VBTLX exit strategy

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Bamaman
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VBTLX exit strategy

Post by Bamaman »

I will be retiring in 3-4 years at age 64 or 65. Current asset allocation is 80/20 with the 20% invested in VBTLX inside a traditional IRA.

Since purchasing VBTLX in 2019, it is down 11.7%. I am looking for a more conservative fixed income source during retirement such as a short term treasury fund. This money will be used to fill bucket two (3-5 retirement years). I have enough cash to fund bucket one for the first couple of years.

Should I sell all of the VBTLX shares and go more conservative today or wait until closer to retirement. What is the best exit strategy?
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goodenyou
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Re: VBTLX exit strategy

Post by goodenyou »

A short term Treasury fund will not increase in NAV as much as VBTLX will IF, and a BIG IF, interest rates go down. VBTLX is an intermediate duration fund and will rise in value about 6% for each 1% decrease in interest rates. You may want to wait until VBTLX recovers (it may or may not) and then decrease your duration and interest rate risk (credit risk too, but probably not material) by selling VBTLX and buying short treasuries.

If you are TLH , there may be additional advantages, and you may want to do it sooner.
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muffins14
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Re: VBTLX exit strategy

Post by muffins14 »

It is fine to keep holding VBTLX. You are likely going to live for 20 more years, not 5-10.
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Tamalak
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Re: VBTLX exit strategy

Post by Tamalak »

2022 was the worst year for bonds in hundreds of years. I wouldn't use it as the benchmark for how risky bond funds are.
MnD
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Re: VBTLX exit strategy

Post by MnD »

The bucket strategy is a proven underperformer compared to a static AA, rebalancing and proportional withdrawals in retirement.
https://www.marketwatch.com/story/do-bu ... 2019-02-12
https://papers.ssrn.com/sol3/papers.cfm ... id=3274499

Another really suboptimal strategy is to buy/hold intermediate term bonds when they are yielding 1% and selling them later at a substantial loss when they are yielding 4.6%. That's rear-view mirror investing.

I would suggest getting a relatively low cost advised investing account in retirement.
Vanguard, Schwab and Fidelity all offer some version of that. I think Vanguard charges 0.3%
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arcticpineapplecorp.
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Re: VBTLX exit strategy

Post by arcticpineapplecorp. »

Bamaman wrote: Tue Jul 09, 2024 11:33 am I will be retiring in 3-4 years at age 64 or 65. Current asset allocation is 80/20 with the 20% invested in VBTLX inside a traditional IRA.

Since purchasing VBTLX in 2019, it is down 11.7%. I am looking for a more conservative fixed income source during retirement such as a short term treasury fund. This money will be used to fill bucket two (3-5 retirement years). I have enough cash to fund bucket one for the first couple of years.

Should I sell all of the VBTLX shares and go more conservative today or wait until closer to retirement. What is the best exit strategy?
before doing anything, you might want to make sure you have your numbers correct.

we don't know when exactly you made your purchase in 2019 (I mean the exact date if it was once and done). So we can't check your numbers unless you tell us that. But let's say you were the worst market timer of vbtlx in 2019...

according to testfol.io the highest point in 2019 you could have paid for vbtlx was on 9/3/19. I also see elsewhere it was 8/23/19, but when I use that date the results look better than using 9/3/19 (perhaps because dividends were paid in August which then made the total return better from 8/23/19 than from 9/3/19, which is part of my point I'll get to in a second).

if you look at the following link even if you had invested $10,000 in the highest point on 9/3/19, as of yesterday you'd have $9664.28.

Image

Source

So you'd be down just 3.36%.

Not 11.7%.

Not sure how you came up with that.

If we take out dividends, i.e., assume they WEREN'T reinvested we get an ending balance of $8502.67:

Image

Source

now that's a loss of -15%.

So one question I have to ask is are you not reinvesting dividends? It's fine if you aren't but you can't look at the return of bonds only based on capital appreciation and omit the dividends you received. Investment return comes from both sources, known as total return.

I'm not saying vbtlx hasn't been great since 2019. It's true.

But vbtlx is an intermediate bond fund and has an average duration of 6 years.

It hasn't been 6 years since you purchased your fund.

And yet you want to get rid of it.

So before you sell this and go and buy something else, you might want to make sure your time horizon (need for the money or tolerance to hold onto) for the investment matches the risk profile of the investment.

You should also understand how the investment works.

