Is it time to sell out of bond funds?

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Topic Author
PGHunt24
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Is it time to sell out of bond funds?

Post by PGHunt24 »

At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
dbr
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Joined: Sun Mar 04, 2007 8:50 am

Re: Is it time to sell out of bond funds?

Post by dbr »

PGHunt24 wrote: Fri Apr 26, 2024 8:10 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
I think you should ask VPAS why they put you in a 50/50 portfolio while "Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%." It sound like they advised a portfolio that could have and actually did deliver performance that has not met your objectives.

But, lets ask this: If you had been placed in 100% stocks and the market fell 50% and had not yet recovered, what would you think of the advice then. Presumably you were set at 50/50 because part of the advice was to determine your tolerance and preference for risk in stocks and bonds and the result was that you would not be able to accept the possible bad results in stocks. When they advised that 50/50 allocation what did they say about the possible outcomes?
Exchme
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Re: Is it time to sell out of bond funds?

Post by Exchme »

No one knows the future. Being diversified means that part of your portfolio is always disappointing, but the key thing is no one can know ahead of time which part.

Folks tend to think of markets like weather, when they see a storm coming, they want to go inside, so they start guessing about the future, jumping in and out. But markets are better thought of as the collective wisdom and knowledge about the future of everyone else, including professionals. You have about the same chance of beating that as you would racing against Olympic athletes. Buying and holding broad market funds allow you to profit from that wisdom instead of racing against it.

Stick to your plan and let the future play out.
RRJeff
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Re: Is it time to sell out of bond funds?

Post by RRJeff »

The time to sell bond funds was before they dropped in 2022. Selling now will lock in the low prices. Buy high/sell low is not the recipe for investing success. The reality is that no one knows whether stocks or bonds will outperform going forward. 50/50 allocation is very reasonable, but understand that it will often be the case that you wish you had more of whichever investment is performing better at a given time.
goblue100
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Re: Is it time to sell out of bond funds?

Post by goblue100 »

Patience is your friend. Stay the course, the higher dividends are just starting to be seen. Also, I put your portfolio into portfolio visualizer. A 100% investment into BND since 2016 is not showing a loss(portfolio 2)
https://www.portfoliovisualizer.com/bac ... yVjPClxy4J
Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
Immediate annuity?
"Confusion has its cost" - Crosby, Stills and Nash
dbr
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Re: Is it time to sell out of bond funds?

Post by dbr »

You can't sell out without identifying where to invest the proceeds. Likely one good answer to that is bond funds. If you prefer you can place the proceeds in cash or cash equivalent investments. It can be pointed out that if you do that in the context of an overall investment plan and portfolio that you would probably want to increase your allocation to stocks so that the overall investment plan still promises the return you want.
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retired@50
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Re: Is it time to sell out of bond funds?

Post by retired@50 »

PGHunt24 wrote: Fri Apr 26, 2024 8:10 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
You might benefit from reading about the sources of return for a bond in the Boglehead wiki. Focusing on the NAV of a bond fund isn't particularly helpful.

If I were you, I'd go back and look at each monthly dividend in your bond fund for the past 2 years, then see what you think.

Tell us what sort of pattern you notice in the dollar amount of your monthly dividend...

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
Topic Author
PGHunt24
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Re: Is it time to sell out of bond funds?

Post by PGHunt24 »

dbr wrote: Fri Apr 26, 2024 8:20 am
PGHunt24 wrote: Fri Apr 26, 2024 8:10 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
I think you should ask VPAS why they put you in a 50/50 portfolio while "Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%." It sound like they advised a portfolio that could have and actually did deliver performance that has not met your objectives.

But, lets ask this: If you had been placed in 100% stocks and the market fell 50% and had not yet recovered, what would you think of the advice then. Presumably you were set at 50/50 because part of the advice was to determine your tolerance and preference for risk in stocks and bonds and the result was that you would not be able to accept the possible bad results in stocks. When they advised that 50/50 allocation what did they say about the possible outcomes?
The VPAS did not talk about possible outcomes, just that bonds help to cushion stock declines. Again, I was an inexperienced investor that's why I went to Vanguard.
Topic Author
PGHunt24
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Re: Is it time to sell out of bond funds?

Post by PGHunt24 »

dbr wrote: Fri Apr 26, 2024 8:20 am
PGHunt24 wrote: Fri Apr 26, 2024 8:10 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
I think you should ask VPAS why they put you in a 50/50 portfolio while "Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%." It sound like they advised a portfolio that could have and actually did deliver performance that has not met your objectives.

But, lets ask this: If you had been placed in 100% stocks and the market fell 50% and had not yet recovered, what would you think of the advice then. Presumably you were set at 50/50 because part of the advice was to determine your tolerance and preference for risk in stocks and bonds and the result was that you would not be able to accept the possible bad results in stocks. When they advised that 50/50 allocation what did they say about the possible outcomes?
I could have left my money in CD's and made out better.
Topic Author
PGHunt24
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Re: Is it time to sell out of bond funds?

Post by PGHunt24 »

Exchme wrote: Fri Apr 26, 2024 8:37 am No one knows the future. Being diversified means that part of your portfolio is always disappointing, but the key thing is no one can know ahead of time which part.

