YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

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Cyclesafe
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by Cyclesafe » Thu May 17, 2018 9:26 am

fantasytensai wrote:
Thu May 17, 2018 9:01 am
It appears that nobody is understanding the point that I am trying to make. When this many people are not getting it, it must be my fault. I will try one more time in the simplist terms possible, and if I still fail, I'm giving up.

1. Everyone is quick to point out that yield is increasing. But THE DROP IN NAV IS MUCH MORE THAN THE INCREASE IN YIELD. You start with $100. You lose $20 but gain $10. That's NOT good.

2. Everyone is also quick to point out that you have to look at the long term - 10 years rather than 5 months. But over a period of 10 years, owning 100% stocks has a much greater ceiling than 80/20, or even 90/10. The risks with stocks is almost always within shorter durations.
In my experience, when there are fundamental disagreements between reasonable people, its because one, the other, or both are operating under different basic assumptions.

Since the OP has identified himself as the outlier here, it would be appropriate for him to review what he is assuming vis-a-vis what is classically asssumed in the Boglehead mantra and elsewhere. I would really be interested in a post from him squaring his POV with the general consensus described above. Nobody here is stupid.

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TheTimeLord
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by TheTimeLord » Thu May 17, 2018 9:30 am

Maybe I am naive but to me people seem to spend a lot of time and worry on edge cases on this forum. Seriously, for me it is hard to read it daily without becoming neurotic about money and savings.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by onourway » Thu May 17, 2018 9:38 am

fantasytensai wrote:
Thu May 17, 2018 9:25 am
Please do not put words in my mouth. I did not call anyone stupid. If anything, I am the stupid one here because 49 posts into this discussion, I am still not understanding the advocacy for bond funds in a rising interest environment.

Thank you all for your feedback. I want to reiterate that I appreciate all the insight that I received here. It is my fault that I did not understand the points. But I know for a fact that this forum consists of some of the most intelligent people I have seen, and I have never meant any disrespect.
Bonds are deceptively difficult to understand, even for smart people.

For me it helps to think of NAV and bond yield as two different ends of a see-saw. Increasing yield pushes down NAV. Decreasing yield pushes up NAV. The two forces work in perfect opposition to one another. Where you can get burnt is when you have a mis-match between your need to withdraw money and the duration of your bond fund. I'm sure that many people did this over the past few years - bought in to bond funds with money they'd really prefer as liquid sooner than later, enticed by the higher yields than savings and money market funds were offering - and are now frustrated to see their balance temporarily drop. That's why matching duration to one's need is so critical.

Tools like Morningstar's charts and Portfolio Visualizer are good tools to help you re-construct scenarios that you may be worried about, to see what has happened in the past. This is no guarantee of what will happen in the future, but it can be instructive.

I posted this pair of images in another bond thread recently. The first is the Federal Funds rate, which rose from 1% to over 5% in just over 3 years between 2003 and 2006. The second image is what happened to the Total Bond fund during that same period. Draw your own conclusions.

Image

Image

SLHI
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by SLHI » Thu May 17, 2018 9:43 am

Isn't now the time to buy, when prices are dropping?

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munemaker
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by munemaker » Thu May 17, 2018 10:02 am

fantasytensai wrote:
Thu May 17, 2018 9:25 am
If anything, I am the stupid one here because 49 posts into this discussion, I am still not understanding the advocacy for bond funds in a rising interest environment.
That applies to me too!

Admiral
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by Admiral » Thu May 17, 2018 3:49 pm

munemaker wrote:
Thu May 17, 2018 10:02 am
fantasytensai wrote:
Thu May 17, 2018 9:25 am
If anything, I am the stupid one here because 49 posts into this discussion, I am still not understanding the advocacy for bond funds in a rising interest environment.
That applies to me too!
Would you prefer to buy when prices are higher and interest payments (ie yields) are lower?

The point is to find the proper duration for your investing horizon, buy, hold, and ignore the price fluctuations. If don't buy and hold--you are forced to sell or choose to sell at an inopportune time--yes, you can lose some principal. OTOH, you have made money on the yield, so your total losses are less than they would otherwise be.

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zaboomafoozarg
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by zaboomafoozarg » Thu May 17, 2018 5:24 pm

TheTimeLord wrote:
Thu May 17, 2018 9:30 am
Maybe I am naive but to me people seem to spend a lot of time and worry on edge cases on this forum. Seriously, for me it is hard to read it daily without becoming neurotic about money and savings.
Definitely.

My net worth is probably a lot higher than it would have been had I not discovered this forum years ago.

But sometimes I think I would feel way better about life in general if I remained blissfully ignorant, saved my mere 15-20% per year, did what I want with the rest, and not worried about and meditated on every risk and edge case and black swan and RBD and free fall and sequence of return and efficient frontier and premium and kurtosis and alternative and Vanguard and AQR and RSU and too much car and Dave Ramsey and millionaire next door and customer's yacht and telltale chart and $5,000 watch.

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by swolesavage » Thu May 17, 2018 5:42 pm

Maybe this is a bit unrelated. I’m 95/5 stock to bonds. If I’m trying to rebalance back to 90/10 right now is it still wise to buy bonds knowing that interest rates are rising or just hold cash until they are settled. I am 2% down on us aggregate, but just sold a good amount of single stock pick money that was a gain in my fun money portion. With total market kind of down and bonds down I figured I would rebalance with gains, but I hate to invest in bond fund that seems to just keep going down and then I won’t be able to rebalance again. Think I’m missing something here.

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by foxfirev5 » Thu May 17, 2018 5:46 pm

+1. My first post in a number of years. It's not that tough. For example , I sold my TBM and bought a CD ladder, the end result will probably be the same. Or not. Who care's.

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by MindBogler » Thu May 17, 2018 6:21 pm

Cyclesafe wrote:
Thu May 17, 2018 9:26 am
In my experience, when there are fundamental disagreements between reasonable people, its because one, the other, or both are operating under different basic assumptions.
An astute observation.

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by jeffyscott » Thu May 17, 2018 7:02 pm

zaboomafoozarg wrote:
Thu May 17, 2018 5:24 pm
But sometimes I think I would feel way better about life in general if I remained blissfully ignorant...
That applies in many areas of life for me, unfortunately. :( :sharebeer
I think I need overanalyzer's anonymous...
press on, regardless - John C. Bogle

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munemaker
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by munemaker » Thu May 17, 2018 8:49 pm

Admiral wrote:
Thu May 17, 2018 3:49 pm
munemaker wrote:
Thu May 17, 2018 10:02 am
fantasytensai wrote:
Thu May 17, 2018 9:25 am
If anything, I am the stupid one here because 49 posts into this discussion, I am still not understanding the advocacy for bond funds in a rising interest environment.
That applies to me too!
Would you prefer to buy when prices are higher and interest payments (ie yields) are lower?

