question about VBTLX

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stocknoob4111
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question about VBTLX

Post by stocknoob4111 » Wed Jan 10, 2018 12:03 pm

I am looking at VBTLX - Vanguard Total Bond Market fund and noticed that it returned 0.94% last year which is lower than some CDs right now. Ally no penalty CD (which can be broken without penalty after around 6 days) is returning 1.6%.

Am I missing something here? Does the .94% not include taxable interest distributions but rather just the change in NAV? So the total return is change in NAV + taxable distributions? How do I find out how much were the distributions?

Also, since we are entering a increasing interest rate environment with 3 or 4 .25 basis point increases through this year how will this bond fund be affected?

WhiteMaxima
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Re: question about VBTLX

Post by WhiteMaxima » Wed Jan 10, 2018 12:12 pm

Investor demand more yield. Bond fund need re-price.

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mhc
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Re: question about VBTLX

Post by mhc » Wed Jan 10, 2018 12:16 pm

Where did you see that it made only 0.94% last year? The fund page on Vanguard seems to show something much higher.

livesoft
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Re: question about VBTLX

Post by livesoft » Wed Jan 10, 2018 12:18 pm

Yes, you are missing a good web site that shows the total return of VBTLX in 2017.
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jazman12
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Re: question about VBTLX

Post by jazman12 » Wed Jan 10, 2018 12:22 pm

stocknoob4111 wrote:
Wed Jan 10, 2018 12:03 pm
I am looking at VBTLX - Vanguard Total Bond Market fund and noticed that it returned 0.94% last year which is lower than some CDs right now. Ally no penalty CD (which can be broken without penalty after around 6 days) is returning 1.6%.

Am I missing something here? Does the .94% not include taxable interest distributions but rather just the change in NAV? So the total return is change in NAV + taxable distributions? How do I find out how much were the distributions?

Also, since we are entering a increasing interest rate environment with 3 or 4 .25 basis point increases through this year how will this bond fund be affected?
2.52% :wink:
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Luckywon
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Re: question about VBTLX

Post by Luckywon » Wed Jan 10, 2018 12:25 pm

Morningstar lists 2017 performance of VBTLX 3.57 %

http://performance.morningstar.com/fund ... on?t=VBTLX

stocknoob4111
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Re: question about VBTLX

Post by stocknoob4111 » Wed Jan 10, 2018 12:27 pm

mhc wrote:
Wed Jan 10, 2018 12:16 pm
Where did you see that it made only 0.94% last year? The fund page on Vanguard seems to show something much higher.
I looking at the NAV change at Google Finance:
Image

MindTheGAAP
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Re: question about VBTLX

Post by MindTheGAAP » Wed Jan 10, 2018 12:29 pm

stocknoob4111 wrote:
Wed Jan 10, 2018 12:27 pm
mhc wrote:
Wed Jan 10, 2018 12:16 pm
Where did you see that it made only 0.94% last year? The fund page on Vanguard seems to show something much higher.
I looking at the NAV change at Google Finance:
Image
NAV change completely disregards (in terms of Total Return) the distributions (Cap Gains and Interest) for the year. Not looking at complete picture at all.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

stocknoob4111
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Re: question about VBTLX

Post by stocknoob4111 » Wed Jan 10, 2018 1:09 pm

ah, ok so the morningstar figure makes more sense now... SEC yield of 2.6% + NAV change of .94% = total 3.54%

so to my second question.. the Fed is planning 3 or 4 .25 basis point hikes during this year. How would that affect this fund. I read a bit about it and noticed that the current yield is 2.6% and duration is 5.6 yrs so a .25 basis upward change in rates would reduce the NAV by 5.6 x .25 = 1.4%? If there are 3 such rate increases wouldn't the fund return substantially negative?

So, for diversification is it better to be invested in this fund of a CD @ 1.6%?

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munemaker
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Re: question about VBTLX

Post by munemaker » Wed Jan 10, 2018 1:49 pm

stocknoob4111 wrote:
Wed Jan 10, 2018 12:03 pm
I am looking at VBTLX - Vanguard Total Bond Market fund and noticed that it returned 0.94% last year
Sorry, but according to Morningstar, VBTLX returned 3.57% for 2017. Here's the proof:

http://performance.morningstar.com/fund ... ture=en_US

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Re: question about VBTLX

Post by stocknoob4111 » Wed Jan 10, 2018 1:53 pm

yeah, the change was only NAV not yield which was 2.6%.

