Total Market Bond Fund vs Intermediate Term Fund

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McNewton
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Total Market Bond Fund vs Intermediate Term Fund

Post by McNewton » Sat Mar 08, 2014 11:28 am

Data seem to suggest that over time the intermediate term for bonds is the sweet spot on the yield curve, providing the best return for the risk taken. Putting aside the issue of taxable vs non-taxable funds, what is the best way to invest for that target? Most here suggest the Vanguard Total Bond Market fund, which covers the entire spectrum and has a current duration of 5.4 years and an average maturity of 7.4 years. The Vanguard Intermediate Term Bond Fund has a current duration of 6.4 years and an average maturity of 7.1 years. The SEC yield on the intermediate term fund is about 40 bps higher.

At today's composition it seems that the Total Market Bond fund would have a small advantage if rates rise to offset the current yield difference. Has this type of advantage typically held over time as rates rise or is it better to just invest directly in intermediate term bonds only?

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by steve_14 » Sat Mar 08, 2014 11:57 am

Looks like a 30 BPS difference in yield. Intermediate Term has a bit more credit risk (40% A or lower ratings). Risk adjusted, they should have the same expected returns. I'd probably go with less risk on the bond side, take more on the stock side, but I doubt it matters much.

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by midareff » Sat Mar 08, 2014 11:59 am

Mc... no one can predict which way rates will move, when they will do it, or the rate of change. If you are comparing the Total Bond Market and the Intermediate Term Index it is not an apples to apples comparison if you look under the hood. The Total Bond Market is almost 68% or so (might be higher now) government paper. The Intermediate Index is roughly 50/50 government/corporate and does not hold mortgage paper, while the Total Bond holds about 23% of total in mortgages.

Which one will produce better overall returns going forward and for how long is unknown and unpredictable. Some experts don't like the Total Bond Market for the mortgages, some think it OK with some tips and HY added. You probably need to decide for yourself if you have an issue holding mortgage paper and whether the 40 basis points is something you need in your portfolio knowing you are adding a year of duration.

There are no right answers, only the answer you are most comfortable with, and can stay with.

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by stlutz » Sat Mar 08, 2014 12:27 pm

If you're wanting to follow the historical data, you shouldn't use either fund.

Using intermediate term treasury funds is a risk worth taking as such bonds tend to be good diversifers vs. stocks (i.e. the two investments have near 0 correlation with each other).

In corporate bonds, the best risk/reward has historically been with short term bonds.

Now that VG has indexed versions for both options with $10K Admiral minimums, using a combination of IT Governement Bond and ST Corporate would be the best way to bet on the future resembling the past.

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Doc » Sat Mar 08, 2014 12:32 pm

midareff wrote: If you are comparing the Total Bond Market and the Intermediate Term Index it is not an apples to apples comparison if you look under the hood. The Total Bond Market is almost 68% or so (might be higher now) government paper. The Intermediate Index is roughly 50/50 government/corporate and does not hold mortgage paper, while the Total Bond holds about 23% of total in mortgages.
Another big difference is the range of maturities of the two funds. TBM covers the whole gambit from 1 to 30+ years with over 30% in the plus ten range while the Intermediate term index fund has maturities all in the 5 to 10 year range. Some experts would suggest that the inclusion of the long bonds and mortgages (MBS) would increase the term risk of TBM. OTOH the Intermediate term index has slightly more credit risk because of the higher corporate content as midareff alluded to.

If I was to pick only one core bond fund I would take the Intermediate Term Index. Most others here would choose TBM. You also should be aware that the composition of TBM has changed greatly in the last five years because of the changes in the MBS market and the Treasury issuing a thirty year bond (again?). So a lot of the TBM data is based on an "old index" in some respects.
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Geologist » Sat Mar 08, 2014 3:33 pm

Reasonable people come to different preferences between Total Market Bond and Intermediate Term Index Fund. There is no way to know which will be "best" over a future interval of time. I would advise making a decision and go on with your life.

