Will BND return be negative in 2022
Will BND return be negative in 2022
Looking at Vanguard Total Bond Market fund from 1987 to 2021 there have been 5 years where annual returns were negative: 1994, 99, 2013, 18, 21 but never two consecutive negative years. What do bond enthusiasts think will be BND return in 2022 based on current fed rate hike prospects.
Last edited by ebeb on Sun Jan 09, 2022 8:10 pm, edited 1 time in total.
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
Re: Will BND return be negative in 2022
Maybe!
How is this personal or actionable?
How is this personal or actionable?
- canadianbacon
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Re: Will BND return be negative in 2022
I sure don’t know, but one thing to consider. Mark Dow tweeted last week that the market appeared to be pricing in 3.5 hikes this year. Whether that’s exactly accurate doesn’t matter. Suppose it was and then there only ended up being two hikes. Maybe bonds go up in the face of a slower than expected program. Or maybe investors get mad because a slower program means the economy a weak. Lots can happen. We just don’t know.
Bulls make money, bears make money, pigs get slaughtered.
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Re: Will BND return be negative in 2022
Maybe it will. Maybe it won't. Either way my investment plan will stay the same.
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Re: Will BND return be negative in 2022
I won't guess for single years.
If you care about not having a negative return over a single year, you shouldn't be looking at a bond fund with a 6.8-year duration.
Since the duration is 6.8 years, since Vanguard says that ETFs in its risk category "may be appropriate for investors with medium-term investment horizons (4 to 10 years)," and since the Vanguard Total Bond Market Index Fund has, to date, never lost money over any 48-month period, I will go out on a limb.
I predict that over the four-year period 1/1/2022 through 1/1/2006, BND (total return including dividends). will make money. It will not have a negative return over a four-year period.
If you care about not having a negative return over a single year, you shouldn't be looking at a bond fund with a 6.8-year duration.
Since the duration is 6.8 years, since Vanguard says that ETFs in its risk category "may be appropriate for investors with medium-term investment horizons (4 to 10 years)," and since the Vanguard Total Bond Market Index Fund has, to date, never lost money over any 48-month period, I will go out on a limb.
I predict that over the four-year period 1/1/2022 through 1/1/2006, BND (total return including dividends). will make money. It will not have a negative return over a four-year period.
Last edited by nisiprius on Sun Jan 09, 2022 8:01 pm, edited 1 time in total.
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.
Re: Will BND return be negative in 2022
In my opinion, one should not be making by/sell decisions about BND based on potential changes in NAV in the next 12 months.
All interest rate increases are good for the performance of bonds, but NAV is a lagging indicator.
All interest rate increases are good for the performance of bonds, but NAV is a lagging indicator.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
Re: Will BND return be negative in 2022
I hazard a guess based on past history (although past is not a guarantee for future), that BND may return 5%+ this year as people dump more high risk assets with rising interest rates
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
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Re: Will BND return be negative in 2022
I do want to point out an historic detail. The Vanguard Total Bond Market Index Fund, VBLTX (same as BND) had returns of
+4.33% in 2004
+2.49% in 2005
+4.36% in 2006
despite the Fed raising the Fed Funds rate from 1% to 5.25% from June 2004 through July 2006.
The situation is less favorable today because Total Bond is working off a much lower interest rate, but still.
"The Fed will raise 'rates'" does not necessarily mean "your bond funds are going to lose money."
+4.33% in 2004
+2.49% in 2005
+4.36% in 2006
despite the Fed raising the Fed Funds rate from 1% to 5.25% from June 2004 through July 2006.
The situation is less favorable today because Total Bond is working off a much lower interest rate, but still.
"The Fed will raise 'rates'" does not necessarily mean "your bond funds are going to lose money."
Last edited by nisiprius on Sun Jan 09, 2022 8:07 pm, edited 1 time in total.
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.
Re: Will BND return be negative in 2022
Yes, it will very likely be negative this year again, with a never before back to back negative years for bonds. There, I said what most people aren't likely to tell you. Now that you know it is likely, what are you going to do with this information? Sell bonds, then what? when equities tank 20%, 30%, 40% would you be happy you don't have any bonds that are losing may be 1% to 2%. Bonds may lose money this year again, in fact they've already lost in a week so much, but they may end the year being your best performing asset.ebeb wrote: ↑Sun Jan 09, 2022 7:35 pm Looking at Vanguard Total Bond Market fund from 1987 to 2021 there has been 5 years were annual return was negative: 1994, 99, 2013, 18, 21 but never two consecutive negative years. What do bond enthusiasts think will be BND return in 2022 based on current fed rate hike prospects.
