Vanguard bond ETF/funds

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wstalcup
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Vanguard bond ETF/funds

Post by wstalcup » Wed Oct 11, 2017 7:58 am

If you could buy only 1 Vanguard bond ETF or Mutual Fund, which would it be?

Also since Mutual Fund trade only once per day, how do you know what that price will be.. I mean you may not like it until its too late? Also could the price run up a lot of enough people are buying that one day? Would the price be exactly the same for all purchasing that one day? thanks!
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Re: Vanguard bond ETF/funds

Post by oldcomputerguy » Wed Oct 11, 2017 8:18 am

The answer to your question would depend on exactly why you wanted to buy bonds in the first place. If it was for ultimate safety and diversification from stocks first and foremost, I'd choose Intermediate Term Treasury Fund (either VFIUX / Admiral shares or VFITX / Investor shares, depending on how much I had to invest). If, on the other hand, I were to be looking for more bond diversification plus some safety with a little more income, I'd choose Total Bond Market Fund (VBTLX / VBFMX).

I would not choose a corporate bond fund or a high-yield fund, as they are somewhat more closely correlated to the stock market and so are less suited as diversifiers from stock risk. Others may differ, and that's okay, bond choices are individual choices.

In fact I do hold a Fidelity fund (FSITX) in my Fidelity IRA that benchmarks an index similar to that tracked by Total Bond Fund VBTLX.

I'm not that big a fan of ETFs. Since they trade throughout the day, in my mind they promote trading, which to me is not in line with the "buy-and-hold" philosophy. But that's just me. As for the price, yes, the prices of mutual fund shares are set at the end of the day. I in fact find that reassuring, as the price of shares of the fund is controlled by the prices of the underlying securities, whereas there is a disconnect between the price of an ETF fund share and the price of the underlying securities, adding a bit more uncertainty to the picture. I don't think there's anything especially bad about ETFs, they're just not my cup of tea.

I have no problem with not knowing the price of mutual fund shares ahead of time. If my IPS says I need to sell some bond fund shares and buy some stock fund shares to get back in balance, I execute those trades. My IPS doesn't say anything about "wait until the price is such-and-such", it's based on chosen asset allocation.
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Re: Vanguard bond ETF/funds

Post by jhfenton » Wed Oct 11, 2017 8:31 am

If I could own only one Vanguard bond fund, it would be VSIGX (Vanguard Intermediate Term Government/Treasury Bond Index Fund Admiral Shares) or VBILX (Vanguard Intermediate Term Bond Index Fund Admiral Shares) (50/50 govt/corp), depending on the size of my bond allocation. VSIGX was, in fact, my first and only taxable bond fund for a while.

As it is, now that our bond allocation is larger, I prefer to split out our bond allocation to separate treasuries and corporates and control duration, so we own VSIGX plus VICSX (Vanguard Intermediate Term Corporate Bond Index Fund Admiral Shares) and VSCSX (Vanguard Short Term Corporate Bond Index Fund Admiral Shares).

I don't like total bond because it mixes short, intermediate, and long and treasuries, mortgage-backeds, and corporates willy-nilly with no market-based rhyme nor reason. (The amount of government borrowing, and therefore the treasury-corporate bond allocation in total bond, is not a market-driven decision.)

But it's a very slight dislike. If my 401(k) had total bond, I'd use it in a heartbeat. (It only has PIMCO Total Return (PTTRX).)

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Re: Vanguard bond ETF/funds

Post by dbr » Wed Oct 11, 2017 8:40 am

What you buy is not the same for everybody. There is no single fund.

That said, if you have no criteria at all for what you are doing that is what the total bond market fund is for VBMFX/VBTLX. For most people there is no reason to buy a bond ETF rather than a mutual fund. You don't need to worry about knowing exactly what price you are paying. It is not as if you can control that or would change your decision if you could. Mutual funds are bought in dollar amounts getting any fractional number of shares and are the same for everyone everyday.

PS I don't own total bond market because my criteria for what I wanted are different. I do not own only one bond fund.

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Re: Vanguard bond ETF/funds

Post by jhfenton » Wed Oct 11, 2017 8:47 am

dbr wrote:
Wed Oct 11, 2017 8:40 am
For most people there is no reason to buy a bond ETF rather than a mutual fund.
I agree with this. I prefer bond mutual funds for ease of reinvestment of dividends and guaranteed liquidity. There are ETF shares classes of VSIGX (VGIT), VICSX (VCIT), and VSCSX (VCSH), but I use the Admiral Shares.

