Total Bond Market Index Fund

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wfromm
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Total Bond Market Index Fund

Post by wfromm » Fri Nov 15, 2019 8:00 am

I would like to ask the brilliant investors that post on these forums if they are still using the Total Bond Market Index Fund or if some have switched to another, possibly of shorter duration given the current interest rate levels. Thank you in advance.

Chris K Jones
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Re: Total Bond Market Index Fund

Post by Chris K Jones » Fri Nov 15, 2019 8:15 am

I am not brilliant, but I won't be changing anything in my bond allocation. All of my tax advantaged funds are in Vanguard Intermediate Term Bond Index (VBILX). All of my after tax funds are in Vanguard Intermediate Term Tax Exempt. I don't use Total Bond, but I would if VBILX were not available. I am a long term, buy and hold investor and don't intend to change anything because of current market conditions. Best wishes to you.

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Stinky
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Re: Total Bond Market Index Fund

Post by Stinky » Fri Nov 15, 2019 8:30 am

wfromm wrote:
Fri Nov 15, 2019 8:00 am
I would like to ask the brilliant investors that post on these forums if they are still using the Total Bond Market Index Fund or if some have switched to another, possibly of shorter duration given the current interest rate levels. Thank you in advance.
I'm not brilliant, but I did stay at a Holiday Inn Express last night.

I'm with you. My bond investments are roughly equally split between VICSX and VSCSX. Vanguard Intermediate and Short-Term Corporate Bond index funds.
It's a GREAT day to be alive - Travis Tritt

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David Jay
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Re: Total Bond Market Index Fund

Post by David Jay » Fri Nov 15, 2019 8:35 am

The only reason I can think of for going to a shorter duration fund is if you are in the decumulation phase where NAV affects withdrawal value. I am holding 2 years living expenses in Prime Money Market to avoid any short term NAV change risk.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Sandtrap
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Re: Total Bond Market Index Fund

Post by Sandtrap » Fri Nov 15, 2019 8:38 am

VBTLX total bond index + Corporate Investment Grade Index
+ CD, MM, etc, equal to average duration of the Total Bond Index Fund

Great "sleep factor".
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am
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Re: Total Bond Market Index Fund

Post by am » Fri Nov 15, 2019 8:49 am

Total bond is good enough for providing safety and stability when stocks are dropping. Good diversifier fund for stocks. I don’t think there’s a better one having read discussions here for years.

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oldcomputerguy
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Re: Total Bond Market Index Fund

Post by oldcomputerguy » Fri Nov 15, 2019 8:50 am

I've never been called "brilliant" by anyone, so take my reply for what it's worth. :)

During accumulation, all our bond holdings have been in index funds tracking Barclay's Aggregate (total bond market). I retired a couple of years ago, and my wife just retired at the end of October. To accommodate projected spending needs for the next two to four years until Social Security kicks in for each of us, I recently moved about $100k to short-term Treasuries. Other than that, all our bond holdings are still in Barclay's Aggregate funds.
"I’ve come around to this: If you’re dumb, surround yourself with smart people; and if you’re smart, surround yourself with smart people who disagree with you." (Aaron Sorkin)

RubyTuesday
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Re: Total Bond Market Index Fund

Post by RubyTuesday » Fri Nov 15, 2019 8:51 am

I just moved mostly out of total bond and into direct bank CD that offered 3% 5 year with 180 day early withdrawal penalty

RubyTuesday
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Re: Total Bond Market Index Fund

Post by RubyTuesday » Fri Nov 15, 2019 8:53 am

Actually moving into 2,3,4, and 5 year CDs. The shorter term rates were better than breaking a 5 year to create shorter terms.

dbr
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Re: Total Bond Market Index Fund

Post by dbr » Fri Nov 15, 2019 9:08 am

I am not in total bond, but to answer your question I have not made any changes in bond investing in years and don't plan to. If I had been in total bond I would still be there. What I do hold is intermediate in duration.

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Re: Total Bond Market Index Fund

Post by abuss368 » Fri Nov 15, 2019 9:19 am

We have invested in Total Bond Market for a long time and will never consider removing. There is good reason why it is the largest bond fund on the PLANET. It simply does the job.