Folks tend to think of markets like weather, when they see a storm coming, they want to go inside, so they start guessing about the future, jumping in and out. But markets are better thought of as the collective wisdom and knowledge about the future of everyone else, including professionals. You have about the same chance of beating that as you would racing against Olympic athletes. Buying and holding broad market funds allow you to profit from that wisdom instead of racing against it.

Stick to your plan and let the future play out.
Thank you for your input.
dbr
Posts: 46487
Joined: Sun Mar 04, 2007 8:50 am

Re: Is it time to sell out of bond funds?

Post by dbr »

goblue100 wrote: Fri Apr 26, 2024 9:15 am Patience is your friend. Stay the course, the higher dividends are just starting to be seen. Also, I put your portfolio into portfolio visualizer. A 100% investment into BND since 2016 is not showing a loss(portfolio 2)
https://www.portfoliovisualizer.com/bac ... yVjPClxy4J
Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
Immediate annuity?
Exactly. If the purpose is to achieve certainty in income and not deal with the uncertainty and management of a portfolio then an option is that instead of trying to hold wealth for consumption in a pile of investments you turn over the wealth to an insurance company for a contract to supply lifetime income. Then, pending solvency of the annuity plan and state insurance, you have certain income bolstered by pooling of longevity risk and you are no longer an investor.

Of course what should exist to guide that is an overall plan for where one is sourcing income as a whole. The annuity, or annuities, would be a piece of that, as is SS and any other pensions and annuities, and then investments. Also related is home ownership, long term care insurance, etc., etc. You don't just look at you bonds and say you lost money and thus the world has ended.
Church Lady
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Re: Is it time to sell out of bond funds?

Post by Church Lady »

I understand your feeling about bonds being a waste. Bonds and CDs have been a terrible holding since the Fed started interest rate increases. Ask me how I know this. :(

Ask your PAS advisor if you can do a tax swap with your bond funds. You would sell the losing funds and buy a different but similar bond fund or ETF. Then you would write the loss off on your taxes, and you wouldn't have those red numbers glaring in your face every time you log in. Very powerful psychologically, even if it is a mind game. :wink:

It's possible your personality is more suited to holding individual bonds and CDs. They drop in value when interest rates rise, but at the end of the term, you get your principal back. You can also 'double down' and increase your yield while you wait for the bond to mature. If you think you might want to sell a bond, stick to liquid issues such as Treasuries. Ask me how I know this. :( It's probably best to hold a combination of bonds, CDs, and a bond fund, using the bond fund for rebalancing. This is something to discuss with PAS.

When interest rates are cut, bonds in general will increase in value. You may recover your loss. It may take awhile. I do not know when interest rates will be cut. The Fed was hinting for months it may be soon, but lately they have been back pedaling on that. If you (or PAS) think interest rates have peaked, now is the time to buy bonds, not sell them.

Good luck!
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity.
Topic Author
PGHunt24
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Re: Is it time to sell out of bond funds?

Post by PGHunt24 »

They did not expand on the possible outcomes of the bond fund as I was a novice investor.
dbr
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Re: Is it time to sell out of bond funds?

Post by dbr »

PGHunt24 wrote: Fri Apr 26, 2024 9:23 am
dbr wrote: Fri Apr 26, 2024 8:20 am
PGHunt24 wrote: Fri Apr 26, 2024 8:10 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
I think you should ask VPAS why they put you in a 50/50 portfolio while "Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%." It sound like they advised a portfolio that could have and actually did deliver performance that has not met your objectives.

But, lets ask this: If you had been placed in 100% stocks and the market fell 50% and had not yet recovered, what would you think of the advice then. Presumably you were set at 50/50 because part of the advice was to determine your tolerance and preference for risk in stocks and bonds and the result was that you would not be able to accept the possible bad results in stocks. When they advised that 50/50 allocation what did they say about the possible outcomes?
The VPAS did not talk about possible outcomes, just that bonds help to cushion stock declines. Again, I was an inexperienced investor that's why I went to Vanguard.
Here is a chart that models the historical outcome that different asset allocations and rates of spending from the portfolio would have delivered for investors starting at different points in time. (When you are invested is the biggest determinant of outcome.) You can adjust the asset allocations and see how bonds affect the range of outcomes for different instances. https://engaging-data.com/visualizing-4-rule/

I think VPAS let you down by mumbling generalities rather than giving you a more adequate tutorial. But then I am not sure that educating investors is really their job. It would be interesting to see what they would say about the results you have gotten.

By the way, it is true that bonds do cushion stock declines and also stock gains. If you had been 100% stocks the last 8 (2016-date) years instead of 50/50 you would have turned a $10,000 investment into $28,638 instead of $18,337. You should ask them to account to you for missing out on over $10,000 in gains.
Elysium
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Re: Is it time to sell out of bond funds?

Post by Elysium »

PGHunt24 wrote: Fri Apr 26, 2024 9:23 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
Something doesn't add up. A 50/50 portfolio of VTI/BND did not earn 5.8% in last 8 1/2 years, instead it returned close to 8% as seen here. Even a standard PAS recommendation that includes 40% Intl Stocks and 40% Intl Bonds did perform better than figure you quoted. The money weighted with 4% withdrawal is good too. These ending balances and the results are pretty good, nothing to complain about. Your PAS advisor did probably do right things, they don't do crazy things over there. What's missing? Last two years bond performance in isolation is not reason to question your advisor's strategy for you.