Question - which you do prefer VBTLX or BND which is the ETF equivalent? They both have identical expense ratios. What is the difference of choose one over the other besides the ability to trade at a specific point intra-day.

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Re: question about VBTLX

Post by jalbert » Wed Jan 10, 2018 1:59 pm

ah, ok so the morningstar figure makes more sense now... SEC yield of 2.6% + NAV change of .94% = total 3.54%
Still not the correct way to compute it. The SEC yield is an average yield for the last 30 days, not for 2017.

Just use a total return chart instead of a share price/NAV chart. Note that even total return calculations can vary depending on whether interest/dividends are reinvested for the computatiion.
Risk is not a guarantor of return.

bloom2708
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Re: question about VBTLX

Post by bloom2708 » Wed Jan 10, 2018 2:22 pm

BND would have a lower minimum. For buy and hold investing, use the mutual fund version if you can meet the $3k minimum for Investor and $10k minimum for Admiral shares.
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stocknoob4111
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Re: question about VBTLX

Post by stocknoob4111 » Wed Jan 10, 2018 4:50 pm

thanks!! another question..

as much as possible of my bonds part of my portfolio should be in my 401k right? so that avoid paying taxes on interest dividends or does it really not matter? On the other hand one could argue that stock dividends may be higher so most of that should be in the 401k?

how should I distribute the overall allocation between taxable and non taxable?

alex_686
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Re: question about VBTLX

Post by alex_686 » Wed Jan 10, 2018 4:56 pm

stocknoob4111 wrote:
Wed Jan 10, 2018 1:09 pm
so to my second question.. the Fed is planning 3 or 4 .25 basis point hikes during this year. How would that affect this fund. I read a bit about it and noticed that the current yield is 2.6% and duration is 5.6 yrs so a .25 basis upward change in rates would reduce the NAV by 5.6 x .25 = 1.4%? If there are 3 such rate increases wouldn't the fund return substantially negative?
Nothing would happen. You are sorta right about duration. Expect that everybody knows about it so the expected rate increase are already baked into the price. If something unexpected happened - well that would be a different story.

Want to know where the market thinks the Fed is going, what is already priced into the market? Here is a link to a nifty tool.

http://www.cmegroup.com/trading/interes ... fomc.html/

mega317
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Re: question about VBTLX

Post by mega317 » Wed Jan 10, 2018 5:14 pm

You have a lot of questions that aren't necessarily related. I suggest for the best answers that you start a new thread and post in this format:
viewtopic.php?t=6212
Many very smart and experienced people can review your total situation and give you expert advice.
I see the information scattered through some of your previous posts but it's hard to collate mentally.

Also see
https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds
https://www.bogleheads.org/wiki/Asset_a ... e_accounts
https://www.bogleheads.org/wiki/Tax-eff ... _placement

Also look back at what happened to Vanguard Total Bond the last time they raised rates.

jalbert
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Re: question about VBTLX

Post by jalbert » Wed Jan 10, 2018 7:57 pm

stocknoob4111 wrote:
Wed Jan 10, 2018 4:50 pm
thanks!! another question..

as much as possible of my bonds part of my portfolio should be in my 401k right? so that avoid paying taxes on interest dividends or does it really not matter? On the other hand one could argue that stock dividends may be higher so most of that should be in the 401k?

how should I distribute the overall allocation between taxable and non taxable?
A US index fund will have a high percentage of dividends that are qualified dividends which are taxed more favorably than most (i.e. non-muni) bond interest. The latter is taxed as regular income federally. State income tax may treat qualified dividend income favorably or as regular income, depending on state.
Risk is not a guarantor of return.

stocknoob4111
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Re: question about VBTLX

Post by stocknoob4111 » Fri Jan 12, 2018 12:00 pm

jalbert wrote:
Wed Jan 10, 2018 7:57 pm
stocknoob4111 wrote:
Wed Jan 10, 2018 4:50 pm
thanks!! another question..

as much as possible of my bonds part of my portfolio should be in my 401k right? so that avoid paying taxes on interest dividends or does it really not matter? On the other hand one could argue that stock dividends may be higher so most of that should be in the 401k?

how should I distribute the overall allocation between taxable and non taxable?
A US index fund will have a high percentage of dividends that are qualified dividends which are taxed more favorably than most (i.e. non-muni) bond interest. The latter is taxed as regular income federally. State income tax may treat qualified dividend income favorably or as regular income, depending on state.
When you say a US index fund you mean something like VBTLX? The Bogleheads writeup on this fund says dividends are unqualified so i'm guessing the interest distributions are going to be taxed at ordinary income tax rate.

