I see some simplification and omissions in your assessment.
- You picked the absolute peak value for VBTLX as your starting point
- The drop from that point is actually 8.2%, not 10%
- You omitted dividends (which ranged from 2.31%-2.88% over that period)
So the actual return for that 2.3 year period is around -1% annually. Hardly something to go crazy over. Especially considering the cherry picked starting point.
Thank you for your reply.
Regarding the starting point.
The start date was the start date from the second rate rise (which I did post a graph of), which was the start of many and frequent rate rises (there was a long pause after the first so I left that one out), so it was not specifically to start at the
peak, but to start based on the multiple rate rises, which happened to be the peak, and seems indicative of what will happen if there are many more rate rises, which looks to be decent chance of, and what the OP is specifically asking about.
Regarding omitting dividends.
If one invests in short term bonds or CDs, do they not get the same dividends, without the loss of capital value that longer term bonds are exposed to in an environment of very low rates that are expected to normalise by going up?
Exactly. Rates rise. Fund NAV will decrease. But yields will rise. Hence total return rather flat, even in a rising rate environment. And now equities are very choppy. So total bond is right there doing what it’s supposed to do.
Hmm didn't occur to me that yields will rise as value drops.
Do they really rise enough to make up for it though?
Say you had a $100 worth of bonds with 10 years left and with interest paid at 3% yield.
Then rates rise by 1%.
Would it be roughly accurate that the bonds value would drop 8% (1% x 8 years) down to $92, but then the return would be 3/92 = 3.26% ?
I'm probably missing something here, because it doesn't seem like this would make up for the loss in value to make it even?