Safer and better alternatives to BND

[smartinvestor2020]

I was thinking about the bond side of my portfolio, and now that bond yields are very good I am considering locking in a long term 10 year Treasury bond or CD with close to 4.5% annual yield. I am also considering moving from short term treasury bonds and etfs to intermediate and long term treasury bonds and etfs.

Why is BND considered the best choice by bogleheads for the fixed income side of the portfolio?

There are so many safer and better choices out there. For example, I'd rather choose SCHR which is the Schwab intermediate treasury bond etf over BND because treasury bonds are not correlated to stocks and safer than BND. And currently, SGOV, SHV, and SCHO are much safer and higher yielding.

Although bogleheads say not to time the interest rate market, I strongly believe that I am positioned correctly with short term treasuries now, and will move to the longer end of treasuries both with individual bonds and etfs. Since I don't believe the fed will drop rates very quickly, I believe it is very easy to "TIME" the interest rate market and get into longer term treasuries eventually.

[gotoparks]

You are just market timing and as you know that is not something Bogleheads advocate.

[tibbitts]

You seem to be saying that you have a procedure for determining when to shift between different types and maturities/durations of bonds. If so, what is it, and have you backtested it?

[smartinvestor2020]

You seem to be saying that you have a procedure for determining when to shift between different types and maturities/durations of bonds. If so, what is it, and have you backtested it?

I am saying that now is a good time to lock in longer term rates on treasury bonds. I am not saying it is easy to perfectly time the interest rate market. I am not saying this is the peak of the federal funds rate. I am just saying that there is plenty of time to lock in high rates on individual treasury bonds. I understand that longer term bond etfs are not directly correlated to the federal funds rate. It is difficult to determine the best time to get in or out of bond funds. What I meant by easy to "TIME" is that there is plenty of time to buy an individual long term treasury bond at a good yield.

[smartinvestor2020]

You are just market timing and as you know that is not something Bogleheads advocate.

You have missed the main point of my post. I am saying that there are better options to buy and hold such as SCHR.

I am saying that it is easy to lock in a good rate right now.

So far I've outperformed BND by a wide margin on the fixed income side of my portfolio. Only time will tell if I can consistently move to short term funds and bonds in a rising rate environment and move to longer duration funds and bonds in a declining rate environment.

[123]

...Why is BND considered the best choice by bogleheads for the fixed income side of the portfolio?..

BND is a low-cost index fund/etf that provides reasonable returns with reasonable risk that is reflective of the total US bond market.

The bond market has seen remarkable turmoil due to interest rate changes in the last two years so many investors who do not want principle risk have moved some or all of their fixed-income holdings to CDs or treasuries. Traditionally fixed-income holdings have served a ballast function in a portfolio. When the fixed-income market again stablilizes many investors will return to BND, simply because using BND is easier than a DIY approach for equivalent returns.

[smartinvestor2020]

...Why is BND considered the best choice by bogleheads for the fixed income side of the portfolio?..

BND is a low-cost index fund/etf that provides reasonable returns with reasonable risk that is reflective of the total US bond market.

The bond market has seen remarkable turmoil due to interest rate changes in the last two years so many investors who do not want principle risk have moved some or all of their fixed-income holdings to CDs or treasuries. Traditionally fixed-income holdings have served a ballast function in a portfolio. When the fixed-income market again stablilizes many investors will return to BND, simply because using BND is easier than a DIY approach for equivalent returns.

Thanks for this info. I don't like BND because it can lose a lot and is risky to buy and hold. I like to keep my fixed income very safe. But when I see opportunities I like to buy longer term treasuries.

[Luckywon]

when I see opportunities

Most times I thought I saw an investing opportunity it turned out badly. Perhaps you will have better luck.

[chassis]

I was thinking about the bond side of my portfolio, and now that bond yields are very good I am considering locking in a long term 10 year Treasury bond or CD with close to 4.5% annual yield. I am also considering moving from short term treasury bonds and etfs to intermediate and long term treasury bonds and etfs.

Why is BND considered the best choice by bogleheads for the fixed income side of the portfolio?

There are so many safer and better choices out there. For example, I'd rather choose SCHR which is the Schwab intermediate treasury bond etf over BND because treasury bonds are not correlated to stocks and safer than BND. And currently, SGOV, SHV, and SCHO are much safer and higher yielding.

Although bogleheads say not to time the interest rate market, I strongly believe that I am positioned correctly with short term treasuries now, and will move to the longer end of treasuries both with individual bonds and etfs. Since I don't believe the fed will drop rates very quickly, I believe it is very easy to "TIME" the interest rate market and get into longer term treasuries eventually.

I don't consider BND good for anything in my portfolio.

If one is looking for low volatility, yield, and a certain amount of liquidity, do the following.

For the fixed income sleeve, allocate a portion to money market earning 5% or so, and ladder the rest of the sleeve into Treasuries of durations that meet your liquidity requirements. Roll the ladder forward as it matures, minus any money required for living expenses.

[Kinkajou82]

Why is BND considered the best choice by bogleheads for the fixed income side of the portfolio?

I believe that BND being the popular boglehead advice given is very much a case of it being a "do-the-most-good-do-the-least-also-harm-keep-it-simple" option, especially for newbie investors.

But once someone has a better idea of their wants and needs, a better understanding of the risks, and a better knowledge of what their own inclinations and preferences, I think it's perfectly clear that there are other valid choices one can make.

I made a thread earlier about this here, which did mention treasury funds as an alternate choice:
viewtopic.php?t=408804

Speaking for myself while I see the wisdom in BND and similar funds, I've committed wholly to I Bonds in my plans and actions.

[cableguy]

CD's. FDIC insured and non callable CD's are great. Preserve principle....earn 4%+ in interest. BND is religion to many people...so don't get offended if some of them hiss at you. BND is a great investment as well.

[windaar]

I'm not a bond disciple; most of my fixed is in TIAA TRAD. But what you're proposing, to jump out of a fund when it is doing poorly, is a classic investing error. Having an IPS and a risk assessed AA that you set and forget is the way to go.

[Parkinglotracer]

If one picks a fixed income bond investment as has been mentioned above for the long run they will be fine. Personally I like a ladder of 1-5 year treasury securities. Our BH wiki discusses the differences between a rolling bond fund and bond ladder. I’d make it my goal to understand what one’s fixed income investments will do if interest rates go up or go down. No one knows which way they will go. Good luck.

