Only bond fund in 401K is Pimco Total Return. Buy?

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msj16
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Only bond fund in 401K is Pimco Total Return. Buy?

Post by msj16 » Wed Oct 04, 2017 4:22 pm

Hello,

My new 401K fund only has one bond fund available: Pimco Total Return (yTD - 3.46 one year return - 2.13). Since it is an actively managed bond fund versus an index fund should I avoid it? I can add more bonds to my old 401K by selling stock and putting it into an index bond fund (which is not doing as well). Pimco is doing well compared to other bond funds. Thoughts?

Thank you for your help.

bloom2708
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Re: Only bond fund in 401K is Pimco Total Return. Buy?

Post by bloom2708 » Wed Oct 04, 2017 4:27 pm

What is the expense ratio for PIMCO Total Return?

If it is low (ours is .20%), then it is a good bond/income fund. If it is 1.2% (example), then it is more of a question.

The negatives of an active bond fund are not the same as for an active stock fund. There are some active stock funds (Wellington/Wellesley) that have very low expense ratios. Usually cost is the issue.

I used PIMCO TR but switched to a Blackrock Target Date fund with an ER of .07%.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

mptfan
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Re: Only bond fund in 401K is Pimco Total Return. Buy?

Post by mptfan » Wed Oct 04, 2017 4:32 pm

msj16 wrote:
Wed Oct 04, 2017 4:22 pm
Hello,

My new 401K fund only has one bond fund available: Pimco Total Return (yTD - 3.46 one year return - 2.13). Since it is an actively managed bond fund versus an index fund should I avoid it?
No, you should not avoid it. It is a good fund, it is more of a "total" bond fund that the Vanguard total bond fund because it includes municipal bonds, emerging market bonds and high yield corporate bonds.
I eat risk for breakfast. :)

msj16
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Re: Only bond fund in 401K is Pimco Total Return. Buy?

Post by msj16 » Wed Oct 04, 2017 4:38 pm

bloom2708- Thanks for your response. The expense ratio is .47%

mptfan - Thanks for the feedback. I am glad to know that it is well-diversified.

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oldcomputerguy
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Re: Only bond fund in 401K is Pimco Total Return. Buy?

Post by oldcomputerguy » Wed Oct 04, 2017 4:41 pm

bloom2708 wrote:
Wed Oct 04, 2017 4:27 pm
What is the expense ratio for PIMCO Total Return?
After reading the OP's question and yours, I did a bit of poking around on fidelity.

We had PIMCO Total Return Institutional fund (PTTRX) as one of our options in my former 401k plan, the net ER of that share class was 0.46% (which to me is outrageously high for an Institutional share class fund); the "investor-class" equivalent (PIMCO Total Return Class D, PTTDX) has an ER of 0.75% net.
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bloom2708
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Re: Only bond fund in 401K is Pimco Total Return. Buy?

Post by bloom2708 » Wed Oct 04, 2017 4:47 pm

msj16 wrote:
Wed Oct 04, 2017 4:38 pm
bloom2708- Thanks for your response. The expense ratio is .47%

mptfan - Thanks for the feedback. I am glad to know that it is well-diversified.
Bonds are for safety, so .47% will have to be low enough. They might change funds. You might change jobs.

I don't know your age, but put 20% into your bond fund and the rest into stocks and work toward maxing your 401k at $18k/year.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

retiredjg
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Re: Only bond fund in 401K is Pimco Total Return. Buy?

Post by retiredjg » Wed Oct 04, 2017 5:05 pm

If you need to hold bonds in that 401k, that is a reasonable choice at a reasonable cost. If you have lower cost bond funds in the other 401k, you might want to hold more bonds there instead. This assumes you have low cost 500 Index or similar in both accounts.

There is a balance - even a juggle - between picking the best and lowest cost funds in all your accounts. The goal is to produce a good and low cost portfolio overall. Every fund does not have to have a rock bottom price and every fund does not have to be an index fund.

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telemark
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Re: Only bond fund in 401K is Pimco Total Return. Buy?

Post by telemark » Wed Oct 04, 2017 5:06 pm

msj16 wrote:
Wed Oct 04, 2017 4:22 pm
I can add more bonds to my old 401K by selling stock and putting it into an index bond fund (which is not doing as well).
Personally, I would do that instead, but PTTRX is a decent choice also. It depends how much you hate expense ratios vs. rebalancing across multiple accounts.

The former manager, Bill Gross, enjoyed seeing his name in headlines perhaps more than was good for his investors, but the current managers are a pretty quiet bunch.

ThrustVectoring
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Re: Only bond fund in 401K is Pimco Total Return. Buy?

Post by ThrustVectoring » Wed Oct 04, 2017 5:20 pm

How old are you? How much money is in the new 401k? If you're under 40 and the total amount is under $100k, you're likely fine having a temporarily-more-aggressive asset allocation until you change jobs and can roll it into an IRA at your ideal asset allocation.

Like, yeah, the risks and returns are different with vs without investing in bonds. But for younger investors with relatively fewer assets, it's not that much different, and tilting more aggressive isn't that bad if you have a reasonable plan to unwind it.

aristotelian
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Re: Only bond fund in 401K is Pimco Total Return. Buy?

Post by aristotelian » Wed Oct 04, 2017 5:29 pm

I would not rule it out. That's not a terrible ER and PIMCO has a good reputation. However, if you prefer an index, is there a reason why you have to hold bonds in the 401k? Bond index in an IRA or Muni index in taxable would also be possibilities.

msj16
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Re: Only bond fund in 401K is Pimco Total Return. Buy?