Your portfolio would have just two negative years in the time specified, of which 2018 would have seen Bonds help by tempering stock losses, you would have been down less then 3% if following that AA, then in 2022 everything went down so there is nothing the advisor could have done unless they did market timing using a crystal ball they posses, which they don't. The returns were in line with most balanced market portfolio. The rest of the period you had a couple of really good double digit return years when both stocks and bonds produced double digits, you didn't complain then, did you?

I would suggest you continue following the PAS advisor route, as you will likely do poor if you DIY, since you may do things that as detrimental to your portfolio health by following emotions than a disciplined approach.
Last edited by Elysium on Fri Apr 26, 2024 9:44 am, edited 2 times in total.
livesoft
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Re: Is it time to sell out of bond funds?

Post by livesoft »

PGHunt24 wrote: Fri Apr 26, 2024 8:10 am .... Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
You know already today that you do not have to keep watching what's happening to the portfolio no matter what bonds have done nor what they will do.

Since life gets shorter everyday, please go do something else with your remaining time.
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Topic Author
PGHunt24
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Re: Is it time to sell out of bond funds?

Post by PGHunt24 »

Thanks to all for your input.
dbr
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Re: Is it time to sell out of bond funds?

Post by dbr »

Elysium wrote: Fri Apr 26, 2024 9:36 am
PGHunt24 wrote: Fri Apr 26, 2024 9:23 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
Something doesn't add up. A 50/50 portfolio of VTI/BND did not earn 5.8% in last 8 1/2 years, instead it returned close to 8% as seen here. Even a standard PAS recommendation that includes 40% Intl Stocks and 40% Intl Bonds did perform better than figure you quoted. The money weighted with 4% withdrawal is good too. These ending balances and the results are pretty good, nothing to complain about. Your PAS advisor did probably do right things, they don't do crazy things over there. What's missing? Last two years bond performance in isolation is not reason to question your advisor's strategy for you.
We don't know what cash flows have been involved here. It is true a fixed investment placed in that allocation 8 years ago did return nearly 8%. One possibility is that dividends were withdrawn. I put dividends not reinvested in that PV analysis and got a CAGR of 5.34%. I used the time frame Jan 2016- Mar 2024 and VTI+BND for investments.

Not being familiar with basic investment math is also a problem if the investor misunderstands the results.
Topic Author
PGHunt24
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Re: Is it time to sell out of bond funds?

Post by PGHunt24 »

Elysium wrote: Fri Apr 26, 2024 9:36 am
PGHunt24 wrote: Fri Apr 26, 2024 9:23 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
Something doesn't add up. A 50/50 portfolio of VTI/BND did not earn 5.8% in last 8 1/2 years, instead it returned close to 8% as seen here. Even a standard PAS recommendation that includes 40% Intl Stocks and 40% Intl Bonds did perform better than figure you quoted. The money weighted with 4% withdrawal is good too. These ending balances and the results are pretty good, nothing to complain about. Your PAS advisor did probably do right things, they don't do crazy things over there. What's missing? Last two years bond performance in isolation is not reason to question your advisor's strategy for you.

Your portfolio would have just two negative years in the time specified, of which 2018 would have seen Bonds help by tempering stock losses, you would have been down less then 3% if following that AA, then in 2022 everything went down so there is nothing the advisor could have done unless they did market timing using a crystal ball they posses, which they don't. The returns were in line with most balanced market portfolio. The rest of the period you had a couple of really good double digit return years when both stocks and bonds produced double digits, you didn't complain then, did you?

I would suggest you continue following the PAS advisor route, as you will likely do poor if you DIY, since you may do things that as detrimental to your portfolio health by following emotions than a disciplined approach.
OK thanks for your information.
Elysium
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Re: Is it time to sell out of bond funds?

Post by Elysium »

dbr wrote: Fri Apr 26, 2024 9:42 am
Elysium wrote: Fri Apr 26, 2024 9:36 am
PGHunt24 wrote: Fri Apr 26, 2024 9:23 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
Something doesn't add up. A 50/50 portfolio of VTI/BND did not earn 5.8% in last 8 1/2 years, instead it returned close to 8% as seen here. Even a standard PAS recommendation that includes 40% Intl Stocks and 40% Intl Bonds did perform better than figure you quoted. The money weighted with 4% withdrawal is good too. These ending balances and the results are pretty good, nothing to complain about. Your PAS advisor did probably do right things, they don't do crazy things over there. What's missing? Last two years bond performance in isolation is not reason to question your advisor's strategy for you.
We don't know what cash flows have been involved here. It is true a fixed investment placed in that allocation 8 years ago did return nearly 8%. One possibility is that dividends were withdrawn. I put dividends not reinvested in that PV analysis and got a CAGR of 5.34%. I used the time frame Jan 2016- Mar 2024 and VTI+BND for investments.