[tibbitts]

You seem to be saying that you have a procedure for determining when to shift between different types and maturities/durations of bonds. If so, what is it, and have you backtested it?

I am saying that now is a good time to lock in longer term rates on treasury bonds. I am not saying it is easy to perfectly time the interest rate market. I am not saying this is the peak of the federal funds rate. I am just saying that there is plenty of time to lock in high rates on individual treasury bonds. I understand that longer term bond etfs are not directly correlated to the federal funds rate. It is difficult to determine the best time to get in or out of bond funds. What I meant by easy to "TIME" is that there is plenty of time to buy an individual long term treasury bond at a good yield.

But if you're going to replace the recommendation for Total Bond Market for fixed income, you have to come up with a plan everyone can use going forward that that doesn't rely on you to tell everyone when to shift from one fixed income investment to another. Even to convince yourself you should have done enough backtesting to show that your plan has worked better than BND through some significant period of history. When you're talking to an audience that remembers collecting double-digit yields on safe fixed income, you can't expect everyone to recognize that any yield we've seen lately is necessarily a "good yield" that should be locked in, unless possibly you're talking about TIPS, which have a very short issue history relative to other bond types.

[rallycobra]

I agree with the original poster that I want my bond allocation to be 'safe'. What was Buffet's 1st rule of investing? 'Never lose money!'.

I have been selling BND and purchasing TIPS bonds in my tax protected accounts. I will hold them until expiration.

[rkhusky]

Long treasuries can lose a lot more than BND. If you want a little safer then choose intermediate treasuries. If you want a lot safer stick with short treasuries. If you can’t abide losing principal choose CD’s.

Frankly, worrying about your fixed income when it is a small portion of your portfolio is not very productive. Stocks can lose a lot more. I wouldn’t worry about the fixed income until your AA gets close to 50/50.

[tibbitts]

I agree with the original poster that I want my bond allocation to be 'safe'. What was Buffet's 1st rule of investing? 'Never lose money!'.

I have been selling BND and purchasing TIPS bonds in my tax protected accounts. I will hold them until expiration.

But again you have to have some kind of plan you can articulate to replace the traditional Boglehead Total Bond recommendation. Presumably your plan isn't "buy BND, wait for it to go down 10%, sell and buy TIPS." Would you have recommended people buy TIPS at negative real yields?

[nisiprius]

...Why is BND considered the best choice by bogleheads for the fixed income side of the portfolio?

There are so many safer and better choices out there. For example, I'd rather choose SCHR which is the Schwab intermediate treasury bond etf over BND because treasury bonds are not correlated to stocks and safer than BND....

If you think "Treasury bonds are not correlated to stocks" then I wonder where you were in 2022.

The idea that SCHR is safer and better than BND isn't anywhere near as clear as you seem to think it is. Here's the shared history of the two funds:

Source



I think the most honest answer is that it's not at all clear which of them you would rather have had: SCHR (blue line) or BND (red). In fact, they've done roughly the same. SCHR has indeed been "safer," measured by standard deviation (volatility) and max drawdown, but not by much. It's not as if SCHR didn't suffer a -15% dip in 2022. (At the exact same time as stocks). But it also made less money. Not much less, but less. The Sharpe and Sortino ratios are measures of how much return you are getting for the risk you are taking, and both of them say that over the life of the two funds, the extra risk in BND paid off. BND not only made more money, it made more money per unit of risk. Again... not much. But it should be enough to put the kibosh on the idea that SCHR was obviously better.

The rationale for BND, and for all index funds, rests on financial economics theory about the "market portfolio," the set of all assets held in a single market. Under a set of assumptions, including choices for measuring risk and risk-adjusted-return, the theory says that market portfolio has higher risk-adjusted return than any other weighting. It's only a theory. And there have always been questions about whether it applies because there is no single, unified "bond market" the way there is in stocks. And there are quibbles about the specific index and its methodology.

The idea of going 100% Treasury is quite familiar in this forum. The late David Swensen, manager of the Yale endowment portfolio, advocated it. And William J. Bernstein, who sometimes posts in the forum and recently published a new addition of his classic book, The Four Pillars of Investing, does, too.

But so is the idea that BND has too much in Treasury and government issues! John C. Bogle argued that ordinary investors were missing out by not having enough in corporate bonds, and argued that the Bloomberg Aggregate Index was flawed because of high foreign ownership of Treasuries, and that the index did not reflect the way typical American investors actually invested.

Now my personal schtick is that both SCHR and BND are flawed by missing the elephant in the room: inflation. Neither of them provides direct inflation protection. So my personal perference is for a TIPS fund--in my case VAIPX, but for people who want ETFs there is iShares TIP. I happen to think intermediate-term TIPS funds are "safer and better" than BND. Well-informed, intelligent people disagree with me.

But this is not as simple or as cut-and-dried as you make it out to be.

The last observation I would make is that if you look at portfolios that have a meaningful amount of stocks in them, and backtest such a portfolio with different choices for the bonds, it becomes clear very quickly that the risk and return behavior is heavily dominated by the stocks, and that plugging in different choices for the bonds makes surprisingly little difference and is surprisingly unimportant. So lets try SCHR versus BND in a portfolio. Let's say, 60% stocks, split 70/30 between US and international, and 40% bonds, and let's try out SCHR for the bonds in the first portfolio (blue line), BND for the second.

Source



You can try to put a microscope on the differences, but the salient thing is how little difference there is.

Both in financial economics theory and in real-world history, BND and other aggregate-index bond funds have been a darned good choice. And you are overconfident if you are dead sure SCHR is better--and very overconfident if you are sure it is way better.

[dbr]

There are far more choices in fixed income investing than there are reasons to choose among them. As elements of an overall portfolio it is devilishly difficult to find obviously superior choices between one or another. Allowing that one understands term and credit risk, it is devilishly difficult to show that it matters a lot what to choose even standing alone.

I agree that the obviously missing component in BND is TIPS. Whether or not that actually matters can be debated all day and all night without reaching a conclusion.

Disclaimer: My personal choice has been lots of TIPS to all TIPS in the form of a TIPS fund. That does not mean anything in particular to someone else.

[smartinvestor2020]

...Why is BND considered the best choice by bogleheads for the fixed income side of the portfolio?

There are so many safer and better choices out there. For example, I'd rather choose SCHR which is the Schwab intermediate treasury bond etf over BND because treasury bonds are not correlated to stocks and safer than BND....