As bonds are maturing in this fund (because it holds short, intermediate and long term bonds) it's buying new bonds paying the higher interest rates. So this fund will eventually be throwing off more income than it is now. And it probably will be the case that if interest rates come down, this fund will likely be yielding more than money market funds in the future (when the yield curve is no longer inverted).

what do you think?
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goingup
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Re: VBTLX exit strategy

Post by goingup »

Bamaman wrote: Tue Jul 09, 2024 11:33 am Since purchasing VBTLX in 2019, it is down 11.7%.
That doesn't seem correct. Are you reinvesting dividends?

(I see articpineapplecorp bought the data to make that point.)
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Hacksawdave
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Re: VBTLX exit strategy

Post by Hacksawdave »

Bamaman wrote: Tue Jul 09, 2024 11:33 am I will be retiring in 3-4 years at age 64 or 65. Current asset allocation is 80/20 with the 20% invested in VBTLX inside a traditional IRA.

Since purchasing VBTLX in 2019, it is down 11.7%. I am looking for a more conservative fixed income source during retirement such as a short term treasury fund. This money will be used to fill bucket two (3-5 retirement years). I have enough cash to fund bucket one for the first couple of years.

Should I sell all of the VBTLX shares and go more conservative today or wait until closer to retirement. What is the best exit strategy?
There is not enough information to provide a suggestion. I am slightly younger, am in year 5 of early retirement, and would not fathom having an 80/20 portfolio. There could be a reason for this as capital appreciation may be a requirement for the backbone for this to work in retirement.

FWIW, I have not sold a single share, have reinvested all the income, and used the AI craze to begin performing exchanges to rebalance to add shares to the VBTIX institutional class of total bond.
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Bamaman
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Re: VBTLX exit strategy

Post by Bamaman »

arcticpineapplecorp. wrote: Tue Jul 09, 2024 12:13 pm
Bamaman wrote: Tue Jul 09, 2024 11:33 am I will be retiring in 3-4 years at age 64 or 65. Current asset allocation is 80/20 with the 20% invested in VBTLX inside a traditional IRA.

Since purchasing VBTLX in 2019, it is down 11.7%. I am looking for a more conservative fixed income source during retirement such as a short term treasury fund. This money will be used to fill bucket two (3-5 retirement years). I have enough cash to fund bucket one for the first couple of years.

Should I sell all of the VBTLX shares and go more conservative today or wait until closer to retirement. What is the best exit strategy?
before doing anything, you might want to make sure you have your numbers correct.

we don't know when exactly you made your purchase in 2019 (I mean the exact date if it was once and done). So we can't check your numbers unless you tell us that. But let's say you were the worst market timer of vbtlx in 2019...

according to testfol.io the highest point in 2019 you could have paid for vbtlx was on 9/3/19. I also see elsewhere it was 8/23/19, but when I use that date the results look better than using 9/3/19 (perhaps because dividends were paid in August which then made the total return better from 8/23/19 than from 9/3/19, which is part of my point I'll get to in a second).

if you look at the following link even if you had invested $10,000 in the highest point on 9/3/19, as of yesterday you'd have $9664.28.

Image

Source

So you'd be down just 3.36%.

Not 11.7%.

Not sure how you came up with that.

If we take out dividends, i.e., assume they WEREN'T reinvested we get an ending balance of $8502.67:

Image

Source

now that's a loss of -15%.

So one question I have to ask is are you not reinvesting dividends? It's fine if you aren't but you can't look at the return of bonds only based on capital appreciation and omit the dividends you received. Investment return comes from both sources, known as total return.

I'm not saying vbtlx hasn't been great since 2019. It's true.

But vbtlx is an intermediate bond fund and has an average duration of 6 years.

It hasn't been 6 years since you purchased your fund.

And yet you want to get rid of it.

So before you sell this and go and buy something else, you might want to make sure your time horizon (need for the money or tolerance to hold onto) for the investment matches the risk profile of the investment.

You should also understand how the investment works.

As bonds are maturing in this fund (because it holds short, intermediate and long term bonds) it's buying new bonds paying the higher interest rates. So this fund will eventually be throwing off more income than it is now. And it probably will be the case that if interest rates come down, this fund will likely be yielding more than money market funds in the future (when the yield curve is no longer inverted).

what do you think?
Thank you for the detailed explanation and advice. It's very helpful.

I am using Morningstar's portfolio manager to track the gain/loss of my investments. As of today, it shows an unrealized gain/loss of -11.70% for VBTLX.

