VBTLX (BND) - Yield to maturity -> 1.4%

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whodidntante
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Re: VBTLX (BND) - Yield to maturity -> 1.4%

Post by whodidntante »

skierincolorado wrote: Wed Oct 13, 2021 8:31 am How is a 79 yo retiree better off in stocks which could lose 50% of value? At least bonds won’t do that.
Are you sure about that?

Is the difference between purchasing power (as measured in hamburgers) and the number of dollars on your computer screen clear to all?

There is risk in too much safety, but it's a much different risk. If the research I fund is any good, people will be living much longer soon, also. A person who will live to be 150 may have already been born.
skierincolorado
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Re: VBTLX (BND) - Yield to maturity -> 1.4%

Post by skierincolorado »

whodidntante wrote: Wed Oct 13, 2021 9:59 am
skierincolorado wrote: Wed Oct 13, 2021 8:31 am How is a 79 yo retiree better off in stocks which could lose 50% of value? At least bonds won’t do that.
Are you sure about that?

Is the difference between purchasing power (as measured in hamburgers) and the number of dollars on your computer screen clear to all?

There is risk in too much safety, but it's a much different risk. If the research I fund is any good, people will be living much longer soon, also. A person who will live to be 150 may have already been born.
Yes I'm sure for a 79 YO. If the person was 62 it would be a different story. A 79's life expectancy is an additional 11 years. They should probably plan for the possibility of living close to 20 years. The bond portion would need to be substantial around 50% at that age in order to minimize the variance of outcomes and maximize withdrawals and spending.

Inflation doesn't affect the decision between stocks and bonds. Inflation makes the real return of both lower. The decision between stocks and bonds is based on risk tolerance, which is starting to decrease substantially by age 79. At age 62 I will probably still be 80%+ stocks.
asif408
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Re: VBTLX (BND) - Yield to maturity -> 1.4%

Post by asif408 »

skierincolorado wrote: Wed Oct 13, 2021 9:48 am
asif408 wrote: Wed Oct 13, 2021 9:06 am
invest2bfree wrote: Tue Oct 12, 2021 2:28 pm Can we assume that 1.4% is a good rate of return for my bond portion of my portfolio going forward?


For the last 20 years it had returned 4.27%.

https://www.portfoliovisualizer.com/bac ... ion1_1=100
Here's some perspective:

5-yr Treasury rate in 1990: ~8%
Vanguard Total Bond Market return from 1990-2000: ~7.5% https://www.portfoliovisualizer.com/bac ... ion1_1=100

5 yr Treasury rate in 2000: 6.5%
Vanguard Total Bond Market return from 2000-2010: ~6.1% https://www.portfoliovisualizer.com/bac ... ion1_1=100

5 yr Treasury rate in 2010: 2.6%
Vanguard Total Bond Market return from 2000-2010: ~3.7% https://www.portfoliovisualizer.com/bac ... ion1_1=100

The returns of the VBTLX (or VBMFX, the investor class) have been within approximately +/-1% of so of the starting yield. If you expect much different you are expecting something exceptional to occur. The starting yield has been highly predictive of the next decades return. If rates fall you'll get more than 1.4%. If they rise you will get less.
Actually your own data shows the opposite. When rates fell in the first two decades they got less. When rates rise from 2010 they got more. This is because if rates rise early in the decade you get a small loss early but then more interest for the rest of the decade.

Another way to look at it would be to look at the average interest rate for the decade. If you do this you will find that the return is substantially higher than the interest rate. This is mostly due to roll yield.

I gave an example above from 2003 to 2018 rates started and ended at 2.9%. The average interest rate during the period was 2.2%. The return was 3.46%. The reason it is higher is roll yield. The bonds are not held to maturity so the return is higher than ytm.
True. The main point I was trying to get across is that you won't generally get much higher or lower than the actual starting yield, whichever way the rates move. Even in your example, the difference was less than 2%. Certainly the longer the time period the more the roll yield plays a role in the return.
skierincolorado
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Re: VBTLX (BND) - Yield to maturity -> 1.4%

Post by skierincolorado »

asif408 wrote: Thu Oct 14, 2021 2:48 pm
skierincolorado wrote: Wed Oct 13, 2021 9:48 am
asif408 wrote: Wed Oct 13, 2021 9:06 am
invest2bfree wrote: Tue Oct 12, 2021 2:28 pm Can we assume that 1.4% is a good rate of return for my bond portion of my portfolio going forward?


For the last 20 years it had returned 4.27%.

https://www.portfoliovisualizer.com/bac ... ion1_1=100
Here's some perspective:

5-yr Treasury rate in 1990: ~8%
Vanguard Total Bond Market return from 1990-2000: ~7.5% https://www.portfoliovisualizer.com/bac ... ion1_1=100

5 yr Treasury rate in 2000: 6.5%
Vanguard Total Bond Market return from 2000-2010: ~6.1% https://www.portfoliovisualizer.com/bac ... ion1_1=100

5 yr Treasury rate in 2010: 2.6%
Vanguard Total Bond Market return from 2000-2010: ~3.7% https://www.portfoliovisualizer.com/bac ... ion1_1=100

The returns of the VBTLX (or VBMFX, the investor class) have been within approximately +/-1% of so of the starting yield. If you expect much different you are expecting something exceptional to occur. The starting yield has been highly predictive of the next decades return. If rates fall you'll get more than 1.4%. If they rise you will get less.
Actually your own data shows the opposite. When rates fell in the first two decades they got less. When rates rise from 2010 they got more. This is because if rates rise early in the decade you get a small loss early but then more interest for the rest of the decade.

Another way to look at it would be to look at the average interest rate for the decade. If you do this you will find that the return is substantially higher than the interest rate. This is mostly due to roll yield.

I gave an example above from 2003 to 2018 rates started and ended at 2.9%. The average interest rate during the period was 2.2%. The return was 3.46%. The reason it is higher is roll yield. The bonds are not held to maturity so the return is higher than ytm.
True. The main point I was trying to get across is that you won't generally get much higher or lower than the actual starting yield, whichever way the rates move. Even in your example, the difference was less than 2%. Certainly the longer the time period the more the roll yield plays a role in the return.
Yeah the current YTM is a good starting point. I think an even better starting point for expectations would be YTM + 1%.
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