Note: I just increased my bond allocation at the end of year by another 5% and plans to keep buying throughout the year with new money.
Re: Will BND return be negative in 2022
Can’t say. My only thought it it would be a guess.ebeb wrote: ↑Sun Jan 09, 2022 7:35 pm Looking at Vanguard Total Bond Market fund from 1987 to 2021 there have been 5 years where annual returns were negative: 1994, 99, 2013, 18, 21 but never two consecutive negative years. What do bond enthusiasts think will be BND return in 2022 based on current fed rate hike prospects.
I’m not all that worried because when my bond funds go down they pay more.
Last edited by tetractys on Sun Jan 09, 2022 8:48 pm, edited 1 time in total.
Re: Will BND return be negative in 2022
I doubt it, but you never know. That's why I own BNDW instead. It's unlikely US and ex-US bonds will have another negative year, but since there's no evidence clairvoyance is real, so we can't predict the future.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
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Re: Will BND return be negative in 2022
My Magic 8-Ball says YES.ebeb wrote: ↑Sun Jan 09, 2022 7:35 pm Looking at Vanguard Total Bond Market fund from 1987 to 2021 there have been 5 years where annual returns were negative: 1994, 99, 2013, 18, 21 but never two consecutive negative years. What do bond enthusiasts think will be BND return in 2022 based on current fed rate hike prospects.
From 1987 to 2021, the 10-year Treasury went from 9.63% down, down, down to 0.65%; you cannot expect the same going back up. The bond bull market is dead!
I also expect the US equities markets to have a negative return in 2022. To mitigate the risk, I have cashed out of everything, converted it to gold bars and buried them in my backyard behind the fallout shelter.
Re: Will BND return be negative in 2022
You ask "think". I think BND will have a negative real return. But I don't change allocation based on my casual opinions. I own BND and some TIPS/I-bonds. I'm not changing that.ebeb wrote: ↑Sun Jan 09, 2022 7:35 pm Looking at Vanguard Total Bond Market fund from 1987 to 2021 there have been 5 years where annual returns were negative: 1994, 99, 2013, 18, 21 but never two consecutive negative years. What do bond enthusiasts think will be BND return in 2022 based on current fed rate hike prospects.
Re: Will BND return be negative in 2022
I don't know and I don't care.ebeb wrote: ↑Sun Jan 09, 2022 7:35 pm Looking at Vanguard Total Bond Market fund from 1987 to 2021 there have been 5 years where annual returns were negative: 1994, 99, 2013, 18, 21 but never two consecutive negative years. What do bond enthusiasts think will be BND return in 2022 based on current fed rate hike prospects.
Please explain why should this matters to me? My AA is 60/40. I only care about my portfolio's return.
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Re: Will BND return be negative in 2022
No one knows with certainty but I predict those holding BND will be glad in 2022 they didn't dump it for stocks.
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Re: Will BND return be negative in 2022
All these "what will asset X do in 2022" are pointless threads. No one knows. Not sure why you would be changing your bond allocation year-to-year based on some forecast - It is pointless to listen to even financial geniuses' on predictions, let alone some DIY dudes in a forum.
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Re: Will BND return be negative in 2022
Here are a few other statistics. Let me say in advance that my point is that some people are wildly exaggerating the potential effects of interest rate risk on bond funds. That's the only point. Inflation risk is a separate topic (but TIPS do exist.) Also, among low-risk investments, certainly some might well do better than bond funds, I'm not saying "bond funds rule" or anything like that.
I'm going to look at two data sets that both go back far enough to include the last period of rising rates, about 1940-1980. The first is not an actual fund but it does includes the whole period: the Ibbotson SBBI data series for "intermediate-term government bonds." The second is the actual real-world bond fund PINCX, the Putnam Income Fund, which goes back to 1954; it's an actively-managed fund and I don't know what kinds of bonds it invested in during the period of rising rates.
Ibbotson series:
From 1926 through 2020 there were 2 times when annual returns for intermediate-term government bonds were negative for two years in a row. There have not yet been three negative years in a row.
1954 2.68%
1955 -0.65%
1956 -0.42%
1957 7.84%
1958 -1.29%
1959 -0.39%
1960 11.76%
From 1955 through 2020, PINCX--the Putnam Income Fund--has had two times when when annual returns were negative for two years in a row; it has not yet had three negative years in a row.
1972 10.58%
1973 -2.40%
1974 -7.47%
1975 17.20%
1976 20.62%
1977 5.49%
1978 1.62%
1979 -1.89%
1980 -0.15%
1981 8.03%
Within the Ibbotson intermediate-term government bond series, there has not yet been any 48-month period with a negative return.
