Avantis Core Fixed Income ETF (AVIG)

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Avantis Core Fixed Income ETF (AVIG)

Post by Morse Code »

The increased interest in fixed income investments on the forum coincides with my need to start paying more attention to fixed income as I approach retirement, so I'm exploring all my options, but I'm a little overwhelmed with all the possibilities. Does anyone have opinions or analysis to offer on this ETF from Avantis? I think of Avantis as an equity play. Do they have something to offer on the fixed income side that justifies the .15 ER and would help keep things simple for me?
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by alec »

Seems fine if you want a low cost actively managed bond fund that takes more risk than BND.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by UsualLine »

FYI Vanguard now has two active bond etfs, VCRB and VPLS. Probably worth considering too.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by Morse Code »

UsualLine wrote: Thu Feb 08, 2024 9:08 pm FYI Vanguard now has two active bond etfs, VCRB and VPLS. Probably worth considering too.
I'm not necessarily interested in active management, but I do want a single bond fund for my fixed income allocation. It seems the prevailing wisdom on the forum has changed to either a bond ladder or multiple funds to manage average duration. Makes me want to just go all stocks and a money market fund with a few years of expenses in retirement.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by jebmke »

Morse Code wrote: Fri Feb 09, 2024 5:57 am
UsualLine wrote: Thu Feb 08, 2024 9:08 pm FYI Vanguard now has two active bond etfs, VCRB and VPLS. Probably worth considering too.
I'm not necessarily interested in active management, but I do want a single bond fund for my fixed income allocation. It seems the prevailing wisdom on the forum has changed to either a bond ladder or multiple funds to manage average duration. Makes me want to just go all stocks and a money market fund with a few years of expenses in retirement.
Decide what average duration suits you and use a Treasury index fund that is closest.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by Morse Code »

jebmke wrote: Fri Feb 09, 2024 6:06 am
Morse Code wrote: Fri Feb 09, 2024 5:57 am
UsualLine wrote: Thu Feb 08, 2024 9:08 pm FYI Vanguard now has two active bond etfs, VCRB and VPLS. Probably worth considering too.
I'm not necessarily interested in active management, but I do want a single bond fund for my fixed income allocation. It seems the prevailing wisdom on the forum has changed to either a bond ladder or multiple funds to manage average duration. Makes me want to just go all stocks and a money market fund with a few years of expenses in retirement.
Decide what average duration suits you and use a Treasury index fund that is closest.
That was my original plan, to use intermediate term Treasury, but this forum has me overthinking things I think, implying that a single intermediate term fund is suboptimal. I really value simplicity for my wife's sake after I'm gone.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by nisiprius »

My advice is not to overthink bond funds (at least normal "core" bond funds--intermediate-term, investment grade).

You can do your own backtesting, but what I've found is that in any portfolio with any "normal" allocation to stocks, the stock-bond ratio is hugely important, and changes would have made a big difference. The exact composition of the stocks would have made much less difference. The exact composition of bonds would have made even less.

Don't think that all investing decisions need equal consideration just because they are decisions, and in all investigations look at numeric data and not just peoples' words. Focus on "how much does this matter," not just on "which is better."

If you're "approaching retirement," your life expectancy is in the ballpark of 25 years, while the suggested holding time that's appropriate for Total Bond is 4 to 10 years. So no reason to think about using a pair of funds to adjust duration.

On the other hand, between age 50 and 65, typical glide paths cut stock allocation by around 20-30%, e.g. from 72% to 45%, so it is definitely time to be de-risking your portfolio in preparation for retirement and to be thinking quite a lot about matching your portfolio risk to your risk tolerance.

For example, reducing stock allocation from 60% to 40%:

Source

Image

Introducing a value tilt:

Image

Using a "straight" intermediate-term bond index fund instead of Total Bond:

Image

The forum indeed has talking about two long-and-short duration funds and altering their ratio to approximately match duration with liabilities. But, seriously: I consider myself to be a senior citizen, I've been retired for roughly ten years... and my life expectancy is about 13 years. The duration of Total Bond is about 6.4 years. I see no urgency about shortening duration. And when I do, it will probably be just by replacing some of it with cash--that's a perfectly good way to shorten duration.

