Bond gurus (such as Bill Gross) see major "doom and gloom" in rising bond rates, which signal decreasing bond values (NAVs of bonds and bond funds move inversely to yields). Two points: (1) an intermediate-term bond fund will roll its bonds periodically, buying new issues which have higher yields. A long-term investor will struggle to stifle a yawn. Moreover, intermediate-term bond funds offer ballast to a portfolio of stock funds and bond funds. They are not necessarily there to enhance portfolio performance, but to guard against portfolio meltdowns. Think portfolio insurance. Stated plainly, if one has 100% equities and the market tanks 50% (as it did not so many years ago), you might well freak out and sell at the lows. If you have 60% equities and 40% intermediate-term bond funds, you will be less agitated, and more likely to stay invested for the long-term. (2) Bond funds are not the only game in town. Readers of DA have long known what is bad for the bond market (rising rates) is good for CD ladders. Accordingly, I suspect many DA readers hedge their bets in fixed-income by having both bonds and bond funds, but also a healthy assortment of CDs, in a CD ladder, and plain old cash. Diversification across asset classes is important, but so is diversification within asset classes.
I have experience with purchase of individual bonds going back over forty years, and a track record of success. Bond funds? I was never foolish enough to buy those, not even when I was young and just starting out. No regrets.
Bozo, the hole in your argument about bond funds keeping up by turning over assets and putting that money into assets at the new, higher rate fails to realize that that turnover follows the losses, it does not lead them, it cannot lead them, it can never avoid the losses.
The problem I see with going to cash funds in a 401K is the inevitable flight to safety. At least with intermediate-term bond funds, in a flight to safety, one might expect lower bond yields and higher NAVs, off-setting (somewhat) the rout in equities.
My apologies if I was a bit obtuse.
You make a good point about something like a 401k, in those the investors are locked into only the choices that plan provides. But in that case, yes, a money market fund normally is included, and that is not likely to be losing money -- not impossible, just not likely. (I'm currently getting 1.41% in Vanguard Prime Money Market, not a lot, but more than a savings at, say, Alliant CU, which is paying only 1.36 APY.)
I think people would be much better off making a little money in a money market fund than going for the certain losses in a bond fund. And as conditions change, they can move that money to whatever they think best. Until something serious changes, any ballast from bonds will be quite a long time off, so I think the money market, providing certain ballast/insurance and with little likelihood of any loss, is definitely better than the certain loss, and for quite some time to come, of bonds.
And the Republicans' tax cut will not help the situation. Today even the head of the New York Fed came out saying that that is going to create a situation that will demand more and stronger interest rate hikes. I'm sure that tax cut is a big reason Gross came out at this time with his comments.
It isn't very often that you can know losses will be coming and continue for a prolonged period. When you do have that rare time, it is time to get out, for a while at least.
Dividend 12/29/2017 12/29/2017 0.001142 — 1.32%
Dividend 11/30/2017 11/30/2017 0.000957 — 1.14%
Not too shabby. My Alliant Savings account 1.29% yield/1.30% APY.
I must admit I might have to re-think my modest stand-alone position in VBTLX. I can buy VMMXX in my VG account. It is not available in my wife's 401K. I am hardly averse to VMMXX, having owned it for many years before building a CD ladder in 2006.
http://oi64.tinypic.com/dwx3y9.jpg
(I, of course, cut out my personal info that had been in the blank spot on the left.)
That actually went down from 1.46% the day or two before -- first drop for it in a long time, just a one-day blip, expect it to be back up tomorrow (markets closed today).
I'm not sure how you came up with your numbers. I know I was getting about the same in Vanguard Prime MM in December and November as in Alliant, and by the latter part of each month was edging out Alliant.
But I gave that simply as an example. The comparison was to loses, so the logic of the comparison would still hold even if the return were .001%. But yes, if you can't bear that thought of such a low return (and who can), getting more than Alliant savings feels a lot better, and a more reasonable alternative -- especially considering the much greater safety of money market funds as compared to bonds.
This came up in this post immediately above in hyperlinking the URL. I had no tools in doing the original post. I had to post it, open to edit, and then use the hyperlink tool.
Not sure if this is related to my browser -- I am using Firefox , fully updated, on macOS 10.12.6 Sierra.
I'm still conflicted about trashing my modest holding in VBTLX, even though you make cogent arguments. I have two options in my IRA: (1) move VBTLX to VMMXX, or (2) initiate a custodian-to-custodian transfer from my VG IRA holding in VBTLX to somewhere else. As I am lazy, and the dollars involved miniscule, I will no doubt do nothing.