The majority of the shares were purchased on 4/12/19. I rebalanced and made two smaller purchases on 2/12/20 and 6/24/21 to stay at the 80/20 ratio. I am reinvesting the dividends and they are also being tracked using the portfolio manager.
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Re: VBTLX exit strategy

Post by Admiral »

Bamaman wrote: Tue Jul 09, 2024 11:33 am I will be retiring in 3-4 years at age 64 or 65. Current asset allocation is 80/20 with the 20% invested in VBTLX inside a traditional IRA.

Since purchasing VBTLX in 2019, it is down 11.7%. I am looking for a more conservative fixed income source during retirement such as a short term treasury fund. This money will be used to fill bucket two (3-5 retirement years). I have enough cash to fund bucket one for the first couple of years.

Should I sell all of the VBTLX shares and go more conservative today or wait until closer to retirement. What is the best exit strategy?
Why would you sell now, buying high and selling low? Income from bond funds comes primarily from coupons (interest) not increase in share price. The tradeoff is you need to wait for the (higher) coupons to make up for the lower share price when rates rise. If you sell now, you've locked in the loss. Unless you need the money: hold.
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arcticpineapplecorp.
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Re: VBTLX exit strategy

Post by arcticpineapplecorp. »

Bamaman wrote: Tue Jul 09, 2024 2:28 pm Thank you for the detailed explanation and advice. It's very helpful.

I am using Morningstar's portfolio manager to track the gain/loss of my investments. As of today, it shows an unrealized gain/loss of -11.70% for VBTLX.

The majority of the shares were purchased on 4/12/19. I rebalanced and made two smaller purchases on 2/12/20 and 6/24/21 to stay at the 80/20 ratio. I am reinvesting the dividends and they are also being tracked using the portfolio manager.
ok now i'm pretty sure I know what happened. You are reinvesting the dividends, but I think you're looking at price change rather than total return (which includes dividends). This is a very common mistake, especially when using morningstar which doesn't default to total return and you have to select that to see the total return. Not sure why they do it that way.

When I instead use 4/12/19 as the start date (and dividends reinvested) you have a postive, not negative return. Small, but not negative. You would have made 3.31% from 4/12/19 til now:

Image

Source

when I do the same but DO NOT reinvest dividends I get...you guessed it, -11.17% (overall)! See below:

Image

Source

so i think you are missing the impact of dividends here.

do you agree or disagree?
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Topic Author
Bamaman
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Re: VBTLX exit strategy

Post by Bamaman »

arcticpineapplecorp,

Yes, I agree. That looks much better! I will look for the total return on the Morningstar site. This makes be feel much better about VBTLX. Thanks again for your help. It's greatly appreciated.
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Re: VBTLX exit strategy

Post by LadyGeek »

This thread is now in the Personal Investments forum (portfolio help).
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arcticpineapplecorp.
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Re: VBTLX exit strategy

Post by arcticpineapplecorp. »

Bamaman wrote: Tue Jul 09, 2024 4:22 pm arcticpineapplecorp,

Yes, I agree. That looks much better! I will look for the total return on the Morningstar site. This makes be feel much better about VBTLX. Thanks again for your help. It's greatly appreciated.
your welcome. that's what we're here for.

fyi, went to morningstar and data type is set to growth, not just price and the results are same as testfol.io (+3.13% since 4/12/19):

Image

Source
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pennsylvania211
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Re: VBTLX exit strategy

Post by pennsylvania211 »

MnD wrote: Tue Jul 09, 2024 11:57 am The bucket strategy is a proven underperformer compared to a static AA, rebalancing and proportional withdrawals in retirement.
https://www.marketwatch.com/story/do-bu ... 2019-02-12
https://papers.ssrn.com/sol3/papers.cfm ... id=3274499

Another really suboptimal strategy is to buy/hold intermediate term bonds when they are yielding 1% and selling them later at a substantial loss when they are yielding 4.6%. That's rear-view mirror investing.

