Total Bond Market [how to allocate bond portion of AA]

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Bnjneer
Posts: 11
Joined: Fri Feb 23, 2018 10:33 am

Total Bond Market [how to allocate bond portion of AA]

Post by Bnjneer » Fri Feb 23, 2018 10:49 am

Hello all. I am newly registered and this is my first post. I got rid of my FA about 3 years ago, and wish I would have done it much earlier. I have read many books including most all of William Bernstein's, and I am a fan of this site. Thank you to all of you that contribute to this site, because without this site, I may not have had the guts to get rid of my FA.

I am currently at about 50% stocks and 50% bonds (with some of this 50% in "cash") with the plan to retire this year. I am most concerned about the bond funds. The bond fund currently consists of the following:
33% in Total Bond Fund (VBTLX)
24% in Short Term Corporate Bond (VSCSX)
22% in Intermediate Bond (VFIDX)
21% in "Cash" in the Vanguard Settlement Account (Vanguard Federal Prime)

It seems there has been lots of negative "talk" on bonds, and I am concerned that maybe I should be doing something differently with this portion of my account. Can you please offer some opinions on what I should do with this portion of the account?

Thank you

getrichslowly
Posts: 73
Joined: Mon Feb 12, 2018 11:48 am

Re: Total Bond Market [how to allocate bond portion of AA]

Post by getrichslowly » Fri Feb 23, 2018 2:33 pm

Bnjneer wrote:
Fri Feb 23, 2018 10:49 am
Hello all. I am newly registered and this is my first post. I got rid of my FA about 3 years ago, and wish I would have done it much earlier. I have read many books including most all of William Bernstein's, and I am a fan of this site. Thank you to all of you that contribute to this site, because without this site, I may not have had the guts to get rid of my FA.

I am currently at about 50% stocks and 50% bonds (with some of this 50% in "cash") with the plan to retire this year. I am most concerned about the bond funds. The bond fund currently consists of the following:
33% in Total Bond Fund (VBTLX)
24% in Short Term Corporate Bond (VSCSX)
22% in Intermediate Bond (VFIDX)
21% in "Cash" in the Vanguard Settlement Account (Vanguard Federal Prime)

It seems there has been lots of negative "talk" on bonds, and I am concerned that maybe I should be doing something differently with this portion of my account. Can you please offer some opinions on what I should do with this portion of the account?

Thank you
With an effective maturity date of 8.2 years, even under an extreme doubling in interest rates, Total Bond Fund will recover itself in 4.1 years. With a current yield of 2.82%, the maximum drawdown from such a doubling is only 21%. Assuming you are withdrawing at most 4% of your wealth per year, the maximum realized loss of wealth on the bond side from an extreme doubling in interest rates is about 2%. A drop in the bucket.
The extra holdings in VSCSX and VFIDX are not strictly necessary and you can simplify with just VBTLX. Those funds simply tilt towards more credit risk than interest rate risk.

pascalwager
Posts: 1280
Joined: Mon Oct 31, 2011 8:36 pm

Re: Total Bond Market [how to allocate bond portion of AA]

Post by pascalwager » Fri Feb 23, 2018 3:25 pm

Counting the cash as zero duration, the overall duration is 4.1 years. Personally, that's as high as I like to go myself: between 2.4 and 3.9 years, actually. I prefer to minimize bonds risk.

Intermediate bond and TBM? Seem redundant. Would choose one or the other.

Your AA is similar to mine: 52/36/12.

alex_686
Posts: 4063
Joined: Mon Feb 09, 2015 2:39 pm

Re: Total Bond Market [how to allocate bond portion of AA]

Post by alex_686 » Fri Feb 23, 2018 3:33 pm

Welcome to the forum!

Yes, bonds are overvalued. But then again, so are stocks. Sigh.

So you start from first principles. What are your goals, and thus your return requirement. What is your risk tolerance? That should inform you of your AA and the amount and types of bonds you have.