The forum has also been talking about ladders of individual TIPS. That's a reaction to current interest rates and inflation, and current availability of TIPS issues. In theory it might be better than a single fund, but in practice, well, I actually was using a portfolio of individual TIPS, and found managing it to be really annoying--and dangerously beyond the ability of my spouse if it were necessary to take over management. Around 2012 I threw in the towel and swapped them all for the Vanguard Intermediate-term TIPS fund. Yeah, I think that's probably suboptimal, but not enough to outweigh the simplicity.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by jebmke »

nisiprius wrote: Fri Feb 09, 2024 7:22 am Yeah, I think that's probably suboptimal, but not enough to outweigh the simplicity.
Unfortunately "optimal" is often conflated with maximum return here so the threads sometimes veer off into a tangent.

Part of my goals is simplicity. The ultimate goal is to get into the ground without financial stress. "Optimal" for me is more than simply maximizing return.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by Morse Code »

nisiprius wrote: Fri Feb 09, 2024 7:22 am My advice is not to overthink bond funds (at least normal "core" bond funds--intermediate-term, investment grade).

You can do your own backtesting, but what I've found is that in any portfolio with any "normal" allocation to stocks, the stock-bond ratio is hugely important, and changes would have made a big difference. The exact composition of the stocks would have made much less difference. The exact composition of bonds would have made even less.

Don't think that all investing decisions need equal consideration just because they are decisions, and in all investigations look at numeric data and not just peoples' words. Focus on "how much does this matter," not just on "which is better."

If you're "approaching retirement," your life expectancy is in the ballpark of 25 years, while the suggested holding time that's appropriate for Total Bond is 4 to 10 years. So no reason to think about using a pair of funds to adjust duration.

On the other hand, between age 50 and 65, typical glide paths cut stock allocation by around 20-30%, e.g. from 72% to 45%, so it is definitely time to be de-risking your portfolio in preparation for retirement and to be thinking quite a lot about matching your portfolio risk to your risk tolerance.

For example, reducing stock allocation from 60% to 40%:

Source

Image

Introducing a value tilt:

Image

Using a "straight" intermediate-term bond index fund instead of Total Bond:

Image

The forum indeed has talking about two long-and-short duration funds and altering their ratio to approximately match duration with liabilities. But, seriously: I consider myself to be a senior citizen, I've been retired for roughly ten years... and my life expectancy is about 13 years. The duration of Total Bond is about 6.4 years. I see no urgency about shortening duration. And when I do, it will probably be just by replacing some of it with cash--that's a perfectly good way to shorten duration.

The forum has also been talking about ladders of individual TIPS. That's a reaction to current interest rates and inflation, and current availability of TIPS issues. In theory it might be better than a single fund, but in practice, well, I actually was using a portfolio of individual TIPS, and found managing it to be really annoying--and dangerously beyond the ability of my spouse if it were necessary to take over management. Around 2012 I threw in the towel and swapped them all for the Vanguard Intermediate-term TIPS fund. Yeah, I think that's probably suboptimal, but not enough to outweigh the simplicity.
Thank you for your detailed and thoughtful response. I guess this thread is not so much about the Avantis bond fund, but what I should be doing about the fixed income side of my portfolio to keep things as simple as possible.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by Tom_T »

jebmke wrote: Fri Feb 09, 2024 7:32 am
nisiprius wrote: Fri Feb 09, 2024 7:22 am Yeah, I think that's probably suboptimal, but not enough to outweigh the simplicity.
Unfortunately "optimal" is often conflated with maximum return here so the threads sometimes veer off into a tangent.

Part of my goals is simplicity. The ultimate goal is to get into the ground without financial stress. "Optimal" for me is more than simply maximizing return.
This is a great reply. I frequently have to remind myself that I just need something that's "good enough." It's impossible that I'll stumble onto the exact choices that will result in the highest future portfolio value.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by Morse Code »

Thanks for the responses.

What do you guys think about using something like Vanguard's Target Retirement Income Fund as my sole fixed income component? It would give me US bonds, Int'l bonds, and short term TIPS in one package.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by nisiprius »

Morse Code wrote: Fri Feb 09, 2024 12:35 pm Thanks for the responses.