I would suggest getting a relatively low cost advised investing account in retirement.
Vanguard, Schwab and Fidelity all offer some version of that. I think Vanguard charges 0.3%
Thank you for sharing the article and paper
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Re: VBTLX exit strategy

Post by gammalaser »

What a great thread here, and it is really unfortunate that there are so many charts on the internet showing only price part of return... :oops:
BeaverBeliever
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Re: VBTLX exit strategy

Post by BeaverBeliever »

Looking at Bond Fund cost basis misses the point. As many have stated, you are missing the TOTAL return including dividends. Selling now will likely be a regrettable decision. I'd be buying more if I were in your situation.
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Re: VBTLX exit strategy

Post by jimkinny »

If you want to decrease term risk, shorter term bonds are the way to go. You could have done that in 2021 and it would have been helpful to avoid the NAV loss of 2022-2023. But, what about now? It is still true, short term is less risky, and if that is what you want, go for it. Everyone reads the same things as me so we all know and the markets know that the Fed is more likely to decrease its interest rate rather than raise it, but that is data dependent.

It is important to match a bon's duration to your need for for the money. Why not own two funds, a short and intermediate fund. Move some money from the intermediate to the short term fund once a year. You could also use a Treasury money market fund for even shorter term needs.

I use to use nominal bonds. No more. You noticed how poorly your bonds did when interest rates went up. Inflation also went up. Maybe an average of 6% in 2022 and maybe 4% or so in 2023. Your bonds lost that also. Does the graph or returns you are looking at take that into account? I doubt it.

TIPS (Treasury Inflation Protected Securities) are simply bonds with inflation adjustments. They are the same as nominal bonds with the same risks as nominals with the exception of inflation. They do not have inflation risk. Vanguard has short term and intermediate term TIPS funds. SS is inflation adjusted. Wages and stocks tend to keep up with inflation. Nominal bonds keep up with "expected" inflation. In January 2020, inflation was not expected to peak at 9%.
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Re: VBTLX exit strategy

Post by cjcerny »

Doesn't make sense to sell VBTLX at this time. I would hold on until it gets back to where it was when you bought it. No idea how long it will take to get there and could get even worse before it does but, that being said, doesn't make sense to sell while you are down. VBTLX is an excellent fund--you just happened to purchase it before some historic lows. I'm not saying that you shouldn't switch to a short treasury fund for your retirement. I am saying that you shouldn't worry that you need to rush to do that.
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Re: VBTLX exit strategy

Post by Parkinglotracer »

I would consider using a treasury or cd ladder of a little shorter duration. It is going to change in value just like your bond fund does but it may be more transparent to you as to what your bonds are returning to you and enable you to be a more satisfied investor. Or just keep vbtlx and be happy knowing the yield it’s paying.
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Re: VBTLX exit strategy

Post by Xrayman69 »

I’m trying to execute the opposite and buy more bond funds as prices (NAV) of these funds are lower than they were in recent years.

I want to lock in the intermediate duration.

Any suggestions from this community for an equivalent to VBLTX for my fidelity account? I want to rebalance and get more bond funds.
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Re: VBTLX exit strategy

Post by cbs2002 »

I made some significant portfolio allocation changes toward intermediate term bond funds and away from 100% equities roughly in the same timeframe. Lucky me. Would not sell right now.

My plan, as far as it goes, is to:

1) Know the average durations of the funds I purchased
2) Check in on total return since purchase of the funds when I reach 1x average duration
3) Make a decision at that time to either keep my bond allocation in those funds or move some/all to shorter term

The first time this comes up for me is next year. I'll be fine continuing to hold a bond fund past 1x average duration if I'm happy with the long-term trend at that time relative to other investments.

Interestingly, there is now a 2.5 year difference between duration (shorter) and maturity in VBTLX, I think implying the fund is reducing interest rate risk?
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Re: VBTLX exit strategy

Post by JakeyLee »

Xrayman69 wrote: Wed Jul 10, 2024 8:29 am I’m trying to execute the opposite and buy more bond funds as prices (NAV) of these funds are lower than they were in recent years.

I want to lock in the intermediate duration.

Any suggestions from this community for an equivalent to VBLTX for my fidelity account? I want to rebalance and get more bond funds.
How bout you just buy the etf, BND? Should be a fairly simple process with Fido.
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bogles the mind
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Re: VBTLX exit strategy

Post by bogles the mind »

How is it possible to lock in a certain rate with a bond fund? Isn't it dependent on current rates?
gavinsiu
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Re: VBTLX exit strategy

Post by gavinsiu »

bogles the mind wrote: Wed Jul 10, 2024 3:36 pm How is it possible to lock in a certain rate with a bond fund? Isn't it dependent on current rates?
Bond funds are just a basket of bonds. If you buy a long bond fund, you can assume that it contains long bonds which lock in the current rate for a long number of years.
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Re: VBTLX exit strategy