The point is to find the proper duration for your investing horizon, buy, hold, and ignore the price fluctuations. If don't buy and hold--you are forced to sell or choose to sell at an inopportune time--yes, you can lose some principal. OTOH, you have made money on the yield, so your total losses are less than they would otherwise be.
I would prefer to buy when there is an expectation that I will receive a positive return, or at least break even.

Here's my view. I generally don't believe in or practice market timing, but this one is so obvious (to me), I couldn't let it go. I don't really care so much about the price or the yield; I care mostly about the total return. When the Fed promises...promises...to raise interest rates multiple times this year, you can be fairly certain rates are going to go up. When those rates go up, you know the price of the bond fund is going to go down, and very likely the total return. As of today, VBTLX has a YTD Total Return of -3+%, and it is likely going to continue to take a hit this year as rates rise. So why set yourself up to lose money? Sell the #@#$% bond fund and buy it back later after some of the total return hit is taken. Hold the money in the Vanguard Money Market fund at 1.85%. True, it does not keep up with inflation, but losing money in a bond fund does not keep up with inflation either.

As I am sure you know, duration on the Total Bond Index Fund VBTLX is 6 years. If interest rates go up by 1%, the price of the fund drops by 6%, and of course this adversely affects the total return.

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by NYCwriter » Thu May 17, 2018 9:07 pm

I'm not one of the nerds, and I usually learn something every-time I read here, but ultimately the q is: how does this contribute to my decision making about what I can/should do? How is this any different from other noise?

There's the camp of rising interest rates, and the camp of believers who feel that since 4 '18 interest hikes are now expected, some of this is getting baked in against a strong equity market. All I know is that it's hard to predict. Yes, rates are going up, but they haven't been extreme and if your timeframe benefits from higher payouts, they aren't a bad thing.

I added a little to my short-term bond fund yesterday.

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by MotoTrojan » Thu May 17, 2018 9:23 pm

NAV doesn’t go down when interest rates go up as expected, it goes down when they go up more than expected. Just like how stocks are priced for future expectations not results as they come out. Why is that so hard to understand?

Disclaimer: I’m 100/0.

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munemaker
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by munemaker » Thu May 17, 2018 10:30 pm

MotoTrojan wrote:
Thu May 17, 2018 9:23 pm
NAV doesn’t go down when interest rates go up as expected, it goes down when they go up more than expected. Just like how stocks are priced for future expectations not results as they come out. Why is that so hard to understand?

Disclaimer: I’m 100/0.
To estimate how a change in interest rates can affect the share price of a bond fund, multiply the fund's duration by the change in rates. If a fund's average duration is 2.5 years, a 1-percentage-point rise in interest rates would lead to an estimated 2.5% decline in the share price. A 1-percentage-point decline in rates would cause an estimated 2.5% rise in the share price.
https://investor.vanguard.com/insights/ ... s-duration

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by MotoTrojan » Thu May 17, 2018 10:55 pm

munemaker wrote:
Thu May 17, 2018 10:30 pm
MotoTrojan wrote:
Thu May 17, 2018 9:23 pm
NAV doesn’t go down when interest rates go up as expected, it goes down when they go up more than expected. Just like how stocks are priced for future expectations not results as they come out. Why is that so hard to understand?

Disclaimer: I’m 100/0.
To estimate how a change in interest rates can affect the share price of a bond fund, multiply the fund's duration by the change in rates. If a fund's average duration is 2.5 years, a 1-percentage-point rise in interest rates would lead to an estimated 2.5% decline in the share price. A 1-percentage-point decline in rates would cause an estimated 2.5% rise in the share price.
https://investor.vanguard.com/insights/ ... s-duration
But traders know this and the fed isn’t being shy about telegraphing it’s plans. This is in principal how it works but in reality some/all of it is priced in based on likelihood.

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by lack_ey » Thu May 17, 2018 10:55 pm

munemaker wrote:
Thu May 17, 2018 8:49 pm
I would prefer to buy when there is an expectation that I will receive a positive return, or at least break even.

Here's my view. I generally don't believe in or practice market timing, but this one is so obvious (to me), I couldn't let it go. I don't really care so much about the price or the yield; I care mostly about the total return. When the Fed promises...promises...to raise interest rates multiple times this year, you can be fairly certain rates are going to go up. When those rates go up, you know the price of the bond fund is going to go down, and very likely the total return. As of today, VBTLX has a YTD Total Return of -3+%, and it is likely going to continue to take a hit this year as rates rise. So why set yourself up to lose money? Sell the #@#$% bond fund and buy it back later after some of the total return hit is taken. Hold the money in the Vanguard Money Market fund at 1.85%. True, it does not keep up with inflation, but losing money in a bond fund does not keep up with inflation either.

As I am sure you know, duration on the Total Bond Index Fund VBTLX is 6 years. If interest rates go up by 1%, the price of the fund drops by 6%, and of course this adversely affects the total return.
How is it obvious? Short rates increasing doesn't tell you about what will happen with longer-term bonds.

We had three Fed fund rates hikes in 2017, and long-term bonds beat intermediate-term bonds, which beat cash, which beat short-term bonds. There's plenty of room for rates across the yield curve to go down even if short rates rise in the rest of 2018.

The Fed does not promise to raise the Fed funds rate. And if it did, that would absolutely be an argument exactly against using that information to market time. The higher the certainty, the more it is already priced in.

You need to make some kind of case that rates will rise faster than people expect or perhaps ending at a higher point than anticipated in this cycle (or just staying at a higher level without needing to be brought down), or inflation will pick up more than expected, or there will be a change in risk pricing causing investors to reject current pricing as too expensive (such that there's increased fear in holding long term), that the term premium will increase, or something along those lines.

The yield curve is upwards sloping at the moment in anticipation of further rate hikes.

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munemaker
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by munemaker » Thu May 17, 2018 11:06 pm

lack_ey wrote:
Thu May 17, 2018 10:55 pm
munemaker wrote:
Thu May 17, 2018 8:49 pm
I would prefer to buy when there is an expectation that I will receive a positive return, or at least break even.

Here's my view. I generally don't believe in or practice market timing, but this one is so obvious (to me), I couldn't let it go. I don't really care so much about the price or the yield; I care mostly about the total return. When the Fed promises...promises...to raise interest rates multiple times this year, you can be fairly certain rates are going to go up. When those rates go up, you know the price of the bond fund is going to go down, and very likely the total return. As of today, VBTLX has a YTD Total Return of -3+%, and it is likely going to continue to take a hit this year as rates rise. So why set yourself up to lose money? Sell the #@#$% bond fund and buy it back later after some of the total return hit is taken. Hold the money in the Vanguard Money Market fund at 1.85%. True, it does not keep up with inflation, but losing money in a bond fund does not keep up with inflation either.

