Bond Fund Score: Me1004 1, Bozo 0.

Bozo
Bozo   |     |   1,328 posts since 2011

Well, friends and neighbors I finally threw in the towel. After a long and losing battle, I cashed out 3/4 of my Vanguard bond fund (VBTLX) to satisfy the remainder of my 2018 RMD. It was painful to watch the fund sink in value while my IRA CDs just kept clicking along. I admit I was warned by Poster Me1004 not to go there (i.e., into VBTLX) in a rising-rate environment.




Ally6770
Ally6770   |     |   2,718 posts since 2010
I would never buy a bond fund. Stick with the individual bond if you want.
ConfedrcyDunces
ConfedrcyDunces   |     |   121 posts since 2016
The good thing is CDs never GO DOWN in value.

A 2% five year CD is worth the same as a 4% five year CD.
me1004
me1004   |     |   842 posts since 2010
Oh, gee, Bozo, I would not call this an "I told you so" situation. It is simply a sharing of information, and I knew what happens to bonds in a rising rate situation, bonds are very sensitive to rate changes (they are big winners when rates drop). And at this point, rates are expected to continue to rise right through next year at least.

As for buying individual bonds instead, so as to be able to hold them to maturity and get the stated return, as opposed to a mutual fund that is buying and selling all the time, that would work if handled in that way to avoid that one issue. But it simply adds other issues, of higher risk, especially from the lack of diversity a mutual fund provides, and less liquidity since you must hold them, as you would have to hold the bond all the way to maturity to be assured of getting the contracted return. And if you want the good rates, you have to take longer term bonds. The longer the term, the higher the risk, as if the bond issuer goes bankrupt, you could lose everything. You might be very unhappy now if you had bought a 15-year bond issued by Sears 10 years ago.
RichardW
RichardW   |     |   15 posts since 2019
Unfortunately it appears as if Murphy’s Law has been in effect since you posted that you cashed out 3/4 of your VBTLX fund in early November. Take a look at a chart (https://finance.yahoo.com/quote/VBTLX/?p=VBTLX) of the NAV of VBTLX since 11/8/18. It looks like VBTLX was at a 9.5 year low on 11/8/18, and since then it has been on a relatively methodical climb. On 11/8/18 the NAV was 10.22 and today 2/13/19 the NAV closed at 10.50. That’s an increase of 2.74% in a period of about 3 months. The fact that the rising-rate environment evaporated during that same period was definitely instrumental in the increased NAV. If you actually sold most of your VBTLX fund around 11/8/18 it appears that your market timing was caused by Murphy’s Law.
RZ
RZ   |     |   80 posts since 2017
I avoid mid and long term bond funds but have done well with VBSUX which is short term and therefor less rate sensitive and volatile . As a cash alternative is pays somewhat better but I do so only when rates are either declining or stable such as the current environment. Be aware however that monthly dividends are not qualified and are taxed as ordinary income. However if held for a year, long term capital gains/losses can be realized on that portion of your shares that are sold.
RichardW
RichardW   |     |   15 posts since 2019
RZ, No bond fund has a ticker symbol of VBSUX. Perhaps you meant the Vanguard Short-Term Investment Grade Bond Fund (Admiral Share Class) which has a ticker symbol of VFSUX.
mp4510
mp4510   |     |   1 posts since 2019
Has anyone ever looked into invesco bulletshare bond etfs that have specific maturity dates and appear to be a better alternative to individual bonds or bond funds? I am considering doing a short term ladder on thie investment grade bond etfs.


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