The picture is not so rosy for the Putnam fund, which has been quite volatile for a bond fund and had a nasty drop in 2008. For the fund as it exists today, Morningstar assigns it an average bond rating of BBB and calls it "medium" credit quality. Measuring between highs and lows in this fund, it's possible to find periods as long as 96 months (eight years) over which it had negative return. There have as yet been no 108-month periods with negative returns.
Source
I'm going to look at two data sets that both go back far enough to include the last period of rising rates, about 1940-1980. The first is not an actual fund but it does includes the whole period: the Ibbotson SBBI data series for "intermediate-term government bonds." The second is the actual real-world bond fund PINCX, the Putnam Income Fund, which goes back to 1954; it's an actively-managed fund and I don't know what kinds of bonds it invested in during the period of rising rates.
Ibbotson series:
From 1926 through 2020 there were 2 times when annual returns for intermediate-term government bonds were negative for two years in a row. There have not yet been three negative years in a row.
1954 2.68%
1955 -0.65%
1956 -0.42%
1957 7.84%
1958 -1.29%
1959 -0.39%
1960 11.76%
From 1955 through 2020, PINCX--the Putnam Income Fund--has had two times when when annual returns were negative for two years in a row; it has not yet had three negative years in a row.
1972 10.58%
1973 -2.40%
1974 -7.47%
1975 17.20%
1976 20.62%
1977 5.49%
1978 1.62%
1979 -1.89%
1980 -0.15%
1981 8.03%
Within the Ibbotson intermediate-term government bond series, there has not yet been any 48-month period with a negative return.
The picture is not so rosy for the Putnam fund, which has been quite volatile for a bond fund and had a nasty drop in 2008. For the fund as it exists today, Morningstar assigns it an average bond rating of BBB and calls it "medium" credit quality. Measuring between highs and lows in this fund, it's possible to find periods as long as 96 months (eight years) over which it had negative return. There have as yet been no 108-month periods with negative returns.
Source
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.
Re: Will BND return be negative in 2022
Lot of good data! It appears after every negative returns, following years positive returns have been usually 5%+ which is also the case for the Vanguard Total Bond fund since 1987. Total Stocks fund doesn't look like will be positive this year, but hoping BND will be good positive this year.
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
- willthrill81
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Re: Will BND return be negative in 2022
Past is not prologue, especially with bonds. Bond yields and inflation of the past have little to no bearing on the future performance of bonds.
Bonds returned -1.6% real from 1941-1981. Extended periods of negative real returns on bonds are far from unprecedented and could certainly happen again.
The Sensible Steward
- Taylor Larimore
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Bonds are for safety during stock market declines
Bogleheads:
Two facts about bonds and a conclusion:
Bond returns are secondary. We buy bonds for safety when stocks fall.
Bonds with the highest returns are usually the worst when stocks fall.
Investors seeking higher returns (and more risk of loss) should increase their stock allocations.
Best wishes
Taylor
Two facts about bonds and a conclusion:
Bond returns are secondary. We buy bonds for safety when stocks fall.
Bonds with the highest returns are usually the worst when stocks fall.
Investors seeking higher returns (and more risk of loss) should increase their stock allocations.
Best wishes
Taylor
Jack Bogle's Words of Wisdom: "The Lehman Bond Index (total bond market), in substance, is an appropriate choice for investors with an intermediate-term time horizon and seeking top quality."
"Simplicity is the master key to financial success." -- Jack Bogle
Re: Will BND return be negative in 2022
I'd not hope for too much in any specific year. The best guess of a bond fund's performance is probably the SEC yield. BND's SEC yield is currently 1.63% per Vanguard. BND's NAV is down 2.67% YTD. So hoping for a positive return, much less a positive real return in 2022 is perhaps optimistic. But why should it matter to you?ebeb wrote: ↑Mon Jan 10, 2022 11:13 amLot of good data! It appears after every negative returns, following years positive returns have been usually 5%+ which is also the case for the Vanguard Total Bond fund since 1987. Total Stocks fund doesn't look like will be positive this year, but hoping BND will be good positive this year.
Re: Bonds are for safety during stock market declines
Getting a non-negative return is pretty important for an investment to be considered safe though.Taylor Larimore wrote: ↑Mon Jan 10, 2022 11:55 am Bogleheads:
Two facts about bonds and a conclusion:
Bond returns are secondary. We buy bonds for safety when stocks fall.
Bonds with the highest returns are usually the worst when stocks fall.
