VBND vs VAF vs VGB

I realise most here are not massive fans of bonds, but were one to go the Bogle path and have one’s age in bonds, which would you choose?

Vanguard’s diversified funds plump for their Global Aggregate Bond Fund (hedged), but those who do have a bond allocation here seem to choose VAF.

Even more secure would seem to be VGB.

Thoughts?

 

I am not a fan of bonds but not a fan of term deposits at the current rates either. We started to transition to pension mode in 2017/18. So in 2017 we put a 1 years pension equivalent into IAF and in 2018 we put 1 years pension equivalent into VGB.

They both have a management fee of .20%pa. IAF is up 8.52% plus distributions and VGB is up 9.75% plus distributions.

If interest rates start to rise - and one day they will, I will be an eager sell of these bonds. Until then happy with the distributions

 

In all the simulations I’ve done on my asset allocation, the point of bonds is to not sell them. The rise over the past year in VAF etc is nice, but not as nice as the rise in everything else.

I’m somewhat retired and have a healthy sum stashed away. Whilst massive capital growth would be be cool, more sensible would be moderate capital growth with much less volatility.

 

That's fair enough too. Its just that bonds are not part of our plan but will do for now. It is a very small allocation we have and will be sold when term deposit rates are more favourable.

 

This is one of my fave charts. 100% stocks vs 20/20 LC SC and 60% bonds (US chart).

If I were 25, I'd probably go all equities.

At 60 I'm happy to give up 1.3% CAGR in return for -5.8 vs -39% worst year.

 

VAF AUM $1.34 Billion as at 31 Dec 2019
VGB AUM $1.11 Billion as at 31 Dec 2019
VBND AUM $5.15 Billion as at 31 Dec 2019
IAF AUM $1.15 Billion

All with an MER of 0.20% p.a

I use VAF nowadays

Bond funds - Passive Investing Australia



Also an interesting read

What are the best Australian Bond ETFs?

 

Happy to sell some bonds if required to re-balance should the share market take a hit

VAF over 12 months compared to ASX200 proxy (price only) plus VAF pay quarterly distributions, looking at their site they have running yield of 3.32%

 

Those that are expecting bonds to provide returns like the last 30 - 40 years and expecting say a 60 / 40 portfolio to behave like it did in recent decades are likely to be in for a great deal of disappointment. Of course Bond fans will argue in support of the rebalancing bonus and being a volatility dampener etc. But one is paying a hell of an expensive price for limited benefit nowadays.

The most important rule that appears to be worth paying attention to when considering investing in Bonds is:

What the 2020s Will Look Like For the Markets - A Wealth of Common Sense

Albeit I’m only an amateur investor I wouldn’t go near Bonds. Using Bonds in an attempt to dampen share market volatility has gotten way too expensive.

Best choice to attain wealth - learn to accept volatility that comes with owning equities!

Perhaps it’s worth printing out this post by @dunno and sticking it on the bathroom mirror so it gets read every day:

Dow Breaches 23,000 [International]

Not advice.

 

I’m 17% VBND across portfolios, less in SMSF. Long duration, strong diversification is a good counterweight to equity market beta. I also have exposure to higher risk assets than market beta ; small, value and private equity. All components play a role. Bonds guard against sequencing risk, provide optionality ; rebalance or spend for current needs and dampen volatility.

As Dr Bernstein says, if you’ve won the game stop playing. To own their each!

 

But from what I remember in the current environment Bernstein won’t touch anything other than short term treasuries and TIPs.

 

Just a phrase. Haven’t copied Dr Bills SAA.

 

US Bonds are coming off their best year since 2002, with a total return of 8.7% in 2019.

Bonds, Bubbles and Biases

 

I like short dated bonds. They can work well in a portfolio, provide security and guarantee income.

you can typically get 4% which is way better than cash at .9%

bonds compete against term deposits. They are not an alternative product for shares.

 

Cant access the full story, but another POV

Dividend Stocks Beat Bonds for Retirement Income

By
Jonathan Clements
May 28, 2015
Imagine you are running a pension plan for one.

Your goal isn’t only to save enough, but also to buy assets that match your future liability—which is your need for retirement income. Traditionally, bonds have been viewed as a pension plan’s surest bet.

But with bond yields so low, here is why stocks could prove to be the better choice—even if share prices plunge.

 

Free full version here: When it comes to retirement income, dividend stocks beat bonds

 

Well, Bogle, Buffet, Merriman, Dallio, Swedroe, Graham, A Wealth of Commonsense, super funds, the Future Fund et al continue to recommend bonds when you reach my ripe old age and wish to preserve wealth rather than accumulate it, so I'll continue to investigate.

 

Not to mention our very own @Redwing and reasonably experienced investor (since 1950), Mr Taylor Larimore...Six Park's SAA, Vanguard's Benchmark Multi asset funds etc etc (appeal to authority ; guilty). They aren't supposed to be consumed alone but as part of a disciplined portfolio approach. When looked through the lens of either / or they dont make sense. At the end of the day we all need to decide what works for us.

 

But that’s the problem with intermediate / long term bond funds now, there’s no guarantee they will preserve your wealth. Hence why the likes of Bernstein stay at the short end unless they’re inflation protected Gov’t bonds. There’s a big difference between trying to use Bonds as a volatility dampener vs “protecting capital”. Capital can be lost when interest rates rise and although interest income can increase over time that’s not much use if capital is needed in the meantime.

Any investment I make to protect capital (ignoring inflation) ensures that I will get ALL capital returned at the end of the term. As Bernstein would say you will need to hold a peg to your nose as interest return stinks. But that’s what is required for true “protection” of capital. For capital protection other than longer term inflation protected Gov’t bonds STAY SAFE and STAY SHORT!

Fortunately it would take far worse than the Great Depression for our dividends to fall short of meeting our retirement income needs. Money I feel we can’t afford to lose for the short / medium term is in short duration cash deposits. Regarding interest rates when choosing the short end well that’s what the nose peg is for and unfortunately what’s needed “for guaranteed return of capital”

Anyhow none of this matters, as long as each investor sleeps well at night with their decisions. This debate has happened many times and rarely does anyone change their point of view. I certainly haven’t. Note my wife ignores most of what I say so that would suggest that others would be wise to do the same.

 

The below will make sense if you've seen The Witcher



Stocks are usually the head turners and outperform over the long term, but Bonds still have a role in my portfolio and sometimes like Yennefer, they surprise

VAF




From NAB

Most fixed-interest ETFs have returned 7 to 10% over 12 months and a few have done a little better. The Russell Investments Australian Government Bond ETF, for example, has a 12.01% total return to June 2019, ASX investment products data shows.

That is double the Australian share market yield (after franking) with vastly lower risk, given the underlying securities are government bonds. But don’t expect high returns to continue in the next 12 months; rising demand for bonds has driven prices higher and yields lower.

 

What % allocation do you hold in VAF @Redwing? Any cash idling about or is it all vas vgs and vaf? The ever reliable 3 fund portfolio!