Vanguard investment experts recommend a two bond fund strategy: Total Bond and Total International Bond.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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abuss368
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Re: Total Bond Market Index Fund

Post by abuss368 » Fri Nov 15, 2019 9:19 am

In my opinion any short or intermediate term investment grade bond fund that is low cost and diversified will provide both safety and income to a portfolio.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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nisiprius
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Re: Total Bond Market Index Fund

Post by nisiprius » Fri Nov 15, 2019 9:39 am

I'm sticking with two bond funds, in roughly equal amounts: the Vanguard Total Bond Market Index Fund, VBTLX, and the Vanguard Inflation-Protected Securities Fund, VIPSX, which is also intermediate term.

In 2009, there was a posting forum suggesting switching to shorter duration, given the current interest rate levels. I think this was the first forum posting containing the phrase "interest rates can only go up." Interest rates can only go up, why go intermediate in bonds?
I see the total bond fund and intermediate treasuries recommended a lot on here. I know people don't like to market time but interest rates are currently zero and whether rates rise in 2010 or 2011 or 2015, eventually they will rise and intermediate term bonds will get hit.

So isn't it wise to go short in this environment where rates can only go up?
I was invested in Total Bond on the date of that posting, 7/19/2009, and every $10,000 I invested in that fund (blue line) has now grown to $14,668.63. If I'd switched to the Vanguard Short-Term Bond Index fund, orange line, it would only have grown to $12,314.97. In the a money market fund, VMMXX, green line, $10,588.62.

All I can say is that the 2009 posting, suggesting that it was obviously time to switch to shorter durations was... a bit early.

During that time, in 2010 Jeremy Schwartz and Jeremy Siegel wrote an article in the Wall Street Journal warning about the "Great American Bond Bubble" and making dire predictions about what could happen to values. What they predicted, both in terms of interest rate rise and its effect, actually happened, and the arrow shows what the effect was on Total Bond.

The part that people miss is that the loss in value from an interest rate rise is temporary. If interest rates rise, the fund begins to buy bonds with higher interest rates. The value gets knocked down, but the fund begins to grow faster. The "duration" of the fund is the approximate time it takes for the faster growth to balance the loss in value. The duration is about 6 years. So, assuming a holding time of six years, interest rate fluctuations should be small compared to the general upward loft of the cumulative total return of the fund.

source

Image
Last edited by nisiprius on Sat Nov 16, 2019 7:26 pm, edited 2 times in total.
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Kenkat
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Re: Total Bond Market Index Fund

Post by Kenkat » Fri Nov 15, 2019 9:41 am

I continue to use Total Bond Market Index. My time horizon is long, so I don’t concern myself with where interest rates are going (which I can’t predict anyway). It seems to me the most likely result of me holding shorter term bonds over time is lower overall returns.

anil686
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Re: Total Bond Market Index Fund

Post by anil686 » Fri Nov 15, 2019 9:42 am

I have bonds exclusively in tax advantaged accounts and I keep only balanced funds in those - so yes - and I am content with that. I strongly feel psychological/behavioral issues will lead to much more problems/underperformance than optimization of the bond sleeve of the portfolio. JMO though...

KlangFool
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Re: Total Bond Market Index Fund

Post by KlangFool » Fri Nov 15, 2019 9:45 am

OP,

I use the total bond market index fund for my 3-funds portion and Vanguard Intermediate-Term Treasury Fund for my Larry portion.

KlangFool

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goodenyou
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Re: Total Bond Market Index Fund

Post by goodenyou » Fri Nov 15, 2019 9:54 am

The beauty of simplified index investing is that no intellectual brilliance is needed. I have not changed my fixed income. I use Total Bond Index for qualified accounts and Intermediate Term Tax Exempt (VWIUX) for taxable. I have some I-Bonds as well that I have been accumulating since the time when you could purchase $30,000 per year per account holder.
"Ignorance more frequently begets confidence than does knowledge" | Do you know how to make a rain dance work? Dance until it rains.

AlwaysaQ
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Re: Total Bond Market Index Fund

Post by AlwaysaQ » Fri Nov 15, 2019 10:04 am

I have a short-term investment horizon and split my bond funds between short-term and intermediate-term. I also have 5 sets of individual TIPS that are earmarked for RMDs in the next 9 years.

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wfromm
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Re: Total Bond Market Index Fund

Post by wfromm » Fri Nov 15, 2019 10:14 am

Thank you all for responding. I read my post and want to clarify that I am very sincere in that I feel that many of you are quite brilliant and some are humble too. I was thinking about the long term bonds in Total Bond Index. However, as Nisiprius has mentioned the fact that when rates go up there is a dip and then you earn more based on the rate. I guess buying a short term bond fund is like trying to time the market and that is not Bogleheadish.

