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Frequent Contributor

Bond funds for LT hold and/or newbies.

The following is a generic post for investors who look for LT hold and/or (some) ballast for stocks and/or generic investing ideas for newbies.

Use mostly indexes + limited number of funds + hardly trade. 

Indexes:

BND=VBTLX  Vanguard Total Bond Market Index. Most recommended.

VBILX=BIV  Vanguard Intermediate-Term Bond Index (50/50 treasuries+Corp).  This fund has a bit higher risk/volatility but better performance, cope with rising rates and inflation and why I think it's worth holding it instead of the index BND or at least use both.

I could mention VCOBX/VCORX (VG Core bond) but it really doesn't add much to risk/reward compared to VBILX=BIV.  BND+BIV are very cheap too with expense ratio of BIV=0.05% and BND=0.04% and you can buy them in other brokers with no commissions (at Schwab).

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Below are special situations/goals

Munis is a special category with intention of saving some money.

VWITX/VWIUX (Vanguard Intermediate-Term Tax-Exempt) - cheap good fund in the top 30% of performance for 1-3-5-10-15 years.

VWAHX/VWALX (Vanguard High-Yield Tax-Exempt) - cheap good fund in the top 15% of performance for 3-5-10-15 years. For a HY Muni fund it has one of the highest rating bonds in this category.  Investing some of your money in VWALX makes sense since HY Munis cope better with rising rates + have a better yield (about 1% more).  

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I can name 20 more funds but the purpose is KISS(keep it simple stupid).  Basically, you just buy and hold these funds and do nothing.  It's boring, unexciting and for many investors a relief.

 

 

 

15 Replies
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Explorer ○

Re: Bond funds for LT hold and/or newbies.

Thank you, FD, for starting this thread. Hopefully it will grow and be useful to those seeking a more moderate risk/reward profile.

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Contributor ○○○

Re: Bond funds for LT hold and/or newbies.


Good overall advice.
However, VBILX is not a managed fund - it's an index fund.

"The Fund employs an indexing investment approach designed to track the
performance of the Bloomberg Barclays U.S. 5–10 Year Government/Credit Float Adjusted Index. This Index includes all medium and larger issues of U.S.government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities between 5 and 10 years and are publicly issued."

 

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Explorer ○

Re: Bond funds for LT hold and/or newbies.

Thank you FD. Do you have an opinion on the bond funds in the TSP? If you have time, I have put the links below.  I am starting to reallocate since I am so equity heavy.  I can choose the F&G funds.  I also thought about allocation to BND in my taxable investment account.  My goal is to have 20%-25% of the total portfolio in these. 

https://www.tsp.gov/funds-individual/g-fund/

https://www.tsp.gov/funds-individual/f-fund/

 

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Frequent Contributor

Re: Bond funds for LT hold and/or newbies.


@Slooow wrote:

Thank you FD. Do you have an opinion on the bond funds in the TSP? If you have time, I have put the links below.  I am starting to reallocate since I am so equity heavy.  I can choose the F&G funds.  I also thought about allocation to BND in my taxable investment account.  My goal is to have 20%-25% of the total portfolio in these. 

https://www.tsp.gov/funds-individual/g-fund/

https://www.tsp.gov/funds-individual/f-fund/

 


TSP G Fund is a stable-value fund guaranteed by the US Government [unlike other SV funds guaranteed by insurance companies]. Lately, its crediting rate has been so-so. SV funds guarantee principal and accumulated interest, so are not subject to market fluctuations. It is reasonable to count SV as part of fixed-income.

TSP F Fund is just US Agg Bond Index, so-called US [investment-grade] total bond market like VBTLX/BND, etc.

TSP has basic index funds run by BlackRock/BLK [except for G Fund] with super low ERs.

YBB
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Explorer ○

Re: Bond funds for LT hold and/or newbies.

Thanks Yogi - Where would you suggest putting fixed income investments?  In the TSP, taxable account or both? I could just invest in the equity funds in the TSP and put all the fixed income portion in a taxable or other tax deferred account.  

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Frequent Contributor

Re: Bond funds for LT hold and/or newbies.