Post by msj16 » Wed Oct 04, 2017 5:50 pm

Thanks bloom2708 - I will see this fund as an appropriate choice.

retiredjg - The old 401K definitely has a much lower cost bond fund (ER =.025% for Fidality Bond Fund FXNAX). The YTD is -.12 vs. 3.46 for Pimco Total return. I know it is performance chasing just to go for the most recent return so I am trying to consider all factors. Thanks for the perspective.

telemark - I like the idea of having at least one bond fund in the new 401K (which makes rebalancing easy) but overall am wondering whether I shouldn't overlook this fund which has much better returns with an okay expense ratio.

ThrustVectoring - I am not young! I have about 7-10 years until retirement. I am not looking to be too aggressive at this point.

Overall, I had developed a mindset based on Bogleheads philosophy where I only considered index funds (which has served me well) but I see that actively managed bond funds can have a place in a well-diversified portfolio.

retiredjg
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Re: Only bond fund in 401K is Pimco Total Return. Buy?

Post by retiredjg » Wed Oct 04, 2017 6:06 pm

A lot of the favored Vanguard bond funds mentioned around here are not index funds. They are just well run and low cost and people don't realize they are actively managed instead of indexed. So don't assume that everything has to be an index fund (although that is usually my first choice when available).

The PIMCO fund pretty much always does well. It outperforms because it carries more risk. It will probably not hold up as well in a crash as Total Bond Market so I would not put my entire bond allocation there if I had other good choices. But there is no reason to avoid it entirely if it serves your needs in that account.

msj16
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Re: Only bond fund in 401K is Pimco Total Return. Buy?

Post by msj16 » Wed Oct 04, 2017 6:14 pm

Thank you retiredjg. I don't mind a bit of additional risk, especially because I have recently reduced my allocation to stocks as a whole so no matter what, it won't be as risky as the stock funds my money used to be in.

Excellent - thanks all. It is nice to make an informed choice.

retiringwhen
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Re: Only bond fund in 401K is Pimco Total Return. Buy?

Post by retiringwhen » Wed Oct 04, 2017 6:18 pm

retiredjg wrote:
Wed Oct 04, 2017 6:06 pm
A lot of the favored Vanguard bond funds mentioned around here are not index funds. They are just well run and low cost and people don't realize they are actively managed instead of indexed. So don't assume that everything has to be an index fund (although that is usually my first choice when available).

The PIMCO fund pretty much always does well. It outperforms because it carries more risk. It will probably not hold up as well in a crash as Total Bond Market so I would not put my entire bond allocation there if I had other good choices. But there is no reason to avoid it entirely if it serves your needs in that account.
Agreed, I had this in my 401K previously and was happy, but the company dropped it. To model a higher bond risk profile (my desire) I went about 80% total bond and 20% high yield corporate to attempt to gain the higher returns of pimco total return. I hope to do better in the long run as the move took the ER down 30+ basis points.

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Re: Only bond fund in 401K is Pimco Total Return. Buy?

Post by alex_686 » Wed Oct 04, 2017 6:28 pm

My 2 cents. There is a correlation between higher expense ratios and higher gross returns - before expenses. Not so much after expenses, or net returns. We know that story. That being said, some expenses and active strategies lend themselves to higher returns. Marketing expenses do not, fund that significantly deviate from their index tend to do so. You are getting value from PIMCO's higher expense ratio. They are spending your money on things that generate excess return and can justify the expenses. This is not exactly an endorsement - just saying a high expense ratio does not automatically rule out a fund like this.

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nisiprius
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Re: Only bond fund in 401K is Pimco Total Return. Buy?

Post by nisiprius » Wed Oct 04, 2017 7:37 pm

Assuming that you want to have a bond allocation (which I personally think is wise at any age), and that for practical reasons your 401(k) is the place you want to have them, I wouldn't hesitate to use PIMCO Total Return.
The expense ratio is high by Boglehead standards; Morningstar calls it "below average;" it is about the same as the expense ratio I tolerated for years in my employer's 401(k) plan, which happened to be Fidelity's bond index fund, FBIDX. (They've since cut the expense ratio).
It's a famous, well-liked fund chosen by many 401(k) plans. It's very much the same situation as deciding whether to buy coffee when the only place to get it is McDonald's; or to buy a car off the dealer's lot because you need a car and they have one that's close to what you want.
The past history (not a sure guide to future results, etc.) is that if you look at PTTRX (blue); the bond fund most common mentioned here--Vanguard Total Bond Market Index Fund (VBMFX orange); and stocks, (VFINX, green), PTTRX has done the job you expect a bond fund to do. It's given quite a decent return, it has returned a good deal less than stocks, and it is shown a good deal less volatility than stocks.
Both PTTRX and Total Bond have done "the job you expect a bond fund to do." PTTRX has clearly had a noticeably higher return than total bond. Whether there's more risk that just isn't too visible on the chart, or more risk that's hidden inside the fund and hasn't shown up yet is something we can argue about. In any case, it's a perfectly good bond fund.
Also, despite the dramatic departure of its star fund manager, Bill Gross, in 2014, and despite investors pulling out more than half the assets in the fund, you will notice that nothing drastic or terrible happened after 2014 to the people who continued to invest in the fund.
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