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by mickeyd » Sat Mar 08, 2014 4:55 pm

When I was selecting the funds in my AA years ago I selected the I-T bond fund over the TBM and have stuck with it for many years. I think that's the trick~pick one and stick with it.
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by ajcp » Sun Mar 09, 2014 9:09 am

mickeyd wrote:When I was selecting the funds in my AA years ago I selected the I-T bond fund over the TBM and have stuck with it for many years. I think that's the trick~pick one and stick with it.
+1. I recently decided IT over TBM after reading recent threads (before finding this site I had a combination of target funds and balanced funds), and as luck would have it our brand new 401k has IT, but not TBM. If it had TBM but not IT, I'd probably just switch to that since I don't think it makes a huge difference in the long run.

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by YDNAL » Sun Mar 09, 2014 9:45 am

McNewton wrote:Data seem to suggest that over time the intermediate term for bonds is the sweet spot on the yield curve, providing the best return for the risk taken. Putting aside the issue of taxable vs non-taxable funds, what is the best way to invest for that target?
You must decide what is your definition of IT.
Morningstar® wrote:Intermediate-term bond portfolios invest primarily in corporate and other investment-grade U.S. fixed-income issues and have durations of 3.5 to six years (or, if duration is unavailable, average effective maturities of four to 10 years). These portfolios are less sensitive to interest rates, and therefore less volatile, than portfolios that have longer durations.


For instance, many Bogleheads believe TBM to be an intermediate fund, while owning [currently] 66% outside 5-10 year maturities.

Code: Select all

Under 1 Year  2.9% 
1 - 3 Years  26.4% 
3 - 5 Years  20.6% 
5 - 10 Years 34.4% 
10 - 20 Years 5.5% 
20 - 30 Years 9.8% 
Over 30 Years 0.4% 
Total       100.0%
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by tomd37 » Sun Mar 09, 2014 10:06 am

McNewton - What is the symbol for the I-T bond fund to which you refer? There are several such funds.
Tom D.

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Munir » Sun Mar 09, 2014 10:26 am

tomd37 wrote:McNewton - What is the symbol for the I-T bond fund to which you refer? There are several such funds.
I assume it is VBIIX (VBILX FOR Admiral) with a duration of 6.4 years, 50% treasuries, and no MBS. It's only drawback for me is the relatively longer duration than other intermediate bond funds.

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Doc » Sun Mar 09, 2014 10:57 am

Landy, where did you get your numbers. There is a big difference between Vg and Fido.

From Morningstar as of 1/31/14
VBMVX is Vanguard Total Bond Market index
FSITX is Fidelity Spartan U.S. Bond Index Fund\

Maturity breakdown:

Code: Select all

               VBMFX   FSITX   Cat Avg
1 to 3 Years	23.71	32.67	10.26	
3 to 5 Years	17.50	20.33	20.58	
5 to 7 Years	11.23	11.47	 3.00	
7 to 10 Years   9.43	14.04	28.67	
10 to 15 Years  3.94	 0.62    9.35	
15 to 20 Years  4.55	 4.03     .75	
20 to 30 Years 26.46	13.69   13.05	
Over 30 Years   3.18	 3.14   13.34
http://portfolios.morningstar.com/fund/ ... ture=en-US (You have to put in FSITX in the benchmark pull down comparison.)

Is the the large 20 to 30 year amount for the Vanguard fund a result of the free float index or in a difference in how the average maturity of the MBS pool are calculated at Vg compared to M*?
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Doc » Sun Mar 09, 2014 11:02 am

Munir wrote:
tomd37 wrote:McNewton - What is the symbol for the I-T bond fund to which you refer? There are several such funds.
I assume it is VBIIX (VBILX FOR Admiral) with a duration of 6.4 years, 50% treasuries, and no MBS. It's only drawback for me is the relatively longer duration than other intermediate bond funds.
See Landy's post. VBIIX uses a 5-10 year index. You can add the Vg 1-5 index to get to a 1-10 which then has a lower duration. Or just buy something like iShares Intermediate Credit Bd CIU which is the 1-10.
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Taylor Larimore » Sun Mar 09, 2014 11:26 am

McNewton wrote:Data seem to suggest that over time the intermediate term for bonds is the sweet spot on the yield curve, providing the best return for the risk taken. Putting aside the issue of taxable vs non-taxable funds, what is the best way to invest for that target? Most here suggest the Vanguard Total Bond Market fund, which covers the entire spectrum and has a current duration of 5.4 years and an average maturity of 7.4 years. The Vanguard Intermediate Term Bond Fund has a current duration of 6.4 years and an average maturity of 7.1 years. The SEC yield on the intermediate term fund is about 40 bps higher.