If you think "Treasury bonds are not correlated to stocks" then I wonder where you were in 2022.

The idea that SCHR is safer and better than BND isn't anywhere near as clear as you seem to think it is. Here's the shared history of the two funds:

Source



I think the most honest answer is that it's not at all clear which of them you would rather have had: SCHR (blue line) or BND (red). In fact, they've done roughly the same. SCHR has indeed been "safer," measured by standard deviation (volatility) and max drawdown, but not by much. It's not as if SCHR didn't suffer a -15% dip in 2022. (At the exact same time as stocks). But it also made less money. Not much less, but less. The Sharpe and Sortino ratios are measures of how much return you are getting for the risk you are taking, and both of them say that over the life of the two funds, the extra risk in BND paid off. BND not only made more money, it made more money per unit of risk. Again... not much. But it should be enough to put the kibosh on the idea that SCHR was obviously better.

The rationale for BND, and for all index funds, rests on financial economics theory about the "market portfolio," the set of all assets held in a single market. Under a set of assumptions, including choices for measuring risk and risk-adjusted-return, the theory says that market portfolio has higher risk-adjusted return than any other weighting. It's only a theory. And there have always been questions about whether it applies because there is no single, unified "bond market" the way there is in stocks. And there are quibbles about the specific index and its methodology.

The idea of going 100% Treasury is quite familiar in this forum. The late David Swensen, manager of the Yale endowment portfolio, advocated it. And William J. Bernstein, who sometimes posts in the forum and recently published a new addition of his classic book, The Four Pillars of Investing, does, too.

But so is the idea that BND has too much in Treasury and government issues! John C. Bogle argued that ordinary investors were missing out by not having enough in corporate bonds, and argued that the Bloomberg Aggregate Index was flawed because of high foreign ownership of Treasuries, and that the index did not reflect the way typical American investors actually invested.

Now my personal schtick is that both SCHR and BND are flawed by missing the elephant in the room: inflation. Neither of them provides direct inflation protection. So my personal perference is for a TIPS fund--in my case VAIPX, but for people who want ETFs there is iShares TIP. I happen to think intermediate-term TIPS funds are "safer and better" than BND. Well-informed, intelligent people disagree with me.

But this is not as simple or as cut-and-dried as you make it out to be.

The last observation I would make is that if you look at portfolios that have a meaningful amount of stocks in them, and backtest such a portfolio with different choices for the bonds, it becomes clear very quickly that the risk and return behavior is heavily dominated by the stocks, and that plugging in different choices for the bonds makes surprisingly little difference and is surprisingly unimportant. So lets try SCHR versus BND in a portfolio. Let's say, 60% stocks, split 70/30 between US and international, and 40% bonds, and let's try out SCHR for the bonds in the first portfolio (blue line), BND for the second.

Source



You can try to put a microscope on the differences, but the salient thing is how little difference there is.

Both in financial economics theory and in real-world history, BND and other aggregate-index bond funds have been a darned good choice. And you are overconfident if you are dead sure SCHR is better--and very overconfident if you are sure it is way better.

You have decided to focus on SCHR vs. BND risk adjusted performance. I am NOT telling everyone to replace BND with SCHR or that SCHR is a much better or much safer choice. It happens to be a better fund if you live in a high tax state and hold SCHR in a large taxable account. And yes SCHR did go down in 2022, but the reason is not because stocks went down that year. Just because bonds and stocks went down a lot one year doesn't mean that bonds and stocks are correlated.

Treasury bonds are safer in the sense that they are less correlated to stocks when compared to corporate bonds. Please take a look at March of 2020 when the covid crash in stocks occurred. Please compare SCHR vs BND during the March 2020 covid crash. Bonds should serve as the safe part of a portfolio when stocks crash. I am not saying that SCHR will outperform BND. I am saying that treasury bonds are safer than a mix of treasury and corporate bonds of similar duration and I like to keep the bond portion of my portfolio safe. Returns come from the stock side of my portfolio. My bond side is very safe, but my overall portfolio returns are still very good.

[er999]

...Why is BND considered the best choice by bogleheads for the fixed income side of the portfolio?..

BND is a low-cost index fund/etf that provides reasonable returns with reasonable risk that is reflective of the total US bond market.

The bond market has seen remarkable turmoil due to interest rate changes in the last two years so many investors who do not want principle risk have moved some or all of their fixed-income holdings to CDs or treasuries. Traditionally fixed-income holdings have served a ballast function in a portfolio. When the fixed-income market again stablilizes many investors will return to BND, simply because using BND is easier than a DIY approach for equivalent returns.

Thanks for this info. I don't like BND because it can lose a lot and is risky to buy and hold. I like to keep my fixed income very safe. But when I see opportunities I like to buy longer term treasuries.

If you don’t think long term bonds can lose a lot I’d look at VGLT behavior (vanguard long term treasuries) — dropped nearly 30% in 2022. BND dropped but not as much.

BND is safer since it is intermediare term and won’t lose as much if rates rise. Conversely, BND won’t make as much if rates fall as long term treasuries. It might be a good time to speculate with long term bonds but personally I’d suggest long term tips instead, held to maturity, to limit inflation risk.

[smartinvestor2020]

...Why is BND considered the best choice by bogleheads for the fixed income side of the portfolio?..

BND is a low-cost index fund/etf that provides reasonable returns with reasonable risk that is reflective of the total US bond market.

The bond market has seen remarkable turmoil due to interest rate changes in the last two years so many investors who do not want principle risk have moved some or all of their fixed-income holdings to CDs or treasuries. Traditionally fixed-income holdings have served a ballast function in a portfolio. When the fixed-income market again stablilizes many investors will return to BND, simply because using BND is easier than a DIY approach for equivalent returns.

Thanks for this info. I don't like BND because it can lose a lot and is risky to buy and hold. I like to keep my fixed income very safe. But when I see opportunities I like to buy longer term treasuries.

If you don’t think long term bonds can lose a lot I’d look at VGLT behavior (vanguard long term treasuries) — dropped nearly 30% in 2022. BND dropped but not as much.

BND is safer since it is intermediare term and won’t lose as much if rates rise. Conversely, BND won’t make as much if rates fall as long term treasuries. It might be a good time to speculate with long term bonds but personally I’d suggest long term tips instead, held to maturity, to limit inflation risk.

I am referring to individual long term treasury bonds, not an ETF like TLT or EDV which is very risky.