Not being familiar with basic investment math is also a problem if the investor misunderstands the results.
I see, okay makes sense. The end result is the portfolio did track close to market returns and there could not be anything the PAS advisor done different than going short duration or cash outright instead of bonds in 2021. We know that type of stuff is promised by big wealth management houses but they never succeed, and PAS is not going to do it, neither would DIY BH advice. I guess OP just need some reassurance he is doing well. Based on what he said about a 50/50 balanced portfolio it seems he is doing fine.
Topic Author
PGHunt24
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Re: Is it time to sell out of bond funds?

Post by PGHunt24 »

goblue100 wrote: Fri Apr 26, 2024 9:15 am Patience is your friend. Stay the course, the higher dividends are just starting to be seen. Also, I put your portfolio into portfolio visualizer. A 100% investment into BND since 2016 is not showing a loss(portfolio 2)
https://www.portfoliovisualizer.com/bac ... yVjPClxy4J
Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
Immediate annuity?
Thank you for your advice.
hoofaman
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Re: Is it time to sell out of bond funds?

Post by hoofaman »

remove
Last edited by hoofaman on Fri Apr 26, 2024 9:55 am, edited 2 times in total.
gavinsiu
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Re: Is it time to sell out of bond funds?

Post by gavinsiu »

I think your advisor is not correct to put you in 50/50. First, the reason you have multiple asset in your portfolio is to diversify and attempt to smooth your your return by allowing one part to over perform while another under perform. If you attempt to compare the performance of each component, you are always going to be disappointed that one part under perform. For example, stocks during 2000-2010 returned 1.20% for the decade, -1.20% after inflation. In 2010, you would have concluded that stock for the long run is sham, put it all into bonds and end up missing out a giant bull market. If you had a 50/50, you would have gotten a better return (4.28%) for that decade and next decade

No portfolio is bullet proof, you cannot create a portfolio that can avoid all down market. It's going to do poorly in time periods, sometimes these time period will be long. However, there is no easy way to time the market. If you could time the market, you would probably out perform Warren Buffet.

50/50 is a pretty neutral portfolio. You will notice that 2022, it did cushion the fall a bit. A 100% stock portfolio would be resulted in -19% in 2022 instead of -16%, this may be small consoldation, but in previous stock market fall, the difference were greater. In 2008 for example, a 100% stock would have fell -37% while a 50/50 would have returned -16%.

I would recommend sticking to your plan, and rebalance, but let's do a what's if
  • If you stick to your plan, your bond fund will eventually recover since it is being replaced by new bonds as the old ones mature. This will eventually raise your return. If the rates drop, your bond will increase in value. If the interest rate rises, your bond will take more damage.
  • If you replace your bond funds with shorter duration, you will make less in the long term. Your interest rate risk will drop because you are less sensitivity to interest rate hike. The reverse is true, if the interest rate drops, you won't be able to take advantage.
  • If you go to cash, then you will lose out more long term return, but in the short term you gain because short term is higher than longer term. However, if the interest rate drops, then so does your return. Remember that a few years ago, the interest rate was near zero. However, if the interest rate rises, you will win out.
  • If you go 100% stock, you will get long term return, but you can lose 40% next year. It is not recommended that you do this in retirement if you are withdrawiing since you can deplete your portfolio.
Note my 82 mom uses a 70% bond/30% Stock portfolio. Such a portfolio is actually very stable except in some years like 2022.
Last edited by gavinsiu on Fri Apr 26, 2024 9:55 am, edited 1 time in total.
Topic Author
PGHunt24
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Re: Is it time to sell out of bond funds?

Post by PGHunt24 »

retired@50 wrote: Fri Apr 26, 2024 9:20 am
PGHunt24 wrote: Fri Apr 26, 2024 8:10 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
You might benefit from reading about the sources of return for a bond in the Boglehead wiki. Focusing on the NAV of a bond fund isn't particularly helpful.

If I were you, I'd go back and look at each monthly dividend in your bond fund for the past 2 years, then see what you think.

Tell us what sort of pattern you notice in the dollar amount of your monthly dividend...

Regards,
Thanks for your advice.
Cah
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Re: Is it time to sell out of bond funds?

Post by Cah »

PGHunt24 wrote: Fri Apr 26, 2024 8:10 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
Why would anyone sell their bond funds ?They are finally paying the highest dividends that any of the funds have paid in decades.
Cah
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Re: Is it time to sell out of bond funds?

Post by Cah »

PGHunt24 wrote: Fri Apr 26, 2024 8:10 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
Why would anyone sell their bond funds ?They are finally paying the highest dividends that any of the funds have paid in decades.
Topic Author
PGHunt24
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Re: Is it time to sell out of bond funds?

Post by PGHunt24 »

gavinsiu wrote: Fri Apr 26, 2024 9:54 am I think your advisor is not correct to put you in 50/50. First, the reason you have multiple asset in your portfolio is to diversify and attempt to smooth your your return by allowing one part to over perform while another under perform. If you attempt to compare the performance of each component, you are always going to be disappointed that one part under perform. For example, stocks during 2000-2010 returned 1.20% for the decade, -1.20% after inflation. In 2010, you would have concluded that stock for the long run is sham, put it all into bonds and end up missing out a giant bull market. If you had a 50/50, you would have gotten a better return (4.28%) for that decade and next decade

No portfolio is bullet proof, you cannot create a portfolio that can avoid all down market. It's going to do poorly in time periods, sometimes these time period will be long. However, there is no easy way to time the market. If you could time the market, you would probably out perform Warren Buffet.

