spam wrote:I re-read my post, and it sounded much more aggressive than I intended it to read. I do apologize for that. It was not intentional.
The difference between a bond fund and a bond ladder is that you can hold the individual bonds in the ladder to maturity, and get your principal back on a specific date.
With a bond fund, you cannot "hold to maturity" as a whole range of maturities will be present in the fund; from days to years.
There is no future date where the return of principal is guarenteed with a bond fund. There is one (or more) with a bond ladder. Therefore, I can schedule maturities to match my future needs. With a bond fund, the NAV may be up, or it may be down on any specific date.
Furthermore, a bond fund is (I feel) more liquid than a bond ladder.
These simple reasons offer a few distinctions between ladders and funds.
If is statement is that bond ladders are identical to bond funds, then I would say that Dan is wrong on multiple levels.
I kinda feel bad here putting words in Dan's mouth, so I'll try to quote. What Dan said was:
"Bond ladders respond to interest rate shifts the same way bond funds do."
"The idea that a rolling ladder of individual bonds is less risky than a bond fund (where each has the same duration) is one of the most common fallacies on the Bogleheads forum."
"But my central point is that the opportunity cost is exactly the same between deciding whether to roll over a maturing bond and deciding to sell the same amount of a bond fund. The bond ladder has not given you any additional options that you don't get with a bond fund."
I believe the point of the hold to maturity argument is that there *is*, in your words, a "future date where the return of principal is guarenteed with a bond fund":
Bogleheads Wiki wrote:"At any moment after buying a bond fund, you can always be assured of getting your principal back."
At any rate, thank you for your civility. It is much appreciated.
Another level would include the obvious fact that a bond index is made up with all different types and grades of bonds. A bond ladder, can be built with only one specific type, grade, and maturity of bond if desired.
There are noteworthy differences which make one better than the other depending on the need of the investor. There are many different types of bonds and bond funds, and they all have their place.
I did not notice the wiki link at 5am this morning, so I will take a look at it now. Thanks for pointing it out to me.
It is clear that some people on this thread have not read the offered links, and therefore I hardly think it is incumbent upon him to offer up a third and fourth and fifth proof of why the statement he made is true.
Nobody is requesting any such thing from you or him. Nice strawman though. It even has a built in ad homin fallacy.
It's certainly ad hominem...the frustration is too great at this point, for which I apologize. I hardly think it is a strawman, however. You wrote, "So, the trick is to criticize but offer nothing of substance then?" To me, that is a criticism for not explaining his viewpoint, which had been done in the link he provided.
spam wrote:EDIT: I just read the wiki entry. It seems that you are the one who has not read it. It reads pretty much like my above post does. I highly doubt that Dan is saying Bond Ladders = Bond funds. It is nowhere in the text. You might want to check it out. Just a thought.
Replace is for = and you have your formulation.
Dan Kohn wrote:"In fact, a bond fund is a bond ladder, just with many more rungs and where you've hired someone else to manage it for you."
Note the caveat from the Wiki:
"There's also an important distinction between owning a ladder of individual bonds designed to meet specific future liabilities, and holding a rolling bond ladder."
Dan Kohn wrote:But nearly everyone arguing against bond funds actually has a rolling bond ladder, which is no better than a bond fund.