However, for me I just split my taxable and tax-exempt between stocks/bonds in the same ratio for each account.

Question - what is the timespan for change in yield for VBTLX after the Fed increases interest rates? Or does it even have to change?

alex_686
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Re: question about VBTLX

Post by alex_686 » Fri Jan 12, 2018 4:07 pm

First, I think Jalbert was referring to equity index funds. Equities have favorable tax treatment of dividends. The exception is REITs. Actually, what is even more favorable is the long term capital gains tax rate. This favors equities over bonds.
stocknoob4111 wrote:
Fri Jan 12, 2018 12:00 pm
Question - what is the timespan for change in yield for VBTLX after the Fed increases interest rates? Or does it even have to change?
It is instantaneous - and that is for unexpected Fed rate changes. If you look at my prior post you will see that expected rate changes are already baked into the price - so no change here. Most mutual fund providers only update their yield calculations once a month so there is a delay in the reporting side.

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saltycaper
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Re: question about VBTLX

Post by saltycaper » Fri Jan 12, 2018 4:22 pm

stocknoob4111 wrote:
Wed Jan 10, 2018 1:09 pm

so to my second question.. the Fed is planning 3 or 4 .25 basis point hikes during this year. How would that affect this fund. I read a bit about it and noticed that the current yield is 2.6% and duration is 5.6 yrs so a .25 basis upward change in rates would reduce the NAV by 5.6 x .25 = 1.4%? If there are 3 such rate increases wouldn't the fund return substantially negative?
There is no way to tell what will happen to the fund if the Fed hikes rates 3 or 4 times this year because the rates the Fed sets are not the same as the rates affecting the bonds held by the fund.

Also, contrary to popular commentary here, just because the "consensus" is 3 or 4 hikes, that does not mean the number of hikes that actually will occur are "priced in." There are probabilistic and time elements here that are not considered.

Price changes are also dependent on how expectations change in the next year, perhaps even more so than whether previous expectations are met with precision or not.

The takeaway is that it's not possible to predict what will happen to this fund in the next year.
Quod vitae sectabor iter?

lack_ey
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Re: question about VBTLX

Post by lack_ey » Fri Jan 12, 2018 4:44 pm

saltycaper wrote:
Fri Jan 12, 2018 4:22 pm
There is no way to tell what will happen to the fund if the Fed hikes rates 3 or 4 times this year because the rates the Fed sets are not the same as the rates affecting the bonds held by the fund.

Also, contrary to popular commentary here, just because the "consensus" is 3 or 4 hikes, that does not mean the number of hikes that actually will occur are "priced in." There are probabilistic and time elements here that are not considered.

Price changes are also dependent on how expectations change in the next year, perhaps even more so than whether previous expectations are met with precision or not.

The takeaway is that it's not possible to predict what will happen to this fund in the next year.
No, that's what "priced in" means.

Ideas about the pathway of future short-term rates would be one of multiple factors (the most important one) influencing current bond rates across the yield curve. There are also considerations relating to investor preferences for different specific issues, liquidity, pricing in of term risk and unknowns about inflation, etc., all of which could also change.

If the evolution of short rates matches with expectations, this should be the most neutral outcome, all else equal, with respect to the market expectation of the pathway of future short-term rates. That said, it's still possible that short rates progress as expected over the next year but then new information causes expectations for rates in the following year (two years from the present day) to change, and so on, never mind changes in any of the other factors.

The point is that (1) the market also has information about and expectations of Fed funds rate hikes, and (2) fewer (more) rate hikes than expected are all else equal or in the average outcome favorable (unfavorable) for bond returns in the short term. That's the probabilistic assessment implied.

