VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

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type1.5fun
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VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by type1.5fun »

Longtime lurker and first time poster. I’ll probably post my overall plan at some point, but I’ve got a specific concern at the moment.

I’m turning 60 shortly, and plan on retiring in the spring of next year. My wife is 4 years younger and will retire about a year after that. I have an inherited IRA, and decided that it would be best to just retire and use the distributions from that to replace our salaries instead of liquidating that account over time on top of our income. The taxes on the distributions will be at our effective tax rate (currently ~15%) instead of the 24% marginal rate if we layered them on our income.We’re also ready to stop working…

I inherited the IRA in 2021 with the 10 year clock started in 2022. I have until the end of 2031 to liquidate. I moved the assets from my dad’s extremely complex managed portfolio (with 1% management fees) to Vanguard in January 2022. I invested 60/40 in VTSAX and VBTLX.

The 7 years that we will use to liquidate the IRA and fund our retirement should work out about perfectly. Our expenses should dovetail nicely with the amount in the account. We’ll avoid a large balloon distribution near the end. We’ll move on to our own 401k’s, IRA’s, and taxable accounts (and SS) to fund our retirement after 2031.

The big question at the moment is what to do with the conservative portion of the inherited IRA. VBTLX is still at a loss at the moment, and I’m doubtful that it makes sense to stay invested in it when we’ll start pulling from that IRA next year. I’ve finally broken free from subscribing to sunk cost fallacy (I’m learning…) and decided I need to invest those funds where it makes sense right now. I’m definitely an investing noob, and I’m still wrapping my brain around how bond funds work - but it seems like VBTLX is at least a few years away from delivering from the last couple years of high rates. I’m still holding VBTLX in my tax advantaged accounts that won’t be touched for 10+ years.

One thought I had was to move the current VBTLX holdings in the inherited IRA (which are closer to 35% now) to a sort of CD ladder. I’d put a chunk into VUSXX for liquidity - enough to cover next year’s expenses, which will be a “low” year. The rest, or most of it, could go into 18mo, 2yr, and 3yr CD’s, which are currently sitting at 5+%. I’m thinking brokered CD’s instead of treasuries. They are paying more, and there is no tax advantage with treasuries in an IRA.

Thoughts? Suggestions? Would it still make sense to keep some in VBTLX for the latter portion of the 7-year period? The intent is obviously to provide a more stable portion of the portfolio to pull from when the market is down - to help with SORR.

Thanks! As an aside, this forum has been an amazing asset as I continue to educate myself. I’m immensely more confident in my ability to manage our retirements having been poking around here for a couple years.
lakpr
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by lakpr »

Dear friend, my commiserations. I have my own tale of woe, investing in VBTIX (the Institutional version of VBTLX), exactly from 2021 as well:

viewtopic.php?p=7696248#p7696248

Is this Inherited IRA a Traditional IRA or Roth IRA? If it is a Traditional IRA, then I think you should go ahead and accelerate the withdrawals NOW (up to the current tax bracket boundaries but not overshooting, etc.). Uncle Sam will share your pain to the extent of whatever your marginal tax bracket is.

As to what to do going forward (after withdrawals from Inherited IRA, with the proceeds), I have posted a couple of ideas in another thread -- see if they resonate with you.

viewtopic.php?p=7705069#p7705069
bonesly
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by bonesly »

There are people smarter than bonds and bond funds than me so take this with a grain of salt.

I own bond funds to reduce overall volatility of my stock/bond portfolio. I do not own bond funds expecting them to preserve my principal and only have positive returns; I'm concerned about total return of the portfolio, not the individual returns of the components of the portfolio. I wouldn't change anything, but that's me.