For example if I buy a 10 year treasury bond with a 4.3% yield and hold to maturity, where is the risk?

I see an opportunity to lock in longer term rates in individual treasury bonds. I'm not telling everyone to buy TLT or EDV or other long term treasury bond ETFs because now is a good TIME because I cannot reliably say when to get in or out of bond funds as I stated before. I cannot perfectly time the bond market.

[rich126]

There isn't anything wrong if you want a low/no risk 4%+ return with buying treasuries. Many feel a long term 4%+ return is fine. It certainly won't make you wealthy but clearly has very little risk and in the long term should give up a slight bit of a real return.

Almost all of my fixed income is in treasuries. I personally prefer treasuries or CDs over bond funds and don't think I could ever imagine having 30-50% in a bond fund but that is me. I don't want a fund that at times will lose money, obviously at times it can also gain money like the decade or 2 starting back around 2000.

You can buy 2 yr treasuries yielding around 5%, and 5 year at 4.5% and even 10 yrs at 4.33. Of course when they mature you have to figure out whether to roll them over or maybe you need them for retirement expenses.

I'm not sure what happened here but on other financial forums I can tell you I heard nothing but "rates can't get lower" for nearly 20 years and yet they did until the bubble finally burst with interest rates. Sometimes in investing it is best to hedge your bets. While you can make big money going all in on an investment my philosophy in life is to avoid the big loss, whether it is job related, investment related, relationships, etc.

[smartinvestor2020]

There isn't anything wrong if you want a low/no risk 4%+ return with buying treasuries. Many feel a long term 4%+ return is fine. It certainly won't make you wealthy but clearly has very little risk and in the long term should give up a slight bit of a real return.

Almost all of my fixed income is in treasuries. I personally prefer treasuries or CDs over bond funds and don't think I could ever imagine having 30-50% in a bond fund but that is me. I don't want a fund that at times will lose money, obviously at times it can also gain money like the decade or 2 starting back around 2000.

You can buy 2 yr treasuries yielding around 5%, and 5 year at 4.5% and even 10 yrs at 4.33. Of course when they mature you have to figure out whether to roll them over or maybe you need them for retirement expenses.

I'm not sure what happened here but on other financial forums I can tell you I heard nothing but "rates can't get lower" for nearly 20 years and yet they did until the bubble finally burst with interest rates. Sometimes in investing it is best to hedge your bets. While you can make big money going all in on an investment my philosophy in life is to avoid the big loss, whether it is job related, investment related, relationships, etc.

Thanks for this post. I prefer individual treasury bonds over bond funds. Bonds should be safe and should not go down when stocks crash.

[edge]

I keep durations short and quality high. Returns are lower but correlation to equity and drawdown are lower which somewhat offset lower returns in the portfolio construct.

This can be done with bond funds without much concern eg Vfirx and vtip.

[tibbitts]

Thanks for this post. I prefer individual treasury bonds over bond funds. Bonds should be safe and should not go down when stocks crash.

And yet as we've just seen, bonds can sometimes go down when stocks go down, so I'm not understanding this point. The fact that you may choose not to mark-to-market as bond funds do doesn't change the fact that the bonds you held went down.

[rebellovw]

...Why is BND considered the best choice by bogleheads for the fixed income side of the portfolio?

There are so many safer and better choices out there. For example, I'd rather choose SCHR which is the Schwab intermediate treasury bond etf over BND because treasury bonds are not correlated to stocks and safer than BND....

If you think "Treasury bonds are not correlated to stocks" then I wonder where you were in 2022.

The idea that SCHR is safer and better than BND isn't anywhere near as clear as you seem to think it is. Here's the shared history of the two funds:

Source



I think the most honest answer is that it's not at all clear which of them you would rather have had: SCHR (blue line) or BND (red). In fact, they've done roughly the same. SCHR has indeed been "safer," measured by standard deviation (volatility) and max drawdown, but not by much. It's not as if SCHR didn't suffer a -15% dip in 2022. (At the exact same time as stocks). But it also made less money. Not much less, but less. The Sharpe and Sortino ratios are measures of how much return you are getting for the risk you are taking, and both of them say that over the life of the two funds, the extra risk in BND paid off. BND not only made more money, it made more money per unit of risk. Again... not much. But it should be enough to put the kibosh on the idea that SCHR was obviously better.

The rationale for BND, and for all index funds, rests on financial economics theory about the "market portfolio," the set of all assets held in a single market. Under a set of assumptions, including choices for measuring risk and risk-adjusted-return, the theory says that market portfolio has higher risk-adjusted return than any other weighting. It's only a theory. And there have always been questions about whether it applies because there is no single, unified "bond market" the way there is in stocks. And there are quibbles about the specific index and its methodology.

The idea of going 100% Treasury is quite familiar in this forum. The late David Swensen, manager of the Yale endowment portfolio, advocated it. And William J. Bernstein, who sometimes posts in the forum and recently published a new addition of his classic book, The Four Pillars of Investing, does, too.

But so is the idea that BND has too much in Treasury and government issues! John C. Bogle argued that ordinary investors were missing out by not having enough in corporate bonds, and argued that the Bloomberg Aggregate Index was flawed because of high foreign ownership of Treasuries, and that the index did not reflect the way typical American investors actually invested.

Now my personal schtick is that both SCHR and BND are flawed by missing the elephant in the room: inflation. Neither of them provides direct inflation protection. So my personal perference is for a TIPS fund--in my case VAIPX, but for people who want ETFs there is iShares TIP. I happen to think intermediate-term TIPS funds are "safer and better" than BND. Well-informed, intelligent people disagree with me.

But this is not as simple or as cut-and-dried as you make it out to be.

The last observation I would make is that if you look at portfolios that have a meaningful amount of stocks in them, and backtest such a portfolio with different choices for the bonds, it becomes clear very quickly that the risk and return behavior is heavily dominated by the stocks, and that plugging in different choices for the bonds makes surprisingly little difference and is surprisingly unimportant. So lets try SCHR versus BND in a portfolio. Let's say, 60% stocks, split 70/30 between US and international, and 40% bonds, and let's try out SCHR for the bonds in the first portfolio (blue line), BND for the second.

Source



You can try to put a microscope on the differences, but the salient thing is how little difference there is.

Both in financial economics theory and in real-world history, BND and other aggregate-index bond funds have been a darned good choice. And you are overconfident if you are dead sure SCHR is better--and very overconfident if you are sure it is way better.

