Why over think bonds with a small portfolio?

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spdoublebass
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Why over think bonds with a small portfolio?

Post by spdoublebass » Sat May 26, 2018 9:19 pm

I will admit that I read this forum pretty much daily. That being said I never make immediate changes based on something I happen to read on this forum. I do have an IPS that I adhere to.

I only started investing a little over a year ago, so my portfolio is small. I have 30+ years until retirement and right now have a 90/10 AA. I currently hold primarily TBM with some TIBM.

I understand that the enemy of a good plan is trying for a perfect plan. I ask the following questions more out of curiousity than to change my portfolio.

Some questions I have from reading the forum are:

- Larry Swedroe says you can extend duration if it’s compenstarted by .2% increase in Yield.

So I took a look at the ETF’s that vanguard offers.
There are basically three options of treasury, corporate, and the blended index all with ST, IT, LT options.

If I followed Swedroe’s advice, the best Treasury option is the ST (VGSH), the best corporate option is the IT (VCIT), and the best blended index is the ST (BSV).

This a little surprising to me. I thought the IT treasury would be a better option but it didn’t compensate the .2% for the added duration. I also thought the short term corporate would be the best option but IT compensated for the added duration.

BND (TBM) doesn’t seem to compensate for its added duration compared to the three listed above.

So my question is, respectfully, so what? Are you supposed to go in and out of these funds based on the yield curve? I want to be clear, I know Swedroe isn’t saying to do that.

- Another thing I read on here many times is that if you have a equity heavy portfolio than LT treasuries can be an option. I get why that is, but that does seem like it could backfire on you.

-I also read here bonds are for safety. Which I agree. That’s why I wouldn’t extend my duration to LT even when I have a long way to go still.

I’m almost tempted to even shorten my duration to maybe the short term index bsv. And go with less FI overall. The only issue I have with this is will it keep pace with inflation.


I know this is overthinking and making things too complex. That’s why I really am ok with TBM. But I do get curious about this stuff after reading about it here.
Resist much, obey little.

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Taylor Larimore
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Re: Why over think bonds with ANY portfolio?

Post by Taylor Larimore » Sat May 26, 2018 10:42 pm

I know this is overthinking and making things too complex. That’s why I really am ok with TBM. But I do get curious about this stuff after reading about it here.
spdoublebass:

The more you read about investing, the more you will read about "how to beat the market" (often for the financial benefit of the writer).

Vanguard Total Bond Market Index Fund is an excellent bond fund. I have owned it for over 30 years and am perfectly happy (especially in 2008 when my stock funds plunged over -50%, but my TBM fund gained +5%.
The enemy of a good plan is the dream of a perfect plan. -- Jack Bogle
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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msi
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Re: Why over think bonds with a small portfolio?

Post by msi » Sun May 27, 2018 1:22 am

Keep in mind the difference in average credit quality between VCSH (A) and VCIT (BBB). Using the 0.2% guideline wouldn't be the fairest comparison in the world for those two funds.

dbr
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Re: Why over think bonds with a small portfolio?

Post by dbr » Sun May 27, 2018 7:00 am

You are overthinking. What you started with is an excellent choice. There is probably no more useless debate on this forum than debate over what bonds to hold, for most investors most of the time.

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spdoublebass
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Re: Why over think bonds with ANY portfolio?

Post by spdoublebass » Mon May 28, 2018 11:30 am

Taylor Larimore wrote:
Sat May 26, 2018 10:42 pm

Vanguard Total Bond Market Index Fund is an excellent bond fund. I have owned it for over 30 years and am perfectly happy (especially in 2008 when my stock funds plunged over -50%, but my TBM fund gained +5%.
The enemy of a good plan is the dream of a perfect plan. -- Jack Bogle
Best wishes.
Taylor
Thank you Mr. Larimore. I will stay with TBM for sure.
Resist much, obey little.

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