If you've got a different mind set, you have lots of company here! :D Many regular posters do seem to be focused on the individual component of their portfolio for bonds rather than total return of the whole portfolio. For those in that camp, the preference seems to be individual US Treasuries of shorter maturity rather than intermediate average maturity like VBTLX has. There's also some recurring sentiment to split the individual bonds among Regular Notes of 2, 3, 5 year maturities (or a mix) and Treasury Inflation Protected Securities (probably also on the shorter side for maturities). There's also discussion of matching the maturity to your need date (so for the last individual bond batch you'd redeem in 2031, you'd buy a maturity at 7 years, for bonds being redeemed in 2025, you'd buy 1-Year Notes, etc.).

If individual Treasuries are too much work for you to bother building/managing a ladder, then the second best recommendation from that camp seems to be bond funds with short durations (1-3 years rather than the 6.4 avg duration that VBTLX has).
lakpr
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by lakpr »

bonesly wrote: Sun Feb 11, 2024 4:00 pm I own bond funds to reduce overall volatility of my stock/bond portfolio. I do not own bond funds expecting them to preserve my principal and only have positive returns; I'm concerned about total return of the portfolio, not the individual returns of the components of the portfolio. I wouldn't change anything, but that's me.
But the "total return" you are talking about will only get you back your money (return to parity after a NAV collapse due to rate hike), and only if you wait for the "duration" of the bond fund which is 6 to 7 years.

Why should I wait 7 years just to get back my own money?

Edit: As to your suggestion that it would reduce the overall volatility of the stocks/bonds portfolio, your own past posts have emphasized that the stocks and bonds beat to different drummers, they are *UNCORRELATED*. There is no question therefore of "smoothing" out the volatility, they can go both down at the same time, Exhibit A: 2022. They can go both up at the same time too, but I think we can capture the upside of the "bond funds" by keeping to the shorter-duration bond funds, or by Treasuries ladder, etc.
bonesly
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by bonesly »

lakpr wrote: Sun Feb 11, 2024 4:15 pm Edit: As to your suggestion that it would reduce the overall volatility of the stocks/bonds portfolio, your own past posts have emphasized that the stocks and bonds beat to different drummers, they are *UNCORRELATED*. There is no question therefore of "smoothing" out the volatility, they can go both down at the same time, Exhibit A: 2022. They can go both up at the same time too, but I think we can capture the upside of the "bond funds" by keeping to the shorter-duration bond funds, or by Treasuries ladder, etc.
I know you have a fixation on bond funds that is of a personal nature due to recent events (2022). That does not change the fact that a mix of uncorrelated asset class A with volatility of X and asset class B with volatility of Y, where X>Y, will have lower volatility than A alone. That's just math. You're absolutely right that uncorrelated is not negatively correlated, and both A and B can go up or down at the same time, but mostly will move independently (since there's no correlation between them). There's no questions that the average volatility is reduced from ±20% at 100/0 to about ±7% at 20/80 (see the chart below).

Image

Investors need to understand that bond funds put principal at risk, always. A bond ladder, for some minor management effort, avoids that risk. I'm ok with that risk because I'm not counting on the individual components of my portfolio, I'm looking at the whole picture. For those that can't tolerate a loss of principal in the bond component of their portfolio, a ladder of individual bonds is likely better (or just go with a Money Market Fund). :)
Last edited by bonesly on Sun Feb 11, 2024 5:20 pm, edited 1 time in total.
gavinsiu
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by gavinsiu »

Is the issue that VBTLX is at a loss. Could you sell VBTLX in the inherited and rebalance and buy VBTLX in aother account effectively moving the VBTLX to another account? I guess I am not seeing the full picture of your accouns.
CookieDough
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by CookieDough »

What I would do (I think) is leave everything where it is, because you put it there for a reason.

I would sell as needed for living expenses, proportional to its current AA. So, 60% stocks, 40% bonds, unless either stocks or bonds increase or decrease so much over the next 7 years that you have to sell in different proportions to maintain the AA.