You have decided to focus on SCHR vs. BND risk adjusted performance. I am NOT telling everyone to replace BND with SCHR or that SCHR is a much better or much safer choice. It happens to be a better fund if you live in a high tax state and hold SCHR in a large taxable account. And yes SCHR did go down in 2022, but the reason is not because stocks went down that year. Just because bonds and stocks went down a lot one year doesn't mean that bonds and stocks are correlated.

Treasury bonds are safer in the sense that they are less correlated to stocks when compared to corporate bonds. Please take a look at March of 2020 when the covid crash in stocks occurred. Please compare SCHR vs BND during the March 2020 covid crash. Bonds should serve as the safe part of a portfolio when stocks crash. I am not saying that SCHR will outperform BND. I am saying that treasury bonds are safer than a mix of treasury and corporate bonds of similar duration and I like to keep the bond portion of my portfolio safe. Returns come from the stock side of my portfolio. My bond side is very safe, but my overall portfolio returns are still very good.

That is your response to nisiprius wonderful and very detailed and well thought out post? I have nothing for you.

Thanks nisiprius - love your posts.

[Kenkat]

If interest rates go up again, your individual bonds are going to go down in value, just like BND. Whether you choose to look or not is up to you but it doesn’t change the numbers. Yes, you can hold to maturity and get your money back, but you will also realize below market interest payments for the duration of your investment. BND will also go down but eventually buy higher yielding securities and may eventually end up higher overall. There’s no magic solution here.

[muffins14]

...Why is BND considered the best choice by bogleheads for the fixed income side of the portfolio?..

BND is a low-cost index fund/etf that provides reasonable returns with reasonable risk that is reflective of the total US bond market.

The bond market has seen remarkable turmoil due to interest rate changes in the last two years so many investors who do not want principle risk have moved some or all of their fixed-income holdings to CDs or treasuries. Traditionally fixed-income holdings have served a ballast function in a portfolio. When the fixed-income market again stablilizes many investors will return to BND, simply because using BND is easier than a DIY approach for equivalent returns.

Thanks for this info. I don't like BND because it can lose a lot and is risky to buy and hold. I like to keep my fixed income very safe. But when I see opportunities I like to buy longer term treasuries.

This is somewhat at odds with itself.

Long term treasuries are more volatile with interest rates. More than BND. Unless you are extremely concerned with credit risk, I’d argue BND would be less “risky” or less volatile than long term treasuries.

Just because you are talking about an individual bond rather than a fund doesn’t mean your investment is more stable. Your bond loses value just like a bond fund does when interest rates change.

However I do agree that *in the context of a portfolio* it is often better to have long term treasuries and stocks than BND and stocks. But your post read more like you were talking about bonds in isolation

[Taylor Larimore]

Bogleheads:

Most bond trades are made by professional bond traders who know much more about bonds than we do. They have made Vanguard's Total Bond Market Index Fund the largest bond fund in the world.

When out-of-step in a parade, it is usually a good idea to reconsider what you are doing.

Best wishes.
Taylor

Jack Bogle's Words of Wisdom: "Deep down, I remain absolutely confident that the vast majority of American families will be well served by owning their equity holding in an all-U.S stock-market index portfolio and holding their bonds in an all-U.S. bond-market portfolio."

[muffins14]

...Why is BND considered the best choice by bogleheads for the fixed income side of the portfolio?..

BND is a low-cost index fund/etf that provides reasonable returns with reasonable risk that is reflective of the total US bond market.

The bond market has seen remarkable turmoil due to interest rate changes in the last two years so many investors who do not want principle risk have moved some or all of their fixed-income holdings to CDs or treasuries. Traditionally fixed-income holdings have served a ballast function in a portfolio. When the fixed-income market again stablilizes many investors will return to BND, simply because using BND is easier than a DIY approach for equivalent returns.

Thanks for this info. I don't like BND because it can lose a lot and is risky to buy and hold. I like to keep my fixed income very safe. But when I see opportunities I like to buy longer term treasuries.

If you don’t think long term bonds can lose a lot I’d look at VGLT behavior (vanguard long term treasuries) — dropped nearly 30% in 2022. BND dropped but not as much.

BND is safer since it is intermediare term and won’t lose as much if rates rise. Conversely, BND won’t make as much if rates fall as long term treasuries. It might be a good time to speculate with long term bonds but personally I’d suggest long term tips instead, held to maturity, to limit inflation risk.

I am referring to individual long term treasury bonds, not an ETF like TLT or EDV which is very risky.

For example if I buy a 10 year treasury bond with a 4.3% yield and hold to maturity, where is the risk?

What do you think bond funds hold? They hold individual bonds.

Just because you plan to hold to maturity doesn’t mean your bond doesn’t lose value when interest rates change. If you needed liquidity and had to sell, you’d take that loss just like a bond fund is showing as they are marked to market.

likewise if I hold my bond fund, the coupon payments increase as yields rise, somewhat offset the loss on paper over time and eventually catch up. If I have no plans to sell, the volatility doesn’t effect me, just like it doesn’t affect you with your individual bond

[Outer Marker]

I think it's safer to stay on the short end of an inverted yield curve. I'm not willing to go longer to "lock in" lower rates than are currently on offer in 100% safe CD's money market, etc. I'm willing to consider longer duration only if its paying a premium to short term. I'm reluctantly holding BND in my 401K, becasause it's paying 4% vs. 2% I can earn in stable value. If I had access to Money Market at 5%, I'd be doing that and feeling "safer" with more yield and less risk.

[nisiprius]

You have decided to focus on SCHR vs. BND risk adjusted performance.

Both risk-adjusted performance AND just plain performance. SCHR slightly underperformed. I had to focus on something, and you didn't spell out what you meant by SCHR being a "safer and better choice."

I am NOT telling everyone to replace BND with SCHR or that SCHR is a much better or much safer choice. I

Sorry, I misinterpreted

...Why is BND considered the best choice by bogleheads for the fixed income side of the portfolio? There are so many safer and better choices out there. For example, I'd rather choose SCHR...

Certainly, depending on personal considerations, for investors with specific needs there could be better choices than BND. For example, if you're in one of the highest tax brackets, a tax-exempt bond fund might be better than either BND or SCHR.

BND is not the best choice for everyone, but I think it is a good choice for most retirement savers. It is reasonable to call it the first fund to consider, and for many investors there's no reason to go any farther. I think it is hard to name some other fund that would be a better as a default suggestion or starting place.

