Difference between Fidelity Total Bond & US Bond Index

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fortfun
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Difference between Fidelity Total Bond & US Bond Index

Post by fortfun » Sat Dec 08, 2018 6:32 pm

FTBFX .45 Tot 10yr 5.3%
FXNAX .025 US 10 yr 3.6%

Obviously, FXNAX has lower fees. FTBFX has better performance.

Worth the higher fees?

exigent
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Re: Difference between Fidelity Total Bond & US Bond Index

Post by exigent » Sat Dec 08, 2018 6:42 pm

FXNAX tracks the aggregate performance of US bonds, where FTBFX looks like it adds international exposure as well as added exposure to lower quality issues. So you’re comparing apples and oranges. The risk profiles are presumably quite different.

If you’re primarily judging your investments based on historical returns, why not replace bonds with stocks?

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Re: Difference between Fidelity Total Bond & US Bond Index

Post by oldcomputerguy » Sat Dec 08, 2018 6:42 pm

FTBFX contains more corporate bonds, so it's not as good a diversifier for stock holdings as U.S. Bond Index.
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fortfun
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Re: Difference between Fidelity Total Bond & US Bond Index

Post by fortfun » Sat Dec 08, 2018 6:45 pm

exigent wrote:
Sat Dec 08, 2018 6:42 pm
FXNAX tracks the aggregate performance of US bonds, where FTBFX looks like it adds international exposure as well as added exposure to lower quality issues. So you’re comparing apples and oranges. The risk profiles are presumably quite different.

If you’re primarily judging your investments based on historical returns, why not replace bonds with stocks?
Morning star has them both at risk level 3.

livesoft
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Re: Difference between Fidelity Total Bond & US Bond Index

Post by livesoft » Sat Dec 08, 2018 6:47 pm

With bond funds, it is a given that higher performance goes with higher risk (lower average credit rating and longer average maturity). What you really might want to look at is risk-adjusted return.

Of these two funds, one is not an index fund, so add manager risk, too.

A risk level of 3 by M* means little since it is such a broad-based entity.
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fortfun
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Re: Difference between Fidelity Total Bond & US Bond Index

Post by fortfun » Sat Dec 08, 2018 6:48 pm

livesoft wrote:
Sat Dec 08, 2018 6:47 pm
With bond funds, it is a given that higher performance goes with higher risk (lower average credit rating and longer average maturity). What you really might want to look at is risk-adjusted return.

Of these two funds, one is not an index fund, so add manager risk, too.

A risk level of 3 by M* means little since it is such a broad-based entity.
Thanks Livesoft. Looks like the classic Boglehead would stick with the lower fee option.

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Re: Difference between Fidelity Total Bond & US Bond Index

Post by exigent » Sat Dec 08, 2018 6:55 pm

fortfun wrote:
Sat Dec 08, 2018 6:45 pm
exigent wrote:
Sat Dec 08, 2018 6:42 pm
FXNAX tracks the aggregate performance of US bonds, where FTBFX looks like it adds international exposure as well as added exposure to lower quality issues. So you’re comparing apples and oranges. The risk profiles are presumably quite different.

If you’re primarily judging your investments based on historical returns, why not replace bonds with stocks?
Morning star has them both at risk level 3.
I wouldn’t put too much weight on such things. They are both bond funds, so they are (in the grand scheme of things) fairly similar. But that doesn’t mean they’re equivalent.

The duration of both funds is basically the same, so if the star ratings are to be believed as an accurate (and precise!) indicator of risk, then you have just found a free lunch.

In reality, you are receiving higher returns for taking in greater risk. Look at the prospectus of each fund and see what they’re holding. I took a quick glance and told you what I saw in my first post.

This looks to be an actively managed fund that tries to squeeze out additional return by adding in international and lower quality holdings.

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