Investors seeking higher returns (and more risk of loss) should increase their stock allocations.
Best wishes
TaylorJack Bogle's Words of Wisdom: "The Lehman Bond Index (total bond market), in substance, is an appropriate choice for investors with an intermediate-term time horizon and seeking top quality."
Re: Bonds are for safety during stock market declines
"Safe" is a relative term.000 wrote: ↑Mon Jan 10, 2022 3:52 pmGetting a non-negative return is pretty important for an investment to be considered safe though.Taylor Larimore wrote: ↑Mon Jan 10, 2022 11:55 am Bogleheads:
Two facts about bonds and a conclusion:
Bond returns are secondary. We buy bonds for safety when stocks fall.
Bonds with the highest returns are usually the worst when stocks fall.
Investors seeking higher returns (and more risk of loss) should increase their stock allocations.
Best wishes
TaylorJack Bogle's Words of Wisdom: "The Lehman Bond Index (total bond market), in substance, is an appropriate choice for investors with an intermediate-term time horizon and seeking top quality."
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
Re: Will BND return be negative in 2022
The term your time horizon is used for one of the things for determining your bond duration.
For someone who is 77 years old and lives off their 40% ( equity index funds) 60% (bond index fund) what time horizon number would you use?
Thanks Paul
For someone who is 77 years old and lives off their 40% ( equity index funds) 60% (bond index fund) what time horizon number would you use?
Thanks Paul
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Re: Will BND return be negative in 2022
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Re: Will BND return be negative in 2022
Letting interest payments and maturing bonds roll off the Fed balance sheet by no longer reinvesting them, and raising the Fed funds rate all are actions that tap the breaks on the economy, and exert downward pressure on inflation. How high intermediate rates rise will likely depend on how much of all that it takes to tamp down inflation.
I've been surprised by the markets before, and no doubt will be again at times in the future, but I will be surprised if intermediate bonds lose value in nominal terms this year. Real returns for bonds this year are another matter. We still have negative expected real yields, a headwind for bonds to achieve a positive real return.
I've been surprised by the markets before, and no doubt will be again at times in the future, but I will be surprised if intermediate bonds lose value in nominal terms this year. Real returns for bonds this year are another matter. We still have negative expected real yields, a headwind for bonds to achieve a positive real return.
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Re: Bonds are for safety during stock market declines
The term 'safe' means different things to different people. To many here, it means 'much less volatile than stocks', which is certainly true of something like TBM. But to many here and probably most laypeople, paying $100 for bonds that are expected to only buy $90 worth of stuff (before taxes) in 10 years is not 'safe'. 'Safely losing money' would be considered oxymoronic to most people, but that's where bonds are right now and where they may be for a long time to come.GaryA505 wrote: ↑Mon Jan 10, 2022 4:39 pm"Safe" is a relative term.000 wrote: ↑Mon Jan 10, 2022 3:52 pmGetting a non-negative return is pretty important for an investment to be considered safe though.Taylor Larimore wrote: ↑Mon Jan 10, 2022 11:55 am Bogleheads:
Two facts about bonds and a conclusion:
Bond returns are secondary. We buy bonds for safety when stocks fall.
Bonds with the highest returns are usually the worst when stocks fall.
Investors seeking higher returns (and more risk of loss) should increase their stock allocations.
Best wishes
TaylorJack Bogle's Words of Wisdom: "The Lehman Bond Index (total bond market), in substance, is an appropriate choice for investors with an intermediate-term time horizon and seeking top quality."
The Sensible Steward
Re: Will BND return be negative in 2022
Great point.nisiprius wrote: ↑Sun Jan 09, 2022 8:00 pm I do want to point out an historic detail. The Vanguard Total Bond Market Index Fund, VBLTX (same as BND) had returns of
+4.33% in 2004
+2.49% in 2005
+4.36% in 2006
despite the Fed raising the Fed Funds rate from 1% to 5.25% from June 2004 through July 2006.
The situation is less favorable today because Total Bond is working off a much lower interest rate, but still.
"The Fed will raise 'rates'" does not necessarily mean "your bond funds are going to lose money."
Also, any sort of interest rate hike is already priced in.
I don't carry a signature because people are easily offended.
Re: Bonds are for safety during stock market declines
How so?Taylor Larimore wrote: ↑Mon Jan 10, 2022 11:55 am
Bonds with the highest returns are usually the worst when stocks fall.
Let's compare two funds:
I. A US Treasury intermediate bond fund,
L. A US Treasury long-term bond fund.
"L" would usually have higher returns, and also do the best when stocks fall.
I don't carry a signature because people are easily offended.
