Age 70: Simplifying bond funds in tIRA

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LookinAround
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Age 70: Simplifying bond funds in tIRA

Post by LookinAround »

I’ve managed to splinter my tIRA bond holdings across a few different funds and I'd like to simplify. One of those funds is Vanguard Wellesley (which is actually 60% bonds / 40% equities). I’m also looking to reduce my equity holdings so, as part of simplification, am thinking I should transfer from Wellesley to a 100% bond fund.

A frequent BH recommendation is Total Bond Market Index. I’ve also read some advise that at my age an Intermediate Term bond fund could also be appropriate.
  1. Which bond fund(s) would you recommend I consolidate into?
  2. Any thoughts about keeping all or some $$ in an Intermediate Bond Fund? If so, which Intermediate fund and how would you split between Intermediate and Total if you think both?
  3. Historically, I’ve only had a small 4- 5% exposure to international - all in equity funds. Any opinion in increasing that exposure, at this point, putting some $ into an international bund fund? If so, which one?
Here's a list of funds in my tIRA and it’s % of the total. (tIRA value currently 1.1M) TIA for feedback.

VBILX Vang Intermediate Term Bond Idx Admiral (ER .07%) 26.2%
VFIDX Vang Intermediate Term Investment Grade Admiral (ER .10%%) 11.4%
VBIRX Vang ST Bond Idx Admiral (ER .07%) 10.0%
VBTLX Vang Total Bond Market Idx Admiral (ER .05%) 38.0%
VWIAX Vang Wellesley Income Admiral (ER .16%) 14.4%

/* EDIT */
Corrected ER for Vang Intermediate Investment Grade
Last edited by LookinAround on Tue Aug 09, 2022 6:52 am, edited 1 time in total.
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grabiner
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Re: Age 70: Simplifying bond funds in tIRA

Post by grabiner »

I don't recommend 100% bonds (although 100% bonds in your IRA is fine if your taxable account holds stocks). Historically, 20% stocks and 80% bonds gives higher returns than 100% bonds, with about the same risk.

Total Bond Market Index is already an intermediate-term bond fund; it holds short-term, intermediate-term, and long-term bonds, giving it an overall intermediate-term duration. It is slightly less risky than Intermediate-Term Bond Index; the durations are comparable, but Total Bond Market has less credit risk because it includes GNMAs and thus has more bonds backed by the US government,

The simplest way to have a mostly-bond portfolio is Vanguard LifeStrategy Income, which is 20% stock, or Target Retirement Income, which is 30% stock; both are a complete portfolio in one fund, with 40% of the stock in international.

(edited to fix typo)
Last edited by grabiner on Mon Aug 08, 2022 10:07 pm, edited 2 times in total.
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Tom_T
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Re: Age 70: Simplifying bond funds in tIRA

Post by Tom_T »

grabiner wrote: Mon Aug 08, 2022 8:33 pm I don't recommend 100% bonds (although 100% bonds in your IRA is fine if your taxable account holds stocks). Historically, 20% stocks and 80% bonds gives higher returns than 100% bonds, with about the same risk.

Total Bond Market Index is already an intermediate-term bond fund; it holds short-term, intermediate-term, and long-term bonds, giving it an overall intermediate-term duration. It is slightly less risky than Intermediate-Term Bond Index; the durations are comparable, but Total Bond Market has less credit risk because it includes GNMAs and thus has more bonds backed by the US government,

The simplest way to have a mostly-bond portfolio is Vanguard LifeStrategy Income, which is 20% bonds, or Target Retirement Income, which is 30% bonds; both are a complete portfolio in one fund, with 40% of the stock in international.
Typos in the last sentence re: bond percentages of those funds?
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grabiner
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Re: Age 70: Simplifying bond funds in tIRA

Post by grabiner »

Tom_T wrote: Mon Aug 08, 2022 9:14 pm
grabiner wrote: Mon Aug 08, 2022 8:33 pm I don't recommend 100% bonds (although 100% bonds in your IRA is fine if your taxable account holds stocks). Historically, 20% stocks and 80% bonds gives higher returns than 100% bonds, with about the same risk.

Total Bond Market Index is already an intermediate-term bond fund; it holds short-term, intermediate-term, and long-term bonds, giving it an overall intermediate-term duration. It is slightly less risky than Intermediate-Term Bond Index; the durations are comparable, but Total Bond Market has less credit risk because it includes GNMAs and thus has more bonds backed by the US government,

The simplest way to have a mostly-bond portfolio is Vanguard LifeStrategy Income, which is 20% stock, or Target Retirement Income, which is 30% stock; both are a complete portfolio in one fund, with 40% of the stock in international.
Typos in the last sentence re: bond percentages of those funds?
Fixed; thanks.
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Re: Age 70: Simplifying bond funds in tIRA

Post by jebmke »

The ER on intermediate term IG is only 10bp. If I were to use only one fund I would use this or Intermediate Treasury Index.
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LookinAround
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Re: Age 70: Simplifying bond funds in tIRA

Post by LookinAround »

jebmke wrote: Tue Aug 09, 2022 6:06 am The ER on intermediate term IG is only 10bp. If I were to use only one fund I would use this or Intermediate Treasury Index.
Fixed. Thanks for the advice and correction.
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Re: Age 70: Simplifying bond funds in tIRA

Post by Mike Scott »

This is probably not a simplification process but it is where I find myself because I find bond funds one of the most difficult things to understand and certain bonds are included in the balanced funds I have in certain accounts. The recommendations for bonds over the years jump around with little compelling evidence to pick one over the other. Perhaps that means it does not matter that much?

Where I have ended up and am likely to stay for a while is that I have some total bond and international bond within a Vanguard Life Strategy fund in one account. I also have bonds within Wellesley, Wellington and Vanguard Balanced fund in other accounts. I round out my total bond allocation with short TIPS, intermediate TIPS and intermediate Treasury funds. Overall, I find the split easier/simpler than trying to force a choice when I don't know how to make that choice. As I approach retirement and think about a social security bridge I am leaning towards bumping up the TIPS for that.

The longer term plan is to spend down smaller accounts, combine accounts as much as possible and consolidate as much as possible into balanced funds in tax advantaged accounts which means accepting whatever bonds they include. I think I can eventually get the two of us into a total of 6 accounts with access to Vanguard balanced funds. Will find out in 20 or 30 years how this goes.
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grabiner
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Re: Age 70: Simplifying bond funds in tIRA

Post by grabiner »

Mike Scott wrote: Tue Aug 09, 2022 6:57 am This is probably not a simplification process but it is where I find myself because I find bond funds one of the most difficult things to understand and certain bonds are included in the balanced funds I have in certain accounts. The recommendations for bonds over the years jump around with little compelling evidence to pick one over the other. Perhaps that means it does not matter that much?
This is probably correct. The most important thing is to have the right amount in bonds to control your risk level, which you can do with any low-cost, well-diversified bond fund. Treasury and short-term bonds have lower returns than corporate and long-term bonds, but also less risk, so you can get a similar diversification benefit by holding more of the higher-risk bonds or less of the lower-risk bonds.

The one issue which does make a consistent difference is taxes. If you are in a high tax bracket and hold bonds in your taxable account, they need to be municipal bonds; if you are in a low tax bracket, you should not hold municipal bonds. If you are in a high-tax state, you should prefer either a low-cost muni fund for your own state, or Treasury bonds which are state tax-exempt. And there can be a clear advantage for holding bonds in taxable and stocks in tax-deferred, or vice versa, depending on your tax situation.
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