As I am sure you know, duration on the Total Bond Index Fund VBTLX is 6 years. If interest rates go up by 1%, the price of the fund drops by 6%, and of course this adversely affects the total return.
How is it obvious? Short rates increasing doesn't tell you about what will happen with longer-term bonds.

We had three Fed fund rates hikes in 2017, and long-term bonds beat intermediate-term bonds, which beat cash, which beat short-term bonds. There's plenty of room for rates across the yield curve to go down even if short rates rise in the rest of 2018.

The Fed does not promise to raise the Fed funds rate. And if it did, that would absolutely be an argument exactly against using that information to market time. The higher the certainty, the more it is already priced in.

You need to make some kind of case that rates will rise faster than people expect or perhaps ending at a higher point than anticipated in this cycle (or just staying at a higher level without needing to be brought down), or inflation will pick up more than expected, or there will be a change in risk pricing causing investors to reject current pricing as too expensive (such that there's increased fear in holding long term), that the term premium will increase, or something along those lines.

The yield curve is upwards sloping at the moment in anticipation of further rate hikes.
Let's watch VBTLX total return and see where it goes. Right now it is negative 3.02% YTD.

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by HomerJ » Fri May 18, 2018 1:01 am

munemaker wrote:
Thu May 17, 2018 8:49 pm
When the Fed promises...promises...to raise interest rates multiple times this year, you can be fairly certain rates are going to go up. When those rates go up, you know the price of the bond fund is going to go down, and very likely the total return.
You don't know that. It's a decent assumption, but it's not for sure.

Fed raising short rates isn't directly tied to bond funds. It is possible for the Fed to raise rates, and bond interest rates don't go up as much.

From 2003-2005, the Fed raised short rates from 1% to 5%... That's a HUGE jump, far more than they are "promising" to do this year.... And Total Bond Fund barely went down at all, and recovered quickly and had a gain all three years.
The J stands for Jay

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by onourway » Fri May 18, 2018 5:24 am

munemaker wrote:
Thu May 17, 2018 11:06 pm
Let's watch VBTLX total return and see where it goes. Right now it is negative 3.02% YTD.
Looking at returns over a few months of an investment one is supposed to hold for years tends to produce a distorted view of things. VBTLX also had a maximum drawdown of -3.65% in 2016, yet it returned +2.6% for the year, and went on to return 3.56% in 2017.

This is the equivalent of yelling PANIC on a RBD for stocks and selling because you KNOW things are going to get worse before they get better.

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by Admiral » Fri May 18, 2018 6:14 am

munemaker wrote:
Thu May 17, 2018 8:49 pm
Admiral wrote:
Thu May 17, 2018 3:49 pm
munemaker wrote:
Thu May 17, 2018 10:02 am
fantasytensai wrote:
Thu May 17, 2018 9:25 am
If anything, I am the stupid one here because 49 posts into this discussion, I am still not understanding the advocacy for bond funds in a rising interest environment.
That applies to me too!
Would you prefer to buy when prices are higher and interest payments (ie yields) are lower?

The point is to find the proper duration for your investing horizon, buy, hold, and ignore the price fluctuations. If don't buy and hold--you are forced to sell or choose to sell at an inopportune time--yes, you can lose some principal. OTOH, you have made money on the yield, so your total losses are less than they would otherwise be.
I would prefer to buy when there is an expectation that I will receive a positive return, or at least break even.

Here's my view. I generally don't believe in or practice market timing, but this one is so obvious (to me), I couldn't let it go. I don't really care so much about the price or the yield; I care mostly about the total return. When the Fed promises...promises...to raise interest rates multiple times this year, you can be fairly certain rates are going to go up. When those rates go up, you know the price of the bond fund is going to go down, and very likely the total return. As of today, VBTLX has a YTD Total Return of -3+%, and it is likely going to continue to take a hit this year as rates rise. So why set yourself up to lose money? Sell the #@#$% bond fund and buy it back later after some of the total return hit is taken. Hold the money in the Vanguard Money Market fund at 1.85%. True, it does not keep up with inflation, but losing money in a bond fund does not keep up with inflation either.

As I am sure you know, duration on the Total Bond Index Fund VBTLX is 6 years. If interest rates go up by 1%, the price of the fund drops by 6%, and of course this adversely affects the total return.
But bonds (and bond funds) should not be held for their return, at least not primarily. They are for safety and to reduce volatility of a portfolio that also has stocks. If you're not selling (ie holding for the long term) then small drops in NAV are immaterial to you and you are not "losing money." Your yields will go up. This is of course distinct from stocks, which one DOES hold for total return, and where the price may fall 10 or 30 or 70%.
I generally don't believe in or practice market timing
Sell the #@#$% bond fund and buy it back later after some of the total return hit is taken.
Re-read those two sentences....

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by indexonlyplease » Fri May 18, 2018 6:32 am

You could be right or wrong who knows. I was in 100% stock funds until 3 yrs before reitement. Why, because I knew nothing about bonds funds and did not want to own them.

Now almost 2 years into retirment I have a large percent of my money in my stable value fund. Pays 3%. Why because I like the idea of safety and if I need a large chunk of money I can get it know matter what the market is doing.

So, 100% might work for you.

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munemaker
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by munemaker » Fri May 18, 2018 7:39 am

Admiral wrote:
Fri May 18, 2018 6:14 am
munemaker wrote:
Thu May 17, 2018 8:49 pm
Admiral wrote:
Thu May 17, 2018 3:49 pm
munemaker wrote:
Thu May 17, 2018 10:02 am
fantasytensai wrote:
Thu May 17, 2018 9:25 am
If anything, I am the stupid one here because 49 posts into this discussion, I am still not understanding the advocacy for bond funds in a rising interest environment.
That applies to me too!
Would you prefer to buy when prices are higher and interest payments (ie yields) are lower?

The point is to find the proper duration for your investing horizon, buy, hold, and ignore the price fluctuations. If don't buy and hold--you are forced to sell or choose to sell at an inopportune time--yes, you can lose some principal. OTOH, you have made money on the yield, so your total losses are less than they would otherwise be.
I would prefer to buy when there is an expectation that I will receive a positive return, or at least break even.

Here's my view. I generally don't believe in or practice market timing, but this one is so obvious (to me), I couldn't let it go. I don't really care so much about the price or the yield; I care mostly about the total return. When the Fed promises...promises...to raise interest rates multiple times this year, you can be fairly certain rates are going to go up. When those rates go up, you know the price of the bond fund is going to go down, and very likely the total return. As of today, VBTLX has a YTD Total Return of -3+%, and it is likely going to continue to take a hit this year as rates rise. So why set yourself up to lose money? Sell the #@#$% bond fund and buy it back later after some of the total return hit is taken. Hold the money in the Vanguard Money Market fund at 1.85%. True, it does not keep up with inflation, but losing money in a bond fund does not keep up with inflation either.

