Bond Holding

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MoRetired
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Bond Holding

Post by MoRetired » Wed Aug 08, 2018 9:03 am

My wife's financial advisor wants her to get out of Vanguard's Total Market Bond Fund arguing that, despite VG's designation, it is not an "intermediate" term fund and exposes her to too much interest rate risk. This fund is now our key fixed holding. Thought?

Silk McCue
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Re: Bond Holding

Post by Silk McCue » Wed Aug 08, 2018 10:37 am

Welcome to Bogleheads.

What fund is recommended to take its place (name, Ticker Symbol, and expense ratio please).

Cheers

MoRetired
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Re: Bond Holding

Post by MoRetired » Wed Aug 08, 2018 11:18 am

He hasn't suggested an alternative core bond holding for us. It seems that at this point he is assessing our willingness to follow his general advice about getting out of VBTLX - - assets he doesn't manage. It may be as obvious as an adviser trying to increase his AUM, but I curious about the value of his advice. Thanks.

Silk McCue
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Re: Bond Holding

Post by Silk McCue » Wed Aug 08, 2018 12:20 pm

MoRetired wrote:
Wed Aug 08, 2018 11:18 am
He hasn't suggested an alternative core bond holding for us. It seems that at this point he is assessing our willingness to follow his general advice about getting out of VBTLX - - assets he doesn't manage. It may be as obvious as an adviser trying to increase his AUM, but I curious about the value of his advice. Thanks.
My best advice for you and your wife is to start here using the link below. In just a short time you will be able to understand the sane and sensible Bogleheads approach to investing and can kick your AUM financial advisor to the curb which will save you large amounts of money over a lifetime investing. They are lots of very smart people on this site that will be willing to help you. That advice will be most successful if you take a small amount of time and become familiar with the philosophy. I found this site 2.5 years ago and I was quickly able to get our financial investing house in order.

Getting Started

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MoRetired
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Re: Bond Holding

Post by MoRetired » Wed Aug 08, 2018 3:19 pm

Thanks!

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Peter Foley
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Re: Bond Holding

Post by Peter Foley » Wed Aug 08, 2018 3:43 pm

If your primary non equity holding is in an employer sponsored plan there may, or may not, be better options. We use a combination of total bond fund, TIPS, and stable value funds. A stable value fund paying more than the rate of inflation is a good option for at least part of one's non equities.

Mr.BB
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Re: Bond Holding

Post by Mr.BB » Wed Aug 08, 2018 6:21 pm

If the person giving you advice (on any matter) cannot explain simply "why" or "how a product would be good for you, that should be your warning,
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

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Dale_G
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Re: Bond Holding

Post by Dale_G » Wed Aug 08, 2018 11:44 pm

MoRetired wrote:
Wed Aug 08, 2018 11:18 am
He hasn't suggested an alternative core bond holding for us. It seems that at this point he is assessing our willingness to follow his general advice about getting out of VBTLX - - assets he doesn't manage. It may be as obvious as an adviser trying to increase his AUM, but I curious about the value of his advice. Thanks.
I think you have nailed it. VBTLX is definitely an intermediate term bond fund. It is interesting that the advisor didn't mention the alternative. Somehow I think his eventual suggestion will result in higher fees to him - and less return to your wife.

Dale
Volatility is my friend

snailderby
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Re: Bond Holding

Post by snailderby » Thu Aug 09, 2018 8:59 am

OP,

1. Vanguard's Total Bond Market Index Fund (VBMFX/VBTLX) is a perfectly fine fund to hold as the core of (the bond portion of) your portfolio. VBMFX/VBTLX gives you broad exposure to thousands of bonds (both government and corporate) in one fund.

2. That said, I think I might understand where your wife's financial advisor is coming from when he says that VBMFX/VBTLX is not a pure intermediate-term bond fund. There's no one, universally-agreed-upon definition of intermediate-term bonds, but many people define intermediate-term bonds as bonds with a maturity date of 3 to 10 years. The average maturity date of the bonds that VBMFX/VBTLX holds is 8.4 years, which puts it squarely in the intermediate-term category. But VBMFX/VBTLX doesn't just hold intermediate-term bonds. Instead, it holds a wide variety of funds with maturity dates ranging from under 1 year to over 30 years.