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saltycaper
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Re: question about VBTLX

Post by saltycaper » Fri Jan 12, 2018 4:50 pm

lack_ey wrote:
Fri Jan 12, 2018 4:44 pm

No, that's what "priced in" means.
Sorry. Let me re-phrase. Just because the rate hikes are "priced in" doesn't mean prices won't change even if the outcome is as expected. That is what some posters seem to be conveying when they use the phrase "priced in."
Quod vitae sectabor iter?

alex_686
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Re: question about VBTLX

Post by alex_686 » Fri Jan 12, 2018 4:50 pm

saltycaper wrote:
Fri Jan 12, 2018 4:22 pm
Also, contrary to popular commentary here, just because the "consensus" is 3 or 4 hikes, that does not mean the number of hikes that actually will occur are "priced in." There are probabilistic and time elements here that are not considered.
What elements are you talking about?

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saltycaper
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Re: question about VBTLX

Post by saltycaper » Fri Jan 12, 2018 5:02 pm

alex_686 wrote:
Fri Jan 12, 2018 4:50 pm
saltycaper wrote:
Fri Jan 12, 2018 4:22 pm
Also, contrary to popular commentary here, just because the "consensus" is 3 or 4 hikes, that does not mean the number of hikes that actually will occur are "priced in." There are probabilistic and time elements here that are not considered.
What elements are you talking about?
Just because something is expected to happen in the future and prices are adjusted today to account for the expected occurrence, that doesn't mean prices won't be further adjusted as the time to the expected occurrence shortens, up until the time it happens (or doesn't), as the probability of the occurrence will change.
Quod vitae sectabor iter?

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Munir
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Re: question about VBTLX

Post by Munir » Sat Jan 13, 2018 12:25 pm

saltycaper wrote:
Fri Jan 12, 2018 5:02 pm
alex_686 wrote:
Fri Jan 12, 2018 4:50 pm
saltycaper wrote:
Fri Jan 12, 2018 4:22 pm
Also, contrary to popular commentary here, just because the "consensus" is 3 or 4 hikes, that does not mean the number of hikes that actually will occur are "priced in." There are probabilistic and time elements here that are not considered.
What elements are you talking about?
Just because something is expected to happen in the future and prices are adjusted today to account for the expected occurrence, that doesn't mean prices won't be further adjusted as the time to the expected occurrence shortens, up until the time it happens (or doesn't), as the probability of the occurrence will change.
Hi saltycaper: I think I understand what you are saying but is sure would be easier if you state your opinion in three separate sentences instead of one long sentence.

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ruralavalon
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Re: question about VBTLX

Post by ruralavalon » Sat Jan 13, 2018 12:54 pm

stocknoob4111 wrote:
Wed Jan 10, 2018 12:03 pm
I am looking at VBTLX - Vanguard Total Bond Market fund and noticed that it returned 0.94% last year which is lower than some CDs right now. Ally no penalty CD (which can be broken without penalty after around 6 days) is returning 1.6%.

Am I missing something here? Does the .94% not include taxable interest distributions but rather just the change in NAV? So the total return is change in NAV + taxable distributions? How do I find out how much were the distributions?

Also, since we are entering a increasing interest rate environment with 3 or 4 .25 basis point increases through this year how will this bond fund be affected?
Morningstar's performance table shows shows a 1 year return of 2.54%. That is a total return number, dividend yield plus any increase in Net Asset Value minus expense ratio.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

lack_ey
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Re: question about VBTLX

Post by lack_ey » Sat Jan 13, 2018 12:57 pm

ruralavalon wrote:
Sat Jan 13, 2018 12:54 pm
Morningstar's performance table shows shows a 1 year return of 2.54%. That is a total return number, dividend yield plus any increase in Net Asset Value minus expense ratio.
No, the fund's dividend yield already accounts for the expenses (for the expense ratio) being taken out. Or you could say the interest on the underlying assets minus expense ratio (plus delta NAV). I guess you probably just thought one thing and then accidentally typed the other.

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Re: question about VBTLX

Post by ruralavalon » Sat Jan 13, 2018 1:02 pm

lack_ey wrote:
Sat Jan 13, 2018 12:57 pm
ruralavalon wrote:
Sat Jan 13, 2018 12:54 pm
Morningstar's performance table shows shows a 1 year return of 2.54%. That is a total return number, dividend yield plus any increase in Net Asset Value minus expense ratio.
No, the fund's dividend yield already accounts for the expenses (for the expense ratio) being taken out. Or you could say the interest on the underlying assets minus expense ratio (plus delta NAV). I guess you probably just thought one thing and then accidentally typed the other.
Correct, the idea and the words are there but not in the right order :( .

I have also just noticed that OP has moved on to new questions.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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