As I am sure you know, duration on the Total Bond Index Fund VBTLX is 6 years. If interest rates go up by 1%, the price of the fund drops by 6%, and of course this adversely affects the total return.
But bonds (and bond funds) should not be held for their return, at least not primarily. They are for safety and to reduce volatility of a portfolio that also has stocks. If you're not selling (ie holding for the long term) then small drops in NAV are immaterial to you and you are not "losing money." Your yields will go up. This is of course distinct from stocks, which one DOES hold for total return, and where the price may fall 10 or 30 or 70%.
I generally don't believe in or practice market timing
Sell the #@#$% bond fund and buy it back later after some of the total return hit is taken.
Re-read those two sentences....
I did qualify this as "generally" and did say this situation seems so obvious and predictable to me.

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munemaker
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by munemaker » Fri May 18, 2018 7:43 am

indexonlyplease wrote:
Fri May 18, 2018 6:32 am
You could be right or wrong who knows. I was in 100% stock funds until 3 yrs before reitement. Why, because I knew nothing about bonds funds and did not want to own them.

Now almost 2 years into retirment I have a large percent of my money in my stable value fund. Pays 3%. Why because I like the idea of safety and if I need a large chunk of money I can get it know matter what the market is doing.

So, 100% might work for you.
If you are referring to me, I am retired and currently 55% equity, 5% bonds and the remaining 40% is (temporarily) in the Vanguard MMF.

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by indexonlyplease » Fri May 18, 2018 7:46 am

munemaker wrote:
Fri May 18, 2018 7:43 am
indexonlyplease wrote:
Fri May 18, 2018 6:32 am
You could be right or wrong who knows. I was in 100% stock funds until 3 yrs before reitement. Why, because I knew nothing about bonds funds and did not want to own them.

Now almost 2 years into retirment I have a large percent of my money in my stable value fund. Pays 3%. Why because I like the idea of safety and if I need a large chunk of money I can get it know matter what the market is doing.

So, 100% might work for you.
If you are referring to me, I am retired and currently 55% equity, 5% bonds and the remaining 40% is (temporarily) in the Vanguard MMF.
no for op but I like the AA.

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by TheTimeLord » Fri May 18, 2018 8:51 am

MotoTrojan wrote:
Thu May 17, 2018 10:55 pm
munemaker wrote:
Thu May 17, 2018 10:30 pm
MotoTrojan wrote:
Thu May 17, 2018 9:23 pm
NAV doesn’t go down when interest rates go up as expected, it goes down when they go up more than expected. Just like how stocks are priced for future expectations not results as they come out. Why is that so hard to understand?

Disclaimer: I’m 100/0.
To estimate how a change in interest rates can affect the share price of a bond fund, multiply the fund's duration by the change in rates. If a fund's average duration is 2.5 years, a 1-percentage-point rise in interest rates would lead to an estimated 2.5% decline in the share price. A 1-percentage-point decline in rates would cause an estimated 2.5% rise in the share price.
https://investor.vanguard.com/insights/ ... s-duration
But traders know this and the fed isn’t being shy about telegraphing it’s plans. This is in principal how it works but in reality some/all of it is priced in based on likelihood.
You do know the Fed only directly controls Fed Funds and Discount rates. While those rates along with the Prime Rate feed into all rates all you have to do is look at the spread between short and long term rates to realize the market and economic expectations can move rates independently of The Fed. I am confused why you don't understand if the current rate for a 10 year bond moves from 2.75% to 3.0% that the NAV of a bond fund holding 10 year bonds will drop to bring the return on their bonds in line with the prevailing rate for that duration, they are marked to market. Why is that s hard to understand?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

MotoTrojan
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by MotoTrojan » Fri May 18, 2018 9:44 am

TheTimeLord wrote:
Fri May 18, 2018 8:51 am
MotoTrojan wrote:
Thu May 17, 2018 10:55 pm
munemaker wrote:
Thu May 17, 2018 10:30 pm
MotoTrojan wrote:
Thu May 17, 2018 9:23 pm
NAV doesn’t go down when interest rates go up as expected, it goes down when they go up more than expected. Just like how stocks are priced for future expectations not results as they come out. Why is that so hard to understand?

Disclaimer: I’m 100/0.
To estimate how a change in interest rates can affect the share price of a bond fund, multiply the fund's duration by the change in rates. If a fund's average duration is 2.5 years, a 1-percentage-point rise in interest rates would lead to an estimated 2.5% decline in the share price. A 1-percentage-point decline in rates would cause an estimated 2.5% rise in the share price.
https://investor.vanguard.com/insights/ ... s-duration
But traders know this and the fed isn’t being shy about telegraphing it’s plans. This is in principal how it works but in reality some/all of it is priced in based on likelihood.
You do know the Fed only directly controls Fed Funds and Discount rates. While those rates along with the Prime Rate feed into all rates all you have to do is look at the spread between short and long term rates to realize the market and economic expectations can move rates independently of The Fed. I am confused why you don't understand if the current rate for a 10 year bond moves from 2.75% to 3.0% that the NAV of a bond fund holding 10 year bonds will drop to bring the return on their bonds in line with the prevailing rate for that duration, they are marked to market. Why is that s hard to understand?
It isn’t. My comment was specifically related to fears of NAV continually dropping because of telegraphed fed rate increases, which is incorrect. I am aware there are other drivers to bond market fluctuations, much like how stocks move on more than earnings.

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by CantPassAgain » Fri May 18, 2018 10:10 am

munemaker wrote:
Fri May 18, 2018 7:39 am
I did qualify this as "generally" and did say this situation seems so obvious and predictable to me.
How is it so obvious? Did you know specifically that there was going to be a "sharp" (for bonds) downturn back in January? What about Nov 2010 to Feb 2011? Was that obvious too? How about April to Sept 2013? Did you call that one correctly?

People have been saying bond funds have nowhere to go but down for almost the last decade, since the great recession. What have they actually done? Here's total bond market 10 year total return chart:

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D

So hold bond funds or not, but folks should pick an asset allocation, quit thinking they can predict these things and stay the course.

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munemaker
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by munemaker » Fri May 18, 2018 2:26 pm

CantPassAgain wrote:
Fri May 18, 2018 10:10 am
folks should pick an asset allocation, quit thinking they can predict these things and stay the course.
When I eventually get back into the bond fund, I will try to remember to post here regarding whether I was able to avoid any losses by temporarily going to the MMF.

CantPassAgain
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by CantPassAgain » Tue May 22, 2018 11:18 am

munemaker wrote:
Fri May 18, 2018 2:26 pm
CantPassAgain wrote:
Fri May 18, 2018 10:10 am
folks should pick an asset allocation, quit thinking they can predict these things and stay the course.
When I eventually get back into the bond fund, I will try to remember to post here regarding whether I was able to avoid any losses by temporarily going to the MMF.
Well, avoiding losses once is no trick. All you have to be is right one time (buy at a cheaper price than today). Trying to do that over and over again over an investing lifetime, being right more than wrong is the hard part.