At today's composition it seems that the Total Market Bond fund would have a small advantage if rates rise to offset the current yield difference. Has this type of advantage typically held over time as rates rise or is it better to just invest directly in intermediate term bonds only?
McNewton:

I was a director of the Dade County (Miami) Housing Authority which issues municipal bonds. In my opinion, ANY low-cost, good quality, short- or intermediate-term bond fund will provide safety and income in a portfolio. I have visited Wall Street bond trading rooms containing hundreds of bond experts huddled over their computers seeking bonds with a few basis points of higher yield without more risk. You and I don't have a chance.

It is futile to think you can find a superior bond fund with higher yield and lower risk. Higher yields nearly always reflect higher risk. If this were not so, investors would all flock to bonds with the highest yields.

No one can predict which bond fund will outperform in the future. Fortunately, ANY low-cost, good quality, short- or intermediate-term bond fund will provide safety and income in a portfolio.

There is no "free lunch" in bonds except diversification (same as stocks). For this reason, plus its one-fund simplicity, I slightly prefer Total Bond Market Index Fund in tax-advantaged accounts.

Best wishes.
Taylor
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Munir » Sun Mar 09, 2014 11:38 am

Doc wrote:
Munir wrote:
tomd37 wrote:McNewton - What is the symbol for the I-T bond fund to which you refer? There are several such funds.
I assume it is VBIIX (VBILX FOR Admiral) with a duration of 6.4 years, 50% treasuries, and no MBS. It's only drawback for me is the relatively longer duration than other intermediate bond funds.
See Landy's post. VBIIX uses a 5-10 year index. You can add the Vg 1-5 index to get to a 1-10 which then has a lower duration. Or just buy something like iShares Intermediate Credit Bd CIU which is the 1-10.
Doc,
Excuse my ignorance but how do you "add the Vg 1-5 Index"'? Is there a specific fund that follows that? Is it VBIRX- the Short Term Bond Index? It has a duration of 2.6 years but its performance record is significantly worse than the Short Term Investment Grade (VFSUX) with a duration of 2.3. Maybe a combination of VBILX and VFSUX would be the answer for me.

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Doc » Sun Mar 09, 2014 11:49 am

Munir wrote:
Doc wrote:
Munir wrote:
tomd37 wrote:McNewton - What is the symbol for the I-T bond fund to which you refer? There are several such funds.
I assume it is VBIIX (VBILX FOR Admiral) with a duration of 6.4 years, 50% treasuries, and no MBS. It's only drawback for me is the relatively longer duration than other intermediate bond funds.
See Landy's post. VBIIX uses a 5-10 year index. You can add the Vg 1-5 index to get to a 1-10 which then has a lower duration. Or just buy something like iShares Intermediate Credit Bd CIU which is the 1-10.
Doc,
Excuse my ignorance but how do you "add the Vg 1-5 Index"'? Is there a specific fund that follows that?
Vanguard Short-Term Corporate Bond Index Fund Admiral Shares (VSCSX). There is also an ETF but not investor class.

I have also used Vanguard Short-Term Investment-Grade Fund Investor Shares (VFSTX) which is not an index fund but comes close enough in my view.
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Doc » Sun Mar 09, 2014 12:02 pm

Taylor Larimore wrote:

It is futile to think you can find a superior bond fund with higher yield and lower risk. Higher yields nearly always reflect higher risk. If this were not so, investors would all flock to bonds with the highest yields.

No one can predict which bond fund will outperform in the future. Fortunately, ANY low-cost, good quality, short- or intermediate-term bond fund will provide safety and income in a portfolio.

There is no "free lunch" in bonds except diversification (same as stocks). For this reason, plus its one-fund simplicity, I slightly prefer Total Bond Market Index Fund in tax-advantaged accounts.
Taylor is correct on the yield/risk aspects if you think only in terms of the bonds by themselves. If you think of the bonds as part of the entire portfolio other considerations come into play.

