Author Topic: Establishing my very first bond position  (Read 2618 times)

TheOldestYoungMan

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Establishing my very first bond position
« on: July 03, 2015, 01:58:09 PM »
I'm mostly 100% equities, and am cool with that, but I was thinking of setting up a 5% or 10% bond position, after reading a couple of books and seeing how rebalancing forces you to sell high and buy low, I guess, or whatever.  You know what I'm trying to say.

So to benefit from your combined wisdom, I was just curious what you use to buy bonds.  My first instinct is to just buy a low cost vanguard bond fund like VBLTX or VBTLX, going for the lowest expense ratio etc.

Does that sound reasonable?

tyir

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Re: Establishing my very first bond position
« Reply #1 on: July 03, 2015, 08:29:48 PM »
seems reasonable. I think most would suggest VBTLX since it is the broadest fund.

forummm

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Re: Establishing my very first bond position
« Reply #2 on: July 04, 2015, 08:01:00 AM »
It sounds reasonable. But know why you're going to pick a certain percentage and what your plan is (e.g. to stick with it forever, or to increase it at a certain rate with age, etc). Otherwise you'll be tempted to do market timing.

johnny847

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Re: Establishing my very first bond position
« Reply #3 on: July 04, 2015, 08:12:08 AM »
I'm mostly 100% equities, and am cool with that, but I was thinking of setting up a 5% or 10% bond position, after reading a couple of books and seeing how rebalancing forces you to sell high and buy low, I guess, or whatever. You know what I'm trying to say.

So to benefit from your combined wisdom, I was just curious what you use to buy bonds.  My first instinct is to just buy a low cost vanguard bond fund like VBLTX or VBTLX, going for the lowest expense ratio etc.

Does that sound reasonable?
[Emphasis added]

You do say "or whatever" so I'm not 100% sure if this is what you meant.

I wish I could quote a previous post I made on the topic but I can't seem to find it right now. Anyways...

If you want to buy bonds, it should ONLY be because you want to lower the volatility in your portfolio. This "buy low sell high" argument makes it seem on the surface that you're going to get better returns. This is NOT true. Bonds lag stocks by a significant margin when stocks aren't crashing.

To see this, run cFiIREsim with a spending amount of $0. With starting portfolios of $1M you get portfolio end values of:
90/10: Median $5.561M
95/5:   Median $5.826M
100/0: Median $5.943M

The trend is the same with the averages.
You also see the same trend if you do have a spending plan in there. I ran it with the default spend value of inflation adjusted $40k a year and got:
90/10: Median $1.780M
95/5:   Median $1.974M
100/0: Median: $2.152M


If you do decide to go with bonds, I'd rather use VBTLX. Limiting yourself to just long term bonds exposes yourself to more interest rate risk than VBLTX.

TheOldestYoungMan

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Re: Establishing my very first bond position
« Reply #4 on: July 04, 2015, 09:24:01 AM »
Thank you for the info, much appreciated.

Interest Compound

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Re: Establishing my very first bond position
« Reply #5 on: July 04, 2015, 10:48:13 AM »
VBTLX, without a doubt. There's a reason it's the world's largest bond fund :)

johnny847

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Re: Establishing my very first bond position
« Reply #6 on: July 04, 2015, 10:54:31 AM »
VBTLX, without a doubt. There's a reason it's the world's largest bond fund :)

Anyone else getting VBTLX and VBLTX easily confused? ;)

SpareChange

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Re: Establishing my very first bond position
« Reply #7 on: July 04, 2015, 11:58:04 AM »
VBTLX, without a doubt. There's a reason it's the world's largest bond fund :)

Anyone else getting VBTLX and VBLTX easily confused? ;)

He he. Yep.