Option B would be to move it all into MMs or some kind of bond/CD/treasuries ladder, because 7 years is not a long stretch of time, and you don't know what the stock market (or bond market) will do in that time. So if you want it safe, guaranteed, and not earning much, you could put it all into assets where principal isn't at risk. But again, you put it in stocks & bonds for a reason originally, and you knew the 10-year clock was ticking. Has that reason changed?
bonesly
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by bonesly »

gavinsiu wrote: Sun Feb 11, 2024 4:44 pm Is the issue that VBTLX is at a loss. Could you sell VBTLX in the inherited and rebalance and buy VBTLX in aother account effectively moving the VBTLX to another account? I guess I am not seeing the full picture of your accounts.
type1.5fun wrote: Sun Feb 11, 2024 2:34 pm The big question at the moment is what to do with the conservative portion of the inherited IRA. VBTLX is still at a loss at the moment, and I’m doubtful that it makes sense to stay invested in it when we’ll start pulling from that IRA next year.
It seems the OP is reluctant to sell any of "the conservative portion of the inherited IRA" (i.e, the bond fund) at a loss. As Lakpr would likely say, "could be a 6-7 year wait for that to recover." Could be sooner could be later, but this notion of not selling just the bond funds, if they're at a loss still confounds me. I would use a strategy like CookieDough and just pull proportionally from both stocks and bonds whether they're up or down, because II modeled the withdrawals on the portfolio as a whole and the chance of portfolio survival (even when selling on down years) is still >90%.

Still, I respect other's viewpoints that proportional withdrawal on a fixed initial percentage and then adjusted upwards by inflation every year is only one strategy and there are many, many others. A likely alternative is only every withdrawing from stocks and bonds when they're "up" and having 2-5 years expenses in cash to draw from if stocks and/or bonds are "down". Maybe you need 7 years expenses in cash if you want to be really conservative about never selling a down investment.
lakpr
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by lakpr »

bonesly wrote: Sun Feb 11, 2024 5:15 pmAs Lakpr would likely say, "could be a 6-7 year wait for that to recover." Could be sooner could be later, << rest snipped >>
Exactly. If you will also take a look at the current SEC yield of VBTLX, it is just 4.36%. If there is going to be a wait of at least 6 to 7 years, there are much better options than putting your principal at risk. MYGAs are yielding 5.35% right now for maturity periods 5 to 10 years, a full 1 percentage point higher, *NO PRINCIPAL AT RISK!*

OP said "turning 60 shortly", so the disadvantage of 10% tax penalty on the earnings for folks younger than 59.5 does not apply to them.

Current SEC yield of VBTLX: https://investor.vanguard.com/investmen ... btlx#price

Current MYGA rates for someone aged 60 in Illinois (I picked IL at a random, since the input requires it, but makes no difference):
https://www.blueprintincome.com/fixed-a ... 55D&age=60

(pre-filtered for insurer rating A or higher, and terms ranging from 5 to 10 years).

No need to put up with the VBTLX g***age.
Outer Marker
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by Outer Marker »

type1.5fun wrote: Sun Feb 11, 2024 2:34 pm .... decided that it would be best to just retire and use the distributions from that to replace our salaries instead of liquidating that account over time on top of our income. The taxes on the distributions will be at our effective tax rate (currently ~15%) instead of the 24% marginal rate if we layered them on our income.We’re also ready to stop working…
If you're going to take regular distributions from this account and use it as current income for expenses, I would convert all of the inherited IRA to a TIPS ladder maturing in the each of the years you are taking a distribution. You'll know exactly what you're getting each year and ensure a positive rate of return vs. inflation. I wouldn't try to maintain a sub-allocation to equities in this account that you're actively spending down.
Topic Author
type1.5fun
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by type1.5fun »