FWIW Jack Bogle seems to have some problem with the Barcap Agg Index now and therefore I would presume with his TBM Index creation. :shock:
Bogle: Well, Christine, this answer may surprise you from a dyed-in-the-wool indexer and the creator of the first index bond fund. I think we have to fix the index.
http://www.morningstar.com/cover/videoc ... ?id=592689

In Larry Swedroe's bond book he also argues against some of the components of the Barcap Agg index - mainly MBS and long bonds. While Bogle objects to the larger amount of long Treasuries in the current version of the index.
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by ERMD » Sun Mar 09, 2014 12:17 pm

it seems people have a lot of reservations about VBMPX, and those reservations are not always the same (i.e. too much invested in corporate bonds vs. exactly the opposite.) but to echo what taylor wrote above, i keep vanguard total bond in my 3 fund portfolio for simplicity's sake -- set it and forget it. it might be the right move by a few basis points, or the wrong move by a few basis points, but i think it's good enough to let you sleep at night (unless you really want to be hands on about your bond allocations.)
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by steve_14 » Sun Mar 09, 2014 12:29 pm

Taylor Larimore wrote:There is no "free lunch" in bonds except diversification (same as stocks). For this reason, plus its one-fund simplicity, I slightly prefer Total Bond Market Index Fund in tax-advantaged accounts.
Absolutely. Unless you model a world where bond prices reliably zig when stock prices zag (unlikely), adding bonds simply reduces the risk and (expected) return of the portfolio in a linear fashion. No free lunches.

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by YDNAL » Sun Mar 09, 2014 1:46 pm

Doc wrote:Landy, where did you get your numbers. There is a big difference between Vg and Fido.
https://personal.vanguard.com/us/funds/ ... =INT#tab=2

Code: Select all

Under 1 Year  2.9% 
1 - 3 Years  26.4% 
3 - 5 Years  20.6% 
5 - 10 Years 34.4% 
10 - 20 Years 5.5% 
20 - 30 Years 9.8% 
Over 30 Years 0.4% 
Total       100.0%
There is an obvious classification problem - presumably Morningstar® showing over 1/4 of holdings in the 20-30 year maturity range. :?

[edit]
I don't own VBMFX, but looked further. The top 50 holdings in VBMFX have a $39B market value of $111B total market value. A large amount (didn't compute) is FNMA and GNMA - in fact, the top 15 holdings are all Mortgage Bonds. These particular holdings have varying maturity ranges largely xxxx-2044.

WAG [warning]: Seems Morningstar® uses 2044 to classify these holdings.

Code: Select all

Holding	                          Maturity Date	Market Value
Federal National Mortgage Assn.	  10/01/2018-02/01/2044	$2,113,017,823 
Federal National Mortgage Assn.	  07/01/2014-02/01/2044	$2,063,863,105 
Federal National Mortgage Assn.	  09/01/2020-11/01/2043	$1,791,060,123 
Government National Mortgage Assn.	09/20/2025-02/01/2044	$1,622,548,103 
Government National Mortgage Assn.	04/20/2018-02/01/2044	$1,499,604,844 
Federal National Mortgage Assn.	  01/01/2018-02/01/2044	$1,432,337,849 
Government National Mortgage Assn.	08/15/2018-02/01/2044	$1,373,196,138 
Federal Home Loan Mortgage Corp.	05/01/2014-02/01/2044	$1,208,971,003 
Federal Home Loan Mortgage Corp.  	08/01/2025-02/01/2044	$1,198,839,416 
Federal National Mortgage Assn.	  03/01/2017-02/01/2044	$1,100,261,753 
Government National Mortgage Assn.	01/15/2026-02/01/2044	$1,003,117,512 
Federal Home Loan Mortgage Corp.  	03/01/2021-11/01/2043	$972,836,277 
Government National Mortgage Assn.	01/15/2017-02/01/2044	$934,867,044 
Federal Home Loan Mortgage Corp.  	12/01/2017-02/01/2044	$919,936,164 
Federal National Mortgage Assn.	  02/01/2014-05/01/2041	$863,119,243 
Federal Home Loan Mortgage Corp.  	04/01/2014-10/01/2041	$668,214,934 
Federal Home Loan Mortgage Corp.  	02/01/2014-06/01/2041	$618,948,137 
Federal National Mortgage Assn.	  02/01/2014-05/01/2041	$610,192,469 
Federal National Mortgage Assn.  	08/01/2027-01/01/2043	$601,265,625
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Doc » Sun Mar 09, 2014 4:31 pm