Post by dbr »

bogles the mind wrote: Wed Jul 10, 2024 3:36 pm How is it possible to lock in a certain rate with a bond fund? Isn't it dependent on current rates?
Someone else can offer explanations, but I am thinking that the working definitions of the "rate" paid for a bond fund would be the SEC 30 Day Yield or the Yield to Maturity, two numbers that can be calculated for a bond fund at any point in time. Both these numbers change every day and cannot be realized in fact because the fund as a whole never matures on a specific date. Bonds in the fund might mature or might be sold before maturity, as an ongoing process every day.
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Re: VBTLX exit strategy

Post by bogles the mind »

gavinsiu wrote: Wed Jul 10, 2024 3:43 pm
bogles the mind wrote: Wed Jul 10, 2024 3:36 pm How is it possible to lock in a certain rate with a bond fund? Isn't it dependent on current rates?
Bond funds are just a basket of bonds. If you buy a long bond fund, you can assume that it contains long bonds which lock in the current rate for a long number of years.
But isn't the fund constantly buying new bonds at the going rate to replace maturing bonds in the fund? Wouldn't this make it impossible to predict the long term rate?
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Re: VBTLX exit strategy

Post by gavinsiu »

bogles the mind wrote: Wed Jul 10, 2024 4:02 pm But isn't the fund constantly buying new bonds at the going rate to replace maturing bonds in the fund? Wouldn't this make it impossible to predict the long term rate?
It is. If you have a bond ladder, you are also slowlyi replacing a maturing bond with another bond. The important detail is that you lock in the interest rate for a while. If you have a money market, you have a really short duration. If the interest rate drops, your return will shortly drop. If you have a longer duration bond fund, you will hold on to the interest rate longer and your bond will also become more valuable.

If you are shooting for a particular rate, you then have to buy a bond for a specific amount such as $10K per year for 10 years, you can get a 10 year bond that returns 10K (and you don't care about inflation).
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Re: VBTLX exit strategy

Post by bogles the mind »

So the rate should be expected for the full duration? I'm sorry, I'm having trouble wrapping my head around people saying they think now is a good time to purchase an intermediate bond fund to lock in the good rates. I understand individual bonds locking in a rate if held to maturity but funds seem to be variable. I am looking for an alternative to ladders.
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Re: VBTLX exit strategy

Post by 3cat »

Bamaman wrote: Tue Jul 09, 2024 11:33 am Should I sell all of the VBTLX shares and go more conservative today or wait until closer to retirement. What is the best exit strategy?
I’m also a few years from retirement.

I’m moving out of VBTLX not because it is “down” but because I want less corporate exposure in my bond allocation. Each month, I move about 10% of my remaining VBTLX to Vanguard’s Intermediate-term Treasury Index (VSIGX). The two funds track very closely so I consider this a sideway move in my traditional IRA. To compensate for a potential but slight loss of returns from VBTLX, I’m also changing from 60/40 to 65/35.

I probably could shift all at once but I’m comfortable with a gradual change.

3cat
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Re: VBTLX exit strategy

Post by Yarlonkol12 »

Bamaman wrote: Tue Jul 09, 2024 11:33 am I will be retiring in 3-4 years at age 64 or 65. Current asset allocation is 80/20 with the 20% invested in VBTLX inside a traditional IRA.

Since purchasing VBTLX in 2019, it is down 11.7%. I am looking for a more conservative fixed income source during retirement such as a short term treasury fund. This money will be used to fill bucket two (3-5 retirement years). I have enough cash to fund bucket one for the first couple of years.

Should I sell all of the VBTLX shares and go more conservative today or wait until closer to retirement. What is the best exit strategy?
Short duration bonds have risk too, reinvestment risk. Maybe you get 5% short term yield now, and maybe 3% in 2026, no one knows

I wouldn't use the word "conservative" to describe changing from longer duration bonds to shorter duration, because it can be risky if your not spending the money in the short term
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Re: VBTLX exit strategy

Post by RyeBourbon »

Xrayman69 wrote: Wed Jul 10, 2024 8:29 am I’m trying to execute the opposite and buy more bond funds as prices (NAV) of these funds are lower than they were in recent years.

I want to lock in the intermediate duration.

Any suggestions from this community for an equivalent to VBLTX for my fidelity account? I want to rebalance and get more bond funds.
I've been buying FXNAX at Fidelity. It's roughly equivalent to VBLTX.
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Xrayman69
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Re: VBTLX exit strategy

Post by Xrayman69 »

RyeBourbon wrote: Wed Jul 10, 2024 5:10 pm
Xrayman69 wrote: Wed Jul 10, 2024 8:29 am I’m trying to execute the opposite and buy more bond funds as prices (NAV) of these funds are lower than they were in recent years.