Second, how much do you know about "Duration" risk? In short, the longer the duration (which is kind of like years to maturity) the greater the risk.

Right now you are not giving us much actionable data. I think you are carrying too much cash and duration of your bonds are short but maybe you have a good reason to be risk adverse. FYI, I do like intermediate corporate bonds - my personal sweet spot in the risk / return calculation. Yours will differ.

mega317
Posts: 2557
Joined: Tue Apr 19, 2016 10:55 am

Re: Total Bond Market [how to allocate bond portion of AA]

Post by mega317 » Fri Feb 23, 2018 3:36 pm

What type of negative talk do you mean? I don't want to assume. But basically some people are antsy that bond fund NAVs will drop as interest rates go up which everyone expects will happen. It's a set up for your bond funds to lose several percent of their value. IMO big whoop. Some people are shortening their fixed income duration or making other moves in an attempt to time this. I think for the average investor with a long horizon that is a waste of time.

If anything, the thing I would be doing differently is simplifying. How did you arrive at your current position?

livesoft
Posts: 63062
Joined: Thu Mar 01, 2007 8:00 pm

Re: Total Bond Market [how to allocate bond portion of AA]

Post by livesoft » Fri Feb 23, 2018 4:33 pm

I have owned the funds you listed in their ETF versions. All I can say is that no one can predict the future except that I can predict you will lose money and you will make money. If one is investing, one simply has to expect to lose money and enjoy it when it happens.

But you can have a plan when you lose money. For instance, if VBTLX drops by another 1%, will you rebalance from cash or VSCSX into VBLTX? And if VSCSX drops by another 0.5%, will you rebalance from cash into VSCSX? Tell us now what your plan is because then you have a better chance of actually following it.

Oh, don't forget to have a plan for when you make money, too. Good luck!
Wiki This signature message sponsored by sscritic: Learn to fish.

pascalwager
Posts: 1280
Joined: Mon Oct 31, 2011 8:36 pm

Re: Total Bond Market [how to allocate bond portion of AA]

Post by pascalwager » Fri Feb 23, 2018 5:27 pm

Calculate your overall bond funds maturity and duration. One basic guide is to (currently) aim for a maturity between four and five years as per Larry Swedroe. This provides a compromise between inflation risk and reinvestment risk.

For example, I'm using 2/3 ST bond index and 1/3 TBM which provides a maturity of 4.6 and a duration of 3.8.

User avatar
pjshen
Posts: 26
Joined: Sun Mar 25, 2012 5:58 pm

Re: Total Bond Market [how to allocate bond portion of AA]

Post by pjshen » Fri Feb 23, 2018 6:37 pm

Our retirement savings are also now at about 50% bonds. Over the last couple of years, we've gradually moved away from 70/30 stocks/bonds as we are nearing retirement (though still about 4 or so years away, I think). I feel comfortable holding our bonds in TBM within a couple of tax-advantaged accounts in conservative Lifestrategy funds. Our taxable accounts holds a muni bond fund. We don't hold nearly as much in cash as you, but FWIW, our cash is largely in 1-year CDs earning about 1.7%. I echo others' call for simplicity.

getrichslowly
Posts: 73
Joined: Mon Feb 12, 2018 11:48 am

Re: Total Bond Market [how to allocate bond portion of AA]

Post by getrichslowly » Fri Feb 23, 2018 6:42 pm

pascalwager wrote:
Fri Feb 23, 2018 5:27 pm
Calculate your overall bond funds maturity and duration. One basic guide is to (currently) aim for a maturity between four and five years as per Larry Swedroe. This provides a compromise between inflation risk and reinvestment risk.