YDNAL wrote: WAG [warning]: Seems Morningstar® uses 2044 to classify these holdings.
I thought the same but it doesn't happen with the Fidelity fund. It's got to be something about how the fund companies supply the data to M*.

Another example

iShares Core Total U.S. Bond Market ETF

Code: Select all

Time to Maturity	% of Fund
0-1 Years	13.66%
1-5 Years	34.54%
5-10 Years	18.00%
10-15 Years	3.52%
15-20 Years	2.95%
20-25 Years	4.08%
25 Years and Over	21.70%
Average	6.86 years
http://us.ishares.com/product_info/fund ... ew/AGG.htm

Note that Blackrock has 14% in 0-1 which M* I think treats as cash.
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by gnosis » Sun Mar 09, 2014 5:44 pm

Taylor Larimore wrote:I was a director of the Dade County (Miami) Housing Authority which issues municipal bonds. In my opinion, ANY low-cost, good quality, short- or intermediate-term bond fund will provide safety and income in a portfolio. I have visited Wall Street bond trading rooms containing hundreds of bond experts huddled over their computers seeking bonds with a few basis points of higher yield without more risk. You and I don't have a chance.

It is futile to think you can find a superior bond fund with higher yield and lower risk. Higher yields nearly always reflect higher risk. If this were not so, investors would all flock to bonds with the highest yields.

No one can predict which bond fund will outperform in the future. Fortunately, ANY low-cost, good quality, short- or intermediate-term bond fund will provide safety and income in a portfolio.

There is no "free lunch" in bonds except diversification (same as stocks). For this reason, plus its one-fund simplicity, I slightly prefer Total Bond Market Index Fund in tax-advantaged accounts.

Best wishes.
Taylor
These are the kinds of posts that I always greatly appreciate. This is a word from the wise that developed from such unique experiences as these. This post really opened up a new perspective for me about bonds. Thank you!

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by abuss368 » Mon Mar 10, 2014 12:43 pm

I would expect over the long term it may not make that much difference. A little higher yield for the Intermediate Term Fund with the add on of a little higher risk in the duration.

I prefer the additional diversification of the Total Bond Index Fund.
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by ofcmetz » Mon Mar 10, 2014 12:52 pm

I chose the Vanguard Intermediate Term Index Fund over the Total Bond Market Fund because of it's allocation balance. I felt more comfortable owning a bond fund that held a constant 50/50% between corporates and treasury issues. After reading a few books on bonds, I wasn't sure I really wanted to include mortgage backed securities in my bond fund and the fact that the Intermediate Term did not hold these was a bonus.

I did not chose the Intermediate Term Index because of its yield or because of its past performance. I actually think it will perform pretty similar to the Total Bond Fund going forward. I just like Intermediate Term Index Fund's fixed allocation better than the changing index that the Total Bond Fund follows.
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Munir » Mon Mar 10, 2014 2:50 pm

ofcmetz wrote:I chose the Vanguard Intermediate Term Index Fund over the Total Bond Market Fund because of it's allocation balance. I felt more comfortable owning a bond fund that held a constant 50/50% between corporates and treasury issues. After reading a few books on bonds, I wasn't sure I really wanted to include mortgage backed securities in my bond fund and the fact that the Intermediate Term did not hold these was a bonus.

I did not chose the Intermediate Term Index because of its yield or because of its past performance. I actually think it will perform pretty similar to the Total Bond Fund going forward. I just like Intermediate Term Index Fund's fixed allocation better than the changing index that the Total Bond Fund follows.
My only concern about the Intermediate Term Bond Index Fund (VBILX) is its relatively long duration (6.4 years) compared to the other Vanguard intermediate bond funds. This can be rectified by combining it with one of the short term bond funds as pointed out by Doc.

