Author Topic: Vanguard Bond Fund  (Read 5412 times)

BuzzardsBay

  • 5 O'Clock Shadow
  • *
  • Posts: 81
Vanguard Bond Fund
« on: December 21, 2016, 06:57:08 AM »
Just curious if anyone has an opinion on either of these two funds - VBLTX and VBILX.  I have between 10K & 15K that I had been keeping in another bond fund.  It's only a small percentage of the total invested and I just like to have it there.  I closed out the other fund and want to put it with Vanguard.  Just trying to clean things up and not have so many different accounts.  Can't decide which Vanguard Bond Fund to put it into.  Thoughts anyone?  Oh - and I should say I have no plans on using it any time soon.

Thanks.

Interest Compound

  • Pencil Stache
  • ****
  • Posts: 658
Re: Vanguard Bond Fund
« Reply #1 on: December 21, 2016, 08:16:55 AM »
If you want bonds, Vanguard's Total Bond Index Fund (VBTLX) is the only reasonable option in my opinion.

BuzzardsBay

  • 5 O'Clock Shadow
  • *
  • Posts: 81
Re: Vanguard Bond Fund
« Reply #2 on: December 21, 2016, 09:55:48 AM »
Thanks.

money_bunny

  • Stubble
  • **
  • Posts: 114
Re: Vanguard Bond Fund
« Reply #3 on: December 22, 2016, 05:06:11 AM »
I just moved my Roth of about 95K (about 20% of the stash) into VBTLX. I'm moving towards the door, and I don't have the emotional ability to do 100% stocks.


BuzzardsBay

  • 5 O'Clock Shadow
  • *
  • Posts: 81
Re: Vanguard Bond Fund
« Reply #4 on: December 22, 2016, 07:46:03 AM »
VBLTX has a better return when you look long-term. 
VBILX has a slightly lower return but it has 4 stars with Morningstar and VBLTX has 3. 
I thought that an intermediate term was better because they aren't locked in to the long term rates which makes it difficult when rates go up. 
Morningstar also categorizes VBTLX as an intermediate term as well.  That one has the lowest return of the three.
Still can't decide what to do.  It's a bond fund.  I thought the choice would be easier.

SeattleCPA

  • Handlebar Stache
  • *****
  • Posts: 1513
  • Age: 60
  • Location: Redmond, WA
    • Evergreen Small Business
Re: Vanguard Bond Fund
« Reply #5 on: December 22, 2016, 07:57:18 AM »
Sort of a random, possibly useless comment to make...

Some people just use treasury index funds. And then they dial down their bond percentage. E.g., if the "right" percentage would be 40% bonds if you were using corporate bonds, the equivalent "right" percentage might be 30% if you were using treasuries.

This approach accepts the relatively poor treasury returns... but then hopes to make that up by moving the money you free up from bonds to stocks.

You might find it useful to test this sort of tweak using https://www.portfoliovisualizer.com/ sometime. Just an idea.

pbkmaine

  • Walrus Stache
  • *******
  • Posts: 8387
  • Age: 63
  • Location: The Villages, Florida
Vanguard Bond Fund
« Reply #6 on: December 22, 2016, 08:13:06 AM »
Long-term bond funds are much more volatile. Interest rate swings affect them more. Also, it's important to understand the difference between bonds and bond funds:

https://www.bogleheads.org/wiki/Individual_bonds_vs_a_bond_fund
« Last Edit: December 22, 2016, 08:14:53 AM by pbkmaine »

BuzzardsBay

  • 5 O'Clock Shadow
  • *
  • Posts: 81
Re: Vanguard Bond Fund
« Reply #7 on: December 22, 2016, 08:41:38 AM »
Very interesting read.  Thanks for sharing the link.

I think one of the several reasons I prefer a bond fun instead of owning individual bonds is to let someone else deal with figuring out which ones to buy when.

mathjak107

  • Pencil Stache
  • ****
  • Posts: 558
Re: Vanguard Bond Fund
« Reply #8 on: December 22, 2016, 04:28:49 PM »
i much prefer fidelity's  ftbfx to any of the vanguard total bond funds . better performance over every time frame from fidelity's than vbtlx or bnd .

this year fidelity is up over 5% compared to vbtlx at 1.95%. it does not matter if you look at ytd ,1 yr ,3yr or 10 yr  , vbtlx lagged ftbfx .
« Last Edit: December 22, 2016, 04:32:03 PM by mathjak107 »

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1890
Re: Vanguard Bond Fund
« Reply #9 on: December 22, 2016, 07:25:12 PM »
I view bond funds in terms of yield, quality and duration.  Quality essentially says to beware if you invest in corporate or junk bonds, because their risk of default balances their higher yield.  Of course everyone wants higher yield, but the market makes sure to balance yield against other factors.

So let me explain duration so you make an informed choice.  Vanguard long-term bond fund has a 15 year duration, while the intermediate-term bond fund has a 6.5 year duration.  Duration is the "break even" time for a change in yields / interest rates.  For example, if rates go up 0.25% for all bonds, then bond funds go down:
0.25 x -1 x 15 = -3.75%  (compared to VBLTX yield of 3.93%)
0.25 x -1 x 6.5 = -1.625%  (compared to VBILX yield of 2.82%)

Each fund would pay 0.25% more interest per year, but takes an initial loss.  So the intermediate fund recoups it's 1.625% loss over 6.5 years, and the long-term bond fund over 15 years.  The problem is that rates / yields are at very low levels compared to history.  The Fed wants higher interest rates, for example, and that would hurt bond funds proportional to their duration (assuming all yields go up by the same amount as the Fed rate).