[chrisdds98]

...Why is BND considered the best choice by bogleheads for the fixed income side of the portfolio?

There are so many safer and better choices out there. For example, I'd rather choose SCHR which is the Schwab intermediate treasury bond etf over BND because treasury bonds are not correlated to stocks and safer than BND....

If you think "Treasury bonds are not correlated to stocks" then I wonder where you were in 2022.

The idea that SCHR is safer and better than BND isn't anywhere near as clear as you seem to think it is. Here's the shared history of the two funds:

Source



I think the most honest answer is that it's not at all clear which of them you would rather have had: SCHR (blue line) or BND (red). In fact, they've done roughly the same. SCHR has indeed been "safer," measured by standard deviation (volatility) and max drawdown, but not by much. It's not as if SCHR didn't suffer a -15% dip in 2022. (At the exact same time as stocks). But it also made less money. Not much less, but less. The Sharpe and Sortino ratios are measures of how much return you are getting for the risk you are taking, and both of them say that over the life of the two funds, the extra risk in BND paid off. BND not only made more money, it made more money per unit of risk. Again... not much. But it should be enough to put the kibosh on the idea that SCHR was obviously better.

The rationale for BND, and for all index funds, rests on financial economics theory about the "market portfolio," the set of all assets held in a single market. Under a set of assumptions, including choices for measuring risk and risk-adjusted-return, the theory says that market portfolio has higher risk-adjusted return than any other weighting. It's only a theory. And there have always been questions about whether it applies because there is no single, unified "bond market" the way there is in stocks. And there are quibbles about the specific index and its methodology.

The idea of going 100% Treasury is quite familiar in this forum. The late David Swensen, manager of the Yale endowment portfolio, advocated it. And William J. Bernstein, who sometimes posts in the forum and recently published a new addition of his classic book, The Four Pillars of Investing, does, too.

But so is the idea that BND has too much in Treasury and government issues! John C. Bogle argued that ordinary investors were missing out by not having enough in corporate bonds, and argued that the Bloomberg Aggregate Index was flawed because of high foreign ownership of Treasuries, and that the index did not reflect the way typical American investors actually invested.

Now my personal schtick is that both SCHR and BND are flawed by missing the elephant in the room: inflation. Neither of them provides direct inflation protection. So my personal perference is for a TIPS fund--in my case VAIPX, but for people who want ETFs there is iShares TIP. I happen to think intermediate-term TIPS funds are "safer and better" than BND. Well-informed, intelligent people disagree with me.

But this is not as simple or as cut-and-dried as you make it out to be.

The last observation I would make is that if you look at portfolios that have a meaningful amount of stocks in them, and backtest such a portfolio with different choices for the bonds, it becomes clear very quickly that the risk and return behavior is heavily dominated by the stocks, and that plugging in different choices for the bonds makes surprisingly little difference and is surprisingly unimportant. So lets try SCHR versus BND in a portfolio. Let's say, 60% stocks, split 70/30 between US and international, and 40% bonds, and let's try out SCHR for the bonds in the first portfolio (blue line), BND for the second.

Source



You can try to put a microscope on the differences, but the salient thing is how little difference there is.

Both in financial economics theory and in real-world history, BND and other aggregate-index bond funds have been a darned good choice. And you are overconfident if you are dead sure SCHR is better--and very overconfident if you are sure it is way better.

wow, what a great post. I also prefer TIPS but am doing a barbell currently (LTPZ/VTIP). with the yield curve inverted it seems like the barbell makes more sense than the bullet approach. I also like long treasuries because they seem to be (besides 2022!) the least correlated to equities during downturns.

[smartinvestor2020]

I think it's safer to stay on the short end of an inverted yield curve. I'm not willing to go longer to "lock in" lower rates than are currently on offer in 100% safe CD's money market, etc. I'm willing to consider longer duration only if its paying a premium to short term. I'm reluctantly holding BND in my 401K, becasause it's paying 4% vs. 2% I can earn in stable value. If I had access to Money Market at 5%, I'd be doing that and feeling "safer" with more yield and less risk.

I agree with you that currently short term treasuries are a better choice. In fact, I have been concentrated in short term treasuries for a while now, but at some point I see a decline in short term rates which is why at some point I want to own longer term treasuries.

[the_wiki]

I personally think a bit of active management makes sense with bonds. I use Dodge and Cox Bond (DODIX) myself.

[smartinvestor2020]

You have decided to focus on SCHR vs. BND risk adjusted performance.

Both risk-adjusted performance AND just plain performance. SCHR slightly underperformed. I had to focus on something, and you didn't spell out what you meant by SCHR being a "safer and better choice."

I am NOT telling everyone to replace BND with SCHR or that SCHR is a much better or much safer choice. I

Sorry, I misinterpreted

...Why is BND considered the best choice by bogleheads for the fixed income side of the portfolio? There are so many safer and better choices out there. For example, I'd rather choose SCHR...

Certainly, depending on personal considerations, for investors with specific needs there could be better choices than BND. For example, if you're in one of the highest tax brackets, a tax-exempt bond fund might be better than either BND or SCHR.

BND is not the best choice for everyone, but I think it is a good choice for most retirement savers. It is reasonable to call it the first fund to consider, and for many investors there's no reason to go any farther. I think it is hard to name some other fund that would be a better as a default suggestion or starting place.

BND is riskier than I want out of a bond fund. It may be ok for young people who don't have much to lose, but I'm not ok holding my entire bond portion in BND. I look at risk much more carefully than your average investor. If the bond portion of my portfolio can crash 20%, that's not ok with me.

I just do not personally like to take risk on the bond side of my portfolio. I would rather hold short term treasury etfs like SCHO over the long term knowing that my money is safe during a stock market crash. The returns will be lower, but my money will be safer during a stock market crash.

Right now, SGOV, SHV, and SCHO are safe choices with high yield. In the long run, it is likely that short term yields will fall. I plan to move from short term to intermediate and long term when rates are better than short term.

[Outer Marker]

I think it's safer to stay on the short end of an inverted yield curve. I'm not willing to go longer to "lock in" lower rates than are currently on offer in 100% safe CD's money market, etc. I'm willing to consider longer duration only if its paying a premium to short term. I'm reluctantly holding BND in my 401K, becasause it's paying 4% vs. 2% I can earn in stable value. If I had access to Money Market at 5%, I'd be doing that and feeling "safer" with more yield and less risk.

