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Bond Fund Score: Me1004 1, Bozo 0.

Bozo
Bozo   |     |   1,323 posts since 2011

Well, friends and neighbors I finally threw in the towel. After a long and losing battle, I cashed out 3/4 of my Vanguard bond fund (VBTLX) to satisfy the remainder of my 2018 RMD. It was painful to watch the fund sink in value while my IRA CDs just kept clicking along. I admit I was warned by Poster Me1004 not to go there (i.e., into VBTLX) in a rising-rate environment.




Ally6770
Ally6770   |     |   2,656 posts since 2010
I would never buy a bond fund. Stick with the individual bond if you want.
ConfedrcyDunces
ConfedrcyDunces   |     |   116 posts since 2016
The good thing is CDs never GO DOWN in value.

A 2% five year CD is worth the same as a 4% five year CD.
me1004
me1004   |     |   802 posts since 2010
Oh, gee, Bozo, I would not call this an "I told you so" situation. It is simply a sharing of information, and I knew what happens to bonds in a rising rate situation, bonds are very sensitive to rate changes (they are big winners when rates drop). And at this point, rates are expected to continue to rise right through next year at least.

As for buying individual bonds instead, so as to be able to hold them to maturity and get the stated return, as opposed to a mutual fund that is buying and selling all the time, that would work if handled in that way to avoid that one issue. But it simply adds other issues, of higher risk, especially from the lack of diversity a mutual fund provides, and less liquidity since you must hold them, as you would have to hold the bond all the way to maturity to be assured of getting the contracted return. And if you want the good rates, you have to take longer term bonds. The longer the term, the higher the risk, as if the bond issuer goes bankrupt, you could lose everything. You might be very unhappy now if you had bought a 15-year bond issued by Sears 10 years ago.


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