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Doc » Mon Mar 10, 2014 3:26 pm

Munir wrote:My only concern about the Intermediate Term Bond Index Fund (VBILX) is its relatively long duration (6.4 years) compared to the other Vanguard intermediate bond funds. This can be rectified by combining it with one of the short term bond funds as pointed out by Doc.
You could also use iShares Intermediate Government/Credit Bond ETF GVI for a one "fund" solution.
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by ofcmetz » Mon Mar 10, 2014 5:18 pm

Munir wrote: My only concern about the Intermediate Term Bond Index Fund (VBILX) is its relatively long duration (6.4 years) compared to the other Vanguard intermediate bond funds. This can be rectified by combining it with one of the short term bond funds as pointed out by Doc.
I also use TIAA Traditional and another stable value fund, so in my situation I'm not bothered by the extra year of duration, but this is a valid point you are making.
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by abuss368 » Mon Mar 10, 2014 5:20 pm

Is one extra year of duration something to worry about?

A 1% increase or decrease in interest rates would result in a 1% increase or decrease of the bond fund NAV correct?
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by ps56k » Tue Aug 12, 2014 6:47 pm

tnx for the thread - I've been holding VBMFX for awhile,
and trying to decide where to put new money from some maturing CD's....
whether to just roll the CD's - create more of a CD ladder to react to changes,
or - just dump it back into VBMFX - maybe $5k a month or so to spread it out -
or - spread it into the Intermediate bond fund -

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by mickeyd » Tue Aug 12, 2014 6:56 pm

I just like Intermediate Term Index Fund's fixed allocation better than the changing index that the Total Bond Fund follows.
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by EyeDee » Tue Aug 12, 2014 10:59 pm

ofcmetz wrote:. . . I just like Intermediate Term Index Fund's fixed allocation better than the changing index that the Total Bond Fund follows.
.
I like the fund better but I believe it follows a changing index. I do not check it all the time but I believe I have at least at one point in the last 8 years seen it as low as 35% in treasuries (with 13%-16% in agency funds) and another with over 50% in treasuries.

The following is from the fund's "Strategy and policy" page
https://personal.vanguard.com/us/FundsS ... IntExt=INT

"The fund employs an indexing investment approach designed to track the performance of the Barclays U.S. 5–10 Year Government/Credit Float Adjusted Bond Index. This index includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities between 5 and 10 years and are publicly issued. The fund invests by sampling the index, meaning that it holds a range of securities that, in the aggregate, approximate the full index in terms of key risk factors and other characteristics. All of the fund’s investments will be selected through the sampling process, and at least 80% of the fund’s assets will be invested in bonds held in the index. The fund maintains a dollar-weighted average maturity consistent with that of the index, which ranges between 5 and 10 years."

If the fund holdings in the Annual/SemiAnnual Reports somewhat match the index, the index has changed some over the years:

Report Treasuries Agency

12-31-04 27.9% 16%
12-31-05 32.7% 15%
12-31-06 34.6% 14.7%
12-31-07 36.3% 15.1%
06-30-08 35.2% 13.8%
12-31-08 41.0% 11.2%
12-31-09 44.4% 6.4%
12-31-10 52.8% 4.2%
12-31-11 51.9% 2.7%
12-31-12 49.2% 2.3%
12-31-13 47.6% 2.8%
Randy

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ps56k
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by ps56k » Wed Aug 13, 2014 11:04 am

Just as a comparison for my mostly pure bond coin toss -
Total Bond VBMFX vs Intermediate Bond VBIIX

I couple of things that I noticed....
VBMFX has 30% below AAA, while VBIIX has 44%
VBMFX has Gov, Corp, and MBS, while VBIIX has no MBS... just Gov & Corp.

Not sure if the 30% vs 44% really increases the risk factor,
or what about the additional exposure to MBS that VBMFX has ?

