Author Topic: VTABX - worthwhile addition, and if so, where?  (Read 3831 times)

WorkingToBeFIREd

  • 5 O'Clock Shadow
  • *
  • Posts: 44
VTABX - worthwhile addition, and if so, where?
« on: August 12, 2015, 07:35:26 AM »
Hi all - I received an investment plan from Vanguard which recommended international bonds in our portfolio.  I've setup an IPS (can share details if helpful) and allocated up to 5% of the total for world bonds - small percentage, but figured a lot of international companies will have overlap in VBTLX and FSITX anyway.  I'm in the process of firing my wife's 403b advisor and liquidating the craptastic funds we've been in (between 0.9-2.79% ER and ho-hum returns...are you kidding me?) and moving to another approved 403b provider that offers Vanguard Admiral funds.  The only downside to the new provider is they charge 15 basis points (0.15%) for an asset management fee, but combined with Vanguard's low ER, I'm still well ahead of the game.

Two questions:

1 - Is having up to 5% of the portfolio in world bonds worthwhile, or should I just scrap it and move that amount into domestic bond funds (VBTLX or FSITX)?  The ER for VTABX is almost 3x as much as the domestic funds - 0.19% versus 0.07%.  It's a small percentage of the total portfolio and won't radically skew things either way, just wondering if I should even bother.

2 - Assuming the answer is "yes" to the above, I have three options for placement - our taxable Vanguard investment account, my wife's new 403b, or our Roth IRAs at Vanguard.  Typical advice is to keep bond funds out of taxable, and I'm assuming that would apply to international as well, but the 403b asset management fees, combined with the higher ER on this fund, will mean an effective ER of 0.34%.  Assuming a 25% tax bracket (and living in the great state of "Tax York", so getting hit there as well), am I better off keeping it in the tax deferred 403b at the higher effective ER, or just paying taxes on the dividends and placing it in taxable?  Not sure of the pros/cons of having it in the Roths.

Hope I provided enough info...would be happy to share details of my IPS or other info if needed.

Thanks in advance...

forummm

  • Walrus Stache
  • *******
  • Posts: 7396
  • Senior Mustachian
Re: VTABX - worthwhile addition, and if so, where?
« Reply #1 on: August 12, 2015, 08:45:25 AM »
I honestly wouldn't bother with the 5% intl bonds allocation. It's a personal choice, and having it is fine, but it just seems like a hassle. And if it raises your ERs at all, that would be another reason not to do it. If you had a lot of money (like 7 figures), then a 5% allocation could be significant, and then maybe it makes more sense.

Heckler

  • Handlebar Stache
  • *****
  • Posts: 1347

WorkingToBeFIREd

  • 5 O'Clock Shadow
  • *
  • Posts: 44
Re: VTABX - worthwhile addition, and if so, where?
« Reply #3 on: August 12, 2015, 06:02:46 PM »
Thanks guys - appreciate the feedback!

forummm, yeah, the total portfolio number is north of seven figures, so it would be a reasonable dollar amount but a small part of the overall portfolio.  That said, I feel like it's not an inexpensive investment at 0.19% (taxable or Roth) or an effective 0.34% (403b).  There's also really no track record, as the fund's inception was May 2013 - one-year performance is 4.21% and YTD (per Morningstar) is 0.40%.

Heckler, thanks for the article.  Since I'm fairly weighted towards equities (and am on the fence on the necessity of VTABX anyway), I think I'm going to stick with domestic bonds for now.  I've had the fund added to the list of investments for the 403b, so I can add some at a later date if it makes sense.

Off to get the funds moved away from the current face-punch worthy plan!

Thanks again...

forummm

  • Walrus Stache
  • *******
  • Posts: 7396
  • Senior Mustachian
Re: VTABX - worthwhile addition, and if so, where?
« Reply #4 on: August 12, 2015, 06:31:16 PM »
Thanks guys - appreciate the feedback!

forummm, yeah, the total portfolio number is north of seven figures, so it would be a reasonable dollar amount but a small part of the overall portfolio.  That said, I feel like it's not an inexpensive investment at 0.19% (taxable or Roth) or an effective 0.34% (403b).  There's also really no track record, as the fund's inception was May 2013 - one-year performance is 4.21% and YTD (per Morningstar) is 0.40%.

Heckler, thanks for the article.  Since I'm fairly weighted towards equities (and am on the fence on the necessity of VTABX anyway), I think I'm going to stick with domestic bonds for now.  I've had the fund added to the list of investments for the 403b, so I can add some at a later date if it makes sense.

Off to get the funds moved away from the current face-punch worthy plan!

Thanks again...

Well in that case I think I would do it and locate it in the Roth for tax reasons. It seems reasonable to diversify a portfolio that large in that way. And 0.19% for a bond fund is not that bad. It's also only 5% of your portfolio so the slightly higher ER is not that big a deal. You should totally ignore the track record even if it was 40 years long. It's a broad-based index fund with a low fee. You'll get the international bond market return, adjusted for currency fluctuations (Vanguard does that for intl bonds).

WorkingToBeFIREd

  • 5 O'Clock Shadow
  • *
  • Posts: 44
Re: VTABX - worthwhile addition, and if so, where?
« Reply #5 on: August 13, 2015, 06:33:34 AM »
I was inspired to do a little more research and the general consensus seems to be somewhere between "meh" and "don't bother".  For Mustachians thinking about adding VTABX, here are a few links:

http://www.etf.com/sections/features/22420-bernstein-dont-bother-with-international-bonds-.html?showall=&fullart=1&start=2
http://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005&start=600#p1916448
https://www.bogleheads.org/forum/viewtopic.php?t=148848
https://www.bogleheads.org/forum/viewtopic.php?t=128671

Net-net, while I don't think it would do much harm, I'm also not sure it would do a lot of good...especially with that 0.19% ER hurdle to overcome.  Who knows...I may be kicking myself down the road, but am thinking I stay the course with VBTLX.  I've already got my Roths loaded with VTSAX and VTIAX to maximize tax-free growth, and don't want to have any bonds in taxable if it can be avoided.  That leaves my wife's 403b, which with the asset management fee, means the effective ER is just too high to ignore.

Look at me - bitching about an effective 0.34% when we've been paying through the nose for years.  :)

Anyway, I appreciate everyone's feedback and will post back here if I find compelling reasons to change course, but think for now I'm going to let VTABX sit on the sidelines.