50/50 is a pretty neutral portfolio. You will notice that 2022, it did cushion the fall a bit. A 100% stock portfolio would be resulted in -19% in 2022 instead of -16%, this may be small consoldation, but in previous stock market fall, the difference were greater. In 2008 for example, a 100% stock would have fell -37% while a 50/50 would have returned -16%.

I would recommend sticking to your plan, and rebalance, but let's do a what's if
  • If you stick to your plan, your bond fund will eventually recover since it is being replaced by new bonds as the old ones mature. This will eventually raise your return. If the rates drop, your bond will increase in value. If the interest rate rises, your bond will take more damage.
  • If you replace your bond funds with shorter duration, you will make less in the long term. Your interest rate risk will drop because you are less sensitivity to interest rate hike. The reverse is true, if the interest rate drops, you won't be able to take advantage.
  • If you go to cash, then you will lose out more long term return, but in the short term you gain because short term is higher than longer term. However, if the interest rate drops, then so does your return. Remember that a few years ago, the interest rate was near zero. However, if the interest rate rises, you will win out.
  • If you go 100% stock, you will get long term return, but you can lose 40% next year. It is not recommended that you do this in retirement if you are withdrawiing since you can deplete your portfolio.
Note my 82 mom uses a 70% bond/30% Stock portfolio. Such a portfolio is actually very stable except in some years like 2022.
Thank you for your detailed information.
exodusing
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Re: Is it time to sell out of bond funds?

Post by exodusing »

Is PAS supposed to educate investors rather than just manage their investments in a reasonable manner? Genuine question.

As others have pointed out, bonds are much more attractive today than a few years ago.

Shorter term bond funds have more stable principal value and less stable income than longer term funds. The opposite for longer term. Which is more appropriate depends on your horizon - how long you intend to hold. The higher yield from a price decline over time leaves you better off than if the price hadn't declined, although the longer-term the fund the longer that takes. That's the economics. The psychology is that if you're going to be upset if an invest goes down in value, you shouldn't have much of that investment, however much sense it might otherwise make.
tibbitts
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Re: Is it time to sell out of bond funds?

Post by tibbitts »

PGHunt24 wrote: Fri Apr 26, 2024 8:10 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
PAS did a good job for you. Sometimes you do the "right" thing and it doesn't turn out the way you wanted. For a long time the advice around here was "age-in-bonds", so you would have been about 30/70, and had even worse returns. Almost all the noise you see here lately about "bond funds are bad" is recent; nobody was complaining about them during the many years they returned more than the underlying bonds were yielding, thanks to rate decreases.
Living Free
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Re: Is it time to sell out of bond funds?

Post by Living Free »

I was also surprised by how poorly bond funds did in 2022. I knew of course that bonds could go down in value, but still it was upsetting to see.

It sounds as though overall your portfolio has done just fine though.

Also, another way to view things is that though your value of your bond funds went down, their expected return going forward is now higher.
dbr
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Re: Is it time to sell out of bond funds?

Post by dbr »

Elysium wrote: Fri Apr 26, 2024 9:48 am
dbr wrote: Fri Apr 26, 2024 9:42 am
Elysium wrote: Fri Apr 26, 2024 9:36 am
PGHunt24 wrote: Fri Apr 26, 2024 9:23 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
Something doesn't add up. A 50/50 portfolio of VTI/BND did not earn 5.8% in last 8 1/2 years, instead it returned close to 8% as seen here. Even a standard PAS recommendation that includes 40% Intl Stocks and 40% Intl Bonds did perform better than figure you quoted. The money weighted with 4% withdrawal is good too. These ending balances and the results are pretty good, nothing to complain about. Your PAS advisor did probably do right things, they don't do crazy things over there. What's missing? Last two years bond performance in isolation is not reason to question your advisor's strategy for you.
We don't know what cash flows have been involved here. It is true a fixed investment placed in that allocation 8 years ago did return nearly 8%. One possibility is that dividends were withdrawn. I put dividends not reinvested in that PV analysis and got a CAGR of 5.34%. I used the time frame Jan 2016- Mar 2024 and VTI+BND for investments.

Not being familiar with basic investment math is also a problem if the investor misunderstands the results.
I see, okay makes sense. The end result is the portfolio did track close to market returns and there could not be anything the PAS advisor done different than going short duration or cash outright instead of bonds in 2021. We know that type of stuff is promised by big wealth management houses but they never succeed, and PAS is not going to do it, neither would DIY BH advice. I guess OP just need some reassurance he is doing well. Based on what he said about a 50/50 balanced portfolio it seems he is doing fine.
I don't know if the advisor could have given a more helpful explanation of what the difference is as one runs through the range of stock bond allocation from 100/0 to 0/100 and as one ranges over time. The fact that the prospective result has to be presented in statistical language already makes the prospect of explanation daunting if the investor is not prepared with the background knowledge. We wrestle with this everyday here on the forum
dbr
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Re: Is it time to sell out of bond funds?

Post by dbr »

exodusing wrote: Fri Apr 26, 2024 10:00 am Is PAS supposed to educate investors rather than just manage their investments in a reasonable manner? Genuine question.