Re: Bonds are for safety during stock market declines
He said "highest" your changed it to "higher". I assume he meant junk/corporates rather than LTT.AlphaLess wrote: ↑Mon Jan 10, 2022 7:12 pmHow so?Taylor Larimore wrote: ↑Mon Jan 10, 2022 11:55 am
Bonds with the highest returns are usually the worst when stocks fall.
Let's compare two funds:
I. A US Treasury intermediate bond fund,
L. A US Treasury long-term bond fund.
"L" would usually have higher returns, and also do the best when stocks fall.
Re: Will BND return be negative in 2022
I expect negative real again assuming the Fed raises rates, tapers, and starts to run down the balance sheet.
So what's your next step?
What I'm trying to figure out is what bonds I want to buy after maxing out I Bonds. This is harder than it sounds.
So what's your next step?
What I'm trying to figure out is what bonds I want to buy after maxing out I Bonds. This is harder than it sounds.
Re: Will BND return be negative in 2022
I am trying to figure out between BND and VGLT(which has higher volatility, drawdowns, duration and returns), what are the pros and cons between the two if time horizon is at least 10 years before withdrawal.
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
Re: Will BND return be negative in 2022
I'm buying actual bonds, not funds. The yields are too low for investment grade for me to want to pay an ER.
Right now, I'm buying more I Bonds next month with the plan to max out before the reprice, and I'm waiting for positive real yielding TIPS 10 year or less. That's my current plan. I'll also shop for individual preferred stock as well less than or equal to par with a call date at least two years from now. I'm lucky if I find one good one a year.
Re: Will BND return be negative in 2022
Unless I am a professional stock picker which I am not, I would not trust an individual stock/bond to not crash or go bankrupt. I just stick to total market funds and similar to be safer. You are probably more of a risk taker.
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
Re: Will BND return be negative in 2022
I'm buying US treasury bonds at auction or on the secondary market and holding to maturity. I feel pretty safe doing so. If the US government defaults, then I'll have much bigger worries.
Re: Will BND return be negative in 2022
Sure, there's a good chance it will be.
Get rich or die tryin'
Re: Will BND return be negative in 2022
"...I'm waiting for positive real yielding TIPS 10 year or less."rockstar wrote: ↑Mon Jan 10, 2022 7:44 pmI'm buying actual bonds, not funds. The yields are too low for investment grade for me to want to pay an ER.
Right now, I'm buying more I Bonds next month with the plan to max out before the reprice, and I'm waiting for positive real yielding TIPS 10 year or less. That's my current plan. I'll also shop for individual preferred stock as well less than or equal to par with a call date at least two years from now. I'm lucky if I find one good one a year.
If VAIPX is yielding about -1.70 at the moment,
by the time that yield turns positive, won't the NAV go up considerably too?
Because it would then become a more desirable and in-demand fund?
I don't know, so that's why I'm asking.
"We keep you alive to serve this ship. Row well...and live." Ben Hur...and The Taxman! hahaha (a George Harrison song)
Re: Will BND return be negative in 2022
It would be the opposite. As the yield gets closer to zero from negative, the NAV would go down, not up. I'm talking about buying from auction, not buying via a fund, where I have no control over duration or turnover.theac wrote: ↑Mon Jan 10, 2022 9:17 pm"...I'm waiting for positive real yielding TIPS 10 year or less."rockstar wrote: ↑Mon Jan 10, 2022 7:44 pmI'm buying actual bonds, not funds. The yields are too low for investment grade for me to want to pay an ER.
Right now, I'm buying more I Bonds next month with the plan to max out before the reprice, and I'm waiting for positive real yielding TIPS 10 year or less. That's my current plan. I'll also shop for individual preferred stock as well less than or equal to par with a call date at least two years from now. I'm lucky if I find one good one a year.
If VAIPX is yielding about -1.70 at the moment,
by the time that yield turns positive, won't the NAV go up considerably too?
Because it would then become a more desirable and in-demand fund?
I don't know, so that's why I'm asking.
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Re: Will BND return be negative in 2022
OK yeah, that makes sense.rockstar wrote: ↑Mon Jan 10, 2022 9:26 pmIt would be the opposite. As the yield gets closer to zero from negative, the NAV would go down, not up. I'm talking about buying from auction, not buying via a fund, where I have no control over duration or turnover.theac wrote: ↑Mon Jan 10, 2022 9:17 pm"...I'm waiting for positive real yielding TIPS 10 year or less."rockstar wrote: ↑Mon Jan 10, 2022 7:44 pmI'm buying actual bonds, not funds. The yields are too low for investment grade for me to want to pay an ER.