Image

3. Is this a problem? Not necessarily. Here's a picture comparing the historical performance of a total bond market fund (VBMFX, in green) with the performance of a short-term bond fund (VBISX, in blue), intermediate-term bond fund (VBIIX, in red), and long-term bond fund (VBLTX, in yellow).

Image

You could swap out VBMFX/VBTLX for a shorter-term bond fund, but whether that would be a good idea would depend on your appetite for risk, how close you are to retirement, your other investments, and a host of other factors.
Last edited by snailderby on Thu Aug 09, 2018 10:14 am, edited 1 time in total.

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Doc
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Re: Bond Holding

Post by Doc » Thu Aug 09, 2018 9:59 am

MoRetired wrote:
Wed Aug 08, 2018 9:03 am
My wife's financial advisor wants her to get out of Vanguard's Total Market Bond Fund arguing that, despite VG's designation, it is not an "intermediate" term fund and exposes her to too much interest rate risk. This fund is now our key fixed holding. Thought?
Don't be too critical of your advisor yet. even Jack bogle has been critical of a Total Bond Market Index fund in recent years.

See for example: "Even Vanguard founder Jack Bogle, who practically invented index funds, says 70% in U.S. government bonds is too much. He’s proposed that the index be reworked to increase its exposure to corporate bonds." https://www.kiplinger.com/article/inves ... funds.html

There are also several posts on this board discussing the Treasuries in TBM "problem".
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.

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friar1610
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Re: Bond Holding

Post by friar1610 » Thu Aug 09, 2018 12:04 pm

Doc wrote:
Thu Aug 09, 2018 9:59 am
MoRetired wrote:
Wed Aug 08, 2018 9:03 am
My wife's financial advisor wants her to get out of Vanguard's Total Market Bond Fund arguing that, despite VG's designation, it is not an "intermediate" term fund and exposes her to too much interest rate risk. This fund is now our key fixed holding. Thought?
Don't be too critical of your advisor yet. even Jack bogle has been critical of a Total Bond Market Index fund in recent years.

See for example: "Even Vanguard founder Jack Bogle, who practically invented index funds, says 70% in U.S. government bonds is too much. He’s proposed that the index be reworked to increase its exposure to corporate bonds." https://www.kiplinger.com/article/inves ... funds.html

There are also several posts on this board discussing the Treasuries in TBM "problem".

On the other hand, there's currently a thread titled "Treasuries are the only bonds you'll ever need." So obviously there are lots of opinions out there. I agonized over this at one point and decided that Total Bond Index was "good enough" and probably better than most choices (although I was aware of the fact that it holds longer term issues). I do hold a chunk in a short-term index fund but VBTLX is where I've settled for the majority of my bond fund holdings. Are there better choices? Maybe. But I'm through worrying about it.
Friar1610

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Doc
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Re: Bond Holding

Post by Doc » Thu Aug 09, 2018 12:34 pm

friar1610 wrote:
Thu Aug 09, 2018 12:04 pm
On the other hand, there's currently a thread titled "Treasuries are the only bonds you'll ever need." So obviously there are lots of opinions out there. I agonized over this at one point and decided that Total Bond Index was "good enough" and probably better than most choices (although I was aware of the fact that it holds longer term issues). I do hold a chunk in a short-term index fund but VBTLX is where I've settled for the majority of my bond fund holdings. Are there better choices? Maybe. But I'm through worrying about it.
I think you are overlooking something. Each of us has to ask ourselves the question "why do we own bonds?" There is no right or wrong answer that applies to everyone.

A young person with a small portfolio, very little investment experience and no time or inclination to gain that experience might choose a three fund portfolio with the fixed income in TBM might just "set it and forget it" by funneling all his new investments into the bond portfolio as his total rebalancing effort. Another young investor with a little more experience might use an 80/20 AA with all his FI in long Treasuries because he wants to actively rebalance efficiently especially in equity market declines.

On the other end of the spectrum the retired investor with limited pension and small portfolio might be worried about losing money but still need to generate income so he would take the TBM approach. But that investors next door neighbor with a good pension and more than enough investments to last his lifetime three times over might go all equity position with just a tad of Treasuries so he could buy stocks when they are cheap next November. That way he might at least get enough money to move to a better neighborhood. :D

So your "good enough" position might say more about where you fit on the needs and desired spectrum than whether TBM itself is "good enough".

Have you asked yourself the question "why do I own bonds" and answered it to your own satisfaction? :beer
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.

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