Thanks to all for so much feedback. There are a bunch of questions (and lots to think about). Here are some responses:
lakpr wrote: Sun Feb 11, 2024 3:44 pm Is this Inherited IRA a Traditional IRA or Roth IRA? If it is a Traditional IRA, then I think you should go ahead and accelerate the withdrawals NOW
It's a traditional. The reason I'm not accelerating withdrawals is that I'd prefer not to pay my current marginal tax rate on the withdrawals, which I can avoid by replacing my salary with them.
bonesly wrote: Sun Feb 11, 2024 4:00 pm If individual Treasuries are too much work for you to bother building/managing a ladder, then the second best recommendation from that camp seems to be bond funds with short durations
This is definitely a possibility.
gavinsiu wrote: Sun Feb 11, 2024 4:44 pm Is the issue that VBTLX is at a loss. Could you sell VBTLX in the inherited and rebalance and buy VBTLX in aother account effectively moving the VBTLX to another account? I guess I am not seeing the full picture of your accouns.
The issue is that I'm basically funding "two retirements". One is for 7 years (the years I must deplete my inherited IRA), and the other is from year 8 and beyond. I'm treating the inherited IRA as a discrete portfolio to fund those specific years. I know this isn't entirely necessary, but it I do like the simplicity of the approach.
CookieDough wrote: Sun Feb 11, 2024 4:58 pm So if you want it safe, guaranteed, and not earning much, you could put it all into assets where principal isn't at risk. But again, you put it in stocks & bonds for a reason originally, and you knew the 10-year clock was ticking. Has that reason changed?
I'm OK with the risk of maintaining equities in this account. The original intent with the TBM fund was to provide a buffer to market volatility. The "classic" reason folks incorporate bonds. The last two years proved that the strategy was not a good one. I'm fine with cutting my losses and moving those funds to something that will provide the intended purpose of VBTLX. Seems like that would be something more cash-like. The reasoning hasn't changed, but it appears I chose the wrong investment strategy so support the reasoning.
bonesly wrote: Sun Feb 11, 2024 5:15 pm It seems the OP is reluctant to sell any of "the conservative portion of the inherited IRA" (i.e, the bond fund) at a loss.
Quite the contrary. I'm actually wondering if there is any reason to keep anything in VBTLX for this account. I'm eager to sell and move on to something more appropriate for my situation.
bonesly wrote: Sun Feb 11, 2024 5:15 pm Maybe you need 7 years expenses in cash if you want to be really conservative about never selling a down investment.
As mentioned above, I'm OK with the risk inherent with VTSAX, it's expected. If I end up having to sell equities at a loss at some point in those 7 years, I'm prepared. I just didn't expect VBTLX to be so volatile, and with so little promise of recovering within my relatively short window. Like some others, I'm assuming that it might take VBTLX 6-7 years to recover, which is fine for my "after the first 7 years" accounts.
lakpr wrote: Sun Feb 11, 2024 6:22 pm If there is going to be a wait of at least 6 to 7 years, there are much better options than putting your principal at risk. MYGAs are yielding 5.35% right now for maturity periods 5 to 10 years, a full 1 percentage point higher, *NO PRINCIPAL AT RISK!*
Interesting... I never considered an annuity. I'll do some poking around.
Outer Marker wrote: Sun Feb 11, 2024 7:30 pm I would convert all of the inherited IRA to a TIPS ladder maturing in the each of the years you are taking a distribution. You'll know exactly what you're getting each year and ensure a positive rate of return vs. inflation.
This is definitely an option. It may be a bit more conservative than I need to be, but it seems like a good way to counter potential inflation. I would probably be a little more inclined to convert a portion of the IRA to a TIPS ladder, and still leave the other portion in equities.

I really appreciate all of the responses. This is all great feedback.
Outer Marker
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by Outer Marker »

OP, I think you're missing the point made by several of us that this account -- which is a spending account that will be exhausted in 7 years -- should be invested conservatively, whether a TIPS ladder, short treasuries, or money market. That does not make your overall portfolio more conservative -- you simply adjust to hold more equities elsewhere -- which you do not intend to spend down immediately. Funds you are intending to liquidate in 7 years or less do not belong in equities and you should take strong measures to mitigate interest rate risk over the annual periods where you know you will be cashing out. That's a compelling case for a bond, or CD, or other fixed income ladder of some sort.