For example, I'm using 2/3 ST bond index and 1/3 TBM which provides a maturity of 4.6 and a duration of 3.8.
Is that avoidance of interest rate risk really necessary? Unlike stocks, high-credit bonds are mathematically guaranteed to mean-revert. You always get the yield you bought them at by their maturity date. As long as your investment horizon exceeds the duration, there is no risk.

alex_686
Posts: 4063
Joined: Mon Feb 09, 2015 2:39 pm

Re: Total Bond Market [how to allocate bond portion of AA]

Post by alex_686 » Fri Feb 23, 2018 7:04 pm

getrichslowly wrote:
Fri Feb 23, 2018 6:42 pm
Is that avoidance of interest rate risk really necessary? Unlike stocks, high-credit bonds are mathematically guaranteed to mean-revert. You always get the yield you bought them at by their maturity date. As long as your investment horizon exceeds the duration, there is no risk.
You buy a 10 year treasury with a 2.5% coupon, with a expected inflation rate of 2%, so a real return of .5%

Then inflation jumps to 3%, so you have lost in real terms. Then interest rates rise to 4%, so you have lost in relative terms. Sure, in nominal terms you are o.k., and if you are trying to liability match you are fine. However, there is a lower chance of being able to meet your goals.

User avatar
Taylor Larimore
Advisory Board
Posts: 27636
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: Total Bond Market [how to allocate bond portion of AA]

Post by Taylor Larimore » Fri Feb 23, 2018 7:56 pm

I am currently at about 50% stocks and 50% bonds (with some of this 50% in "cash") with the plan to retire this year. I am most concerned about the bond funds. The bond fund currently consists of the following:
33% in Total Bond Fund (VBTLX)
24% in Short Term Corporate Bond (VSCSX)
22% in Intermediate Bond (VFIDX)
21% in "Cash" in the Vanguard Settlement Account (Vanguard Federal Prime)

It seems there has been lots of negative "talk" on bonds, and I am concerned that maybe I should be doing something differently with this portion of my account. Can you please offer some opinions on what I should do with this portion of the account?
bnjneer:

Welcome to the Bogleheads Forum!

Bonds are primarily for safety (stocks are for higher returns). Any one of the four funds you listed (or cash) will do the job of providing safety (and some income) in your portfolio.

With fixed-income securities, higher return nearly always means higher risk. I was in Shearson-Lehman's bond room where dozens of highly-paid professional bond traders stare at their computers all day long trying to find bonds with a higher return or lower risk. It is a very competitive business. There is no "free lunch" in fixed-income securities. This is why it is so difficult to choose.

I have owned Total Bond Market (VBTLX) for over 30 years and it is now my only bond fund. Many investors agree because Vanguard Total Bond Market Index Fund is now the largest bond fund in the world.

In my opinion, there is no reason to be "concerned" about which of these fixed-income funds you select. I would try to keep your portfolio as simple as possible by selecting one.

Read my "Simplicity" link below.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

getrichslowly
Posts: 73
Joined: Mon Feb 12, 2018 11:48 am

Re: Total Bond Market [how to allocate bond portion of AA]

Post by getrichslowly » Fri Feb 23, 2018 10:33 pm

alex_686 wrote:
Fri Feb 23, 2018 7:04 pm
getrichslowly wrote:
Fri Feb 23, 2018 6:42 pm
Is that avoidance of interest rate risk really necessary? Unlike stocks, high-credit bonds are mathematically guaranteed to mean-revert. You always get the yield you bought them at by their maturity date. As long as your investment horizon exceeds the duration, there is no risk.
You buy a 10 year treasury with a 2.5% coupon, with a expected inflation rate of 2%, so a real return of .5%

Then inflation jumps to 3%, so you have lost in real terms. Then interest rates rise to 4%, so you have lost in relative terms. Sure, in nominal terms you are o.k., and if you are trying to liability match you are fine. However, there is a lower chance of being able to meet your goals.
There is inflation risk but these days it seems pretty minor now that the Fed has successfully conquered inflation for over 30 consecutive years, and plus equities are going to be a good enough inflation hedge on their own which will be half your portfolio. Over the long run, that inflation risk gets built into future yields, which is why bonds did great during the 80s after the 70s inflation scare. In the long run it all evens out.

pascalwager
Posts: 1280
Joined: Mon Oct 31, 2011 8:36 pm

Re: Total Bond Market [how to allocate bond portion of AA]

Post by pascalwager » Sat Feb 24, 2018 2:21 am

getrichslowly wrote:
Fri Feb 23, 2018 6:42 pm
pascalwager wrote:
Fri Feb 23, 2018 5:27 pm
Calculate your overall bond funds maturity and duration. One basic guide is to (currently) aim for a maturity between four and five years as per Larry Swedroe. This provides a compromise between inflation risk and reinvestment risk.