As others have pointed out, bonds are much more attractive today than a few years ago.
I don't think it is practical or likely that any advisor, certainly not PAS, is going to get this done.

It comes back to the same paradox that once one is educated enough to figure out if one has a good advisor that one no longer needs an advisor.

It might be reasonable for an educated investor to hire VPAS to do what they do, but on the whole the less than someplace minimally educated investor is screwed. A hope is that this forum helps people get to a good place on this.
manuvns
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Re: Is it time to sell out of bond funds?

Post by manuvns »

I think it's time to buy the bond funds attractive compared to the stock fund now given the risk and yield !
Thanks!
exodusing
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Re: Is it time to sell out of bond funds?

Post by exodusing »

dbr wrote: Fri Apr 26, 2024 10:10 am
exodusing wrote: Fri Apr 26, 2024 10:00 am Is PAS supposed to educate investors rather than just manage their investments in a reasonable manner? Genuine question.

As others have pointed out, bonds are much more attractive today than a few years ago.
I don't think it is practical or likely that any advisor, certainly not PAS, is going to get this done.

It comes back to the same paradox that once one is educated enough to figure out if one has a good advisor that one no longer needs an advisor.

It might be reasonable for an educated investor to hire VPAS to do what they do, but on the whole the less than someplace minimally educated investor is screwed. A hope is that this forum helps people get to a good place on this.
Then the advisor should have something useful to say to persuade the investor to stay the course when an investment behaves in a way the investor considers bad. Education in advance may not be appropriate, but reassurance and preventing what seems a mistake is something I often hear as a major benefit of advisors.
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Re: Is it time to sell out of bond funds?

Post by Dottie57 »

Cah wrote: Fri Apr 26, 2024 9:57 am
PGHunt24 wrote: Fri Apr 26, 2024 8:10 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
Why would anyone sell their bond funds ?They are finally paying the highest dividends that any of the funds have paid in decades.
This!
Elysium
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Re: Is it time to sell out of bond funds?

Post by Elysium »

dbr wrote: Fri Apr 26, 2024 10:06 am
Elysium wrote: Fri Apr 26, 2024 9:48 am
dbr wrote: Fri Apr 26, 2024 9:42 am
Elysium wrote: Fri Apr 26, 2024 9:36 am
PGHunt24 wrote: Fri Apr 26, 2024 9:23 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
Something doesn't add up. A 50/50 portfolio of VTI/BND did not earn 5.8% in last 8 1/2 years, instead it returned close to 8% as seen here. Even a standard PAS recommendation that includes 40% Intl Stocks and 40% Intl Bonds did perform better than figure you quoted. The money weighted with 4% withdrawal is good too. These ending balances and the results are pretty good, nothing to complain about. Your PAS advisor did probably do right things, they don't do crazy things over there. What's missing? Last two years bond performance in isolation is not reason to question your advisor's strategy for you.
We don't know what cash flows have been involved here. It is true a fixed investment placed in that allocation 8 years ago did return nearly 8%. One possibility is that dividends were withdrawn. I put dividends not reinvested in that PV analysis and got a CAGR of 5.34%. I used the time frame Jan 2016- Mar 2024 and VTI+BND for investments.

Not being familiar with basic investment math is also a problem if the investor misunderstands the results.
I see, okay makes sense. The end result is the portfolio did track close to market returns and there could not be anything the PAS advisor done different than going short duration or cash outright instead of bonds in 2021. We know that type of stuff is promised by big wealth management houses but they never succeed, and PAS is not going to do it, neither would DIY BH advice. I guess OP just need some reassurance he is doing well. Based on what he said about a 50/50 balanced portfolio it seems he is doing fine.
I don't know if the advisor could have given a more helpful explanation of what the difference is as one runs through the range of stock bond allocation from 100/0 to 0/100 and as one ranges over time. The fact that the prospective result has to be presented in statistical language already makes the prospect of explanation daunting if the investor is not prepared with the background knowledge. We wrestle with this everyday here on the forum
They provide you with a detailed plan, that runs through various monte carlo simulations for the prescribed plan, and it does show where it falls within the risk spectrum, your ability to meet your goals as you stated, etc. It's all given in their initial report (I have seen one but never been a customer), and I believe they probably provide annual updates. sometimes a customer won't pay attention to all the details and just focus on a result, such as bonds didn't perform well so my advisor is to blame. Folks blame free advice on BH for all their bonds woes, just saying...
dbr
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Re: Is it time to sell out of bond funds?

Post by dbr »

Elysium wrote: Fri Apr 26, 2024 11:09 am

They provide you with a detailed plan, that runs through various monte carlo simulations for the prescribed plan, and it does show where it falls within the risk spectrum, your ability to meet your goals as you stated, etc. It's all given in their initial report (I have seen one but never been a customer), and I believe they probably provide annual updates. sometimes a customer won't pay attention to all the details and just focus on a result, such as bonds didn't perform well so my advisor is to blame. Folks blame free advice on BH for all their bonds woes, just saying...
I'm on your side here. I wondered about that actually. I guess the challenge for the OP is to go back and find out if they did not already have what they needed to know to prevent having to come here and not understand why they are 50% bonds and what they should do now. The latter is with a high presumption that the thing to do here is to do nothing, that is, to stay the course as the expression goes.
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Munir
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Re: Is it time to sell out of bond funds?