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Re: Vanguard bond ETF/funds

Post by mega317 » Wed Oct 11, 2017 8:58 am

dbr wrote:
Wed Oct 11, 2017 8:40 am
You don't need to worry about knowing exactly what price you are paying. It is not as if you can control that or would change your decision if you could.
Plus prices don't change that much, so you can be sure your price will be within a few cents of the previous days'.

My answer is California intermediate-term tax exempt since I have a specific reason for holding bonds in taxable now. In a couple years the answer will likely be total bond.

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Re: Vanguard bond ETF/funds

Post by goingup » Wed Oct 11, 2017 9:04 am

The Vanguard Total Bond Index fund is a well-regarded, intermediate term, low-cost bond fund.

As to whether mutual fund or ETF you can read about the pros and cons of each. https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

wstalcup
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Re: Vanguard bond ETF/funds

Post by wstalcup » Wed Oct 11, 2017 9:17 am

With every ETF I've ever owned, reinvesting of dividends is as simple as checking of box. How are Mutual funds easier than this? Also, how aren't ETFs as liquid as Mutual funds.. and technically ETFs are better for tax purposes than Mutual funds.. but someone mentioned only with Vanguard this doesn't matter and both are the same. is this true? Thanks!
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Re: Vanguard bond ETF/funds

Post by livesoft » Wed Oct 11, 2017 9:20 am

I own both bond ETFs and bond mutual funds.

ETFs are as liquid as mutual funds, but that doesn't mean you always get a fair price for a bond ETF. There have been some stock market glitches when pricing has been funky to the downside (so far never to the upside), so if you are a buyer, then this is great, but if you are a seller, then when such conditions occur you should wait to sell until after they have passed. One can call this "wait to sell" a lack of liquidity.
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Re: Vanguard bond ETF/funds

Post by Doc » Wed Oct 11, 2017 9:25 am

jhfenton wrote:
Wed Oct 11, 2017 8:31 am
If I could own only one Vanguard bond fund, it would be VSIGX (Vanguard Intermediate Term Government/Treasury Bond Index Fund Admiral Shares) or VBILX (Vanguard Intermediate Term Bond Index Fund Admiral Shares) (50/50 govt/corp), depending on the size of my bond allocation. VSIGX was, in fact, my first and only taxable bond fund for a while.

As it is, now that our bond allocation is larger, I prefer to split out our bond allocation to separate treasuries and corporates and control duration, so we own VSIGX plus VICSX (Vanguard Intermediate Term Corporate Bond Index Fund Admiral Shares) and VSCSX (Vanguard Short Term Corporate Bond Index Fund Admiral Shares).

I don't like total bond because it mixes short, intermediate, and long and treasuries, mortgage-backeds, and corporates willy-nilly with no market-based rhyme nor reason. (The amount of government borrowing, and therefore the treasury-corporate bond allocation in total bond, is not a market-driven decision.)

But it's a very slight dislike. If my 401(k) had total bond, I'd use it in a heartbeat. (It only has PIMCO Total Return (PTTRX).)
"As it is, now that our bond allocation is larger, I prefer to split out our bond allocation to separate treasuries and corporates and control duration ..." Me too.

If I was limited to only one I also would use VSIGX (Vanguard Intermediate Term Government/Treasury Bond Index Fund Admiral Shares) if I was limited to Vanguard but I would prefer a 1-10 Gov/Treasury like iShares Intermediate Government/Credit Bond ETF GVI

I do prefer PIMCO total return (and its Harbor Bond sibling HABDX) over Total Bond Fund but that piece of our bond portfolio is only 10% of the total. And that 10% will probably sit there until our grandchildren start investing on their own so short term variation is not an issue with that piece.
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Re: Vanguard bond ETF/funds

Post by Artsdoctor » Wed Oct 11, 2017 9:28 am

wstalcup wrote:
Wed Oct 11, 2017 7:58 am
If you could buy only 1 Vanguard bond ETF or Mutual Fund, which would it be?

Also since Mutual Fund trade only once per day, how do you know what that price will be.. I mean you may not like it until its too late? Also could the price run up a lot of enough people are buying that one day? Would the price be exactly the same for all purchasing that one day? thanks!
We cannot answer this question for you because there are too many variables. It will ultimately depend on YOUR needs. Where's the money? What's your time frame for spending it? What state do you live in? What's your marginal rate for income?