What do you guys think about using something like Vanguard's Target Retirement Income Fund as my sole fixed income component? It would give me US bonds, Int'l bonds, and short term TIPS in one package.
To point out the obvious, it also has 20% stocks, but I assume you knew that.

I think it's one of many perfectly reasonable choices.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by Morse Code »

nisiprius wrote: Fri Feb 09, 2024 1:32 pm
Morse Code wrote: Fri Feb 09, 2024 12:35 pm Thanks for the responses.

What do you guys think about using something like Vanguard's Target Retirement Income Fund as my sole fixed income component? It would give me US bonds, Int'l bonds, and short term TIPS in one package.
To point out the obvious, it also has 20% stocks, but I assume you knew that.

I think it's one of many perfectly reasonable choices.
Yes. Actually 30% stocks, so I would have to account for that. I just wonder if getting three bond funds in a package is worth the .08 ER compared to cheaper pure bond funds.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by Elysium »

Morse Code wrote: Fri Feb 09, 2024 5:57 am I'm not necessarily interested in active management, but I do want a single bond fund for my fixed income allocation. It seems the prevailing wisdom on the forum has changed to either a bond ladder or multiple funds to manage average duration. Makes me want to just go all stocks and a money market fund with a few years of expenses in retirement.
I don't know if the prevailing wisdom has changed or will change, the prevailing wisdom is based on Jack Bogle's ideas on investing which has stood the test of time. I have seen enough of multiple portfolios over multiple periods perform and react to different scenarios, and at the end a lot of what we discuss has not made a huge difference. It is always very very hard to improve substantially over a simple portfolio. I am among those who are discussing the alternative ideas, however, most of it is in the "it matters not too much" category. The major driver of returns and risk is your allocation between stocks and bonds. The reason why people are discussing other ideas, if they don't matter much, is because of the exact same reason. It will not matter if we do it that way or this way, so we get to do something that suits our personal preferences without impacting anything very much.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by Morse Code »

Elysium wrote: Fri Feb 09, 2024 9:28 pm
Morse Code wrote: Fri Feb 09, 2024 5:57 am I'm not necessarily interested in active management, but I do want a single bond fund for my fixed income allocation. It seems the prevailing wisdom on the forum has changed to either a bond ladder or multiple funds to manage average duration. Makes me want to just go all stocks and a money market fund with a few years of expenses in retirement.
I don't know if the prevailing wisdom has changed or will change, the prevailing wisdom is based on Jack Bogle's ideas on investing which has stood the test of time. I have seen enough of multiple portfolios over multiple periods perform and react to different scenarios, and at the end a lot of what we discuss has not made a huge difference. It is always very very hard to improve substantially over a simple portfolio. I am among those who are discussing the alternative ideas, however, most of it is in the "it matters not too much" category. The major driver of returns and risk is your allocation between stocks and bonds. The reason why people are discussing other ideas, if they don't matter much, is because of the exact same reason. It will not matter if we do it that way or this way, so we get to do something that suits our personal preferences without impacting anything very much.
I understand the point you and nisiprius are making and it's why I have decided to forgo ladders or multiple funds and stick with a single fund for fixed income for simplicity. Now I'm trying to decide which fund that should be and wondering if a "fund of funds" like the Avantis Core or Vanguard Target Retirement Income might be a good choice versus an intermediate term index fund.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by Elysium »