I'm late in saying welcome to the forum and congratulations on your first post. If you've been reading along, you probably know the concept to consider your portfolio as a single whole, rather than individual components. This IRA is not a good place for any risk assets.
Tom_T
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by Tom_T »

lakpr wrote: Sun Feb 11, 2024 4:15 pm
bonesly wrote: Sun Feb 11, 2024 4:00 pm I own bond funds to reduce overall volatility of my stock/bond portfolio. I do not own bond funds expecting them to preserve my principal and only have positive returns; I'm concerned about total return of the portfolio, not the individual returns of the components of the portfolio. I wouldn't change anything, but that's me.
But the "total return" you are talking about will only get you back your money (return to parity after a NAV collapse due to rate hike), and only if you wait for the "duration" of the bond fund which is 6 to 7 years.

Why should I wait 7 years just to get back my own money?

Edit: As to your suggestion that it would reduce the overall volatility of the stocks/bonds portfolio, your own past posts have emphasized that the stocks and bonds beat to different drummers, they are *UNCORRELATED*. There is no question therefore of "smoothing" out the volatility, they can go both down at the same time, Exhibit A: 2022. They can go both up at the same time too, but I think we can capture the upside of the "bond funds" by keeping to the shorter-duration bond funds, or by Treasuries ladder, etc.
If interest rates fall, you won't be waiting seven years. But keep harping on 2022 as the barometer for a bond fund, vs. it being an outlier.
lakpr
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by lakpr »

Tom_T wrote: Mon Feb 12, 2024 5:12 am If interest rates fall, you won't be waiting seven years. But keep harping on 2022 as the barometer for a bond fund, vs. it being an outlier.
Why do we then keep harping about 2008 when investing in stocks?
Silverado
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by Silverado »

lakpr wrote: Mon Feb 12, 2024 6:17 am
Tom_T wrote: Mon Feb 12, 2024 5:12 am If interest rates fall, you won't be waiting seven years. But keep harping on 2022 as the barometer for a bond fund, vs. it being an outlier.
Why do we then keep harping about 2008 when investing in stocks?
Not sure we do, shrug. 2008 was a bit of an outlier, as was 2022, as were a bunch of calendar years over the years. Good things to know about, great things to have experience. Allowing emotions to creep into a portfolio because of these blips is not a great thing. But we are all aware of your viewpoint.
James.534
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by James.534 »

I think you can look at the account in two different ways.

1. the account will be used for intermediate term needs for the next 7 years
2. the account is part of a bigger portfolio (whether or not if it is going to be liquidated in the next 7 years)

If the account is specifically for the next 7 years, I would invest it in a conservative portfolio . ie bonds , MM

If the account is to be used as part of a larger portfolio, the amount should be part of your predetermined asset allocations. Whether it is 100 stock or 100 bonds, it can always be readjusted relativley tax free for proper asset allocations for for the next 7 years. For example, if you need to withdraw 50k and it is all stock, you just sell and readjust your other portfolio according.
lakpr
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by lakpr »

Silverado wrote: Mon Feb 12, 2024 6:56 am
lakpr wrote: Mon Feb 12, 2024 6:17 am
Tom_T wrote: Mon Feb 12, 2024 5:12 am If interest rates fall, you won't be waiting seven years. But keep harping on 2022 as the barometer for a bond fund, vs. it being an outlier.
Why do we then keep harping about 2008 when investing in stocks?
Not sure we do, shrug. 2008 was a bit of an outlier, as was 2022, as were a bunch of calendar years over the years. Good things to know about, great things to have experience. Allowing emotions to creep into a portfolio because of these blips is not a great thing. But we are all aware of your viewpoint.
Oh yes we do. Whenever someone tries to go 100% equities, or even 80% equities, there is a chorus of Bogleheads saying one is being too aggressive, one must be prepared for the stocks to fall 50% within a single year, yada yada.
[Edit: Exhibit A ]
But whenever I raise the same issue about 2022 and bonds falling 13% to 20% (intermediate term and long term bonds respectively), I get these rejections about 2022 being an outlier, etc.

