Need help choosing bonds ["30% of your bond allocation in international bonds"]

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ralphboy
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Need help choosing bonds ["30% of your bond allocation in international bonds"]

Post by ralphboy »

Hello, I would like to follow Vanguard's investing advice, "To get the full diversification benefits, we suggest that you consider investing about 40% of your stock allocation in international stocks and about 30% of your bond allocation in international bonds." I would like to do an 85/15 (stock/bond) allocation.

I believe I have figured out the stock portion:
VTI 51
VXUS 34

What bonds do I pick to achieve "30% of your bond allocation in international bonds?" I invest with Fidelity and I would like to be able to buy it without paying a fee. Thanks.
UpperNwGuy
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Re: Need help choosing bonds ["30% of your bond allocation in international bonds"]

Post by UpperNwGuy »

AGG and IAGG.
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galawdawg
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Re: Need help choosing bonds ["30% of your bond allocation in international bonds"]

Post by galawdawg »

You may want to use the mutual fund/ETF screening tool on Fidelity's website. That should give you a list of the available NTF international bond mutual funds and ETFs. Then you can look at whichever criteria interests you (expense ratios, active/index, fund company and so on) to see which international bond fund(s) are best suited for your desires.
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dratkinson
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Re: Need help choosing bonds ["30% of your bond allocation in international bonds"]

Post by dratkinson »

Opposing view. Bond are for safety.
--Unhedged international bonds introduce currency risk.
--Hedged international bonds introduce extra cost to hedge against foreign currency.

So the safest, lowest-cost bonds should be US bonds.

Example (admittedly time dependent, it could change).
--AGG. SEC yield: 1.62%; expense ratio: .04%; link: https://www.ishares.com/us/products/239 ... market-etf
--IAGG. SEC yield: 1.04%; expense ratio: .08%; link: https://www.ishares.com/us/products/279 ... e-bond-etf
d.r.a., not dr.a. | I'm a novice investor; you are forewarned.
PersonalFinanceJam
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Re: Need help choosing bonds ["30% of your bond allocation in international bonds"]

Post by PersonalFinanceJam »

It looks like the OP started a different thread yesterday asking about the “no brainer” portfolio. I think the OP may want to consolidate their questions to one thread to get the best help for their whole portfolio.
https://www.bogleheads.org/forum/viewt ... 9#p6451379
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nisiprius
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Re: Need help choosing bonds ["30% of your bond allocation in international bonds"]

Post by nisiprius »

It's obvious what Vanguard's advice would be--it's reasonable advice IMHO:

Create your own ETF portfolio

So their suggestion is to use the four ETFs that have "Total" in their name:

VTI, Vanguard Total Stock Market Index Fund
VXUS, Vanguard Total International Stock Index Fund
BND, Vanguard Total [US] Bond Market Index Fund
BNDX, Vanguard Total International Bond Index Fund

Scroll down to where it says

"Want help figuring out how much to invest in these 4 ETFs?"

and check out the two links underneath, especially the second:

Explore our portfolio allocation models
What do do after you have your asset allocation

That second link pops up a panel suggesting explicitly that you can use VTI + VXUS + BND + BNDX as your ETF choices.

Given a wish for 85/15 overall, then, your portfolio would be

60%-of-85% = 60% x 85% = 51% VTI
40%-of-85% = 40% x 85% = 34% VXUS
70%-of-15% = 70% x 15% = 10.5% BND
30%-of-15% = 30% x 15% = 4.5% BNDX

This Fidelity web page states "$0 per trade for all ETFs" so that should be it.

With regard to non-Vanguard products, there are many good substitutes for BND--such as the AGG ETF--but I don't think you need them I think BND and BNDX are no-fee at Fidelity.

BNDX is interesting because a) it's a fairly unique product, I can't think of any substitute, b) IMHO it is unnecessary, particularly at something as small as 4.5% of portfolio.

I'm going to illustrate this with a PortfolioVisualizer backtest. Backtests are dangerous for many reasons because past performance is no guarantee of future results. But even if we don't want to take it as showing better or worse, it is still useful in showing how much difference it would have made.

So I'm going to compare 51% VTI, 34% VXUS, 10.5% BND, 4.5% BNDX to 51% VTI, 34% VXUS, 15% BND, no BNDX

Source

Image

Do you see my point? Yes, there are two different lines on the chart.

Following Vanguard's advice is a reasonable thing to do, and their advice certainly is to include BNDX, and there's no particular reason not to. But there's also no particular reason to do so, either.

So I think you can get BNDX with no fee, but if you can't my advice would be just to leave it out, don't worry about finding a substitute.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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ralphboy
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Re: Need help choosing bonds ["30% of your bond allocation in international bonds"]

Post by ralphboy »

Before I make my finals moves, is it best to have these funds in these places?

Brokerage: ITOT, IXUS
Roth: VTI, VXUS, BND
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dratkinson
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Re: Need help choosing bonds ["30% of your bond allocation in international bonds"]

Post by dratkinson »

ralphboy wrote: Sun Jan 16, 2022 8:53 pm Before I make my finals moves, is it best to have these funds in these places?

Brokerage: ITOT, IXUS
Roth: VTI, VXUS, BND
Is your Roth IRA at Fidelity, too?

Rhetorical question. The way you are set up allows you to TLH (tax-loss harvest) ITOT/IXUS, a good thing, without interference from VTI/VXUS distributions. Your intention, or a happy accident?

What you propose is okay. But depending upon your situation, there might be a better option.



Opposing view. I follow the advice of others who believe that Roth space is too precious to be wasted on bonds; better to fill it with stock funds and put bonds elsewhere.

Example.
--Roth. Since withdrawals are tax-free, skew toward stock funds to maximize long-term growth potential, better QDI/LTCG benefits, and no RMDs/tax bracket creep. FTC benefit is lost.
--Tax-deferred. Since withdrawals are taxed as ordinary income, skew toward bond funds to minimize long-term growth potential and tax on RMDs/tax bracket creep. QDI/LTCG/FTC benefits are lost, but bond dividends (ordinary income) treated no worse than in taxable.
--Taxable. Skew toward tax-efficient stock/bond funds to minimize taxes. Get benefits for QDI/LTCG/FTC/TE dividends.


Disclosure. I have a smaller Roth and larger taxable, so now fill my Roth with stock funds to maximize growth, and put my (tax-exempt municipal funds) bonds in taxable. My plan evolved over many years as I tweaked each piece to improve performance. Would have been better if the pieces had come together more quickly: wasted time = wasted money.



Forum review. OP could benefit from a review of his family's complete retirement planning situation, so he can get all of his questions answered at the same time and as part of a whole.

Suggestion. OP use the sticky "Asking Portfolio Questions" and ask the forum to review your complete retirement planning situation.
Sticky link: viewtopic.php?f=1&t=6212

Put your forum review in a new topic, and put a link to that topic in this topic, so your followers here can find you there.
d.r.a., not dr.a. | I'm a novice investor; you are forewarned.
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