Right now, I'm buying more I Bonds next month with the plan to max out before the reprice, and I'm waiting for positive real yielding TIPS 10 year or less. That's my current plan. I'll also shop for individual preferred stock as well less than or equal to par with a call date at least two years from now. I'm lucky if I find one good one a year.
If VAIPX is yielding about -1.70 at the moment,
by the time that yield turns positive, won't the NAV go up considerably too?
Because it would then become a more desirable and in-demand fund?
I don't know, so that's why I'm asking.
So I guess it's not any different than a regular bond fund in that respect,
rising interest rates lower the NAV.
That must have just been some wishful thinking on my part since I just exchanged a pretty good chunk of Total Bond Fund over to VAIPX today.
So I can see why many are saying they would rather wait at this point and see if rates go up on TIPS before buying in. It was those negative returns on TIPS in the past that made me avoid them too.
Oh well, it's done now, guess I'll just hang in there and see where it takes me
Maybe being a bit more diversified will pan out.
"We keep you alive to serve this ship. Row well...and live." Ben Hur...and The Taxman! hahaha (a George Harrison song)
Re: Bonds are for safety during stock market declines
Hmm. I would not call junk fund a bond fund.Da5id wrote: ↑Mon Jan 10, 2022 7:16 pmHe said "highest" your changed it to "higher". I assume he meant junk/corporates rather than LTT.AlphaLess wrote: ↑Mon Jan 10, 2022 7:12 pmHow so?Taylor Larimore wrote: ↑Mon Jan 10, 2022 11:55 am
Bonds with the highest returns are usually the worst when stocks fall.
Let's compare two funds:
I. A US Treasury intermediate bond fund,
L. A US Treasury long-term bond fund.
"L" would usually have higher returns, and also do the best when stocks fall.
Typically, a bond fund is mostly treasuries or highly rated corporates.
I would even go as far as to say that a bond fund == treasuries.
A corporates are generally referred to as credit.
I don't carry a signature because people are easily offended.
Re: Bonds are for safety during stock market declines
They are all often called bond funds too, eg on Vanguards site.AlphaLess wrote: ↑Wed Jan 12, 2022 8:43 pmHmm. I would not call junk fund a bond fund.Da5id wrote: ↑Mon Jan 10, 2022 7:16 pmHe said "highest" your changed it to "higher". I assume he meant junk/corporates rather than LTT.AlphaLess wrote: ↑Mon Jan 10, 2022 7:12 pmHow so?Taylor Larimore wrote: ↑Mon Jan 10, 2022 11:55 am
Bonds with the highest returns are usually the worst when stocks fall.
Let's compare two funds:
I. A US Treasury intermediate bond fund,
L. A US Treasury long-term bond fund.
"L" would usually have higher returns, and also do the best when stocks fall.
Typically, a bond fund is mostly treasuries or highly rated corporates.
I would even go as far as to say that a bond fund == treasuries.
A corporates are generally referred to as credit.
Re: Will BND return be negative in 2022
It baffles me that I see this mentality of holding a portfolio, but people overly scrutinize one fund or asset type without any discussion or contemplation of what else is in the portfolio. It’s likes people just only want winners in their portfolio.KlangFool wrote: ↑Sun Jan 09, 2022 9:13 pmI don't know and I don't care.ebeb wrote: ↑Sun Jan 09, 2022 7:35 pm Looking at Vanguard Total Bond Market fund from 1987 to 2021 there have been 5 years where annual returns were negative: 1994, 99, 2013, 18, 21 but never two consecutive negative years. What do bond enthusiasts think will be BND return in 2022 based on current fed rate hike prospects.
Please explain why should this matters to me? My AA is 60/40. I only care about my portfolio's return.
KlangFool
AAs help ensure the portfolio is a winner, which is what matters.
Re: Will BND return be negative in 2022
TexasBorn,TexasBorn wrote: ↑Sat Jan 15, 2022 8:48 amIt baffles me that I see this mentality of holding a portfolio, but people overly scrutinize one fund or asset type without any discussion or contemplation of what else is in the portfolio. It’s likes people just only want winners in their portfolio.KlangFool wrote: ↑Sun Jan 09, 2022 9:13 pmI don't know and I don't care.ebeb wrote: ↑Sun Jan 09, 2022 7:35 pm Looking at Vanguard Total Bond Market fund from 1987 to 2021 there have been 5 years where annual returns were negative: 1994, 99, 2013, 18, 21 but never two consecutive negative years. What do bond enthusiasts think will be BND return in 2022 based on current fed rate hike prospects.