The largest chunk of fixed income mutual fund investments I have is in the California intermediate-term tax-exempt fund (VCADX) which I've had for 20 years. As you can imagine, it would totally inappropriate for many investors so you'll have to answer the above questions.

wstalcup
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Re: Vanguard bond ETF/funds

Post by wstalcup » Wed Oct 11, 2017 9:57 am

correct me if I'm wrong but it looks like a $10k investment in VSIGX (reinvesting dividends) over the last 10 years would give you $11,684.43 now, so sounds like a loss when factoring inflation.
VSIGX is still considered a good investment to many here because:
1) in the longer term it has performed better?
2) assuming it will perform better in the future
3) a hedge against a stock market crash?


oh also, it was mentioned some people may not like ETF's because you might not buy at a fair price? with Mutual Funds, you have no idea what the price will be, so is that fair also?
In either case of buying a mutual fund or an ETF, I plan on holding for the long term so I guess what really matters only is the expense ratio for an etf and for mutual funds it would be the expense ratios, 12b1 fees, loads, redemption fees,.etc
when comparing like ETF and mutual funds, you would think only the fees matter and not so much the buying and selling?
Thanks!
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Re: Vanguard bond ETF/funds

Post by wstalcup » Wed Oct 11, 2017 10:01 am

Artsdoctor wrote:
Wed Oct 11, 2017 9:28 am
wstalcup wrote:
Wed Oct 11, 2017 7:58 am
If you could buy only 1 Vanguard bond ETF or Mutual Fund, which would it be?

Also since Mutual Fund trade only once per day, how do you know what that price will be.. I mean you may not like it until its too late? Also could the price run up a lot of enough people are buying that one day? Would the price be exactly the same for all purchasing that one day? thanks!
We cannot answer this question for you because there are too many variables. It will ultimately depend on YOUR needs. Where's the money? What's your time frame for spending it? What state do you live in? What's your marginal rate for income?

The largest chunk of fixed income mutual fund investments I have is in the California intermediate-term tax-exempt fund (VCADX) which I've had for 20 years. As you can imagine, it would totally inappropriate for many investors so you'll have to answer the above questions.
I live in Florida, and I guess not really looking to need the money until about 20 years from now. marginal rate for income is around 18%. Money would be in rollover IRAs and also taxable accounts. Currently all my investments are in Stocks and stock ETFs, so looking to move some to bonds since riding an 8 year old bull and interest rates should be going up, so I think it would be best to move some assets into bonds. Thanks so much!
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Re: Vanguard bond ETF/funds

Post by livesoft » Wed Oct 11, 2017 10:04 am

wstalcup wrote:
Wed Oct 11, 2017 9:57 am
oh also, it was mentioned some people may not like ETF's because you might not buy at a fair price? with Mutual Funds, you have no idea what the price will be, so is that fair also?
Many people have anxieties about pricing and money in general. So if there is only one single end-of-day price they believe they are getting a fair price. They tend not to ask for discounts nor bargain hard on purchases. I think think it is psychological. Of course, they don't know if the price if fair or not, but that doesn't matter as long as everyone else is getting the same price.

I prefer to get a better price than most everybody else and have no anxiety when it comes to buying and selling.
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Re: Vanguard bond ETF/funds

Post by asif408 » Wed Oct 11, 2017 10:06 am

wstalcup wrote:
Wed Oct 11, 2017 10:01 am
I live in Florida, and I guess not really looking to need the money until about 20 years from now. marginal rate for income is around 18%. Money would be in rollover IRAs and also taxable accounts. Currently all my investments are in Stocks and stock ETFs, so looking to move some to bonds since riding an 8 year old bull and interest rates should be going up, so I think it would be best to move some assets into bonds. Thanks so much!
If you don't need the money for 20 years, why not just move to some different stocks instead of going more to bonds? Most of the rest of the world stocks were in a bear market from 2011 to early 2016, so they are just in the early stages of a bull market, assuming they are not longer in a bear market. You should have plenty of times to ride the ups and downs.

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Re: Vanguard bond ETF/funds

Post by triceratop » Wed Oct 11, 2017 10:09 am

I use only Vanguard Intermediate-Term Treasury Government Bond ETF. It has pure term exposure and is tax efficient (indeed no state tax on interest). I do wish the ETF had more volume. Ironically despite all the "liquidity crisis in corporate issues" the intermediate term corporate bond etf from vanguard is far more liquid.