For example, I'm using 2/3 ST bond index and 1/3 TBM which provides a maturity of 4.6 and a duration of 3.8.
Is that avoidance of interest rate risk really necessary? Unlike stocks, high-credit bonds are mathematically guaranteed to mean-revert. You always get the yield you bought them at by their maturity date. As long as your investment horizon exceeds the duration, there is no risk.
Yes, term risk can effectively separate you from your money for many years unless you're willing to redeem shares at a loss. It forces investor conduct that can be inconvenient, frustrating, and lengthy. That's just the nature of bonds, and especially longer term versions.

Bnjneer
Posts: 11
Joined: Fri Feb 23, 2018 10:33 am

Re: Total Bond Market [how to allocate bond portion of AA]

Post by Bnjneer » Sat Feb 24, 2018 7:21 am

First, "thank you" to all that responded to my post. I really appreciate your opinions and I am very happy to see that many of the people that responded are people I respect on this forum.

Because there were a few questions directed to me (not sure they were rhetorical, though), I will endeavor to provide responses.

1. Several responders asked how I came up with this allocation for the bond portion.
To be honest, I was having a difficult time deciding between some of the choices, so I decided to purchase a little of each to see how they perform and then decide later what to pare down. Now that I have watched the results, I do plan to simplify it somewhat by getting rid of the intermediate bond and move those funds to the Total Bond Market fund.

2. Someone asked about goals and risk tolerance.
I am a professional engineer by profession, so by my personality, I would say I don't like to take too much risk. With that said, about three years ago, I was at about 90/10, and I have slowly ratcheting down the AA to where I am today at 50/50 because I am getting ready to retire early.

3. Someone asked, "what type of negative talk do you mean".
My concern is with inflation and its effects. I understand bonds may not got down much, but if inflation goes up, it effects the real return more than the nominal. Perhaps, I should turn off the noise about inflation for now.

4. Someone asked if I have a "plan".
Being an engineer, I have a "plan" I have written and placed in a notebook. I also visit it from time to time to up date it as I learn more. I hope it is a good plan, but this is new to me and I have had to fast track my learning experience these last 3 or 4 years. As noted above, I have gradually changed my AA to be more conservative as I approach early retirement. I also plan and have rebalanced quarterly approximately and if needed if my AA is outside of my set bands. I don't plan to babysit my portfolio nor fiddle with it.

5. Someone said to "Calculate your overall bond funds maturity and duration".
I will look into doing this. Bonds are confusing to me for some reason, but I have bought a book that will hopefully help me learn more. To be honest, I am not sure of the difference right now between "duration" and "maturity", but since I have been challenged, I will learn the difference.

6. Taylor - Thank you so much for the common-sense response. I do plan to simplify more as I learn more. I enjoyed the "Simplicity" page and will print it out and place it in my financial plan to remind me from time to time to "simplify". I will also share with a fellow engineer that collects quotes. He will enjoy these.

Again, thank you all for sharing your opinions and experiences. This forum is invaluable and I only wish I would have found it much earlier to have saved me from my previous FA.

Thank you very much!