Dandy
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Re: Total Bond Market Index Fund

Post by Dandy » Fri Nov 15, 2019 10:59 am

I roughly follow Dr. Wm Bernstein's idea of having 20 or so years worth of drawdown dollars in "safe" fixed income. I set the goal of "safe assets" to fund to age 90 (I'm 71). For me that is short term bond funds, FDIC products, and money markets.

Beyond that I like lots of diversity in my fixed income. Total Bond Fund is a good fund but doesn't include Inflation Protected Securities, Muni Bonds, CDs, Money Markets, so I do. I like diversified fixed income in type as well as duration.

Oldschool
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Re: Total Bond Market Index Fund

Post by Oldschool » Fri Nov 15, 2019 11:59 am

Retired 5 years...

VBTLX in my roll-over IRA and my taxable account.

staustin
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Re: Total Bond Market Index Fund

Post by staustin » Fri Nov 15, 2019 1:11 pm

Dandy wrote:
Fri Nov 15, 2019 10:59 am
I roughly follow Dr. Wm Bernstein's idea of having 20 or so years worth of drawdown dollars in "safe" fixed income. I set the goal of "safe assets" to fund to age 90 (I'm 71). For me that is short term bond funds, FDIC products, and money markets.

Beyond that I like lots of diversity in my fixed income. Total Bond Fund is a good fund but doesn't include Inflation Protected Securities, Muni Bonds, CDs, Money Markets, so I do. I like diversified fixed income in type as well as duration.
+1, our mentality has shifted quite a bit the past few years as I approach the end of a first career, and begin to contemplate a second half of life one.. As a result we've implemented Bernstein's suggestion in this regard. Thus, only one bond fund for us near term. The reason for it is we're still in a very high income, no debt, thus high tax bracket. Overall, we've moved to a 30/70 portfolio with the 70 mixed across individual treasuries, CD's, Tips and a muni bond fund. Very very conservative but we're in wealth preservation mode now.

GAAP
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Re: Total Bond Market Index Fund

Post by GAAP » Sat Nov 16, 2019 6:57 pm

I use BNDW -- Vanguard Total World Bond ETF. Yes, to the total domestic bond market (at whatever portion of market cap that is). No to looking for shorter duration funds.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

Copernicus
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Re: Total Bond Market Index Fund

Post by Copernicus » Sat Nov 16, 2019 7:34 pm

I now have a 60/40 portfolio. When rebalancing during last 2 years, I moved money from stocks allocation to fixed income. I elected to not buy bonds. I left new money in money market, with yield partially protect against inflation.
So, my allocation now is 60/20/20 stocks/bonds/cash.
I feel this should perform over the long term similar to a 55/45 portfolio. I think I will make up for low/no yield on cash by keeping stocks allocation at 60%.

longinvest
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Re: Total Bond Market Index Fund

Post by longinvest » Sat Nov 16, 2019 7:59 pm

Copernicus wrote:
Sat Nov 16, 2019 7:34 pm
I now have a 60/40 portfolio. When rebalancing during last 2 years, I moved money from stocks allocation to fixed income. I elected to not buy bonds. I left new money in money market, with yield partially protect against inflation.
So, my allocation now is 60/20/20 stocks/bonds/cash.
Unfortunately, not buying bonds during the last two years was an expensive move. As of the end of October, total bonds was up 11.48% in 1 year while federal money market was only up 2.24%. That's a -9.24% underperformance! Timing the market successfully is difficult; it's best to choose an asset allocation and then stick to it. Or, do like some of us did, put our money into an all-in-one globally-diversified balanced index fund and let the fund manager take care of rebalancing.

Here's a quote from another thread:
Dead Man Walking wrote:
Sat Nov 16, 2019 3:20 pm
Mike Piper said that he changed to a single Life Strategy fund because he recognized that he was the greatest threat to the success of their investment portfolio. Many of us are probably the greatest threat to the success of our portfolios.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

Scooter57
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Re: Total Bond Market Index Fund

Post by Scooter57 » Sat Nov 16, 2019 9:09 pm

For the buy and hold investor, that rise in NAV is somewhat illusory. When I log onto Vanguard and look at my ladder of brokered CDs, bought last year when their rates surged briefly, I am shown $100,000 CDs listed as being worth, say,
$108,000. But when that bond matures, no one is going to give me $108,000. I'll get back just the $100,000 I put in, and the same goes for the bonds on the fund. Plus what that higher NAV also means is that your next investment in the fund is going to earn you less. Since you invest in fixed income FOR the income this is bad not good.

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