Portfolio review with attention to bonds

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Ryzan
Posts: 180
Joined: Sat Dec 28, 2019 3:43 pm

Portfolio review with attention to bonds

Post by Ryzan »

Emergency funds: yes

Debt: None

Tax Filing Status: Single

Tax Rate: 37% Federal, 7.65% State

State of Residence: Wisconsin

Age: 42

Desired Asset allocation: 75/25 now, gliding annually to 60/40 by ~2045
Desired International allocation: initially started at 33% of stocks, in reality has steadily been 20% of total portfolio and projected to remain that way

Total portfolio: mid 7-figures

Current retirement assets

Taxable
29.4% Vanguard Total Stock Market Index Fund (VTSAX) (0.04%)
16.2% Vanguard 500 Index Fund (VFIAX) (0.04%)
16.3% Vanguard FTSE All-World ex-US Index Fund (VFWAX) (0.11% --> 0.08% as of Feb 2025)
3.7% Vanguard International Stock Index Fund (VTIAX) (0.11% --> 0.09% as of Feb 2025)
13.5% Vanguard Intermediate-Term Tax-Exempt Fund (VWIUX) (0.09%)

Traditional 401k --- prior to liquidation (see below)
8.9% Vanguard Total Bond Market ETF (BND) (0.03%)

Roth 401k --- prior to liquidation (see below)
7.2% Fidelity Total Market Index Fund (FSKAX) (0.015%)
1.3% Scwab US Mid-Cap Index (SWMCX) (0.04%)

Roth IRA
1.5% Vanguard Mid-Cap Index Fund (VIMAX) (0.05%)
0.8% Vanguard Small-Cap Index Fund (VSMAX) (0.05%)

HSA
1.2% Fidelity Total Market Index Fund (FSKAX) (0.015%)

Contributions

New annual contributions
$300,000 taxable - 25% US (VTSAX), 25% international (VTIAX), 50% bonds (VWIUX)
$23,500+ Roth 401k (unclear, depends on company match and megaroth)
$7,000 Roth IRA - 67% US mid-caps (VIMAX), 33% US small-caps (VSMAX)
$4,300 HSA - 100% US (FSKAX)

Questions:
1. Due to a plan change with the 401k custodian at year end, all the investments have been liquidated and I will soon be able to reinvest the funds via the new custodian. I had been comfortable with BND despite the ~15% loss due to eventually expecting to make that back (and more) with higher dividends from the higher interest rates. Now, I am literally forced to put my money where my mouth is and am wondering whether it might be more optimal to introduce some amount of a TIPS fund, such as SCHP.

2. Regardless of #1, I will also have a substantial amount - 14.6% of current portfolio value - that I am planning to rollover into the traditional 401k later this year from a qualified retirement plan that is terminating. This will allow my asset allocation to snap into the desired 75/25 from the current 78/22 and stay dialed in precisely with no tax consequences until the traditional 401k is back to 0% stocks. Similar question as #1 - should the portion of these new funds slated for bonds flow to more BND or some mixture BND:SCHP.

3. Appreciate any other thoughts/advice in case something doesn't make sense. To briefly explain a few quirks, VTSAX/VFIAX and VFWAX/VTIAX are TLH partners that got locked in due to me being slow / market being fast; VIMAX and VSMAX in Roth IRA and SWMCX in Roth 401k are to compensate for the large cap tilt from VFIAX.
Last edited by Ryzan on Tue Feb 04, 2025 8:38 pm, edited 2 times in total.
Thesaints
Posts: 5675
Joined: Tue Jun 20, 2017 12:25 am

Re: Portfolio review with attention to bonds

Post by Thesaints »

It is not so much a matter of “being comfortable” with BND; is the total bond market the best solution for you ? That market’s composition is established mostly according to the needs of the largest institutional investors. Your personal situation might be quite different from, let’s say, CalPers, or State Farm…
dbr
Posts: 48406
Joined: Sun Mar 04, 2007 8:50 am

Re: Portfolio review with attention to bonds

Post by dbr »

