Bond Funds

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Prudence
Posts: 392
Joined: Fri Mar 09, 2012 4:55 pm

Bond Funds

Post by Prudence » Tue Apr 03, 2012 3:40 pm

Assume I have $100,000 that I will be needing in about 14 years and it will not be included in my stock allocation. Does it make sense to invest it in a long term bond fund such as VG LT Investment Grade and then shift it to an intermediate fund such as VG Intermediate Term Bond Index after the 8th year and then shift it again to a ST bond fund after another 3 years or so?

RadAudit
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Location: Second star on the right and straight on 'til morning

Re: Bond Funds

Post by RadAudit » Tue Apr 03, 2012 6:52 pm

Prudence wrote:Does it make sense
Don't know. I'm not a pro at this. But, I'd have to ask what's the difference in average maturities among the funds? If the gap between long term and intermediate bond funds is fairly large, you could get caught selling low and buying higher in a few years if interest rates rise. That's just a guess that the long term fund would drop farther than the intermediate fund for a change in interest rates across the yield curve.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The calvary isn't coming, kids. You are on your own.

winterescape
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Joined: Sun Apr 15, 2007 2:53 pm
Location: Upstate NY

Re: Bond Funds

Post by winterescape » Tue Apr 03, 2012 6:56 pm

You did not state if this was taxable. I would be more inclined to select a single intermediate term fund, Vanguard GNMA or Total bond, and just stick with it.

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: Bond Funds

Post by dbr » Wed Apr 04, 2012 9:14 am

Probably the conventional financial analysis would suggest buying bonds that mature in fourteen years and simply holding them. That would imply dealing only in Treasuries as only Treasuries would be free of single issuer risk. Otherwise the idea of trying to match maturity to need is correct and bond funds are awkward because they are designed to maintain a constant maturity.

Aren't there some ETF's out there that have a target maturity date that is set in advance?

Yes, see this page:

http://thefinancebuff.com/target-maturi ... -etfs.html

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