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You are here: Home / Money / The Bond Experiment: Return to VBTLX

The Bond Experiment: Return to VBTLX

by jlcollinsnh 133 Comments

After a somewhat hidden ~7 year experiment with other bond funds, last week I returned our portfolio to VBTLX.

Background

Those of you who have read The Stock Series here on the blog, or my book The Simple Path to Wealth, know that I recommend two core funds:

  • VTSAX — Total Stock Market Index Fund
  • VBTLX — Total Bond Market Index Fund

Both these are Vanguard funds, and Vanguard is the only investment company I recommend for reasons discussed here.

Since these two funds might not always be available in the various tax-advantaged accounts offered by employers, alternatives are discussed here.

Buried more deeply in posts like Part XII: Bonds, and their comment sections, I shared the fact that for the past several years my personal bond allocation was held in funds other than VBTLX.

This information was buried for several reasons:

  1. Investing in these was an experiment.
  2. As an experiment, this was not something I was prepared to (and still don’t) recommend.
  3. But I wanted the information on the blog in the interest of full disclosure.
  4. By burying it somewhat deeply, I figured only those readers who took the time to thoroughly read (including the comments) and understand the principles here would find it.
  5. Those readers would be best able to decide for themselves whether following me down this particular rabbit hole made sense for them.
  6. Who knows what other sneaky stuff I’ve buried around here…

The Experiment

Specifically those other funds were:

  • VFIDX
  • VICSX

Both are intermediate term corporate bond index funds.

At first glance, intermediate-term funds like these would seem an odd replacement for a total (short, intermediate and long term) fund like VBTLX. But with a total bond fund the short and long term bonds balance each other out and what you have is in fact an intermediate bond fund.

This experiment has been going on for about the past seven years, first with VFIDX and more recently with VICSX. The idea was to seek better yields with a little additional risk.

In this, it has been a splendid success. VFIDX has provided better returns and yields than VBTLX and VICSX in turn has done better than VFIDX.

To understand why I am now walking aways from them and returning to VBTLX, let’s first look at the underlining reasons as to why VFIDX and VICSX have outperformed and then let’s explore why we hold bonds in the first place.

The biggest difference in these funds is that VBTLX holds 64% of its portfolio in bonds from the US Government. VFIDX has less than 7% and VICSX virtually none.

In addition, for its corporate bonds, VFIDX reaches further down the quality ladder and VICSX further still. To be clear, these are not junk bond funds but their holdings are a bit less high quality than those of VBTLX. As we know from our bond post, in exchange for accepting more risk, lower quality bonds pay higher interest rates in order to attract investors.

Now because we always care about costs around here, let’s look at the Expense Ratios:

  • VBTLX — .05 ER
  • VFIDX — .10 ER
  • VICSX — .07 ER, plus a .25% purchase fee (Eek!)

While both VFIDX and VICSX carry higher costs, in both cases their increased yields covered these and then some.

This being the case, why would I turn my back on them now?

Why return to VBTLX?

It is important to realize that this outperformance has occurred during a period of time when falling interest rates and a stable economy has made for smooth sailing for bonds. Since defaults have been few, the risk/return balance has favored the lower quality, higher yielding choices. Indeed, a junk bond fund would have done even better.

Of course, we know some day the road will get rougher and that balance will shift. A price may well have to be paid for taking on that extra risk.

But the more important question is, Why do we hold bonds in the first place?

For those on The Simple Path described on this blog and in my book, it is to smooth the wild and volatile ride of stocks. We are not seeking performance from our bonds, we are seeking a counter-weight to our stocks.

From this perspective, VBTLX is the far better choice. The bond quality is higher and it holds government bonds. Both VFIDX and VICSX tie us to corporate bonds. That is, bonds issued by the same companies we own with our total stock market fund, VTSAX. In a major downturn some of those companies will be pushed to the wall. Some might even default on the bonds we hold from them at the same time their share prices a plummeting. Not a great counter-weight.

But what if…

But what if I don’t want to hold corporate bonds at all? Why not have a fund with only government bonds? Why not go that route?

You could, but for me VBTLX is in the sweet spot. For some, I will always be Too Hot, Too Cold, Not Pure Enough.