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munemaker
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by munemaker » Tue May 22, 2018 7:31 pm

CantPassAgain wrote:
Tue May 22, 2018 11:18 am
Well, avoiding losses once is no trick.
I am all about making money and not losing money.

Dottie57
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by Dottie57 » Wed May 23, 2018 7:34 pm

fantasytensai wrote:
Wed May 16, 2018 8:23 am
HomerJ wrote:
Wed May 16, 2018 12:47 am
fantasytensai wrote:
Tue May 15, 2018 10:08 pm
oldcomputerguy wrote:
Tue May 15, 2018 4:16 pm
fantasytensai wrote:
Tue May 15, 2018 11:47 am
If your investment horizon is over ten years, there is absolutely no reason to own bond funds right now. VBTLX has a 2.64% dividend yield, while VBILX has 2.76%. VTSAX has 1.74%. Why chase the less than 1% difference in yield, when bond funds have fallen so much harder than VTSAX?
If you have an investment horizon greater than ten years, and don't plan to sell your holdings in that timeframe, what does it matter what the NAV does? In fact, if you're reinvesting dividends, the greater dividend yield of bond funds combined with lower NAV would seem to be reason to prefer holding them versus stock funds, rather than a reason to shun them in favor of stock funds.

What am I missing?
I mean, is this serious? Why does NAV matter?

The reason to invest is to make money. If you started out the year with 100k of VBILX at $11.33 a share. Today, on May 15, 2018 the NAV is $10.85. That means your 100k is now worth 95.76k, or a loss of more than 4k. Let's be generous and say that the yield is 3% for the year, that means in 5 months you earned about 2k in dividend. So accounting for dividends, VBILX lost more than 2k in 5 months. That sounds pretty bad to me.
So you care about short-term bond fluctuations, but you take the long view on stocks?

He's saying that in 10 years the fact that the bond fund is down 2% this year won't matter, just like the fact a stock fund could go down 30% this year doesn't matter to you... Because you're thinking 10 year returns, not 5 month returns.

Does this make sense to you? You're pointing out a short-term 2% loss in bond funds as a reason not to invest in them, but you're okay if stock funds drop because you're a long-term investor. You're not being consistent.

Something to note... Bond funds are self-correcting. The reason the NAV is down is because the yield is increasing. So they are starting to pay larger and larger dividends, which over time, will make up for the short-term loss in NAV.
I'm sorry, it still does not make sense. I am perfectly fine with stocks dropping 30% because they have the potential to rise 30% the other way. Bonds will never have that potential, which is why I agree with some other posters that a penalty free CD may be a better option. I don't know what the purpose bond is for you guys, but I buy bonds for stability to balance out the volatility of stocks, not to have them drop 10 times harder than stocks.
For my understanding, what year did you start investing?

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by fantasytensai » Thu May 24, 2018 4:19 pm

Dottie57 wrote:
Wed May 23, 2018 7:34 pm
fantasytensai wrote:
Wed May 16, 2018 8:23 am
HomerJ wrote:
Wed May 16, 2018 12:47 am
fantasytensai wrote:
Tue May 15, 2018 10:08 pm
oldcomputerguy wrote:
Tue May 15, 2018 4:16 pm


If you have an investment horizon greater than ten years, and don't plan to sell your holdings in that timeframe, what does it matter what the NAV does? In fact, if you're reinvesting dividends, the greater dividend yield of bond funds combined with lower NAV would seem to be reason to prefer holding them versus stock funds, rather than a reason to shun them in favor of stock funds.

What am I missing?
I mean, is this serious? Why does NAV matter?

The reason to invest is to make money. If you started out the year with 100k of VBILX at $11.33 a share. Today, on May 15, 2018 the NAV is $10.85. That means your 100k is now worth 95.76k, or a loss of more than 4k. Let's be generous and say that the yield is 3% for the year, that means in 5 months you earned about 2k in dividend. So accounting for dividends, VBILX lost more than 2k in 5 months. That sounds pretty bad to me.
So you care about short-term bond fluctuations, but you take the long view on stocks?

He's saying that in 10 years the fact that the bond fund is down 2% this year won't matter, just like the fact a stock fund could go down 30% this year doesn't matter to you... Because you're thinking 10 year returns, not 5 month returns.

Does this make sense to you? You're pointing out a short-term 2% loss in bond funds as a reason not to invest in them, but you're okay if stock funds drop because you're a long-term investor. You're not being consistent.

Something to note... Bond funds are self-correcting. The reason the NAV is down is because the yield is increasing. So they are starting to pay larger and larger dividends, which over time, will make up for the short-term loss in NAV.
I'm sorry, it still does not make sense. I am perfectly fine with stocks dropping 30% because they have the potential to rise 30% the other way. Bonds will never have that potential, which is why I agree with some other posters that a penalty free CD may be a better option. I don't know what the purpose bond is for you guys, but I buy bonds for stability to balance out the volatility of stocks, not to have them drop 10 times harder than stocks.
For my understanding, what year did you start investing?
2016

Dottie57
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by Dottie57 » Thu May 24, 2018 4:40 pm

fantasytensai wrote:
Thu May 24, 2018 4:19 pm
Dottie57 wrote:
Wed May 23, 2018 7:34 pm
fantasytensai wrote:
Wed May 16, 2018 8:23 am
HomerJ wrote:
Wed May 16, 2018 12:47 am
fantasytensai wrote:
Tue May 15, 2018 10:08 pm


I mean, is this serious? Why does NAV matter?

The reason to invest is to make money. If you started out the year with 100k of VBILX at $11.33 a share. Today, on May 15, 2018 the NAV is $10.85. That means your 100k is now worth 95.76k, or a loss of more than 4k. Let's be generous and say that the yield is 3% for the year, that means in 5 months you earned about 2k in dividend. So accounting for dividends, VBILX lost more than 2k in 5 months. That sounds pretty bad to me.
So you care about short-term bond fluctuations, but you take the long view on stocks?

He's saying that in 10 years the fact that the bond fund is down 2% this year won't matter, just like the fact a stock fund could go down 30% this year doesn't matter to you... Because you're thinking 10 year returns, not 5 month returns.

Does this make sense to you? You're pointing out a short-term 2% loss in bond funds as a reason not to invest in them, but you're okay if stock funds drop because you're a long-term investor. You're not being consistent.