I agree with you that currently short term treasuries are a better choice. In fact, I have been concentrated in short term treasuries for a while now, but at some point I see a decline in short term rates which is why at some point I want to own longer term treasuries.

It's impossible to predict when that will be, so I'm content on simply taking the highest return that's offered on the short side of the yield curve. When longer duration bonds start paying more than short, I'd consider them a potentially more attractive alternative. I'm not willing to gamble on rates going down when I'm better rewarded with less risk holding shorter duration.

[smartinvestor2020]

Thanks for this info. I don't like BND because it can lose a lot and is risky to buy and hold. I like to keep my fixed income very safe. But when I see opportunities I like to buy longer term treasuries.

You have missed the main point of my post. I am saying that there are better options to buy and hold such as SCHR.

This is frankly absurd and tells me you haven't spent five minutes actually thinking about this. Why even bother posting if you haven't compared the funds first?

When I say "better" and "safer" I am NOT saying the performance of SCHR is better than BND.

I am referring to safety during stock market crashes. As I said before treasury bonds are safer than corporate bonds during a stock market crash.

SCHR is better than BND in terms of safety during a market crash. I'm not saying SCHR cannot crash or performs better than BND over the long run.

[smartinvestor2020]

I think it's safer to stay on the short end of an inverted yield curve. I'm not willing to go longer to "lock in" lower rates than are currently on offer in 100% safe CD's money market, etc. I'm willing to consider longer duration only if its paying a premium to short term. I'm reluctantly holding BND in my 401K, becasause it's paying 4% vs. 2% I can earn in stable value. If I had access to Money Market at 5%, I'd be doing that and feeling "safer" with more yield and less risk.

I agree with you that currently short term treasuries are a better choice. In fact, I have been concentrated in short term treasuries for a while now, but at some point I see a decline in short term rates which is why at some point I want to own longer term treasuries.

It's impossible to predict when that will be, so I'm content on simply taking the highest return that's offered on the short side of the yield curve. When longer duration bonds start paying more than short, I'd consider them a potentially more attractive alternative. I'm not willing to gamble on rates going down when I'm better rewarded with less risk holding shorter duration.

I agree with you. I have given the wrong impression with my original post. I don't intend to buy intermediate or long term treasuries until I clearly see short term rates below longer term rates.

[anagram]

There isn't anything wrong if you want a low/no risk 4%+ return with buying treasuries. Many feel a long term 4%+ return is fine. It certainly won't make you wealthy but clearly has very little risk and in the long term should give up a slight bit of a real return.

Almost all of my fixed income is in treasuries. I personally prefer treasuries or CDs over bond funds and don't think I could ever imagine having 30-50% in a bond fund but that is me. I don't want a fund that at times will lose money, obviously at times it can also gain money like the decade or 2 starting back around 2000.

You can buy 2 yr treasuries yielding around 5%, and 5 year at 4.5% and even 10 yrs at 4.33. Of course when they mature you have to figure out whether to roll them over or maybe you need them for retirement expenses.

I'm not sure what happened here but on other financial forums I can tell you I heard nothing but "rates can't get lower" for nearly 20 years and yet they did until the bubble finally burst with interest rates. Sometimes in investing it is best to hedge your bets. While you can make big money going all in on an investment my philosophy in life is to avoid the big loss, whether it is job related, investment related, relationships, etc.

What did you do with fixed income from 2000 to 2020 to avoid the big loss?

[anagram]

Thanks for this post. I prefer individual treasury bonds over bond funds. Bonds should be safe and should not go down when stocks crash.

And yet as we've just seen, bonds can sometimes go down when stocks go down, so I'm not understanding this point. The fact that you may choose not to mark-to-market as bond funds do doesn't change the fact that the bonds you held went down.

True but when the bond or bonds matured they did not go down, unlike TBM which went down 20%. If you needed to sell some TBM at that time to rebalance or for living expenses you were much worse off than the person holding individual bonds.

[anagram]

BND is a low-cost index fund/etf that provides reasonable returns with reasonable risk that is reflective of the total US bond market.

The bond market has seen remarkable turmoil due to interest rate changes in the last two years so many investors who do not want principle risk have moved some or all of their fixed-income holdings to CDs or treasuries. Traditionally fixed-income holdings have served a ballast function in a portfolio. When the fixed-income market again stablilizes many investors will return to BND, simply because using BND is easier than a DIY approach for equivalent returns.

Thanks for this info. I don't like BND because it can lose a lot and is risky to buy and hold. I like to keep my fixed income very safe. But when I see opportunities I like to buy longer term treasuries.

If you don’t think long term bonds can lose a lot I’d look at VGLT behavior (vanguard long term treasuries) — dropped nearly 30% in 2022. BND dropped but not as much.

BND is safer since it is intermediare term and won’t lose as much if rates rise. Conversely, BND won’t make as much if rates fall as long term treasuries. It might be a good time to speculate with long term bonds but personally I’d suggest long term tips instead, held to maturity, to limit inflation risk.

I am referring to individual long term treasury bonds, not an ETF like TLT or EDV which is very risky.

For example if I buy a 10 year treasury bond with a 4.3% yield and hold to maturity, where is the risk?

What do you think bond funds hold? They hold individual bonds.

Just because you plan to hold to maturity doesn’t mean your bond doesn’t lose value when interest rates change. If you needed liquidity and had to sell, you’d take that loss just like a bond fund is showing as they are marked to market.

likewise if I hold my bond fund, the coupon payments increase as yields rise, somewhat offset the loss on paper over time and eventually catch up. If I have no plans to sell, the volatility doesn’t effect me, just like it doesn’t affect you with your individual bond

How did you rebalance in 2022? The eventual catch up may take 2D-1 which is around 14 years. That is a very long eventual.

[KlangFool]

You seem to be saying that you have a procedure for determining when to shift between different types and maturities/durations of bonds. If so, what is it, and have you backtested it?

I am saying that now is a good time to lock in longer term rates on treasury bonds.

smartinvestor2020,

How do you know this?

If you really know this, plenty of the Wall Street firms would like to hire you and pay you a lot of money.

KlangFool

[anagram]

You have decided to focus on SCHR vs. BND risk adjusted performance.

Both risk-adjusted performance AND just plain performance. SCHR slightly underperformed. I had to focus on something, and you didn't spell out what you meant by SCHR being a "safer and better choice."