(not sure of the technique to align everything)

Code: Select all

      VBMFX       VBIIX
Dur   5.6yrs       6.5yrs
Mat   7.7yrs       7.3yrs

AAA   69 %         53 %
 AA     4            4
  A   12           17
BBB   13           23

Gov   45 %         57 %
Corp  24           41
MBS   25           --
     

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by ChicagoMedStudent » Wed Aug 13, 2014 2:09 pm

So I've got a very basic question that this thread has got me thinking about. Often in reading about bonds and how to pick ones that seem similar, there's talk of "it depends on your level of risk" or something equally vague, but I'm still not clear on the type of risk that's being discussed. Can someone provide some concrete examples (real or hypothetical) that illustrate when the TBM vs. Intermediate would be better or worse or lead to noticeably different outcomes? Sorry to bring the discussion down to such a basic level, but I suspect I'm not the only person who isn't 100% clear on this. Examples would help clarify this for me. Thanks.
Passions are the only orators which always persuade. - François de La Rochefoucauld

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Taylor Larimore » Wed Aug 13, 2014 2:38 pm

ChicagoMedStudent wrote: Can someone provide some concrete examples (real or hypothetical) that illustrate when the TBM vs. Intermediate would be better or worse or lead to noticeably different outcomes?
ChicagoMedStudent:

These are total returns during the 2008 bear market:

+5.1% Total Bond Market (VBMFX)
+4.9% Intermediate-Term Bond Index (VBIIX)
-6.2% Intermediate-Term Investment Grade (VFICX)
-37.0% Total Stock Market (VTSMX)

Past performance does not forecast future performance.

Best wishes.
Taylor
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by ps56k » Wed Aug 13, 2014 2:56 pm

Basically, any "investment" is part of the market "casino".
What is the "risk" of losing your :
- principal
- your ROI (div, interest, etc)

if the risk is lower, the subsequent payout will be lower.
if the risk is higher, the subsequest payout will be higher - IF you get anything :)

ie - is the dealer showing a "face card" or something like a 2 or 3 ?
What's the "risk" of them having a blackjack, or least beating you vs going bust ?
How much are you willing to bet on that hand ?
THAT is your personal perceived risk factor.

as a med student -
just like in a medical procedure.... what are the "perceived risks" involved ?
- overall and then one technique vs another - for the same procedure.

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by ps56k » Wed Aug 13, 2014 3:06 pm

Taylor Larimore wrote:These are total returns during the 2008 bear market:
+5.1% Total Bond Market (VBMFX)
+4.9% Intermediate-Term Bond Index (VBIIX)
-6.2% Intermediate-Term Investment Grade (VFICX)
-37.0% Total Stock Market (VTSMX)
It would be interesting to see/compare where they are today
assuming you didn't change anything from that 2008 point...

I like to see which elements dropped the least amount in 2008,
but then also, which elements bounced back...

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by ogd » Wed Aug 13, 2014 4:15 pm

ChicagoMedStudent wrote:So I've got a very basic question that this thread has got me thinking about. Often in reading about bonds and how to pick ones that seem similar, there's talk of "it depends on your level of risk" or something equally vague, but I'm still not clear on the type of risk that's being discussed. Can someone provide some concrete examples (real or hypothetical) that illustrate when the TBM vs. Intermediate would be better or worse or lead to noticeably different outcomes? Sorry to bring the discussion down to such a basic level, but I suspect I'm not the only person who isn't 100% clear on this. Examples would help clarify this for me. Thanks.
The reason you're not clear on this is that it mostly doesn't matter. As in, it makes very little difference. As in, about the same as maybe a percent or two change in your stock / bond allocation in either direction. Which you could be doing in the first place, instead of overthinking your bonds for months with no end in sight like our friend ps56k above.