@Slooow wrote:

Thanks Yogi - Where would you suggest putting fixed income investments?  In the TSP, taxable account or both? I could just invest in the equity funds in the TSP and put all the fixed income portion in a taxable or other tax deferred account.  


TSP has only a handful of ultra-low-cost index funds, and also very conservative target-date funds [that also include SV G Fund within fixed-income]. So, it is best to round out stock-and-bond portfolio with funds in the taxable accounts.

TSP also has some unfriendly rules in the withdrawal phase. 

For bonds in taxable account, you can supplement with core-plus [multi-lite] and some multisector funds.

YBB
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Participant ○○○

Re: Bond funds for LT hold and/or newbies.

What about BNDW (USD-hedged World Bond ETF)?

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Frequent Contributor

Re: Bond funds for LT hold and/or newbies.

I’ve held DODIX, PIGIX, PHMIX, VWALX, VWEAX and PZMIX for years. Will probably hold them forever. More recently (2019) bought VBILX / BIV and FXNAX. Also easy “hold forever” funds.

Also bought Wellesley VWIAX in an IRA this year. This is 60% bonds and probably can be discussed as a bond fund. Another “hold forever” fund.

I use BSV for cash, so the balance goes up and down depending upon cash flows.

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Explorer ○

Re: Bond funds for LT hold and/or newbies.

Chang, FD, YBB - do you hold your fixed income allocation in your taxable, Roths, or tax deferred accounts?  A mixture?  If so, how do you break it out.

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Frequent Contributor

Re: Bond funds for LT hold and/or newbies.

Munis in taxable account  (obviously). Others are also in taxable, except FXNAX and VWIAX in T-IRAs. No bonds in Roth.

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Participant ○○○

Re: Bond funds for LT hold and/or newbies.

I keep some bonds in Roths but only to a degree that I will potentially use them for tactical purchases of equities if/when they equities decline.

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Frequent Contributor

Re: Bond funds for LT hold and/or newbies.


@Slooow wrote:

Chang, FD, YBB - do you hold your fixed income allocation in your taxable, Roths, or tax deferred accounts?  A mixture?  If so, how do you break it out.


All my accounts have allocations in my tactical asset allocation [TAA] range of 40-60%. I monitor overall allocation too.

You however have a different situation with a big chunk in TSP 401k with good but basic choices. So, you have to make your taxable a/c and IRAs quite different from 401k.

YBB
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Explorer ○

Re: Bond funds for LT hold and/or newbies.

Sorry, didn’t mean to confuse.  If my portfolio was $1M, it would be 625,000 in taxable; 225,000 in TIRA; 125,000 in ROTH, and 25,000 in TSP.  

I can move all the money from the TIRA to the TSP if I want to and select among those funds.  Not retiring for at least 5 years, and want to move to a 75-25 allocation in the next year or two. 

I have thought about moving the entire TIRA to the TSP and making that a mix of the G and F fund.  But have also thought of making part of the taxable BND.  I could also move the entire TIRA and put it in a mix of the other funds.  

Thanks for any suggestions on how to reconfigure and where!

 

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Frequent Contributor

Re: Bond funds for LT hold and/or newbies.

@Slooow , OK, then the picture is more clear.

TSP is NOT your dominant allocation. TSP G is paying 0.6-0.7% guaranteed rate that is so-so, beating the m-mkt and short-term CDs. And the noises in DC are that it is already generous [it is not; my TIAA Traditional (SV) pays 3%+]. Ultra-low-ERs of TSP basic index funds are attractive but similar index funds [OEFs, ETFs] at Fido, Schwab, Vanguard also have quite low ERs. IMO, it is not worth transferring T-IRA into TSP even though that is allowed.

So, you basically have to deal with your taxable and IRA accounts and those don't have much restrictions on fund choices. It then depends on your portfolio approach and allocation. My approach is risk/volatility control first and performance then takes care of itself and it is described elsewhere; it may not be suitable for everyone.

YBB
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Participant ○○

Re: Bond funds for LT hold and/or newbies.

 

Yep, TSP has merit (simplicity, cost), but wouldn't transfer into mine either.

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