Ryzan wrote: Sun Feb 02, 2025 11:22 am
Questions:
1. Due to a plan change with the 401k custodian at year end, all the investments have been liquidated and I will soon be able to reinvest the funds via the new custodian. I had been comfortable with BND despite the ~15% loss due to eventually expecting to make that back (and more) with higher dividends from the higher interest rates. Now, I am literally forced to put my money where my mouth is and am wondering whether it might be more optimal to introduce some amount of a TIPS fund, such as SCHP.
Searching for an optimum at this point is tilting at windmills. There is no optimum to be had. You would be fine with total bond; you would be fine with TIPS; you would be fine with Treasuries; you would be fine with some of each. The latter is a good way to alleviate worry and regret.
Topic Author
Ryzan
Posts: 180
Joined: Sat Dec 28, 2019 3:43 pm

Re: Portfolio review with attention to bonds

Post by Ryzan »

Thesaints wrote: Sun Feb 02, 2025 11:27 am It is not so much a matter of “being comfortable” with BND; is the total bond market the best solution for you ? That market’s composition is established mostly according to the needs of the largest institutional investors. Your personal situation might be quite different from, let’s say, CalPers, or State Farm…
Hmmm.... am I correct in figuring that the largest institutions need a bond product appropriate for a wide range of investors - various ages, time horizons, risk, etc? So following that logic, would that mean BND isn't wrong for hardly anybody, but on the other hand isn't precisely right for hardly anybody either?
Thesaints
Posts: 5675
Joined: Tue Jun 20, 2017 12:25 am

Re: Portfolio review with attention to bonds

Post by Thesaints »

Ryzan wrote: Sun Feb 02, 2025 2:07 pm Hmmm.... am I correct in figuring that the largest institutions need a bond product appropriate for a wide range of investors -
No. For them, the institutions themselves. I even gave you examples: CalPers (pension fund), State Farm (insurance).
You are thinking Vanguard, but who owns the most of Vanguard AUM ? (hint: not small retail investors)
bonesly
Posts: 2505
Joined: Mon Dec 18, 2017 9:28 pm
Location: WA

Re: Portfolio review with attention to bonds

Post by bonesly »

Ryzan wrote: Sun Feb 02, 2025 2:07 pm
Thesaints wrote: Sun Feb 02, 2025 11:27 am It is not so much a matter of “being comfortable” with BND; is the total bond market the best solution for you ? That market’s composition is established mostly according to the needs of the largest institutional investors. Your personal situation might be quite different from, let’s say, CalPers, or State Farm…
Hmmm.... am I correct in figuring that the largest institutions need a bond product appropriate for a wide range of investors - various ages, time horizons, risk, etc? So following that logic, would that mean BND isn't wrong for hardly anybody, but on the other hand isn't precisely right for hardly anybody either?
I think it's important to remember that Total Bond Market Index (BND) is a passively managed fund that uses algorithms (with some human oversight) to follow an index (specifically the Bloomberg US Agg Float Adj Index). So I think "the market's composition is established by the needs of the largest institutional investors," might be misinterpreted as BND changes based on the needs of institutional investors, when in fact it fits the needs of many retail and institutional investors alike because it's a broadly diversified and low-cost bond offering.
Don't do what Bogleheads tell you. Listen to what we say, consider other sources, and make your own decisions, since you have to live with the risks & rewards (not us or anyone else).
Thesaints
Posts: 5675
Joined: Tue Jun 20, 2017 12:25 am

Re: Portfolio review with attention to bonds

Post by Thesaints »

bonesly wrote: Mon Feb 03, 2025 12:47 pm when in fact it fits the needs of many retail and institutional investors alike because it's a broadly diversified and low-cost bond offering.
What's the bond total volume produced by all institutional investors put together vs. all small retail individual put together ?
And not only that: Treasuries auctions depend only on large institutions. Retail investors passively get the best price.
Also, new issuance of corporate bonds is generally done in agreement with institutional demand. Issuers don't poll Joe Schmoe to see if he might interested in buying 10k worth XYZ's AA- 5.5% 5-year bond. Even if maybe there could be tens of thousands of Joe's who could cover the entire lot.