Post by Munir »

I am a retiree in the distribution phase and short time line. My fixed income component of my portfolio (all in my traditional IRA) has been in a Vanguard Money market fund for the last 2-3 years earning 5% and not changing anything for now.
hudson
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Re: Is it time to sell out of bond funds?

Post by hudson »

PGHunt24 wrote: Fri Apr 26, 2024 8:10 am At age 73, I have been a Vanguard PAS client for 8 1/2 years. Was never an investor in the past, so the advisor put me in a 50/50 portfolio. Portfolio performance in 8 1/2 years is 5.8%. The only return is from my 50% stock ETF (VTI). Bond funds have been a waste of my money; little dividends and of course behind in NAV 10%. If I sell the bond funds, it will take many years to make back the NAV loss. Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income. Life gets shorter everyday and I don't want to have to keep watching what's happening to the portfolio.
If and when interest rates go down, your bonds will recover.
Bonds or fixed income are a good fit for age 73...depending on the size of your holdings.
If you aren't drawing down your holdings, it doesn't matter what you do.
I'm not in favor of you selling your bond holdings, but if you do, you'll have a great tax loss harvest.
My favorite fixed income choices are individual treasuries including TIPS and CDs.
Consider reading W. Bernstein's Pillars, 2d Edition https://www.amazon.com/Four-Pillars-Inv ... 1264715919
Also Larry Swedroe's bond book: https://www.amazon.com/Only-Guide-Winni ... 273&sr=1-1

Bottom Line: You probably need to learn more about fixed income before making any moves.
Last edited by hudson on Fri Apr 26, 2024 2:54 pm, edited 3 times in total.
nyclon
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Re: Is it time to sell out of bond funds?

Post by nyclon »

PGHunt24 wrote: Fri Apr 26, 2024 8:10 am… and go all fixed income
What do you mean by this?
rkhusky
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Re: Is it time to sell out of bond funds?

Post by rkhusky »

When my bond funds go down, I think “Interest rates are going up, I am going to make more money.”
When my bond funds go up, I think “I am getting more money.”
Win - win.
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Beensabu
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Re: Is it time to sell out of bond funds?

Post by Beensabu »

PGHunt24 wrote: Fri Apr 26, 2024 8:10 am Is it better to sell the bonds (50K loss) and move on and not have the grief, or is it better to liquidate the entire portfolio and pay cap gains tax, net the bond losses aginst those gains and go all fixed income.
Those are two very different paths...

The first keeps you at 50/50, just not in bond funds.

The second has you at 0/100 in cash.

If you're at a point where you don't want to see much variance in your portfolio balance due to pricing changes, then reducing your equity exposure is a way to go. Instead of liquidating everything to stick it in cash equivalents, maybe half (or less) as needed from each allocation to balance cap gains against losses?
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
Elysium
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Re: Is it time to sell out of bond funds?

Post by Elysium »

dbr wrote: Fri Apr 26, 2024 11:17 am
Elysium wrote: Fri Apr 26, 2024 11:09 am

They provide you with a detailed plan, that runs through various monte carlo simulations for the prescribed plan, and it does show where it falls within the risk spectrum, your ability to meet your goals as you stated, etc. It's all given in their initial report (I have seen one but never been a customer), and I believe they probably provide annual updates. sometimes a customer won't pay attention to all the details and just focus on a result, such as bonds didn't perform well so my advisor is to blame. Folks blame free advice on BH for all their bonds woes, just saying...
I'm on your side here. I wondered about that actually. I guess the challenge for the OP is to go back and find out if they did not already have what they needed to know to prevent having to come here and not understand why they are 50% bonds and what they should do now. The latter is with a high presumption that the thing to do here is to do nothing, that is, to stay the course as the expression goes.
To my knowledge they do two things to arrive at an allocation, first is learning about your income needs from the portfolio, and the second is your risk tolerance level. If OP had sufficient assets to meet their income needs, and came across as risk averse then that would drive towards less in stocks. That was my experience when I asked them to build a plan for me to evaluate, at the end of it they gave a full report. I was mainly doing this thinking of a succession plan in case I ever needed it, then decided it was too early and too little value for me in present state. I agree that OP should just stay the course, because I have a feeling if they are so worried about the relatively small drop in Bonds then they will have major issues if stocks dropped like they did in previous bear markets.
WillRetire
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Re: Is it time to sell out of bond funds?

Post by WillRetire »

OP: 2022 was the worst year for bonds since I started investing many decades ago. Other bogleheads have pointed out the shock of 2022 in multiple other threads. One particularly salient point was the damage caused to college funds created with expert input, experts who recommended 100% bond funds for short-to-medium term horizons. That turned out to be very bad advice indeed for those who needed to withdraw during 2022.