I want to lock in the intermediate duration.

Any suggestions from this community for an equivalent to VBLTX for my fidelity account? I want to rebalance and get more bond funds.
I've been buying FXNAX at Fidelity. It's roughly equivalent to VBLTX.
Thanks
Xrayman69
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Re: VBTLX exit strategy

Post by Xrayman69 »

JakeyLee wrote: Wed Jul 10, 2024 11:20 am
Xrayman69 wrote: Wed Jul 10, 2024 8:29 am I’m trying to execute the opposite and buy more bond funds as prices (NAV) of these funds are lower than they were in recent years.

I want to lock in the intermediate duration.

Any suggestions from this community for an equivalent to VBLTX for my fidelity account? I want to rebalance and get more bond funds.
How bout you just buy the etf, BND? Should be a fairly simple process with Fido.
Thanks
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Re: VBTLX exit strategy

Post by gavinsiu »

3cat wrote: Wed Jul 10, 2024 4:57 pm I’m also a few years from retirement.

I’m moving out of VBTLX not because it is “down” but because I want less corporate exposure in my bond allocation. Each month, I move about 10% of my remaining VBTLX to Vanguard’s Intermediate-term Treasury Index (VSIGX). The two funds track very closely so I consider this a sideway move in my traditional IRA. To compensate for a potential but slight loss of returns from VBTLX, I’m also changing from 60/40 to 65/35.

I probably could shift all at once but I’m comfortable with a gradual change.

3cat
Actually take a look at this link. Another BH forum user mcq actually run some simulation and notice that Intermediate Treasury is actually a better companion than Total Bond Market. This is even though Intermediate had a slightly lower return, but the lower correlation means when combined with the same amount of equity you get a higher return.
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Re: VBTLX exit strategy

Post by gavinsiu »

bogles the mind wrote: Wed Jul 10, 2024 4:55 pm So the rate should be expected for the full duration? I'm sorry, I'm having trouble wrapping my head around people saying they think now is a good time to purchase an intermediate bond fund to lock in the good rates. I understand individual bonds locking in a rate if held to maturity but funds seem to be variable. I am looking for an alternative to ladders.
You do not have the same degree of control and transparency. You are not going to get exact yield, exact credit quality, etc. This is similar to having a stock fund where you don't have control the exact percentage of sector. You are buying an approximation.

You can still determine the behavior from the bond fund's duration. The reason it's a good time to buy is because intermediate bonds are currently yielding a decent rate. if the rate rises slowly, then your bond fund will gain from the increase income. if the interest rate drops the bond fund will gain from capital apprecation. Over the long term, intermediate bond will have a higher return than cash. See link. There will be some people who will attempt to predict interest rate and adjust the duration of their fixed income, but it's sort of like timing the stock market, very few people succeed.
Last edited by gavinsiu on Wed Jul 10, 2024 9:37 pm, edited 1 time in total.
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anagram
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Re: VBTLX exit strategy

Post by anagram »

gavinsiu wrote: Wed Jul 10, 2024 8:38 pm
bogles the mind wrote: Wed Jul 10, 2024 4:55 pm So the rate should be expected for the full duration? I'm sorry, I'm having trouble wrapping my head around people saying they think now is a good time to purchase an intermediate bond fund to lock in the good rates. I understand individual bonds locking in a rate if held to maturity but funds seem to be variable. I am looking for an alternative to ladders.
You do not have the same degree of control and transparency. You are not going to get exact yield, exact credit quality, etc. This is similar to having a stock fund where you don't have control the exact percentage of sector. You are buying an approximation.

