[dougawhite]

Want to get rich in the stock market, simply buy what I sell and sell what I buy. ;-)

[jimjamuser]

Originally Posted by tophcfa

Hindsight is always 20/20. With any asset class you can find a historical time period that looks unusually good or bad. The last 15 years has been horrendous for bonds. The housing market crash of 2007/8, driven primarily by subprime mortgages, resulted in interest rates close to zero, and the Federal Reserve irresponsibly choose to keep rates artificially low for many years beyond the crisis. That was followed by a rapid increase in rates the last couple of years driven by hyperinflation. A perfect storm for bonds. A bonds return is driven by its yield as well as price changes. When interest rates go up, a bonds price declines and vice versa. When rates are close to zero, a bonds yield leaves little cushion to absorb losses due to price changes. Furthermore, when rates are close to zero, interest rates have little room to decline but lots of room to increase.

The difference between a bond fund and owning a single bond and holding it until maturity are very different. When you buy and hold a bond (assuming it doesn’t default or get called) your return is locked in, you earn the interest for the life of the bond and get your principal back at maturity. A bond fund’s return is very different, the fund never matures. Instead the fund is managed to constantly have a duration (for simplicity, duration is similar to maturity) within a tight range as outlined in the funds prospectus. The fund’s return is measured by total return, which changes daily. The main components of total return are both the funds yield and the underlying price of every bond held by the fund. Every day the funds holdings are “marked to market” based on changes in interest rates and perceived risk (credit and call risk) of the fund’s holdings. In general (credit and call risk aside), a bond fund’s expectation is not good when interest rates are unusually low, and are very good when rates are unusually high.

Lastly, no asset class should be looked at in a vacuum. Every asset class should be viewed in the context of a component of a diversified portfolio. Portfolios should be constructed with both returns and risk considerations. That requires looking at the correlations between various asset classes and the goals and objectives of the portfolio. In that context, bonds can be a valuable addition to a portfolio in the correct circumstances.

Thanks for the quality explanation. In my simplistic logic, I would say that the Vanguard total bond fund would NOT EXIST if it was of NO use whatsoever. Instead of evaluating it over a 15-year period, maybe its best use is to simply PARK money in a temporary SAFE spot and WAIT until a person feels they have the market trend FIGURED OUT and then move the money to say a Total STOCK fund or individual stocks.
........I can't say for sure that would be the best or only use, but that is basically all that I can add to this conversation.

[ithos]

Originally Posted by spinner1001

bitcoin?

Nvdia?

[HJBeck]

Originally Posted by Robbb

I was just looking at returns over the past 15 years, If you invested $1,000 in Vanguard Total Bond fund it would be worth app $931, today, after all interest was reinvested. If you invested that same $1,000 in Vanguard VTI, Total market fund, it would be worth $2,090 today.

As pretty much a Boglehead in investing I'm really starting to question the wisdom of investing in any bond fund.

I tend to look at it differently. If I need a cash stream to cover my expenses bonds are good if you don't need your principle immediately. Look at a Bond investment today and because of their prices one can get anywhere from 5.0% to 9.0% on your money for the entire term of the bond. When that bond matures you get back the PAR value of that bond, not what the market is pricing it at. Actually makes sense if you are interested in cash flow and don't need to sell immediately. All comes down to timing of your needs.

[collie1228]

Is that true? If I keep the bond to maturity, I don't care a bit what it's value is on a bond market. I get paid the principal. What am I missing?

[collie1228]

Originally Posted by Caymus

Keep in mind that the returned principal would effectively be worth less if you bought the bond at 1% and it matures when rates are 5%.

Is that true? If I keep the bond to maturity, I don't care a bit what it's value is on a bond market. I get paid the principal. What am I missing?

[spinner1001]

Originally Posted by collie1228

Is that true? If I keep the bond to maturity, I don't care a bit what it's value is on a bond market. I get paid the principal. What am I missing?

