WWYD: bond funds

[Bott1637]

Work retirement accounts are adding Vanguard Intermediate term treasury index as an option at the end of this year.  Currently only decent bond fund is PIMCO total return which is where my main bond holdings reside.  ER on this is 0.48% and the new Vanguard one is 0.1% so I'm considering changing.  I'm not sure one is any better than the other so I figure why not take the added 0.38% return.  This is at the cost of less diversification however as PIMCO holds non-government bonds.  I know it won't make or break annual returns but curious to what others think they would do.

[DMFA]

Which PIMCO is it, PTTRX?   And the Vanguard interm-term treasury VFIUX?

They're very different from one another as far as bond funds go.  PTTRX can act a little more like equities than bonds given its exposure to foreign markets (including emerging) and some higher-risk holdings such as investment-grade bonds and MBS.  VFIUX is all 3-10 years and almost all (97%) at 0-4% interest, so its return much more stable, though any gain is very limited.

Depends on exactly how you want your bonds to work in your portfolio:

• If you just want them to be your steady low-risk, low-return portion, then the intermediate treasuries would be OK for you


• If you want them to earn for you, then the total return would be better but you're exposing yourself to risk; one might argue that if you're trying to earn with your bonds, you may as well be holding equities in their place


• If you want a little of each quality, then consider holding both

 

[jz]

PTTRX  vrs.  VGIUX.  Vanguard has a "COMPARE"  table.    They have equal durations, so will be equally sensitive to rising interests rates and inflation.

PTTRX has higher yield, less stability.   Holding gov't treasuries,  VFIUX will have more stability in a stock market downdraft, and less yield. I'd pick PTTRX for a tax-sheltered retirement fund, and VGIUX for a taxable fund.

 

[Bott1637]

I was leaning to changed due to the lower expense ratio and after reading more about it on bogleheads forum I think it comes down to what DMFA said:

DMFA wrote:

Depends on exactly how you want your bonds to work in your portfolio:

Click to expand...

I'm using bonds as 25% of portfolio to balance the risk I take on the equity side and thus I think the treasuries will fit the bill.  If I were closer to retirement and seeking portfolio growth from my bond allocation I think I'd stick with PIMCO. At least that is how I understand it now.  However every time I feel I get a little closer to understanding bonds something comes along to completely prove me wrong.

[DMFA]

Bonds are tough.  Another thing about PPTRX is that it has lots of very long-term bonds (> 20 years) which are at significant inflation risk.  Junk (BB and below) and high-yield bonds can give great return while courting default risk.

The PIMCO Total Return family are some great funds which receive very strong bureau ratings (PPTRX is #1 in overall return since inception per Lipper).  You've just got to make sure it fits your investing needs given its attributes which are slightly different than your usual bond fund, say, VBTLX.

You've probably already read Bogleheads' Bond Basics but I'll link it anyway.

[G]

Johanna must be on vacation....

[DMFA]

G wrote:

Johanna must be on vacation….

Click to expand...

http://www.physicianonfire.com/bonds1/

http://www.physicianonfire.com/bonds-good-part-ii/

That can hold her place until she sees this...

[The White Coat Investor]

I pretty much like all the Vanguard bond funds. Costs matter even more with bonds than with stocks. That PIMCO fund is in a lot of 401(k)s, but it was put there for Bill Gross, who isn't there any more, has made plenty of mistakes, shows little inclination to lower its fees despite being absolutely monstrous in size etc. It's not a bad fund, but I would use something else if it were available. I'd rather see you with intermediate term index or even Total Bond Market, but the treasury fund is fine.

I would expect higher returns out of the PIMCO fund though, even after the expenses. But that's because it holds riskier bonds.