Please explain why should this matters to me? My AA is 60/40. I only care about my portfolio's return.
KlangFool
AAs help ensure the portfolio is a winner, which is what matters.
It is very simple.
Some folks believe wrongly that
For a portfolio of A and B, the portfolio return = return of A plus return of B.
As to the fallacy of that argument, it does not take much to know that it is false.
KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Re: Will BND return be negative in 2022
Would you please elaborate?KlangFool wrote: ↑Sat Jan 15, 2022 9:01 amTexasBorn,TexasBorn wrote: ↑Sat Jan 15, 2022 8:48 amIt baffles me that I see this mentality of holding a portfolio, but people overly scrutinize one fund or asset type without any discussion or contemplation of what else is in the portfolio. It’s likes people just only want winners in their portfolio.KlangFool wrote: ↑Sun Jan 09, 2022 9:13 pmI don't know and I don't care.ebeb wrote: ↑Sun Jan 09, 2022 7:35 pm Looking at Vanguard Total Bond Market fund from 1987 to 2021 there have been 5 years where annual returns were negative: 1994, 99, 2013, 18, 21 but never two consecutive negative years. What do bond enthusiasts think will be BND return in 2022 based on current fed rate hike prospects.
Please explain why should this matters to me? My AA is 60/40. I only care about my portfolio's return.
KlangFool
AAs help ensure the portfolio is a winner, which is what matters.
It is very simple.
Some folks believe wrongly that
For a portfolio of A and B, the portfolio return = return of A plus return of B.
As to the fallacy of that argument, it does not take much to know that it is false.
KlangFool
Re: Will BND return be negative in 2022
TexasBorn,TexasBorn wrote: ↑Sat Jan 15, 2022 9:08 amWould you please elaborate?KlangFool wrote: ↑Sat Jan 15, 2022 9:01 amTexasBorn,TexasBorn wrote: ↑Sat Jan 15, 2022 8:48 amIt baffles me that I see this mentality of holding a portfolio, but people overly scrutinize one fund or asset type without any discussion or contemplation of what else is in the portfolio. It’s likes people just only want winners in their portfolio.KlangFool wrote: ↑Sun Jan 09, 2022 9:13 pmI don't know and I don't care.ebeb wrote: ↑Sun Jan 09, 2022 7:35 pm Looking at Vanguard Total Bond Market fund from 1987 to 2021 there have been 5 years where annual returns were negative: 1994, 99, 2013, 18, 21 but never two consecutive negative years. What do bond enthusiasts think will be BND return in 2022 based on current fed rate hike prospects.
Please explain why should this matters to me? My AA is 60/40. I only care about my portfolio's return.
KlangFool
AAs help ensure the portfolio is a winner, which is what matters.
It is very simple.
Some folks believe wrongly that
For a portfolio of A and B, the portfolio return = return of A plus return of B.
As to the fallacy of that argument, it does not take much to know that it is false.
KlangFool
If the average annual return of stock over 10 years is 7% and the average annual return of bond is 3%, a portfolio of 60:40 would return
60% of 7% and 40% of 3% = 4.2% + 1.2% = 5.4%
This is the thought process of those people.
Then, check out the following thread as to what actually happened in the real world.
viewtopic.php?t=335902
"PSA: Fixed AA with 5/25 rebalancing works!"
KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Re: Will BND return be negative in 2022
Here is the key post in that rebalancing thread (cut and paste)...
RE: PSA: Fixed AA with 5/25 rebalancing works!
Post by csh » Sun Jan 24, 2021 5:37 pm
KlangFool wrote: ↑Sun Jan 10, 2021 11:56 am
1) My SCV bought in March 2020 is up 95%. Almost double.
2) My international bought in March 2020 is up 63%.
3) My US stock index bought in March 2020 is up 66%.
You seem to be implying that there is a rebalancing bonus with this strategy. In the near term I think you are correct, but this does not hold out in the long term. Remember that while you managed to buy into an asset at a discount in a crash, as those assets appreciate you begin to sell out of them. If you have an asset that out performs over an extended period then you are continually rebalancing from you best performing asset into your worst performing assets. The way I look at it is that it all comes out in the wash over an extended period of time.
The value I see in regular rebalancing is that it maintains your risk profile without giving up much in terms of total gains. This is compared to someone that does not rebalance and allows their asset allocation to drift with the associated increase in risk.