You can still determine the behavior from the bond fund's duration. The reason it's a good time to buy is because intermediate bonds are currently yielding a decent rate. if the rate rises slowly, then your bond fund will gain from the increase income. if the interest rate drops the bond fund will gain from capital apprecation. Over the long term, intermediate bond will have a higher return than cash. See link. There will be some people who will attempt to predict interest rate and adjust the duration of their fixed income, but it's sort of like timing the stock market, very few people succeed.
Your link shows the exact opposite. What am I missing?
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Re: VBTLX exit strategy

Post by gavinsiu »

anagram wrote: Wed Jul 10, 2024 9:18 pm Your link shows the exact opposite. What am I missing?
Apologies, there was a one off on label. Here's the corrected link

https://www.portfoliovisualizer.com/bac ... rLc231a4T1
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Re: VBTLX exit strategy

Post by 3cat »

gavinsiu wrote: Wed Jul 10, 2024 8:25 pm
3cat wrote: Wed Jul 10, 2024 4:57 pm I’m moving out of VBTLX not because it is “down” but because I want less corporate exposure in my bond allocation. ... To compensate for a potential but slight loss of returns from VBTLX, I’m also changing from 60/40 to 65/35.
Actually take a look at this link. Another BH forum user mcq actually run some simulation and notice that Intermediate Treasury is actually a better companion than Total Bond Market. This is even though Intermediate had a slightly lower return, but the lower correlation means when combined with the same amount of equity you get a higher return.
McQ’s results in that thread is why I started moving out of VBTLX.
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Re: VBTLX exit strategy

Post by gavinsiu »

3cat wrote: Wed Jul 10, 2024 10:06 pm McQ’s results in that thread is why I started moving out of VBTLX.
Just keep in mind that it is still a small tweak. It will hypothetically make you more money but not a large amount.
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Re: VBTLX exit strategy

Post by Steven F »

JakeyLee wrote: ↑Wed Jul 10, 2024 11:20 am
Xrayman69 wrote: ↑Wed Jul 10, 2024 8:29 am
I’m trying to execute the opposite and buy more bond funds as prices (NAV) of these funds are lower than they were in recent years.

I want to lock in the intermediate duration.

Any suggestions from this community for an equivalent to VBLTX for my fidelity account? I want to rebalance and get more bond funds.
How bout you just buy the etf, BND? Should be a fairly simple process with Fido.
VBLTX is a mutual fund that may not be accessible in Fidelity. There is however a ETF version of VBLTX. The ETF equivalent is BLV. I have not had any problems with vangard ETF on Fidelity.
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Re: VBTLX exit strategy

Post by tibbitts »

gavinsiu wrote: Wed Jul 10, 2024 10:30 pm
3cat wrote: Wed Jul 10, 2024 10:06 pm McQ’s results in that thread is why I started moving out of VBTLX.
Just keep in mind that it is still a small tweak. It will hypothetically make you more money but not a large amount.
Yes, switching between a total bond and intermediate treasury fund in a deferred account is one of those activities in investing that you can do frequently without doing any actual harm (or getting much benefit, obviously.) It might benefit people with a compulsion to tweak.
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Re: VBTLX exit strategy

Post by btq96r »

Bamaman wrote: Tue Jul 09, 2024 11:33 am invested in VBTLX inside a traditional IRA.
The "inside a traditional IRA" is the sticky wicket. I dumped all my VBTLX shares a few years ago, but that was from a taxable brokerage account to avail myself of tax loss harvest benefits, which doesn't apply inside your IRA.

I'd be more concerned with the risk of what you have on hand vs. selling at a loss. If the risk of holding the bond fund is too much for you, then selling at a loss is irrelevant. But if the risk is acceptable, you shouldn't have to sell and incur the loss.

You can make a first decision on if you shunt the dividends back into VBTLX purchases, or send them to a settlement fund and reinvest elsewhere.
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Re: VBTLX exit strategy

Post by gavinsiu »

btq96r wrote: Thu Jul 11, 2024 7:28 am The "inside a traditional IRA" is the sticky wicket. I dumped all my VBTLX shares a few years ago, but that was from a taxable brokerage account to avail myself of tax loss harvest benefits, which doesn't apply inside your IRA.

I'd be more concerned with the risk of what you have on hand vs. selling at a loss. If the risk of holding the bond fund is too much for you, then selling at a loss is irrelevant. But if the risk is acceptable, you shouldn't have to sell and incur the loss.

You can make a first decision on if you shunt the dividends back into VBTLX purchases, or send them to a settlement fund and reinvest elsewhere.
Bond funds don't typically have huge tax loss compare to stock, I think 2022 was a bit of an anomaly. I think you are better off with bonds in tax deferred.
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Re: VBTLX exit strategy

Post by livesoft »

The BND I bought on May 6th is up 2% now WITHOUT the end-of-June dividends. That's about 12% annualized. I'm not saying BND/VBTLX is going higher, but since equities have been on a tear it might be time to rebalance into VBTLX instead of exiting from it.