Something to note... Bond funds are self-correcting. The reason the NAV is down is because the yield is increasing. So they are starting to pay larger and larger dividends, which over time, will make up for the short-term loss in NAV.
I'm sorry, it still does not make sense. I am perfectly fine with stocks dropping 30% because they have the potential to rise 30% the other way. Bonds will never have that potential, which is why I agree with some other posters that a penalty free CD may be a better option. I don't know what the purpose bond is for you guys, but I buy bonds for stability to balance out the volatility of stocks, not to have them drop 10 times harder than stocks.
For my understanding, what year did you start investing?
2016
I asked because it doesn’t sound like you have been through A downturn of any consequence.

I sailed through all of the down turns since 1987. However in 2008 I was in my early fifties. I lost 40% of of my portfolio. It was terrifying since I knew I didn’t have that long to recoup $. Outsourcing had become big at my employer too.

The 2008-2009 crisis ended being very lucrative for me. I kept adding to 401k, taxable and Roth IRA and bought “cheap” stocks. It was lucky that the market recovered as well and fast as it did. Speed and strength of recoveries is not guaranteed.

I am retired now. This year I spend my severance. Next year I will need to take from my portfolio. I have 50% bonds and I will be spending them in early retirement. Any where from 50/50 split to 25/75 split as I want stocks to have time to recover.

fantasytensai
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by fantasytensai » Thu May 24, 2018 5:19 pm

Dottie57 wrote:
Thu May 24, 2018 4:40 pm
fantasytensai wrote:
Thu May 24, 2018 4:19 pm
Dottie57 wrote:
Wed May 23, 2018 7:34 pm
fantasytensai wrote:
Wed May 16, 2018 8:23 am
HomerJ wrote:
Wed May 16, 2018 12:47 am


So you care about short-term bond fluctuations, but you take the long view on stocks?

He's saying that in 10 years the fact that the bond fund is down 2% this year won't matter, just like the fact a stock fund could go down 30% this year doesn't matter to you... Because you're thinking 10 year returns, not 5 month returns.

Does this make sense to you? You're pointing out a short-term 2% loss in bond funds as a reason not to invest in them, but you're okay if stock funds drop because you're a long-term investor. You're not being consistent.

Something to note... Bond funds are self-correcting. The reason the NAV is down is because the yield is increasing. So they are starting to pay larger and larger dividends, which over time, will make up for the short-term loss in NAV.
I'm sorry, it still does not make sense. I am perfectly fine with stocks dropping 30% because they have the potential to rise 30% the other way. Bonds will never have that potential, which is why I agree with some other posters that a penalty free CD may be a better option. I don't know what the purpose bond is for you guys, but I buy bonds for stability to balance out the volatility of stocks, not to have them drop 10 times harder than stocks.
For my understanding, what year did you start investing?
2016
I asked because it doesn’t sound like you have been through A downturn of any consequence.

I sailed through all of the down turns since 1987. However in 2008 I was in my early fifties. I lost 40% of of my portfolio. It was terrifying since I knew I didn’t have that long to recoup $. Outsourcing had become big at my employer too.

The 2008-2009 crisis ended being very lucrative for me. I kept adding to 401k, taxable and Roth IRA and bought “cheap” stocks. It was lucky that the market recovered as well and fast as it did. Speed and strength of recoveries is not guaranteed.

I am retired now. This year I spend my severance. Next year I will need to take from my portfolio. I have 50% bonds and I will be spending them in early retirement. Any where from 50/50 split to 25/75 split as I want stocks to have time to recover.
Everything you say is correct and thank you. But I still don't see why people who has 10 years or more left should invest in bond funds, especially in a rising interest environment.

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dwickenh
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Location: Illinois

Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by dwickenh » Thu May 24, 2018 5:40 pm

fantasytensai wrote:
Thu May 24, 2018 5:19 pm
Dottie57 wrote:
Thu May 24, 2018 4:40 pm
fantasytensai wrote:
Thu May 24, 2018 4:19 pm
Dottie57 wrote:
Wed May 23, 2018 7:34 pm
fantasytensai wrote:
Wed May 16, 2018 8:23 am


I'm sorry, it still does not make sense. I am perfectly fine with stocks dropping 30% because they have the potential to rise 30% the other way. Bonds will never have that potential, which is why I agree with some other posters that a penalty free CD may be a better option. I don't know what the purpose bond is for you guys, but I buy bonds for stability to balance out the volatility of stocks, not to have them drop 10 times harder than stocks.
For my understanding, what year did you start investing?
2016
I asked because it doesn’t sound like you have been through A downturn of any consequence.

I sailed through all of the down turns since 1987. However in 2008 I was in my early fifties. I lost 40% of of my portfolio. It was terrifying since I knew I didn’t have that long to recoup $. Outsourcing had become big at my employer too.

The 2008-2009 crisis ended being very lucrative for me. I kept adding to 401k, taxable and Roth IRA and bought “cheap” stocks. It was lucky that the market recovered as well and fast as it did. Speed and strength of recoveries is not guaranteed.

I am retired now. This year I spend my severance. Next year I will need to take from my portfolio. I have 50% bonds and I will be spending them in early retirement. Any where from 50/50 split to 25/75 split as I want stocks to have time to recover.
Everything you say is correct and thank you. But I still don't see why people who has 10 years or more left should invest in bond funds, especially in a rising interest environment.
Because the interest earned on the bonds keeps going up also. I like getting a raise, even though I am not working. I own both of the bond funds you think are losing too much money. I have not sold any and do not plan to sell any until I am 70 1/2 (7 years from now). Experience tells me that an all stock portfolio is not the best thing for me. Maybe it is best for you, but no one will know as we can't predict the future.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

Dottie57
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by Dottie57 » Thu May 24, 2018 7:53 pm

fantasytensai wrote:
Thu May 24, 2018 5:19 pm
Dottie57 wrote:
Thu May 24, 2018 4:40 pm
fantasytensai wrote:
Thu May 24, 2018 4:19 pm
Dottie57 wrote:
Wed May 23, 2018 7:34 pm
fantasytensai wrote:
Wed May 16, 2018 8:23 am


I'm sorry, it still does not make sense. I am perfectly fine with stocks dropping 30% because they have the potential to rise 30% the other way. Bonds will never have that potential, which is why I agree with some other posters that a penalty free CD may be a better option. I don't know what the purpose bond is for you guys, but I buy bonds for stability to balance out the volatility of stocks, not to have them drop 10 times harder than stocks.
For my understanding, what year did you start investing?
2016
I asked because it doesn’t sound like you have been through A downturn of any consequence.

I sailed through all of the down turns since 1987. However in 2008 I was in my early fifties. I lost 40% of of my portfolio. It was terrifying since I knew I didn’t have that long to recoup $. Outsourcing had become big at my employer too.

The 2008-2009 crisis ended being very lucrative for me. I kept adding to 401k, taxable and Roth IRA and bought “cheap” stocks. It was lucky that the market recovered as well and fast as it did. Speed and strength of recoveries is not guaranteed.