Some suggestions & observations about bond funds in light of their 2022 crash:
1. If you need to withdraw a lot of money within 5 years (maybe even 10), then cash is best.
2. Bonds rebounded quite a lot in 2023. They didn't gain back all they lost in 2022 but our bond funds returned 7.3% in 2023 which was much better than cash. This included gains and losses from periodic rebalancing to maintain our AA.
3. In 2024 Q1 our bond funds were down slightly, but we don't care because that's just 1 quarter, and we are comfortable that we have the right AA for us. Over many decades, our bond holdings have performed better than cash/riskless by about 1-percentage point.
4. Our AA has 3 components: stocks, bonds, and riskless. (Thanks to David Swensen, may he RIP.) Yours can too.
Riskless = cash or anything that cannot lose value. I-Bonds, CDs, MYGAs, savings accounts are examples of riskless.
5. You should speak with your Vanguard PAS advisor about your concerns. You know more now, and what to ask them.
6. Think about whether you should change your AA. Maybe keep some in cash or I-Bonds. Discuss with your PAS advisor. Best to have an AA that you can live with.
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Re: Is it time to sell out of bond funds?

Post by KyleAAA »

If you're mad about bonds losing 10%, imaging how mad you'll be when stocks lose 40%. There's no reason for you to be watching what's happening to your portfolio now. That won't change if you sell your bonds.
BirdFood
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Re: Is it time to sell out of bond funds?

Post by BirdFood »

WillRetire wrote: Fri Apr 26, 2024 1:15 pm 1. If you need to withdraw a lot of money within 5 years (maybe even 10), then cash is best.
(snip)
4. Our AA has 3 components: stocks, bonds, and riskless. (Thanks to David Swensen, may he RIP.) Yours can too.
Riskless = cash or anything that cannot lose value. I-Bonds, CDs, MYGAs, savings accounts are examples of riskless.
I'm tentatively assuming that Treasuries that mature before the scheduled time to spend the money serve as cash/riskless in this scenario?

Closely related: When people refer to "cash" I assume they're including literal bills/regular bank accounts/money market/HYSA/CDs but wonder if they include, again, short-term Treasuries. I realize I can define it as I please for my purposes, but wondering what the consensus for the term is.
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Re: Is it time to sell out of bond funds?

Post by gavinsiu »

exodusing wrote: Fri Apr 26, 2024 10:00 am Is PAS supposed to educate investors rather than just manage their investments in a reasonable manner? Genuine question.

As others have pointed out, bonds are much more attractive today than a few years ago.

Shorter term bond funds have more stable principal value and less stable income than longer term funds. The opposite for longer term. Which is more appropriate depends on your horizon - how long you intend to hold. The higher yield from a price decline over time leaves you better off than if the price hadn't declined, although the longer-term the fund the longer that takes. That's the economics. The psychology is that if you're going to be upset if an invest goes down in value, you shouldn't have much of that investment, however much sense it might otherwise make.
I am doubtful that advisor would be that detail. They might have mentioned interest rate risk, but most likely it would have gone over most of the client's head.
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Re: Is it time to sell out of bond funds?

Post by gavinsiu »

Living Free wrote: Fri Apr 26, 2024 10:03 am I was also surprised by how poorly bond funds did in 2022. I knew of course that bonds could go down in value, but still it was upsetting to see.

It sounds as though overall your portfolio has done just fine though.

Also, another way to view things is that though your value of your bond funds went down, their expected return going forward is now higher.
I think one of the things people forget is that we may get values outside of the historical range. Since the 70's, the worse intermediate duration bond crash was probably around 1994 where it fell around 4.5% or so. People get lured into a false sense of security. They think that around 5% is the worse you can get. In 2022, it fell around 13-16%. This was great shocker so much that people now flip in the other direction and think that this is the new norm. While it is still a possibility, it is in my opinion more of an anomaly.
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Re: Is it time to sell out of bond funds?

Post by rockstar »

You have to know what direction bond yields are going with some level of accuracy to make the right decision. If bond yields go down, you’ll get some of the lost NAV back. But it’s likely that fund already sold some bonds at a loss.

If you’re down 10%, you can buy 5 year bonds now from the proceeds and likely breakeven in 3-4 years after taxes, which isn’t a whole shorter of a wait period than holding the fund for 6 years and seeing what happens.

It’s a tough call.

If you sell, what do you buy?
rockstar
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Re: Is it time to sell out of bond funds?

Post by rockstar »

gavinsiu wrote: Fri Apr 26, 2024 1:41 pm
Living Free wrote: Fri Apr 26, 2024 10:03 am I was also surprised by how poorly bond funds did in 2022. I knew of course that bonds could go down in value, but still it was upsetting to see.

It sounds as though overall your portfolio has done just fine though.

Also, another way to view things is that though your value of your bond funds went down, their expected return going forward is now higher.
I think one of the things people forget is that we may get values outside of the historical range. Since the 70's, the worse intermediate duration bond crash was probably around 1994 where it fell around 4.5% or so. People get lured into a false sense of security. They think that around 5% is the worse you can get. In 2022, it fell around 13-16%. This was great shocker so much that people now flip in the other direction and think that this is the new norm. While it is still a possibility, it is in my opinion more of an anomaly.
What I find interesting is that after decades of investing, Buffett landed on T Bills. He did match TIPS to the 10 year period for his bet about hedge funds. And he has bought foreign bonds. But it’s mostly 1 year or less bonds. Maybe he’s on to something.
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