(OTOH, equities bought in late April / early May are up about 9% to 12%!)
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Re: VBTLX exit strategy

Post by btq96r »

gavinsiu wrote: Thu Jul 11, 2024 8:12 am Bond funds don't typically have huge tax loss compare to stock, I think 2022 was a bit of an anomaly. I think you are better off with bonds in tax deferred.
It wasn't a huge amount. I made a decision a while back to ditch bonds altogether, and 2022 was kind of the perfect time to action it in a big move rather than in phases as the losses took hold. I had already stopped buying bonds and turned off reinvestment of dividends before that. I'm now dedicated to keeping a stout emergency fund, a sinking fund for my next vehicle, and 100% equities after that (between taxable and retirement). With my net worth, that has me at approx 80% investments, 20% cash.
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Re: VBTLX exit strategy

Post by arcticpineapplecorp. »

gavinsiu wrote: Thu Jul 11, 2024 8:12 am
btq96r wrote: Thu Jul 11, 2024 7:28 am The "inside a traditional IRA" is the sticky wicket. I dumped all my VBTLX shares a few years ago, but that was from a taxable brokerage account to avail myself of tax loss harvest benefits, which doesn't apply inside your IRA.

I'd be more concerned with the risk of what you have on hand vs. selling at a loss. If the risk of holding the bond fund is too much for you, then selling at a loss is irrelevant. But if the risk is acceptable, you shouldn't have to sell and incur the loss.

You can make a first decision on if you shunt the dividends back into VBTLX purchases, or send them to a settlement fund and reinvest elsewhere.
Bond funds don't typically have huge tax loss compare to stock, I think 2022 was a bit of an anomaly. I think you are better off with bonds in tax deferred.
yes, not a normal size loss, as the long term chart of Bond Agg shows us:

Image

Source
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Re: VBTLX exit strategy

Post by dbr »

arcticpineapplecorp. wrote: Thu Jul 11, 2024 11:31 am
yes, not a normal size loss, as the long term chart of Bond Agg shows us:
Nice chart.

So, not a normal size loss given a not normal onset of inflation and interest rate changes following a not normal financial and business environment following a very much not normal massive public health episode.

All the mechanics worked exactly as they are supposed to work but events were extreme.

If a person want to plan for or anticipate future events that are extreme that is going to take some doing. Of course the person who was aware in December of 2019 that something extraordinary was afoot in a city in China might have figured out a plan of some kind. Interestingly the best plan would have been to move everything into VTI and enjoyed a five year compound return of 14%. But it is not normal that the response to global economic disruption would have been to move everything into stocks.
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Re: VBTLX exit strategy

Post by gavinsiu »

arcticpineapplecorp. wrote: Thu Jul 11, 2024 11:31 am yes, not a normal size loss, as the long term chart of Bond Agg shows us:
I have seen that chart as well and I can see the rarity of the event, but people seems to react differently. I look at it as being rare (even the 70's hide didn't have this effect) and think it is a one-off event. Another group thinks this is the new norm.

For those who think it is an anomaly, nothing has change. For those who feel that this is the new normal, I have seen several different responses.
  1. Replace the Bond fund with a bond ladder.
  2. Exchange their Total Bond market with short term bond or with cash.
  3. Exchange their Total bond market with cash but hike their stock to compensate for the loss.
  4. Replace their bonds entirely with stock (I think there was another thread where someone replace it with dividend stock).
For #1, I feel that not much have change except that you change your investment vehicle. I feel that safety is mostly an illusion, your bond still loses value if you sell, but you get to withdraw from the lowest rung without loss. I supposed it gives you bit more flexibility if you want to sell.

For #2, I feel that they are trading some reduce volatility for lower return. I know of several several people who hold short term because they rather sleep better. I would be more concern if the person has a high fix income allocation like 70%+ fixed income especially if they went to cash. I would be worry that when interest rate drops to close to zero, they might have a hard time getting the income for retirement.

For #3, I feel they are fixated on the bond losses too much. Based on experiments on Portfolio Visualizer, adding more stock while replacing bonds with cash will actually make your whole portfolio more volatile, but in the end, they are more comfortable that their fixed income stays safe.

For #4, I think the person is just crazy. Replacing bonds with cash is one thing, but replacing it with stock changes the risk profile by a lot. They might think differently in the next equity bear market, but by then it will be too late.
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Re: VBTLX exit strategy

Post by GP813 »

With inflation cooling you might be timing yourself out of a bond rally. I own VBTLX and I'm holding, re-investing dividends, and making annual contributions.
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