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Sunny Sarkar » Wed Aug 13, 2014 4:43 pm

My first bond fund was a non-vanguard intermediate term bond fund available in my 401k. In the 2004 (note the year) Denver reunion, Mr. Bogle expressed his reservations about the then state of mortgage based securities, and indicated that he marginally preferred the Intermediate Bond Index fund over the Total Bond Index fund because the former did not contain mortgage based securities. A year or two later, the Total Bond fund had an active management/market timing snafu. So when the time came to rollover my 401k to a Vanguard IRA, I decided to rollover to the Intermediate Bond Index fund. Later, in the 2012 (again, note the year) reunion, Mr. Bogle expressed his reservations about the state of treasuries, and said that a half & half blend of high quality corporates & treasuries would be a very good bond portfolio. Guess which fund has that mix. So, I'm still feeling good about my choice - even if I totally understand that in the big picture it does not matter which one of these two excellent bond funds are chosen in a long-term portfolio.
"Cost matters". "Stay the course". "Press on, regardless". ― John C. Bogle

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by ps56k » Wed Aug 13, 2014 4:56 pm

ogd wrote:...instead of overthinking your bonds for months with no end in sight like our friend ps56k above....
Yeah - I'm beginning to see the light. It's not worth fretting the extra 1% or so. With $50k or $100k to invest - it really doesn't matter between VBMFX with Gov, Corp, MBS - or VBIIX without the MBS - or Pimco BOND etf, or even a solid CD.... just something to diversify away from the equity side. You really can drive yourself crazy with juggling the specs.

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by kwan2 » Thu Aug 14, 2014 1:41 am

I had I-T Corp Idx to try to get to 60/40 (via some outside treasuries I own), but gave up on that and went all-in in I-T Idx.

Originally I decided MBS, though I guess, government owned now, are still a bad investment, the system being corrupt as it is and all, :)
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by columbia » Thu Aug 14, 2014 9:01 am

I recall nisiprius making a good case for TBM "doing its job" during 2008 and the intermediate fund taking a hit.

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by mickeyd » Thu Aug 14, 2014 2:10 pm

I recall nisiprius making a good case for TB
Yea, but Nisi always makes a good case for whatever he is posting about.
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Sunny Sarkar » Thu Aug 14, 2014 8:21 pm

Interested in reading Nisiprius's post mentioned above - if someone has the link, please post.
"Cost matters". "Stay the course". "Press on, regardless". ― John C. Bogle

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Taylor Larimore » Fri Aug 15, 2014 6:50 pm

Sunny Sarkar wrote:Interested in reading Nisiprius's post mentioned above - if someone has the link, please post.
Sunny:

This may be the Topic with Nisiprius's reply that you are looking for:

Total Bond Market vs. Intermediate-Term Bond Index

Best wishes.
Taylor
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by mickeyd » Fri Aug 15, 2014 8:15 pm

Another reason to enjoy Nisi's posts~
I personally happen to hold VBMFX, for the following highly sophisticated reasons: I didn't and don't know what the heck I was doing, beyond wanting "bonds;" "total" sounded good, and everything I've read suggests that it's a perfectly good, handy-dandy, one-size-fits-all, solid, reliable workhorse.
(From the above post that Taylor linked to.)
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Sunny Sarkar » Sun Aug 17, 2014 1:10 pm

Read in another thread how both of these funds have been tagged long-term bond funds now, but what caught my attention was that VBTIX is high quality while VBIIX is medium quality. Was that the case earlier?
Doc wrote:VBTIX: Vanguard Total Bond Market Index I
The fixed-income Style Box position for this fund has changed from interm-term high quality to long-term high quality.

VBIIX: Vanguard Interm-Term Bond Index Inv
The fixed-income Style Box position for this fund has changed from interm-term medium quality to long-term medium quality.
"Cost matters". "Stay the course". "Press on, regardless". ― John C. Bogle

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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by oldzey » Sun Aug 17, 2014 1:17 pm

mickeyd wrote:
I recall nisiprius making a good case for TB
Yea, but Nisi always makes a good case for whatever he is posting about.
Agreed - plus he's had 25,000 posts to perfect his case-making. :D
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Re: Total Market Bond Fund vs Intermediate Term Fund

Post by Doc » Sun Aug 17, 2014 1:31 pm

Sunny Sarkar wrote:Read in another thread how both of these funds have been tagged long-term bond funds now, but what caught my attention was that VBTIX is high quality while VBIIX is medium quality. Was that the case earlier?
]
Probably. They follow different indexes. TBM has securitized issues like agency MBS pass-throughs and the intermediate (Gov/Credit) fund does not

The MBS has a different type of risk because of prepayment/extension attributes which are not easily quantified.

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