(P.S. I wish there was a better way to format my posting, but I couldn't find a way. I tried copying and pasting from Word, but apparently this isn't allowed. Therefore, I apologize that the format isn't how I would have liked it to show up).

getrichslowly
Posts: 73
Joined: Mon Feb 12, 2018 11:48 am

Re: Total Bond Market [how to allocate bond portion of AA]

Post by getrichslowly » Sat Feb 24, 2018 4:39 pm

pascalwager wrote:
Sat Feb 24, 2018 2:21 am
getrichslowly wrote:
Fri Feb 23, 2018 6:42 pm
pascalwager wrote:
Fri Feb 23, 2018 5:27 pm
Calculate your overall bond funds maturity and duration. One basic guide is to (currently) aim for a maturity between four and five years as per Larry Swedroe. This provides a compromise between inflation risk and reinvestment risk.

For example, I'm using 2/3 ST bond index and 1/3 TBM which provides a maturity of 4.6 and a duration of 3.8.
Is that avoidance of interest rate risk really necessary? Unlike stocks, high-credit bonds are mathematically guaranteed to mean-revert. You always get the yield you bought them at by their maturity date. As long as your investment horizon exceeds the duration, there is no risk.
Yes, term risk can effectively separate you from your money for many years unless you're willing to redeem shares at a loss. It forces investor conduct that can be inconvenient, frustrating, and lengthy. That's just the nature of bonds, and especially longer term versions.
So I assume the context was retirement savings where there is no need to access a large fraction of wealth in any given year. Obviously other types of savings like emergency fund and short-term savings goals deserve mitigation against short-run risks like interest rate risk. My point is that in the long run, interest rate risk is a nonrisk. It is very very different from market risk and credit risk, where there is no mathematical guarantee of future returns.

pascalwager
Posts: 1280
Joined: Mon Oct 31, 2011 8:36 pm

Re: Total Bond Market [how to allocate bond portion of AA]

Post by pascalwager » Sat Feb 24, 2018 4:59 pm

Consider determining a personal core bond fund, and discuss it in your IPS.

In my DFA accounts, the DFA five-year global bond fund (3.8 years duration) is my core fund. I also have access to the DFA short-term fixed income fund (0.9 years duration) for use in reducing inflation risk, but I'm not using it now.

But at Vanguard, there is no equivalent core fund. So, for me, at VG, the core idea requires two funds--TBM and ST bond index in a 1:2 ratio. Then the ST fund can be increased/decreased to decrease/increase term risk. Or the ST TIPS fund can be added for inflation protection.

Unfortunately, the VG int'l bond fund has a high duration (7.7 years), but int'l bond diversification is appealing to me and the DFA funds are mainly foreign right now by percentage of assets. (VG does claim that the int'l fund effective duration is less than 7.7 years because of the country diversification.)

You shouldn't just copy what other BH investors are doing as they may have another idea about what constitutes a suitable core bond fund based on their personal circumstances.

User avatar
Taylor Larimore
Advisory Board
Posts: 27636
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: Total Bond Market [how to allocate bond portion of AA]

Post by Taylor Larimore » Sat Feb 24, 2018 9:25 pm

Bogleheads:

Vanguard Total Bond Market Index Fund tracks a composite Barclay Aggregate Bond Index. This is the history of Inflation and the Barclay Aggregate Bond Index total return since the Index's inception:

YEAR--INFLATION--BOND INDEX
1976-------4.9%--------15.6%
1977-------6.7-----------3.0
1978-------9.0-----------1.4
1979------13.3-----------1.9
1980------12.5-----------2.7
1980------12.5-----------2.7
1981-------8.9-----------6.3
1982-------3.8----------32.6
1983-------3.8-----------8.4
1984-------3.9----------15.2
1985-------3.8----------22.1
1986-------1.1----------15.2
1987-------4.4-----------2.8
1988-------4.4-----------7.9
1989-------4.6----------14.5
1990-------6.1-----------8.9
1991-------3.1----------16.0
1992-------2.9-----------7.4
1993-------2.7-----------9.7
1994-------2.7---------(-2.9)
1995-------2.5----------18.5
1996-------3.3-----------3.6
1997-------1.7-----------9.7
1998-------1.6-----------8.7
1999-------2.7---------(-0.8)
2000-------3.4----------11.6
2001-------1.6-----------8.4
2002-------2.4---------- 0.3
2003-------1.9-----------4.1
2004-------3.3-----------4.3
2005-------3.4-----------2.4
2006-------2.5-----------4.3
2007-------4.1-----------7.0
2008-------0.1-----------5.2
2009-------2.7-----------5.9
2010-------1.5-----------6.5
2011-------3.0-----------7.7
2012-------1.7-----------4.3
2013-------1.5---------(-2.0)
2014-------1.6-----------6.0
2015-------0.7-----------0.5
2016-------2.1%---------2.1
2017-------2.1%---------3.5