I am retired now. This year I spend my severance. Next year I will need to take from my portfolio. I have 50% bonds and I will be spending them in early retirement. Any where from 50/50 split to 25/75 split as I want stocks to have time to recover.
Everything you say is correct and thank you. But I still don't see why people who has 10 years or more left should invest in bond funds, especially in a rising interest environment.
Portfolio With bonds.

Market up - gain less
Market down - Lose less

Less Volatility

I’ve done well with 30-40 % in bonds through the years. I’ve exceeded what I expected to have at this age. I didn’t end up selling all stocks like a few people I know.

CantPassAgain
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by CantPassAgain » Thu May 24, 2018 8:22 pm

fantasytensai wrote:
Thu May 24, 2018 5:19 pm
Dottie57 wrote:
Thu May 24, 2018 4:40 pm
fantasytensai wrote:
Thu May 24, 2018 4:19 pm
Dottie57 wrote:
Wed May 23, 2018 7:34 pm
fantasytensai wrote:
Wed May 16, 2018 8:23 am


I'm sorry, it still does not make sense. I am perfectly fine with stocks dropping 30% because they have the potential to rise 30% the other way. Bonds will never have that potential, which is why I agree with some other posters that a penalty free CD may be a better option. I don't know what the purpose bond is for you guys, but I buy bonds for stability to balance out the volatility of stocks, not to have them drop 10 times harder than stocks.
For my understanding, what year did you start investing?
2016
I asked because it doesn’t sound like you have been through A downturn of any consequence.

I sailed through all of the down turns since 1987. However in 2008 I was in my early fifties. I lost 40% of of my portfolio. It was terrifying since I knew I didn’t have that long to recoup $. Outsourcing had become big at my employer too.

The 2008-2009 crisis ended being very lucrative for me. I kept adding to 401k, taxable and Roth IRA and bought “cheap” stocks. It was lucky that the market recovered as well and fast as it did. Speed and strength of recoveries is not guaranteed.

I am retired now. This year I spend my severance. Next year I will need to take from my portfolio. I have 50% bonds and I will be spending them in early retirement. Any where from 50/50 split to 25/75 split as I want stocks to have time to recover.
Everything you say is correct and thank you. But I still don't see why people who has 10 years or more left should invest in bond funds, especially in a rising interest environment.
You should be careful when you assume the "environment" we are in. Bond prices are set by supply and demand, just like anything else. Only the bond market is much more efficient, and believe me the bond market knows what you know, and more. Prices are set by expectations, and expectations change every day. You need to know more about what is going to happen in the future than all of the other players in this market. Do you?

visualguy
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by visualguy » Thu May 24, 2018 8:42 pm

dwickenh wrote:
Thu May 24, 2018 5:40 pm
Because the interest earned on the bonds keeps going up also. I like getting a raise, even though I am not working.
How are you getting a raise? The yield goes up on the bond funds, but the NAV goes down, so you earn a larger percentage of a smaller amount. Isn't it a wash, and you get pretty much the same amount for a long time? If you need to sell, you are worse off because the NAV went down.

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dwickenh
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Location: Illinois

Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by dwickenh » Thu May 24, 2018 8:52 pm

visualguy wrote:
Thu May 24, 2018 8:42 pm
dwickenh wrote:
Thu May 24, 2018 5:40 pm
Because the interest earned on the bonds keeps going up also. I like getting a raise, even though I am not working.
How are you getting a raise? The yield goes up on the bond funds, but the NAV goes down, so you earn a larger percentage of a smaller amount. Isn't it a wash, and you get pretty much the same amount for a long time? If you need to sell, you are worse off because the NAV went down.
I don't need to sell- for 7 years. My duration is less than that!! I will make up all of the loss capital with the increase in interest rates. At that point, I am getting a raise as my assets are paying me a higher interest rate. And I have owned these bond funds for years as the NAV went up due to decreasing rates. It makes no difference which way the rates are heading- increased interest being paid to me is always better.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

livesoft
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX up 3%

Post by livesoft » Thu May 24, 2018 8:57 pm

When this thread was started with its fake title, VTSAX was up 3% YTD and not down 0.23%. May I ask where "down 0.23%" came from please?
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fantasytensai
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX up 3%

Post by fantasytensai » Thu May 24, 2018 9:25 pm

livesoft wrote:
Thu May 24, 2018 8:57 pm
When this thread was started with its fake title, VTSAX was up 3% YTD and not down 0.23%. May I ask where "down 0.23%" came from please?
https://www.google.com/search?q=vtsax&r ... e&ie=UTF-8

Market Summary > Vanguard Total Stock Market Index Fund Admiral Shares
MUTF: VTSAX
68.69 USD +0.21 (0.31%)
May 23 · Disclaimer

YTD return -0.23%
Net assets 191.09B
Front load -
Yield (ttm) 1.74%
Expense ratio 0.040%
Financial news, comparisons and more

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by livesoft » Thu May 24, 2018 9:28 pm

Thanks, that -0.23% is Year through 4/30/2018. The first couple of weeks in May were nice.
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fantasytensai
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by fantasytensai » Thu May 24, 2018 9:29 pm

dwickenh wrote:
Thu May 24, 2018 8:52 pm
visualguy wrote:
Thu May 24, 2018 8:42 pm
dwickenh wrote:
Thu May 24, 2018 5:40 pm
Because the interest earned on the bonds keeps going up also. I like getting a raise, even though I am not working.
How are you getting a raise? The yield goes up on the bond funds, but the NAV goes down, so you earn a larger percentage of a smaller amount. Isn't it a wash, and you get pretty much the same amount for a long time? If you need to sell, you are worse off because the NAV went down.
I don't need to sell- for 7 years. My duration is less than that!! I will make up all of the loss capital with the increase in interest rates. At that point, I am getting a raise as my assets are paying me a higher interest rate. And I have owned these bond funds for years as the NAV went up due to decreasing rates. It makes no difference which way the rates are heading- increased interest being paid to me is always better.
Wait, does 1 share of VBTLX give the same yield regardless of its NAV? If so what you say make sense, NAV doesn't matter. I had no idea that's how it worked. I always assumed that 1 share of VBTLX at a NAV of $30 will give off more dividend per month than 1 share of VBTLX at a NAV of $20.

lack_ey
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by lack_ey » Thu May 24, 2018 10:26 pm

fantasytensai wrote:
Thu May 24, 2018 9:29 pm
Wait, does 1 share of VBTLX give the same yield regardless of its NAV? If so what you say make sense, NAV doesn't matter. I had no idea that's how it worked. I always assumed that 1 share of VBTLX at a NAV of $30 will give off more dividend per month than 1 share of VBTLX at a NAV of $20.
Not exactly. Fund distributions are not necessarily exactly consistent from month to month even under conditions where you don't expect a change on average and where the NAV is constant, even beyond the number of days in a month being different. So they will not be exactly the same generally, regardless of NAV.