When a data point emerges that does not suit the theory, do we bend the theory to suit the datapoint or discard the datapoint altogether? What 2022 has made clear is that bond funds DO have substantial interest rate risk, and that the rates can go north anytime in the future, and when that does happen bond funds do tank. And as I have been made aware over and over, that the drop in NAV is compensated by increasing coupon payments, but one will be "made whole" on the "total return" only after 7 years. That's the duration of the bond funds, and bond math, isn't it?

Yes if the interest rates fall bond funds NAV will recover. Likewise, if the economic outlook improves, the stock prices will recover. The difference between the two is just on the amplitude; not the behavior.
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by Outer Marker »

James.534 wrote: Mon Feb 12, 2024 7:08 am I think you can look at the account in two different ways.

1. the account will be used for intermediate term needs for the next 7 years
2. the account is part of a bigger portfolio (whether or not if it is going to be liquidated in the next 7 years)
This is not a special-purpose account, e.g. 529 college fund that has a different time horizon. It is part of the OP's long term retirement plan, and, as such, should be considered alongside OP's other retirement investments, not in isolation. Moreover, within the 7 year horizon, you know you will be taking 7 shorter term individual installments, and by building a ladder you will guarantee no losses on any of them.

If OP wants to maintain the current AA, s/he should exchange a like amount of bonds for stocks in another account, e.g. 401K, to offset the sale of equities in this IRA. As the IRA is spent down, OP can sell stocks for bonds in the other account annually to keep the AA the same. If stocks are having a down year, OP has the flexibility to not sell any and wait for them to recover.
intendi
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by intendi »

type1.5fun wrote: Sun Feb 11, 2024 2:34 pm I moved the assets from my dad’s extremely complex managed portfolio (with 1% management fees) to Vanguard in January 2022. I invested 60/40 in VTSAX and VBTLX.

Bet that felt good to simplify things. What about simplifying even more and going with something like the Target Retirement Income Fund? Decreases your equity exposure and adds some short term TIPS. Just one fund to pull from sounds appealing to me.
bonesly
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by bonesly »

lakpr wrote: Mon Feb 12, 2024 7:41 am Oh yes we do. Whenever someone tries to go 100% equities, or even 80% equities, there is a chorus of Bogleheads saying one is being too aggressive, one must be prepared for the stocks to fall 50% within a single year, yada yada.
It's a public forum and aside from the moderators, it's quite likely that anyone posting here with similar opinions could fall under the moniker of "chorus of Bogleheads", but I don't think that means there's a consensus, just a number of loud voices that got attention from a few. I certainly consider myself a Boglehead (originally a Vanguard Diehard, but monikers change over time :D). I don't recall harping about 100% equities being too much, but perhaps I really am a minority opinion in the greater chorus on 100/0 asset allocation for young folks just starting to invest towards retirement.

My point is that not ALL Bogleheads agree on 100% equities being appropriate for some. I would venture to guess that there are a number of topics that not ALL Bogleheads agree on! So offer your opinions with your own analysis and supporting experience, and preserve amidst "rejections" from others. Opinions are just that and nobody can invalidate yours (or anyone else's) unless there are factual errors.

I do think it's kind of ironic that a constant theme of John Bogle's was to "stay the course"; define an Investor Policy Statement (IPS) and don't tinker with it, but some (not you specifically) jump ship when there's an unexpected wave. If one's IPS calls an 60/40 allocation at the present time in one's investing journey, but the bond portion of the portfolio dips by -20% (e.g., 2022), then your AA is now 68/32. That's off target by more than ±5%, so per the typical IPS, one should buy more bonds (they're on sale!) and get back to 60/40. Yet people see the crash and eschew bonds altogether or decide to "wait for recovery" rather than rebalance when their threshold was crossed.