Source: U.S. Department of Labor (CPI-U) and Barclays

Observations:
* Inflation increased from 4.9% in 1976 to 13.3% in 1979.
* The Index had only three (small) negative years.

When stocks decline (the S&P 500 plunged over -50% in the 2008-2009 bear market), the Total Bond Market Index Fund will help maintain your portfolio value and also provide the cash needed to rebalance back to your original stock/bond allocation (buying low).

Past performance does not forecast future performance.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

User avatar
welderwannabe
Posts: 829
Joined: Fri Jun 16, 2017 8:32 am

Re: Total Bond Market [how to allocate bond portion of AA]

Post by welderwannabe » Sun Feb 25, 2018 4:05 pm

Bnjneer wrote:
Fri Feb 23, 2018 10:49 am
I am currently at about 50% stocks and 50% bonds (with some of this 50% in "cash") with the plan to retire this year. I am most concerned about the bond funds. The bond fund currently consists of the following:
33% in Total Bond Fund (VBTLX)
24% in Short Term Corporate Bond (VSCSX)
22% in Intermediate Bond (VFIDX)
21% in "Cash" in the Vanguard Settlement Account (Vanguard Federal Prime)
That seems to be a pretty heavy tilt towards corporate bonds, and your funds are all over the map. You have the actively managed intermediate fund, the short term index fund, and the total bond market index.

If you are worried about rising rates, which a lot of people are, then you could raise your cash allocation. However, if you do that I would recommend the prime money market VMMXX versus the Federal settlement fund. An extra 20 or so basis points of yield is a good thing, and the Vanguard Prime fund is very conservatively managed. As to the bond funds, I would consider consolidating to just VBTLX. As long as you have enough cash to get through some years of rising rates you could take advantage of that fund. If not, you could just go short term with a fund like Vanguard Short-Term Bond Index Fund Admiral Shares (VBIRX).

Problem is, no one knows which way rates are going. We could hit a recession in 18-24 months and rates could crash.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

Bnjneer
Posts: 11
Joined: Fri Feb 23, 2018 10:33 am

Re: Total Bond Market [how to allocate bond portion of AA]

Post by Bnjneer » Sun Feb 25, 2018 4:29 pm

Thank you. I will investigate all suggestions.

Bnjneer
Posts: 11
Joined: Fri Feb 23, 2018 10:33 am

Re: Total Bond Market [how to allocate bond portion of AA]

Post by Bnjneer » Sun Feb 25, 2018 7:43 pm

Thank you for the data Tyler.

Using the data provided and back-checking against Simba's spreadsheet, when one includes inflation the Total Bond Fund has been down up to 30%, and it took up to 12 years to recover. It seems that bonds aren't as safe a haven as I have believed. (For some reason, I can't paste a copy of the chart into this post to share.)

I still have much to learn especially with bonds.

Thank you.

SnowSkier
Posts: 264
Joined: Fri Mar 16, 2012 12:21 pm
Location: Austin

Re: Total Bond Market [how to allocate bond portion of AA]

Post by SnowSkier » Sun Feb 25, 2018 11:10 pm

Bnjneer,

Here's one idea for simplification on the fixed-income side. You could go about half intermediate-term and half short-term. This is what I do for my retired mom, and she has slept well with this approach.

If you sold your intermediate-term-corporate (VFIDX), and moved most of it into Total Bond (VBTLX), you'd be there.

