VBND vs VAF vs VGB

Discussion in 'Shares & Funds' started by sfdoddsy, 29th Jan, 2020.

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  1. Redwing

    Redwing Well-Known Member

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    @sfdoddsy

    There is always this as some solace

     
  2. sfdoddsy

    sfdoddsy Well-Known Member

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    I kind of agree over a lifetime.

    But in my case I am starting from a specific point, and want to basically preserve my ill-gotten gains.

    We shall see I guess.
     
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  3. Redwing

    Redwing Well-Known Member

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    I went a bit leaner than I should have with my exposure to bonds/fixed interest, however that was due to the fact that I had a lot of time in my working life without superannuation

    Over the last few weeks I've deployed the bonds a few times to pick up ETF's at a discount, impending dividends are a bonus and there is still some dry powder in the hold should markets fall further

    [​IMG]

    I'm underwater, but I'm breathing

    [​IMG]
     
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  4. Nodrog

    Nodrog Well-Known Member

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    Yes, like others here no doubt, I’m waiting on two VAS distributions in in April. VGS also but won’t be whoppers like VAS.
     
  5. Redwing

    Redwing Well-Known Member

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    From the US

    Total returns including dividends this century through to 31/3/20

    Depressing Chart.jpg
     
  6. Summer of George

    Summer of George Active Member

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    Old thread, new question

    I am struggling to understand bonds, or more specifically what role they play for me

    My understanding (apologies for the oversimplification of ideas here)

    • Bonds are essentially a lower risk investment, seen as an alternative to cash for low growth and yield and seen as a safer bet
    • Role of bonds are to reduce the overall risk of the portfolio - Bonds decrease volatility at expense of returns but is weighted in the favour of reduced volatility with less impact on overall returns
    • as you get closer to retirement age you increase the portion of bonds to equities in your portfolio to reduce large reductions in overall value of portfolio especially at a time when need to start drawing down on it (eg retire just prior to GFC type event)
    What I want to understand is what is special about Bonds

    • I see the bonds portion of the portfolio as a lower risk investment - could you not use cash instead of bonds, or TD, or HISA, or offset account (if still have loans).
    • By increasing your bonds exposure over time from say 90/10 to 70/30 right through to 30/70 are you simply not saying that as my portfolio grows and I feel I have enough I am reducing my new investments to a larger portion of low risk and low return?
    • I am investing about 5K per month and if over the next 20 years I increasingly buy bonds am I just not investing 2.5K per month (at 50:50) in shares - if you kept that cash aside in an account instead of investing in bonds are you not effectively doing a similar thing (forgetting increased returns on bonds currently in low interest environment)
    I am currently 44 (will I live to see 45 the way things are going I don't know. - Coolio) and when I get my portfolio to 1M with a 90:10 split I will have 900K in shares. If there is a GFC event or a crash to suffer a 50% loss I am still exposing 90% of my value to that drop - a 10% safer option won't dramatically alter my overall value, but if I kept purchasing an increasing ratio of bonds my overall performance "may" be quite different in 20 or 50 years.

    I have come to the conclusion that for me, my investable portion that I am investing, I want to invest. I feel my portfolio will have a greater chance of growing to a larger value if I invest in equities for 20 more years than an increasing ratio of bonds - sure my exposure to volatility may be higher but if my overall portfolio is larger the end result will still be better (for me)

    I always have outside cash available for needed urgent expenses. I am fortunate that I have a well paying job and am able to dable in real estate and other investments and my primary investing is to pay of loans and keep earning via my normal occupation

    For me the bonds don't appeal. I want to invest for growth in the future and I am investing the portion that I am comfortable with. If I was investing every cent that I had in my one portfolio perhaps that would be a different scenario and bonds (if I didn't have the means to store cash if required)

    But then I would propose that could Bonds be substituted for other lower risk (compared with traditional equities) eg lending, or real estate or utilities or infrastructure

    My view also is that once you have completed accumulation phase and are in draw down phase whether that is via selling off portions or using dividends etc it comes out of the complete "pie" of your overall portfolio..sure there are taxation issues to consider but ultimately nothing will put you in the best position to consider the nuances as a pie that is bigger than smaller - and based on everything we know you seem to have a better chance of getting a bigger pie with equities over a long time frame

    FYI
    I am a passive investor - I use index funds and my target portfolio will be

    VAS 20
    VGS 50
    VGAD 20
    VGE 10

    Perhaps I have bonds all wrong and would appreciate discussion and other peoples ideas
     
    Last edited: 16th Sep, 2020
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  7. pippen

    pippen Well-Known Member

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    I noticed a few changes to vanguard and their retail fund offerings and reduced fees also
     
  8. Zenith Chaos

    Zenith Chaos Well-Known Member

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    Generally speaking, cash has a lower return than bonds.