Again, this is not specifically about you as you're just switching from bond funds to individual bond ladders or Multi-Year Guaranteed Annuities (MYGAs) or High-Yield Savings Account (HYSA). I'm just bemused by those that have an IPS that says rebalance when off by more than 5% absolute, but instead they panic and look for some alternative investment (or do nothing and "wait for recovery") when "a financial event" causes that allocation imbalance, rather than sticking to their IPS.
James.534
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by James.534 »

the account is part of a bigger portfolio (whether or not if it is going to be liquidated in the next 7 years)

If the account is part of a bigger portfolio and you have enough to cover short term risk. You may be able to mitigate short term risk, ie stock market losses through another account.

say you have 100k in the IRA, you lose 20k by a downturn. If you have adequate bonds in another account, when you sell the stock in this ira for a distribution, you rebuy it in your other retirement account by selling a bond. This way you are just basically selling a bond in a down turn and readjusting your portfolio. Basically you maintain a balance across all your accounts. It just does not have to be this one in specific.
exodusNH
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by exodusNH »

type1.5fun wrote: Sun Feb 11, 2024 2:34 pm Thoughts? Suggestions? Would it still make sense to keep some in VBTLX for the latter portion of the 7-year period? The intent is obviously to provide a more stable portion of the portfolio to pull from when the market is down - to help with SORR.
I know that you mention up thread that you want to consider this a separate entity. However, that will lead you down a suboptimal path.

What you should do is decide on your asset allocation, taking into consideration your spending needs.

Once you've done that, you can make the asset changes necessary. For example, you can keep VBTLX in this account. When you liquidate part of it, go into another tax-advantaged account and make an offsetting trade if necessary to keep you at your desired asset allocation. It would be reasonable to keep MMF / something like SGOV for a year or two of income.

Lakpr's bond views are on the extreme end.
lakpr
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by lakpr »

exodusNH wrote: Mon Feb 12, 2024 1:15 pm Lakpr's bond views are on the extreme end.
I prefer to think of myself as non-confirming to the sheeple mentality about bond FUNDs. It (Total bond fund specifically, but any bond fund in general) is not a panacea / safety / ballast / all-purpose flour that it is made out to be.
UpperNwGuy
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by UpperNwGuy »

lakpr wrote: Mon Feb 12, 2024 1:59 pm
exodusNH wrote: Mon Feb 12, 2024 1:15 pm Lakpr's bond views are on the extreme end.
I prefer to think of myself as non-confirming to the sheeple mentality about bond FUNDs. It (Total bond fund specifically, but any bond fund in general) is not a panacea / safety / ballast / all-purpose flour that it is made out to be.
Here we go again..... It would be more politic to express your dislike for bond funds without using terms like "chorus of bogleheads" or "sheeple mentality about bond FUNDS". Your posts seem to always cast blame.
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type1.5fun
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by type1.5fun »

Outer Marker wrote: Sun Feb 11, 2024 11:00 pm OP, I think you're missing the point made by several of us that this account -- which is a spending account that will be exhausted in 7 years -- should be invested conservatively, whether a TIPS ladder, short treasuries, or money market. That does not make your overall portfolio more conservative -- you simply adjust to hold more equities elsewhere -- which you do not intend to spend down immediately.
James.534 wrote: Mon Feb 12, 2024 7:08 am 2. the account is part of a bigger portfolio (whether or not if it is going to be liquidated in the next 7 years)
Outer Marker wrote: Mon Feb 12, 2024 8:03 am This is not a special-purpose account, e.g. 529 college fund that has a different time horizon. It is part of the OP's long term retirement plan, and, as such, should be considered alongside OP's other retirement investments, not in isolation. Moreover, within the 7 year horizon, you know you will be taking 7 shorter term individual installments, and by building a ladder you will guarantee no losses on any of them.

If OP wants to maintain the current AA, s/he should exchange a like amount of bonds for stocks in another account, e.g. 401K, to offset the sale of equities in this IRA. As the IRA is spent down, OP can sell stocks for bonds in the other account annually to keep the AA the same. If stocks are having a down year, OP has the flexibility to not sell any and wait for them to recover.
Wow. Lightbulb moment... This is the whack upside the head that I needed. I'm not sure exactly why I've been equating this account's specific time-frame in a way that made me want to view it in isolation, but that's clearly the big issue here. I don't know why it hasn't been more obvious to me. I don't view any of my other accounts in my portfolio in isolation. This is an easy fix for me, now I just need to decide what conservative vehicles I'll utilize. I'll likely retain a chunk in VBTLX, being mindful that I'm not fully liquidated for nearly 8 years from now. I'll have more questions about those other vehicles - but thanks to the many of you that were steering me toward the real issue here.

This is exactly why I decided I should start posting on the forum...
lakpr
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by lakpr »

UpperNwGuy wrote: Mon Feb 12, 2024 2:20 pm
lakpr wrote: Mon Feb 12, 2024 1:59 pm
exodusNH wrote: Mon Feb 12, 2024 1:15 pm Lakpr's bond views are on the extreme end.
I prefer to think of myself as non-confirming to the sheeple mentality about bond FUNDs. It (Total bond fund specifically, but any bond fund in general) is not a panacea / safety / ballast / all-purpose flour that it is made out to be.
Here we go again..... It would be more politic to express your dislike for bond funds without using terms like "chorus of bogleheads" or "sheeple mentality about bond FUNDS". Your posts seem to always cast blame.
Here we go again only because My views are being typecast as "extreme" and my views being characterized as "harping". I have only simply shared my experience about VBTLX (a bit of commiseration) and suggested MYGAs until then.
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Taylor Larimore
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by Taylor Larimore »

type1.5fun:

I have a background in bonds. I was a director of the Dade County (Miami) Housing Authority which issues bonds. In my opinion, we spend too much time agonizing over "What is the best bond fund?" Most will do the job of providing safety in a portfolio.

For good reasons, TBM is the largest bond fund in the world (most bonds are bought and sold by professional investors who know what they are doing). Personally, we have owned Vanguard Total Bond Market Index Fund since 1986 and I am very happy with it.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: “For those that want to keep things simple, total bond is a great option.”
"Simplicity is the master key to financial success." -- Jack Bogle
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Wiggums
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by Wiggums »

We are happy with the three fund portfolio. Thank you, Taylor
"I started with nothing and I still have most of it left."
gavinsiu
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by gavinsiu »

type1.5fun wrote: Mon Feb 12, 2024 2:38 pm Wow. Lightbulb moment... This is the whack upside the head that I needed. I'm not sure exactly why I've been equating this account's specific time-frame in a way that made me want to view it in isolation, but that's clearly the big issue here. I don't know why it hasn't been more obvious to me. I don't view any of my other accounts in my portfolio in isolation. This is an easy fix for me, now I just need to decide what conservative vehicles I'll utilize. I'll likely retain a chunk in VBTLX, being mindful that I'm not fully liquidated for nearly 8 years from now. I'll have more questions about those other vehicles - but thanks to the many of you that were steering me toward the real issue here.

This is exactly why I decided I should start posting on the forum...
I was wondering about the same thing, thus the comment about just reallocating the VBTLX somewhere else, but you seemed to want to handle portfolio as separate buckets. I used to do the same thing, each of my account has its own 3 fund portfolio. Now I see all of the account as a single portfolio.
Cah
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Re: VBTLX for shorter term needs [Vanguard Total Bond Market Index Fund]

Post by Cah »

Don't sell that fund at a loss. If you need principle out of that fund to pay bills simply sell enough shares a month to add to the monthly dividends to give you the amount you need. Unfortunately way to many posts on these boards are about selling these funds at a loss now that much higher interest rates have lowered the NAV of bond funds.
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