For example:

Intermediate-term fixed income:
50% in Total Bond Fund (VBTLX)

Short-term fixed income:
30% in Short-Term Corp (VSCSX) (which, just FYI, is very similar to short-term investment grade (VFSUX)...no reason to switch, just sharing that they're very similar, in case you see William Bernstein and others writing about VFSUX)
20% in cash (where you currently are)

User avatar
saltycaper
Posts: 2650
Joined: Thu Apr 24, 2014 8:47 pm
Location: The Tower

Re: Total Bond Market [how to allocate bond portion of AA]

Post by saltycaper » Sun Feb 25, 2018 11:24 pm

Bnjneer wrote:
Sun Feb 25, 2018 7:43 pm

It seems that bonds aren't as safe a haven as I have believed.
If you're concerned about inflation eating into your bond returns, look into TIPS. They offer protection against expected and unexpected inflation, whereas nominal bonds account for expected inflation. The principal is adjusted by CPI-U, and the interest payment is based on the inflation-adjusted principal. Price fluctuates inversely with rates just like nominal bonds, (except it's a real rate for TIPS), so it does not remove the potential for large drawdowns. I think they make more sense especially for people who have both a low ratio of future inflation-adjusted income to current portfolio size as well as a large bond allocation (say, >30% of the portfolio). There's I bonds too, but they have purchase limits.
Quod vitae sectabor iter?

User avatar
Munir
Posts: 2480
Joined: Mon Feb 26, 2007 4:39 pm
Location: Oregon

Re: Total Bond Market [how to allocate bond portion of AA]

Post by Munir » Mon Feb 26, 2018 1:11 am

Bnjneer wrote:
Fri Feb 23, 2018 10:49 am
Hello all. I am newly registered and this is my first post. I got rid of my FA about 3 years ago, and wish I would have done it much earlier. I have read many books including most all of William Bernstein's, and I am a fan of this site. Thank you to all of you that contribute to this site, because without this site, I may not have had the guts to get rid of my FA.

I am currently at about 50% stocks and 50% bonds (with some of this 50% in "cash") with the plan to retire this year. I am most concerned about the bond funds. The bond fund currently consists of the following:
33% in Total Bond Fund (VBTLX)
24% in Short Term Corporate Bond (VSCSX)
22% in Intermediate Bond (VFIDX)
21% in "Cash" in the Vanguard Settlement Account (Vanguard Federal Prime)

It seems there has been lots of negative "talk" on bonds, and I am concerned that maybe I should be doing something differently with this portion of my account. Can you please offer some opinions on what I should do with this portion of the account?

Thank you
I think your current allocation is quite reasonable. A mix of Total Bond Market, Intermediate Investment Grade, and a short term bond fund is a balanced bond portfolio. Please note that "intermediate bond" you own is really the investment Grade Intermediate Fund (VFIDX) and not the Intermediate Bond Index (VBILX)-which is good since VFIDX has a shorter duration. The significant cash position helps balance the corporate bonds in the risk area. You can rearrange the percentages of each fund to whatever is comfortable for you since no one really knows the perfect combination. I am not a fan of owning only the Total Bond Market Fund for the reasons Jack Bogle has given.

User avatar
Doc
Posts: 8748
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Re: Total Bond Market [how to allocate bond portion of AA]

Post by Doc » Mon Feb 26, 2018 9:06 am

pascalwager wrote:
Sat Feb 24, 2018 4:59 pm
Consider determining a personal core bond fund, and discuss it in your IPS.

In my DFA accounts, the DFA five-year global bond fund (3.8 years duration) is my core fund. I also have access to the DFA short-term fixed income fund (0.9 years duration) for use in reducing inflation risk, but I'm not using it now.
Agreed. I use the Bloomberg Barclays Intermediate bond index as my bogey. There is at least once ETF that follows it. With Vanguard funds you would need two funds to get there.

If you have limited tax advantaged space breaking up your bond portfolio into parts and putting the most tax advantaged in taxable can also be beneficial.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

Post Reply