Bond fund NAV can drift over time while changing distributions because of drops from downgrades and selling bonds early that are not recovered. The evolving portfolio over time makes things less exact.

For an individual bond, though, if there's no default, the coupon will be the same no matter what the price is. The price could start out at $100 with two payments of $1.50 twice a year, and later the market price is $95 or $105 and it's still paying $1.50 twice a year.

It would generally be very difficult for a fund like total bond to lose 33% of its value. We're talking massively unprecedented levels of defaults, or rates spiking by 6% very rapidly (more likely needs to be more than that). If it happened instantaneously on the basis of interest rate changes, then the distributions should be the same as before, and would gradually start to increase. The actual yields (yield to maturity) would be much higher instantaneously, but the actual distributions are based on coupons received.

There are paths from $30 to $20 that might mean lower distributions, but most likely they would be higher if anything on a dollar basis.

Generally price is a part of return, though. If bond prices drop and there's no default, they will recover value as they move towards maturity (and new bonds bought will be at the higher yields). The net effect of yields of the bonds owned rising is positive for a bond fund investor in the long term, increasing returns in the long run, though it's a negative in the shorter term owing to the price drop. The breakeven point is roughly the duration of a fund, though of course it's not like rates change once and stop moving; future events will have their own effects.

Here's a quick look at some distribution history via Yahoo Finance, which is not always actually 100% accurate and doesn't distinguish between the income distributions and capital gains distributions (the latter are the smaller ones near the end of years):
https://finance.yahoo.com/quote/VBTLX/h ... quency=1mo

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by fantasytensai » Thu May 24, 2018 10:46 pm

lack_ey wrote:
Thu May 24, 2018 10:26 pm
fantasytensai wrote:
Thu May 24, 2018 9:29 pm
Wait, does 1 share of VBTLX give the same yield regardless of its NAV? If so what you say make sense, NAV doesn't matter. I had no idea that's how it worked. I always assumed that 1 share of VBTLX at a NAV of $30 will give off more dividend per month than 1 share of VBTLX at a NAV of $20.
Not exactly. Fund distributions are not necessarily exactly consistent from month to month even under conditions where you don't expect a change on average and where the NAV is constant, even beyond the number of days in a month being different. So they will not be exactly the same generally, regardless of NAV.

Bond fund NAV can drift over time while changing distributions because of drops from downgrades and selling bonds early that are not recovered. The evolving portfolio over time makes things less exact.

For an individual bond, though, if there's no default, the coupon will be the same no matter what the price is. The price could start out at $100 with two payments of $1.50 twice a year, and later the market price is $95 or $105 and it's still paying $1.50 twice a year.

It would generally be very difficult for a fund like total bond to lose 33% of its value. We're talking massively unprecedented levels of defaults, or rates spiking by 6% very rapidly (more likely needs to be more than that). If it happened instantaneously on the basis of interest rate changes, then the distributions should be the same as before, and would gradually start to increase. The actual yields (yield to maturity) would be much higher instantaneously, but the actual distributions are based on coupons received.

There are paths from $30 to $20 that might mean lower distributions, but most likely they would be higher if anything on a dollar basis.

Generally price is a part of return, though. If bond prices drop and there's no default, they will recover value as they move towards maturity (and new bonds bought will be at the higher yields). The net effect of yields of the bonds owned rising is positive for a bond fund investor in the long term, increasing returns in the long run, though it's a negative in the shorter term owing to the price drop. The breakeven point is roughly the duration of a fund, though of course it's not like rates change once and stop moving; future events will have their own effects.

Here's a quick look at some distribution history via Yahoo Finance, which is not always actually 100% accurate and doesn't distinguish between the income distributions and capital gains distributions (the latter are the smaller ones near the end of years):
https://finance.yahoo.com/quote/VBTLX/h ... quency=1mo
Thanks for the info. Question. For bond funds, what is the mathematical relationship between Per Share Distribution and Distribution Yield? For example, in April 2018, VBTLX has a PSD of $0.02349, and a DY of 2.73%. However, in March 2018, when the DY is lower at 2.69%, the PSD actually increased to $0.02393. That doesn't make sense to me.

For reference:
https://investor.vanguard.com/mutual-fu ... ions/vbtlx

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by lack_ey » Thu May 24, 2018 11:05 pm

fantasytensai wrote:
Thu May 24, 2018 10:46 pm
Thanks for the info. Question. For bond funds, what is the mathematical relationship between Per Share Distribution and Distribution Yield? For example, in April 2018, VBTLX has a PSD of $0.02349, and a DY of 2.73%. However, in March 2018, when the DY is lower at 2.69%, the PSD actually increased to $0.02393. That doesn't make sense to me.

For reference:
https://investor.vanguard.com/mutual-fu ... ions/vbtlx
Distribution yield I think is usually used to mean the most recent distribution annualized, but I think sometimes could be based on distributions in the trailing 12 months relative to the current price. Vanguard defines it there as that month's distribution annualized.

In March there are 31 days rather than 30, and the price was higher. Thus the March's distribution yield can be slightly lower despite a higher dollar amount than in April.

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by Portfolio7 » Thu May 24, 2018 11:38 pm

The advice you are given here is conservative precisely because risky investor behavior tends to result in bad outcomes eventually. The philosophies advocated here are not about reaping the greatest reward. They are about maximizing your chances of success, thereby minimizing your chances of losing everything and working decades longer than necessary or even dying with nothing. This is what makes the Bogleheads board special. Most investing groups are interested in maximizing returns. We are interested in minimizing poor outcomes.
+1

Wow, this dovetails nicely with a recent blog post (https://ofdollarsanddata.com/borrow-if- ... ea6384109d) I read about leverage. If you could borrow as much money as you wanted, and invest in something with a guaranteed return at the end of the year, how much would you borrow? The knee jerk reaction is millions, but that's just a surefire way to ensure that fluctuations in the value of your investments in between the start and end of your little year-long venture will force a margin call and bankrupt you. This topic also reminds me of Buffet's first rule of investing (Don't lose money) and I think it was Munger who said words to the effect that the key to successful investing is mostly making sure you avoid big mistakes.
An investment in knowledge pays the best interest.

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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by livesoft » Fri May 25, 2018 10:21 am

Did anybody notice that bond ETFs are up about 0.75% in the past week? Since when do bond funds go up that much in a week? :twisted:
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Re: YTD: VBTLX down 2.28%; VBILX down 2.99%; VTSAX down 0.23%

Post by triceratop » Fri May 25, 2018 10:52 am

livesoft wrote:
Fri May 25, 2018 10:21 am
Did anybody notice that bond ETFs are up about 0.75% in the past week? Since when do bond funds go up that much in a week? :twisted:
Can I get back to you after 6pm eastern?
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