But what if the extra potential reward is worth the risk to you? Does staying in VFIDX and/or VICSX make sense then?

Perhaps, but there are better ways to improve performance. The easiest is to simply shift a greater percentage of your asset allocation to stocks. In a bull market VTSAX will soundly trounce both VFIDX and VICSX. Bonds are simply not a great asset choice for maximum performance.

If you want to dial up your performance/volatility, increase your stock allocation. Bonds are for ballast.

So while this experiment has been fun and has worked out nicely for me, the time has come to fold it up and return to VBTLX. Time to let my bonds perform the role I own them for: Smoothing the ride.

Crash coming?

So. Wait. 

JL is getting more conservative with his bond allocation. Is this his veiled warning to us the long-awaited crash is coming?

Nope.

As I have said repeatedly on this blog, no one can predict the market.

Over the weekend one of the news programs I watched featured two highly credentialed stock market experts. Both hold high-level positions in top name Wall Street firms. One made the case the market is far over extended and on the verge of collapse. The other, that the market is in the very early stages of a continuing historic rise. Both were articulate and made compelling arguments. One might even be right. Or the host could have found a third to predict, with equally confident reasoning, that the market will go sideways for the foreseeable future.

Easy for you to say, JL. But I’m sitting on a lump sum in cash and this market is at historic highs…

As it happens, I too recently found myself with a substantial lump sum to invest. The lump sum went directly into VTSAX. I don’t like dollar cost averaging and this is how to invest in a raging bull. Although I do confess I half expected the market to collapse the next day just to spite me.

In fact, it was this lump sum investing chore that finally got me motivated also to move our bonds back to VBTLX, which I had been meaning to do for a while now. As long as I hold bonds going forward, this is where they will remain.

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Personal Capital is affiliate supporter of this blog. They provide some cool tools to help you track your investments. The tools are free and if you use the links here to access them, this blog earns a commission. You can find my full review here, (along with my post on how to unload your unwanted stocks and funds).

OK, with that disclosure stuff out of the way…

PC has recently been sending me some pretty cool guides you might find worth a look.

  • Personal Capital Insurance Guide
  • Legacy & Estate Planning Guide
  • Affluent Investor Outlook

Insurance makes my eyes glaze over and I am a much harsher critic of life insurance (other than term) and annuities, but this guide is clear, simple and well done. Same with the one on estate planning. The investor outlook one is just for fun. Enjoy!

Note: If you click on any of the links in those three guides to sign up with Personal Capital, this blog will NOT receive its affiliate commission. Presumably, Personal Capital will be happy about that. If you want to see jlcollinsnh.com get paid, use this Personal Capital link or the one at the beginning of this section. That will make me happy. Either way, the tools are free to you so choose the link that makes you happy. 🙂

****************************************************

I’ve been made into a Lego and that’s a good thing, or so I’m told. The Eighth Day to be exact.

Kudos and thanks to:

12 Days of FI Christmas

*************************************************************

Darrow, my pal and retirement expert at Can I Retire Yet, just released some new retirement calculators:

  • https://play.google.com/store/apps/details?id=com.ekorau.android.ciry.basic
  • https://play.google.com/store/apps/details?id=com.ekorau.android.ciry.pro

The first is the basic version and it is free. The second is the pro version for a small charge.

Since the Apple version has yet to be released, I confess I haven’t personally vetted these. But I do know Darrow and I respect his work and his way of thinking, and so feel confident presenting these to you.

For what it is worth, there is no affiliate relationship here and the blog doesn’t get paid if you decide to use them.

In the spirit of the Christmas Season, Darrow has given me a couple of codes for the Pro version to give to you. If you’d like one, say so in the comments. I will randomly and capriciously pick the winners with no sense of fairness or reason.

**************************************************************

Also in the spirit of the season, and without random capriciousness, I wish you and yours…

A Joyous and Peaceful Holiday

and

Happy, Healthy and Prosperous New Year!