If you chase performance with bond funds, expect to get hurt.  For the past ~30 years bond yields have been declining.  Again, because of duration that means the bonds experience an increase in value at the moment their payments drop.  So for the past 30, 20, 10 years you could claim bonds do better the higher their duration.  Yes, but... how will bond funds drop another 6% or so, when they are below 4% now?  The future isn't likely to be a repeat of the past 30 years, so don't count on those past 30 years in your prediction of bond performance.

In case duration is confusing, the mechanism is actually people trying to make all bonds look equal.  If you have a bond fund earning 5%, and rates decline to 4%, your bond fund looks great!  And to make it look like all the 4% bonds, the bond fund will increase in value until the payments are 4% of the new value.  That's how duration helps in the calculation: with 10 year duration and a 1% drop in yields, you expect +10% added to the bond fund.  And that's why declining yields have make long-term bonds look so good in the past 30 years - they keep getting increases in value.  Just don't expect the past 30 years to repeat for the next 30 years.
« Last Edit: December 22, 2016, 07:26:43 PM by MustacheAndaHalf »

pbkmaine

  • Walrus Stache
  • *******
  • Posts: 8387
  • Age: 63
  • Location: The Villages, Florida
Re: Vanguard Bond Fund
« Reply #10 on: December 22, 2016, 07:36:27 PM »
Another explanation of duration:

http://www.investopedia.com/terms/d/duration.asp

BuzzardsBay

  • 5 O'Clock Shadow
  • *
  • Posts: 81
Re: Vanguard Bond Fund
« Reply #11 on: December 27, 2016, 08:01:01 AM »
SeattleCPA - thanks for the link to Portfolio Visualizer. 

SeattleCPA

  • Handlebar Stache
  • *****
  • Posts: 1513
  • Age: 60
  • Location: Redmond, WA
    • Evergreen Small Business
Re: Vanguard Bond Fund
« Reply #12 on: December 27, 2016, 11:51:07 AM »
SeattleCPA - thanks for the link to Portfolio Visualizer.

Hopefully you'll still think it was a kind thing to share even after you spend ever more time modeling various scenarios... :-)

Saving in Austin

  • Stubble
  • **
  • Posts: 157
Re: Vanguard Bond Fund
« Reply #13 on: December 28, 2016, 03:28:07 PM »
Here is the bond chapter from Jim Collins' Simple Path to Wealth stock series:

http://jlcollinsnh.com/2012/10/01/stocks-part-xii-bonds-and-a-bit-on-reits/

He is currently using VFIDX - Vanguard’s Intermediate-Term Investment Grade Bond fund.

He was using VBTLX before but switched over.

BuzzardsBay

  • 5 O'Clock Shadow
  • *
  • Posts: 81
Re: Vanguard Bond Fund
« Reply #14 on: December 29, 2016, 11:15:30 AM »
Thanks.  Interesting read.

MrSpendy

  • Stubble
  • **
  • Posts: 133
Re: Vanguard Bond Fund
« Reply #15 on: December 31, 2016, 05:23:23 PM »
I have all my bond allocation in I-bonds and long term treasuries.

I bonds hedge inflation and have zero volatility or risk and yield 0% real pre tax (which will probably be something like 2-3% nominal, so that should keep pace with the bond index). They are part emergency fund part bond allocation.

Long term treasuries hedge deflation / japanification.

My I-bonds are about 10% of net worth and long term treasuries about 2% (HSA account) and rising over time.

Not sure If that helps but I don't think the bond index necessarily corresponds to what one wants / desires out of the bond allocation.

mathjak107

  • Pencil Stache
  • ****
  • Posts: 558
Re: Vanguard Bond Fund
« Reply #16 on: December 31, 2016, 05:35:02 PM »
the problem is i-bonds track a price change in a basket of goods and services , not your personal cost of living .

you may need a lot more than i-bonds give you when it comes to an actual cost of living . . they are okay as part of a portfolio that can provide real growth .

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1592
  • Location: West of the Mountains, East of the Sea
  • One does not simply work into Mordor
Re: Vanguard Bond Fund
« Reply #17 on: December 31, 2016, 07:16:46 PM »
I have all my bond allocation in I-bonds and long term treasuries.

I bonds hedge inflation and have zero volatility or risk and yield 0% real pre tax (which will probably be something like 2-3% nominal, so that should keep pace with the bond index). They are part emergency fund part bond allocation.

Long term treasuries hedge deflation / japanification.

My I-bonds are about 10% of net worth and long term treasuries about 2% (HSA account) and rising over time.

Not sure If that helps but I don't think the bond index necessarily corresponds to what one wants / desires out of the bond allocation.
I think this is brilliant and is also what I plan to do. No I bonds yet though, maybe I will start off by getting a paper bond as my tax return. One thing about this strategy is that 10% is probably the greatest amount you could possibly want to stick into either of these.