I am NOT telling everyone to replace BND with SCHR or that SCHR is a much better or much safer choice. I

Sorry, I misinterpreted

...Why is BND considered the best choice by bogleheads for the fixed income side of the portfolio? There are so many safer and better choices out there. For example, I'd rather choose SCHR...

Certainly, depending on personal considerations, for investors with specific needs there could be better choices than BND. For example, if you're in one of the highest tax brackets, a tax-exempt bond fund might be better than either BND or SCHR.

BND is not the best choice for everyone, but I think it is a good choice for most retirement savers. It is reasonable to call it the first fund to consider, and for many investors there's no reason to go any farther. I think it is hard to name some other fund that would be a better as a default suggestion or starting place.

BND is riskier than I want out of a bond fund. It may be ok for young people who don't have much to lose, but I'm not ok holding my entire bond portion in BND. I look at risk much more carefully than your average investor. If the bond portion of my portfolio can crash 20%, that's not ok with me.

I just do not personally like to take risk on the bond side of my portfolio. I would rather hold short term treasury etfs like SCHO over the long term knowing that my money is safe during a stock market crash. The returns will be lower, but my money will be safer during a stock market crash.

Right now, SGOV, SHV, and SCHO are safe choices with high yield. In the long run, it is likely that short term yields will fall. I plan to move from short term to intermediate and long term when rates are better than short term.

Bloomberg US Treasury 1-3 Year Index. Dr Bernstein would likely agree with you here. I'm not sure why you would want to move from short term to intermediate and long term later on if you are seeking safety on the fixed income side.

[smartinvestor2020]

You seem to be saying that you have a procedure for determining when to shift between different types and maturities/durations of bonds. If so, what is it, and have you backtested it?

I am saying that now is a good time to lock in longer term rates on treasury bonds.

smartinvestor2020,

How do you know this?

If you really know this, plenty of the Wall Street firms would like to hire you and pay you a lot of money.

KlangFool

You are misinterpreting my statement to mean that I can pinpoint the best time to buy or sell bonds. I am NOT saying that this is the BEST time to buy and lock in longer term rates. I am not calling a peak in long term rates. A good time to buy just means that I think over 4% returns over 10 years is good enough for the bond side of my portfolio.

But I don't intend to move from short to intermediate or long term until the rates are clearly better than short term.

[KlangFool]

A good time to buy just means that I think over 4% returns over 10 years is good enough for the bond side of my portfolio.

smartinvestor2020,

Same question again.

How do you know that it is good enough and it is better than BND?

If it is not better than BND, why would you want to do it?

KlangFool

[Taylor Larimore]

Bogleheads:

It is informative to see how Total Bond Market interacts with the other funds in The Three-Fund Portfolio:

Past rate of inflation (CPU) and annual fund returns in The Three-Fund Portfolio:

YEAR--INFLATION--BOND INDEX--S&P 500 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 (Highest Stock Return)
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)
1993-------2.7-----------9.7----------------10.1------------------32.6
1994-------2.7---------(-2.9)----------------1.3--------------------7.6
1995-------2.5----------18.5---------------37.6-------------------11.8 (Highest S&P Index Return)
1996-------3.3-----------3.6----------------23.0--------------------7.2
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
2020-------1.4-----------7.7----------------18.4------------------11.3
2021-------7.0---------(-1.7)---------------25.7-------------------8.6
2022-------6.5--------(-13.2)-------------(-19.4)--------------(-16.0) (Lowest Bond Index Return)

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

Past performance does not forecast future performance.

Best wishes.
Taylor

Jack Bogle's Words of Wisdom: "Smart investors will save themselves lots of money--and substantially improve their returns--if they apply the same principles of broad diversification, low-cost, no-load, minimal turnover, and long-term investing when they select fixed income funds."

[Kinkajou82]

When I say "better" and "safer" I am NOT saying the performance of SCHR is better than BND.

I am referring to safety during stock market crashes. As I said before treasury bonds are safer than corporate bonds during a stock market crash.

SCHR is better than BND in terms of safety during a market crash. I'm not saying SCHR cannot crash or performs better than BND over the long run.

Ah, correct me if I'm wrong, but are you talking about safety of principal / lack of volatility then, or possibly uncorrelated or negatively correlated performance? (Either a fund's performance is unrelated to equities, or it's related in an inverse manner and dependably does the OPPOSITE of what equities do?)

I can definitely see individual treasury bonds being a good fit if that's the case. On that note, would you consider other instruments like Money market Funds, CDs, and Savings Bonds ALSO be acceptable options for you, depending on the tactical availability of good returns?

Also, are you worried about inflation's effect on your fixed income strategy, or is that out-of-scope? That is, what if inflation soars and your nominal treasuries ultimately return less than the rate of inflation? Is that a factor in this, or just not part of the discussion? (As I stated before, I Bonds are my preferred choice and therefore inflation protection IS a reason I like that option.)

A good time to buy just means that I think over 4% returns over 10 years is good enough for the bond side of my portfolio.

I found myself in much the same position a couple years ago! I had been forecasting very pessimistically that my Bond returns would actually trail inflation over the long term (I was expecting a real return of about -0.2%), but when I found out that I Bonds would keep pace with inflation no matter what I did, virtually guaranteeing a 0% real return (before taxes) I realized I could guarantee I'd hit or even better my goal just by wholly adopting I Bonds as my strategy. Now no matter what inflation is, I feel confident that my real (not nominal) rate of return on my fixed income strategy is in zero danger of lagging my goals!

I've basically locked in "good enough" and don't need to chase any more complex instruments, plus I Bonds aren't volatile at all to boot!

[smartinvestor2020]

A good time to buy just means that I think over 4% returns over 10 years is good enough for the bond side of my portfolio.

smartinvestor2020,

Same question again.

How do you know that it is good enough and it is better than BND?

If it is not better than BND, why would you want to do it?

KlangFool

Performance relative to BND is not my concern, because any treasury bond that is held to maturity is safer than BND. I look at risk and I don't like the risk of BND. It doesn't matter if BND does better over the same period that I bought treasury bonds. What matters is that the bond portion of my portfolio is safer during market crashes and rising rate environments. Now I agree that longer term 10 year treasuries will fall in price during rising rate environments. But I know that if I hold to maturity I will get back my principal. This is not the case with BND because there are many bonds that are maturing and new bonds that are purchased within the index. Principal is not guaranteed in BND.