    Bonds are risk mitigation for the need to liquidate shares at a bad time, including the scenario where you aren't buying, but need to plan for a reduced risk tolerance, e.g. in retirement, buying a house etc.

    If you have a dividend yield or some other income (E.g annuity) that covers all your expenses (including contingency scenarios) in retirement, there is probably no need for bonds. Otherwise, used bonds / fixed interest as a cash buffer to cover expenses in case there is a drastic situation. Search for cash buffer is this forum.
     
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  9. Hockey Monkey

    Hockey Monkey Well-Known Member

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    Even using a dividend yield from stocks as income may not be as good as cash or bonds during a downturn

    Dividends are not safer than selling stocks - Passive Investing Australia
     
  10. mtat

    mtat Well-Known Member

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    Some reading for you:

    Why bonds? - Passive Investing Australia

    Cash vs bonds in your portfolio - Passive Investing Australia

    HISA vs Bonds - Passive Investing Australia

    The Great Bond Diversification Myth


    I would suggest you do your research and make a decision that suits your family and circumstance. Too many factors for anyone but you to decide is 0-40% bonds OK.

    Personally, I think having 10% of your portfolio in bonds (but none during the accumulation phase until the very end) is a decent idea. It's enough that it won't make much of a difference in your return, but you will be glad to have it in the event you face bad sequence of return risk early on. But I'm definitely in the "as much as possible in equities" camp.

    Also, bonds should definitely not be substituted for REITs, utilities or infrastructure - which will be very much correlated with the market and not provide the diversification bonds will (or may not) provide.
     
    Last edited: 28th Sep, 2020
  11. Summer of George

    Summer of George Active Member

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    Thanks for the feedback - I will continue doing some reading that have been suggested and also continue searching for cash buffer in the forums. I have been searching elsewhere and I think that I getting more comfortable with the idea that it may end up being a number as have been suggested of 0-40% but I am not going to worry about that now while I am in the accumulation phase.

    From all of my previous research it felt that not only did I need to work out what percentage I wanted in bonds but also when to start investing in bonds - I am much more comfortable that my current view is in the words of Scribe......not many if any......
     
  12. Zenith Chaos

    Zenith Chaos Well-Known Member

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    I should have said dividends safely cover all expenses in all scenarios. Assume a worst case scenario - medical bills after an expensive holiday and new car during a crisis where dividends are down - could be looking at high six figure sum. You'd need $10M+ in equities. My point was that almost every person would need some level of bonds or cash reserve, as the extreme scenario of being fully funded by dividends is unlikely.
     
  13. Zenith Chaos

    Zenith Chaos Well-Known Member

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    I've heard of keeping your age in bonds. To me that's too much but you coukd tweak the formula to age - 40 for example.

    I wouldn't fix and forget the bond allocation as I think it is situation specific and needs to be reviewed. Covid is a good example. Retirement is another one.

    At the point of retirement the risk is highest (if you take a big loss you may not be able to recover) and this is why bond (cash) allocation should generally be at the maximum (bond tent). As you progress into retirement the risk probably reduces (still situation specific) but the best risk return strategy later in retirement may in fact be reducing the bond allocation.
     
  14. Redwing

    Redwing Well-Known Member

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    Google Finance seems to have had an update in its graphics recently

    It was interesting to read this post which in Feb 2020 was looking at the GFC, only a month or so later covid hit the markets and we had another tumble

    VAs vs VGF below

    upload_2021-2-18_22-5-38.png

    The rapid fall saw me sell bonds several times to buy stocks and re-balance the portfolio

    VAS, as an example, has recovered around 50% from its March lows

    I also sold some ETF's and purchased some LIC's in another account to lock in a loss and offset a capital gain on investment property sold, and purchased some LIC's at March lows that are up around 25-28% at present
     
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  15. Redwing

    Redwing Well-Known Member

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    Posted Redwing, 30th Jan, 2020

    And I did
     
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  16. Islay

    Islay Well-Known Member

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    Well done @Redwing, you followed your plan! What now? Is the plan the same and you top up the bonds for next time?
     
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  17. Redwing

    Redwing Well-Known Member

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    Bonds can be a drag

    upload_2021-2-20_18-41-30.png

    But also a parachute

    upload_2021-2-20_18-45-26.png
     
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  18. geoffw

    geoffw Moderator Staff Member

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  19. Redwing

    Redwing Well-Known Member

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  20. Heinz57

    Heinz57 Well-Known Member

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    Oh don’t be doing that. Now all I’m going to get in the ads banner is undies