Backtesting the Core Four 60/40 portfolio (Total Stock 36%, Intl 18%, REIT 6%, Total Bond 40%) with different rebalancing 1996-2020
I chose to compare No Rebalancing (AKA set and forget), vs. Annual Rebalancing vs. 5/25 Rebalance Bands
CODE: SELECT ALL
Rebalancing Initial Balance Final Balance CAGR TWRR MWRR Stdev Best Year Worst Year Max. Drawdown
None $10,000 $1,433,076 20.19% 7.88% 7.89% 10.25% 24.24% -25.38% -37.50%
Annual $10,000 $1,354,149 19.94% 7.74% 7.53% 8.88% 21.98% -20.96% -33.23%
5/25 $10,000 $1,361,982 19.96% 7.72% 7.57% 9.04% 21.47% -21.75% -34.02%
No Rebalancing
https://www.portfoliovisualizer.com/bac ... tion4_1=40
Annual Rebalancing
https://www.portfoliovisualizer.com/bac ... tion4_1=40
5/25 Rebalancing
https://www.portfoliovisualizer.com/bac ... tion4_1=40
Notes: I really wanted to backtest over a 30 year period to factor out any recency bias, but was limited to 26 years due to limited data REIT. I'm sure that you could probably cherry pick a particular time frame where one strategy out performed the others. Also, I think it would be worth pointing out that the No Rebalancing drifted to 80/20 and international down to 9%
RE: PSA: Fixed AA with 5/25 rebalancing works!
Post by csh » Sun Jan 24, 2021 5:37 pm
KlangFool wrote: ↑Sun Jan 10, 2021 11:56 am
1) My SCV bought in March 2020 is up 95%. Almost double.
2) My international bought in March 2020 is up 63%.
3) My US stock index bought in March 2020 is up 66%.
You seem to be implying that there is a rebalancing bonus with this strategy. In the near term I think you are correct, but this does not hold out in the long term. Remember that while you managed to buy into an asset at a discount in a crash, as those assets appreciate you begin to sell out of them. If you have an asset that out performs over an extended period then you are continually rebalancing from you best performing asset into your worst performing assets. The way I look at it is that it all comes out in the wash over an extended period of time.
The value I see in regular rebalancing is that it maintains your risk profile without giving up much in terms of total gains. This is compared to someone that does not rebalance and allows their asset allocation to drift with the associated increase in risk.
Backtesting the Core Four 60/40 portfolio (Total Stock 36%, Intl 18%, REIT 6%, Total Bond 40%) with different rebalancing 1996-2020
I chose to compare No Rebalancing (AKA set and forget), vs. Annual Rebalancing vs. 5/25 Rebalance Bands
CODE: SELECT ALL
Rebalancing Initial Balance Final Balance CAGR TWRR MWRR Stdev Best Year Worst Year Max. Drawdown
None $10,000 $1,433,076 20.19% 7.88% 7.89% 10.25% 24.24% -25.38% -37.50%
Annual $10,000 $1,354,149 19.94% 7.74% 7.53% 8.88% 21.98% -20.96% -33.23%
5/25 $10,000 $1,361,982 19.96% 7.72% 7.57% 9.04% 21.47% -21.75% -34.02%
No Rebalancing
https://www.portfoliovisualizer.com/bac ... tion4_1=40
Annual Rebalancing
https://www.portfoliovisualizer.com/bac ... tion4_1=40
5/25 Rebalancing
https://www.portfoliovisualizer.com/bac ... tion4_1=40
Notes: I really wanted to backtest over a 30 year period to factor out any recency bias, but was limited to 26 years due to limited data REIT. I'm sure that you could probably cherry pick a particular time frame where one strategy out performed the others. Also, I think it would be worth pointing out that the No Rebalancing drifted to 80/20 and international down to 9%
Re: Will BND return be negative in 2022
smitcat,smitcat wrote: ↑Sat Jan 15, 2022 9:21 am Here is the key post in that rebalancing thread (cut and paste)...
RE: PSA: Fixed AA with 5/25 rebalancing works!
Post by csh » Sun Jan 24, 2021 5:37 pm
KlangFool wrote: ↑Sun Jan 10, 2021 11:56 am
1) My SCV bought in March 2020 is up 95%. Almost double.
2) My international bought in March 2020 is up 63%.
3) My US stock index bought in March 2020 is up 66%.
You seem to be implying that there is a rebalancing bonus with this strategy. In the near term I think you are correct, but this does not hold out in the long term.
The correct answer is the actual portfolio return is highly dependent on the individual portfolio sequence of return. We only live once. We only have one sequence of return. It is not a simple addition of return of the stock plus return of the bond.
<<In the near term I think you are correct, but this does not hold out in the long term. >>
The correct answer is we do not know how it would work out in the long term either. Ditto for the short term.
KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry