with the monthly income.

Yes, indeed so.

Or maybe with understanding what the monthly income will be. Various "quoted" yields for bond funds are not statements regarding what will be disbursed to you in interest. As far as that goes MM fund yields vary by the day, so those quotes are also not statements regarding what you will get in the future. You might estimate the near future dividends from a bond fund from the immediate past payments, and likewise for MM interest rates. On the other hand a CD does quote what you will get for the term of the CD, and the coupon payment from an individual bond is indeed a fixed amount of periodic payment until the bond matures and the face value is indeed what you will get as final payment. An MYGA for short term and a life annuity for long term also contract for a known payment.

Generally the actual dividend payment from a bond fund us irrelevant. It is more practical to estimate a return, but if you want money for income you can set that payout at anything you want any time you want it by a combination of collecting dividends and selling shares. A withdrawal has the same effect no matter how you implement it and future value is a result of compounding return less withdrawals. Naturally less return and more withdrawal will result in a declining asset value and vice-versa.

So for a retiree living off bond funds, they just say "I need $x per month", and that's what they sell. And if the bond distribution is simply reinvested every month, then perhaps that helps to smooth out the ups and downs of NAV changes?

[dbr]

One of the concerns I have with bond funds is that the quoted yield is not what I get monthly. If I'm trying to decide which vehicle will throw off the most monthly interest (assuming I want to spend it), than a money market fund currently pays more, month to month, than Total Bond (which has yet to crack 3% for monthly interest, pending February.)

I guess I'm asking if the decision to own a bond fund will differ based on what one wants to do with the monthly income.

Yes, indeed so.

Or maybe with understanding what the monthly income will be. Various "quoted" yields for bond funds are not statements regarding what will be disbursed to you in interest. As far as that goes MM fund yields vary by the day, so those quotes are also not statements regarding what you will get in the future. You might estimate the near future dividends from a bond fund from the immediate past payments, and likewise for MM interest rates. On the other hand a CD does quote what you will get for the term of the CD, and the coupon payment from an individual bond is indeed a fixed amount of periodic payment until the bond matures and the face value is indeed what you will get as final payment. An MYGA for short term and a life annuity for long term also contract for a known payment.

Generally the actual dividend payment from a bond fund us irrelevant. It is more practical to estimate a return, but if you want money for income you can set that payout at anything you want any time you want it by a combination of collecting dividends and selling shares. A withdrawal has the same effect no matter how you implement it and future value is a result of compounding return less withdrawals. Naturally less return and more withdrawal will result in a declining asset value and vice-versa.

So for a retiree living off bond funds, they just say "I need $x per month", and that's what they sell. And if the bond distribution is simply reinvested every month, then perhaps that helps to smooth out the ups and downs of NAV changes?

Probably living off bond funds is a little unusual as most retirees would live off a portfolio of stocks, bonds, and actual income sources such as Social Security. But to stay on topic, a person owning an asset like bond fund that has no date of maturity and fluctuates in value daily if a fund or by the second if an ETF will want to decide how to utilize that asset as a store of wealth from which income can be withdrawn. It is a simple picture to simply tally the return, which is the sum of dividend payments and NAV changes, subtract any withdrawals taken by any means, and then decide if they are comfortable with the prospects for how long the wealth will endure, being increased on average by returns and decreased by withdrawals. Smoothing NAV changes is not a thing in such a case. What is a thing is that returns are volatile, having both a long term expectation on average and short term noise around that long term expectation, the whole being constantly robbed by withdrawals. This is exactly the same for stocks as well and for a portfolio which combines the two.

The difference between stocks and bond funds are the drivers for what the return is. In the case of stocks it is generally the prospects for growth and innovation in the operations of the underlying companies with huge noise superimposed on that by the greed and fear of the market. For bond funds it is the changes in aggregate total of the pricing of the bonds held plus the income paid to the fund by the bonds held. A lot of the time when bond prices are fairly stable bond fund return follows the yields offered by the bonds owned. Sometimes when bond prices are not stable, which also is when interest rates are not stable, then bond fund returns vary a lot.

What decision one makes regarding holding bond funds depends on how yields on the bonds held evolve and on how much variation in NAV is tolerable, especially when interest rates are not stable. A lot of investors consider bonds to be a long term portion of a portfolio of stocks and bonds and consider that over time bonds are less volatile and lower returning than stocks. Short and medium term fluctuations in NAV, yield, and return are irrelevant to planning. Probably most people that plan that way just buy intermediate term bond funds for the long run and leave it alone.

[marginal]

Thanks for explanation. So I buy total bond for long run in my case 12 years and leave it alone.
Back to this question

Question: Considering 46% of Vanguard Total Bond is treasury (0.4% short, 71.8% Intermediate, 27.8% long).
Do you think buying short treasuries makes it a more balanced investment but what percentage should be?
When short term treasury has a place in portfolio?

Thanks.

[dbr]

Thanks for explanation. So I buy total bond for long run in my case 12 years and leave it alone.
Back to this question

Question: Considering 46% of Vanguard Total Bond is treasury (0.4% short, 71.8% Intermediate, 27.8% long).
Do you think buying short treasuries makes it a more balanced investment but what percentage should be?
When short term treasury has a place in portfolio?

Thanks.

Someone else would have to have a better explanation than I would regarding how the weighted average duration of a mixture of durations would be more helpful in some way than having all the bonds concentrated at that single duration. You can really get down in the weeds there.

[exodusNH]

Thanks for explanation. So I buy total bond for long run in my case 12 years and leave it alone.
Back to this question

Question: Considering 46% of Vanguard Total Bond is treasury (0.4% short, 71.8% Intermediate, 27.8% long).
Do you think buying short treasuries makes it a more balanced investment but what percentage should be?
When short term treasury has a place in portfolio?

Thanks.

Probably not. Total Bond reflects the weighted average of available bonds. Fiddling with it separately isn't going to accomplish much unless you're doing it duration match.

In terms of when it has a place in your portfolio, it's when your need for the money matches its duration.

[virginiabirdie]

Thanks for explanation. So I buy total bond for long run in my case 12 years and leave it alone.
Back to this question

Question: Considering 46% of Vanguard Total Bond is treasury (0.4% short, 71.8% Intermediate, 27.8% long).
Do you think buying short treasuries makes it a more balanced investment but what percentage should be?
When short term treasury has a place in portfolio?

Thanks.

Marginal, what did you decide to do? After reading this and other threads, I have the same question as you. Yes despite teh many replies (thanks all), I'm still not so sure why you wouldn't buy treasuries and get back into bonds after the rates go up again. I'm sure I'm missing something big.

[marginal]

For my taxable account bond portion, I bought an intermediate municipal bond both Federal and state tax exempt a month ago.
Buying a treasury fund with its zero state tax in a taxable account makes more sense than CD. From the discussion duration should match the goal. what percentage of bonds in the taxable account should be treasury I'm not quite sure. In my case duration is (12-years) intermediate treasury.

For my IRA, I have a target fund which has an underlying Vanguard Intermediate total bond (VBTLX).
For 401K, I have 1/3 stable value fund (2%+ yield), 1/3 Intermediate total bond (which is increasing in value and has a long term horizon and hope to sell after it matures after 12-years). 1/3 consist of short term treasury and CD to take advantage of high interest.

Regarding CD vs treasury, 401K is tax deferred so doesn't have state tax advantage when I withdraw, I think CD (3 months and 6 months and 1 year rate now makes sense).

Buying a target fund with its zero state tax in a taxable account makes more sense than CD. What percentage of bonds in the taxable account should be treasury, I'm not sure but I think any intermediate treasury addition is right. For my goal, the 10 year treasury is right, interest:3.5%. From municipal bond, I get Sec Yield: 3.07% (taxable equivalent i/(1-federal rate% - 3.8%) approx. for high tax rate above 5%)

Regarding taxable accounts, I want to mimic the target fund. Monitoring its composition which changes is cumbersome.
I decided to do it once a year and correct it based on the target fund gliding path.
More importantly, Intermediate Municipal bonds are not enough. I have observed that the Vanguard target fund gets better gain/loss than my composition but I'm close. It's matter of optimization.