See section 10 in this paper (link below) for what you seem to be missing. The author is a prominent guy in the financial world with skin in the game (founder of AQR Capital Management) and his PhD academic advisor was Nobel prize laureate Gene Fama.

https://www.aqr.com/-/media/AQR/Docu...-10-Peeves.pdf

Feel free to disagree with the paper’s section 10 but at least please tell us what points in that section you believe are wrong and why.

Here is a bio about the author if you doubt his credibility or knowledge. Feel free to tell us about yours.

Cliff Asness - Wikipedia

[DAVES]

Originally Posted by Robbb

I was just looking at returns over the past 15 years, If you invested $1,000 in Vanguard Total Bond fund it would be worth app $931, today, after all interest was reinvested. If you invested that same $1,000 in Vanguard VTI, Total market fund, it would be worth $2,090 today.

As pretty much a Boglehead in investing I'm really starting to question the wisdom of investing in any bond fund.

With ALL investing there is what I call the shoulda, coulda, mighta. Buffet like has be come and adverb. Funds compare their returns to S&P 500 an attempt to put a number to average stock market returns. Buffet has said we should simply buy an S&P index fund. For those who want to follow Buffet, you can buy Berkshire Hathaway.

Today, you can get roughly 5% in a money market fund and you can use it for checking
account.

A bond fund? What you are buying is NOT the same as buying bonds. First of all they hold bonds that may not be of the investment grade you would purchase. Secondly they use leveraging. The borrow against bonds they hold to buy more bonds. The risk is higher and so is the return. Holders of the fund are paying the manager of the fund, which reduces your net return.

PLAN? A very old expression. Man plans and g-d laughs

[DAVES]

Originally Posted by collie1228

Is that true? If I keep the bond to maturity, I don't care a bit what it's value is on a bond market. I get paid the principal. What am I missing?

Like everything else no shortage of opinions. Also, no shortage of people willing to sell you advice. A fund. You invest in a fund. You risk YOUR MONEY. A fund manager. Whatever the management fee is. It is a BUSINESS. They do not work for free. Your return is NOT guaranteed. I can be negative. The return for the manager and team is a percentage of the money they can convince people to allow them to manage.even if investors lose money.

As far as what am I missing, the investor pays TAX on dividends, at your top tax rate and there is the hidden tax of INFLATION. It can be looked up. How much in dollars does it take to buy what a dollar could buy fifteen years ago or five or one or??????

[retiredguy123]

With individual bonds and bond funds, you need to understand both investments. Yes, you can buy an individual bond, hold it until maturity, and get all of your principal back plus the promised interest. With a bond fund, the net asset value will fluctuate with the interest rate market, and, when you sell your shares, you may or may not get your principal back, but, in some cases, you may get back more than your principal, and you may earn more interest than the individual bond has paid. Both investments have advantages and disadvantages. Personally, I prefer to invest in bond funds.

[Pairadocs]

Originally Posted by Robbb

I was just looking at returns over the past 15 years, If you invested $1,000 in Vanguard Total Bond fund it would be worth app $931, today, after all interest was reinvested. If you invested that same $1,000 in Vanguard VTI, Total market fund, it would be worth $2,090 today.

As pretty much a Boglehead in investing I'm really starting to question the wisdom of investing in any bond fund.

When I was still in high school, I "invested" $500 from my meager grocery store clerk salary, $250 in a very well know bond fund and $250 in a total stock market fund. Never lost $250 of my desperately needed college money so fast, but fortunately, while the stock fund also took some hard hits, it more than made up for the bond fund loss. Over my college and grad school years, it was clear that my decision to continue to increase my knowledge of investing, and particularly the stock market and it's historic returns, really paid off for me for a life time. I remember one of the first books I read related what people who committed suicide would have had if only they had not taken that drastic step to end their lives.... I think that was one of the things that impressed me most, that "if only" they had faith they would have become multimillionaires in less than 5 years after the recovery...