Bond Help: TBM vs. Intermed. Index vs. Intermed. Treasury?

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Bond Help: TBM vs. Intermed. Index vs. Intermed. Treasury?

Post by ronin » Sat Jan 29, 2011 2:15 pm

I’m looking for guidance on constructing the bond portion (~25%) of my retirement portfolio (all in Roth IRA and 401ks) using Vanguard funds. While I was set to utilize TBM exclusively, I began reading posts that drew my attention to two observations/concerns:

(1) Some suggest avoiding TBM because of the risks (optionality) of the Mortgage-backed securities and therefore should consider Total Intermediate Bond Index <AND>
(2) Some suggest sticking with only treasuries due to offering better risk/reward characteristics (no optionality or credit risk) to complement the equities portion (~75%) of the total portfolio and therefore would suggest Intermediate-Term Treasury.

I’ll admit I tend to overanalyze, but if my time horizon for starting to use the funds is over 25 years away, does that render the concerns listed above moot, or is there something to them that should be considered and acted on? Not to complicate a single post, but would a TIPs fund make sense in the mix?

Thank you!

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Post by exigent » Sat Jan 29, 2011 2:36 pm

All I can say is that we're currently using Total Bond Market and have recently begun adding TIPS via VIPSX - no VAIPX b/c this is in a Solo 401(k). I've seen the concerns about MBS, etc. but haven't been concerned enough to make a change.

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Post by dbr » Sat Jan 29, 2011 2:40 pm

My opinion is that the long term investor with an otherwise appropriate approach to asset allocation does not need to worry about making a mistake in choosing TBM, IT Index, or IT Treasuries, one rather than the other. Assuredly you can introduce much unneeded anxiety and time-wasting worry into your life by going around on the issue. Those who want to undertake detailed optimizations based on various analyses can probably arrive at support for a preference within that list depending on objectives. If one does not like the MBS issue in particular, then don't buy TBM. If one prefers pure Treasuries, it is easy to do that.

My opinion is that for older investors who are vulnerable to inflation that partial insurance offered by a known real return in fixed income is a justification for holding an allocation to TIPS.

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Post by txjoe79 » Sat Jan 29, 2011 2:44 pm

This may be a succinct answer:

Despite the recent plethora of articles warning of a coming meltdown in the bond market, investors should continue to hold a broadly-diversified portfolio that includes bonds. These funds can provide income and stability in a portfolio and are suitable for all investors. An excellent choice is the Vanguard Total Bond Market fund (VBMFX or VBTLX) which tracks the performance of the Barclays Capital U.S. Aggregate Float Adjusted Bond Index. This index measures a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States—including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than 1 year. For investors with $10,000 in the fund the expense ratio is .12 or $12 per year per $10,000 invested.

It is from the following link from Laura's most recent article on Forbe's: ... eview=true

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Post by Bob's not my name » Sat Jan 29, 2011 8:16 pm

Your question shows you already understand the issues quite well. You already know from your reading that there is no consensus on MBS risks, sticking to Treasurys, or whether TIPS are necessary. I own TBM, Intermediate Term Index, TIPS, and (gasp) actively managed bond funds, mostly based on what's available at lowest ER in my 401k, 403b, and IRA.

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Post by ronin » Sat Jan 29, 2011 10:12 pm

I appreciate the feedback!

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