By and large, retail investors do not contribute to price forming, nor to issuance terms.
enad
Posts: 1823
Joined: Fri Aug 12, 2022 2:50 pm

Re: Portfolio review with attention to bonds

Post by enad »

In Bogle's "The Little Book of Common Sense Investing," on page 175, he writes:

In order to achieve such a 50/50 government/corporate bond portfolio, investors who require a higher yield than the total bond market index fund (yet still seek a high-quality portfolio) might consider a portfolio consisting of 75 percent in the total bond market index fund and 25 percent in an investment-grade corporate bond index fund.


So, you can use:

75% BND (Vanguard Total Bond Market Index Fund), and
25% VCIT (Vanguard Intermediate-Term Corporate Bond Fund), or

50% VGIT (Vanguard Intermediate-Term Treasury Bond Fund)
50% VCIT (Vanguard Intermediate-Term Corporate Bond Fund), or

50% VGSH (Vanguard Short-Term Treasury Bond Fund)
50% VCSH (Vanguard Short-Term Corporate Bond Fund), or
bonesly
Posts: 2505
Joined: Mon Dec 18, 2017 9:28 pm
Location: WA

Re: Portfolio review with attention to bonds

Post by bonesly »

Thesaints wrote: Mon Feb 03, 2025 1:15 pm What's the bond total volume produced by all institutional investors put together vs. all small retail individual put together ?
Volume drives price, but you talked about "composition." The composition of the index is the split between corporate and gov't debt as well as the varying maturities of bonds that are held (maybe to a lesser extent the quality of the bonds). Institutional investors are still offering their 401k/403b/457 plan participants access to a bond fund, and if the participants suddenly flock to to gov't debt over corporate debt and/or short-term debt over intermediate-term debt that can impact the index (the participants in the many plans in aggregate, not some board of directors or single chief executive of an institution administering plans).
Don't do what Bogleheads tell you. Listen to what we say, consider other sources, and make your own decisions, since you have to live with the risks & rewards (not us or anyone else).
Thesaints
Posts: 5675
Joined: Tue Jun 20, 2017 12:25 am

Re: Portfolio review with attention to bonds

Post by Thesaints »

bonesly wrote: Mon Feb 03, 2025 2:28 pm Volume drives price, but you talked about "composition." The composition of the index is the split between corporate and gov't debt as well as the varying maturities of bonds that are held.
Yes, and price times volume = capitalization and all indexes are capitalization-weighed.
Topic Author
Ryzan
Posts: 180
Joined: Sat Dec 28, 2019 3:43 pm

Re: Portfolio review with attention to bonds

Post by Ryzan »

enad wrote: Mon Feb 03, 2025 1:46 pm In Bogle's "The Little Book of Common Sense Investing," on page 175, he writes:

In order to achieve such a 50/50 government/corporate bond portfolio, investors who require a higher yield than the total bond market index fund (yet still seek a high-quality portfolio) might consider a portfolio consisting of 75 percent in the total bond market index fund and 25 percent in an investment-grade corporate bond index fund.


So, you can use:

75% BND (Vanguard Total Bond Market Index Fund), and
25% VCIT (Vanguard Intermediate-Term Corporate Bond Fund), or

50% VGIT (Vanguard Intermediate-Term Treasury Bond Fund)
50% VCIT (Vanguard Intermediate-Term Corporate Bond Fund), or

50% VGSH (Vanguard Short-Term Treasury Bond Fund)
50% VCSH (Vanguard Short-Term Corporate Bond Fund), or
My question was more about inflation protection. BND already contains about 1/3 corporate bonds, if I'm interpreting the "issuer type" correctly:

https://investor.vanguard.com/investmen ... omposition
enad
Posts: 1823
Joined: Fri Aug 12, 2022 2:50 pm

Re: Portfolio review with attention to bonds

Post by enad »

Ryzan wrote: Mon Feb 03, 2025 7:15 pm My question was more about inflation protection.
Have you considered VTIP (Vanguard Short-Term Inflation-Protected Securities ETF)?
Post Reply