To the poster above commenting on the lackluster returns: it is what it is. I use my bonds for stability and an emergency fund buffer. They will buy stocks in the event of a crash and the possibility of a flight to quality is worth it to me in that scenario. Total Bond is both less efficient on an after-tax basis (I have limited tax advantaged space; would add the corporate fund in tax advantaged if I had the space) and corporates aren't as safe when equities (90% of portfolio) tank. I care more how my portfolio as a whole behaves and the role of bonds is not for substantial income return.
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Re: Vanguard bond ETF/funds

Post by Nate79 » Wed Oct 11, 2017 10:19 am

wstalcup wrote:
Wed Oct 11, 2017 9:57 am
correct me if I'm wrong but it looks like a $10k investment in VSIGX (reinvesting dividends) over the last 10 years would give you $11,684.43 now, so sounds like a loss when factoring inflation.
VSIGX is still considered a good investment to many here because:
1) in the longer term it has performed better?
2) assuming it will perform better in the future
3) a hedge against a stock market crash?


oh also, it was mentioned some people may not like ETF's because you might not buy at a fair price? with Mutual Funds, you have no idea what the price will be, so is that fair also?
In either case of buying a mutual fund or an ETF, I plan on holding for the long term so I guess what really matters only is the expense ratio for an etf and for mutual funds it would be the expense ratios, 12b1 fees, loads, redemption fees,.etc
when comparing like ETF and mutual funds, you would think only the fees matter and not so much the buying and selling?
Thanks!
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Re: Vanguard bond ETF/funds

Post by wstalcup » Wed Oct 11, 2017 1:51 pm

asif408 wrote:
Wed Oct 11, 2017 10:06 am
wstalcup wrote:
Wed Oct 11, 2017 10:01 am
I live in Florida, and I guess not really looking to need the money until about 20 years from now. marginal rate for income is around 18%. Money would be in rollover IRAs and also taxable accounts. Currently all my investments are in Stocks and stock ETFs, so looking to move some to bonds since riding an 8 year old bull and interest rates should be going up, so I think it would be best to move some assets into bonds. Thanks so much!
If you don't need the money for 20 years, why not just move to some different stocks instead of going more to bonds? Most of the rest of the world stocks were in a bear market from 2011 to early 2016, so they are just in the early stages of a bull market, assuming they are not longer in a bear market. You should have plenty of times to ride the ups and downs.
I am 100% in stocks and stock etfs right now! I think because of the 8 year bull and interest rates should continue to rise, now should be a good time to put something in bonds!
good point about world stocks.. I only have US stocks.. so maybe a world stock index and some sort of bond fund!
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Re: Vanguard bond ETF/funds

Post by artking99 » Wed Oct 11, 2017 9:20 pm

When interest goes up, the bond price will go down. So all bond funds have a downward pressure in rising rate environment.

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Re: Vanguard bond ETF/funds

Post by venkman » Wed Oct 11, 2017 9:53 pm

wstalcup wrote:
Wed Oct 11, 2017 9:57 am
oh also, it was mentioned some people may not like ETF's because you might not buy at a fair price? with Mutual Funds, you have no idea what the price will be, so is that fair also?
By definition, you will get a fair price when you buy an (open-end) mutual fund, since the price is based on the fair value of the fund's assets as of the close of that day's trading. It may be a higher price than it was at the start of the day, but that's only because the underlying assets of the fund increased in value.

Even when you buy ETF's, you don't know exactly what price you're going to get. If you put in a market order, you'll get whatever the market price is. If you put in a limit order, you know the maximum price you'll pay; but it's possible your order won't get filled at all.

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Re: Vanguard bond ETF/funds

Post by asif408 » Thu Oct 12, 2017 7:28 am

wstalcup wrote:
Wed Oct 11, 2017 1:51 pm
good point about world stocks.. I only have US stocks.. so maybe a world stock index and some sort of bond fund!
Seems like a good place to start. Vanguard does have a total world fund, I'm guessing other companies may have something similar.

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Re: Vanguard bond ETF/funds

Post by Explorer » Fri Oct 13, 2017 6:14 am

My 2 cents:
1. ETFs are better since they allow you to change brokerages if you choose to consolidate your accounts later. If you know you are staying with Vanguard for life, this aspect doesn't matter. Although majority of VG mutual funds can be moved to other brokerages, you can not move admiral shares. So... I like ETFs for portability.
2. It is true that VG has their ETFs defined as the corresponding mutual fund share class so the tax efficiency aspects are one and the same for VG funds whether they are ETFs or OEFs.
3. Regarding intra-day price fluctuations, yes ETFs have to deal with bid/ask spread and OEFs don't. But.. if you are acquiring high daily volume ETFs this shouldn't be a significant deal. Plus you know what you are paying for each share.

The wrapper (ETF or OEF) really doesn't matter that much in the end - what really matters is your asset allocation between stocks and bonds and whether you allow your money to grow over time.

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