Morse Code wrote: Sat Feb 10, 2024 6:03 am
Elysium wrote: Fri Feb 09, 2024 9:28 pm
Morse Code wrote: Fri Feb 09, 2024 5:57 am I'm not necessarily interested in active management, but I do want a single bond fund for my fixed income allocation. It seems the prevailing wisdom on the forum has changed to either a bond ladder or multiple funds to manage average duration. Makes me want to just go all stocks and a money market fund with a few years of expenses in retirement.
I don't know if the prevailing wisdom has changed or will change, the prevailing wisdom is based on Jack Bogle's ideas on investing which has stood the test of time. I have seen enough of multiple portfolios over multiple periods perform and react to different scenarios, and at the end a lot of what we discuss has not made a huge difference. It is always very very hard to improve substantially over a simple portfolio. I am among those who are discussing the alternative ideas, however, most of it is in the "it matters not too much" category. The major driver of returns and risk is your allocation between stocks and bonds. The reason why people are discussing other ideas, if they don't matter much, is because of the exact same reason. It will not matter if we do it that way or this way, so we get to do something that suits our personal preferences without impacting anything very much.
I understand the point you and nisiprius are making and it's why I have decided to forgo ladders or multiple funds and stick with a single fund for fixed income for simplicity. Now I'm trying to decide which fund that should be and wondering if a "fund of funds" like the Avantis Core or Vanguard Target Retirement Income might be a good choice versus an intermediate term index fund.
And the answer is it wouldn't matter too much if you swap out one core bond fund for another, when you take the overall portfolio returns. However, individual comparisons will show a significant difference, especially in short periods. When I say significant difference, it means large enough to change your lifestyle. On a large portfolio there will thousands or tens of thousands of dollars difference depending on these fine tuning, but in a larger sense that is still not enough when we look at withdrawal rates at 4%. For instance, say you have an extra $100k portfolio balance on a $2 mil portfolio by doing some bond swapping around, it will amount to $4k annual withdrawal, of just about $300 a month after taxes. For someone with 2 mil vs 2.1 mil their lifestyle isn't that different. That's what I am saying. But from a behavioral aspect this matters to some if they can do that. That's a personal preference question.

Coming to your question, the funds in question except for the TR Income are similar - TR Income is not an income fund strictly, it has stock component and can drop a lot in value like in 2008 it lost -11% when most core bond funds made 5%. I don't think it will fit your only fixed income allocation. What is your stock allocation? and what are you invested in? perhaps this will help answer better.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by sycamore »

Elysium wrote: Sat Feb 10, 2024 8:22 am
Morse Code wrote: Sat Feb 10, 2024 6:03 am ...
I understand the point you and nisiprius are making and it's why I have decided to forgo ladders or multiple funds and stick with a single fund for fixed income for simplicity. Now I'm trying to decide which fund that should be and wondering if a "fund of funds" like the Avantis Core or Vanguard Target Retirement Income might be a good choice versus an intermediate term index fund.
And the answer is it wouldn't matter too much if you swap out one core bond fund for another, when you take the overall portfolio returns.
...
I think there's much good advice in Elysium's full answer. I trimmed it to what I think is the most important part -- it wouldn't make much difference return-wise.

Also, I think Morse Code should have some criteria for deciding which funds to use, otherwise your decision making process will be troublesome.

Bogleheads philosophy says to start by thinking about your goals, risk tolerance, time horizon, etc. From there chose your asset allocation.

After that the next step is to choose particular funds. For Bogleheads this should be the easy step -- use low-cost, passive broad-market funds. But it often becomes a step filled with uncertainty, FOMO, etc.

If that's what you're going through, I suggest reviewing Bogleheads philosophy to provide some perspective.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by nedsaid »

There is a similar thread than ran two years ago that discusses these issues. The original poster in that thread was discussing making a DFA or an Avantis Fixed Income fund as the core of their fixed income portion of their portfolio. Vineviz, NiceUnparticularman, Taylor Larimore, and myself weighed in here. You might find it interesting.

viewtopic.php?t=391133
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by Morse Code »

nedsaid wrote: Sat Feb 10, 2024 11:40 am There is a similar thread than ran two years ago that discusses these issues. The original poster in that thread was discussing making a DFA or an Avantis Fixed Income fund as the core of their fixed income portion of their portfolio. Vineviz, NiceUnparticularman, Taylor Larimore, and myself weighed in here. You might find it interesting.

viewtopic.php?t=391133
Thank you! Exactly the kind of discussion I was looking for.
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Re: Avantis Core Fixed Income ETF (AVIG)

Post by nedsaid »

In one of McQ's Markowitzian diversification threads, I posed the same question regarding Total Bond Market Index to the good Professor. He gave a good answer to the question. Conclusion was that Total Bond was good enough as a fixed income investment though Intermediate Treasuries might be a slightly better diversifier to stocks. If you search around, you should be able to find his comments.
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