 

 

Related

Important Resources

  • Talent Stacker is a resource that I learned about through my work with Jonathan and Brad at ChooseFI, and first heard about Salesforce as a career option in an episode where we featured Bradley Rice on the Podcast. In that episode, Bradley shared how he reached FI quickly thanks to his huge paychecks and discipline in keeping his expenses low. Jonathan teamed up with Bradley to build Talent Stacker, and they have helped more than 1,000 students from all walks of life complete the program and land jobs like clockwork, earning double or even triple their old salaries using a Salesforce certification to break into a no-code tech career.
  • Credit Cards are like chain saws. Incredibly useful. Incredibly dangerous. Resolve to pay in full each month and never carry a balance. Do that and they can be great tools. Here are some of the very best for travel hacking, cash back and small business rewards.
  • Personal Capital is a free tool to manage and evaluate your investments. With great visuals you can track your net worth, asset allocation, and portfolio performance, including costs. At a glance you'll see what's working and what you might want to change. Here's my full review.
  • Betterment is my recommendation for hands-off investors who prefer a DIFM (Do It For Me) approach. It is also a great tool for reaching short-term savings goals. Here is my Betterment Review
  • NewRetirement offers cool tools to help guide you in answering the question: Do I have enough money to retire? And getting started is free. Sign up and you will be offered two paths into their retirement planner. I was also on their podcast and you can check that out here:Video version, Podcast version.
  • Tuft & Needle (T&N) helps me sleep at night. They are a very cool company with a great product. Here’s my review of what we are currently sleeping on: Our Walnut Frame and Mint Mattress.
  • Vanguard.com

Filed Under: Money, Stock Investing Series

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Comments

  1. MUSTARD SEED MONEY says

    December 20, 2017 at 9:21 pm

    This is a perfectly timed article. My FIL just hit 60 and I am trying to convince him to pare back some of his risk and dip his toes into the water. I will definitely be showing him this article this weekend 🙂

    Reply
  2. wendy says

    December 20, 2017 at 9:31 pm

    Thanks for the good explanation of the different bond buckets and bringing back to the reason to use bonds…

    After receiving your Chautauqua advice, I rolled two 401k’s and tiny pension from previous employers into my Vanguard rollover account…the second tiny pension is taking forever (sigh) to move but will hit in January. A modest percent of the money went into VBTLX and rest joined the bulk of my money in VTSAX. Even though I’m still in wealth acquisition phase, my personal risk allowance at my age says hedge a wee bit so there’s some nice boring bonds in there. It’s all simplified my book keeping as well!

    Merry Merry Happy Everything Jim!
    Best wishes to you and yours!

    Reply
    • jlcollinsnh says

      December 21, 2017 at 2:11 am

      Merry, Merry, Happy, Happy Everything to you and yours as well, Wendy!

      Great to here you came home from Chautauqua with info you could use 🙂

      Reply
  3. Kane says

    December 20, 2017 at 9:35 pm

    thank you, Jim. You’ve reminded me why I own bonds. I’m going to follow your lead and move all into VBTLX. Thanks for all the guidance over the years. Changed my family’s future for the better. We’re on pace to be FI in two years.

    Reply
    • jlcollinsnh says

      December 21, 2017 at 2:12 am

      Congrats Kane…

      ..that two years will flash on by!

      Reply
  4. Dwayne says

    December 20, 2017 at 9:35 pm

    May I be the first one to…ahem…beg for a code to get Darrow’s Pro version.

    And with no intent of influencing, I’d like to wish you a Merry Christmas and Happy New Year as well

    Reply
    • jlcollinsnh says

      December 21, 2017 at 7:22 pm

      Dwayne…

      As I am sure you can appreciate, I simply can not allow…

      –being first
      –begging
      –influence peddling
      –holiday greetings

      …to influence my decision is such weighty matters.

      Still, I’m not about to punish you for them either. 😉

      First Code is yours, provided you respond to this email so I know you are still paying attention. 🙂

      Reply
      • Dwayne says

        December 21, 2017 at 7:46 pm

        When it comes to you Jim…I’m always paying attention!

        As are my kids and anyone else I can convince to read your wonderful book.

        Reply
        • jlcollinsnh says

          December 21, 2017 at 7:54 pm

          Awe…

          …you added flattery to the list. You are definitely getting a code!

          Email is on the way.

          Please report back to us on it if you are so inclined.

          Enjoy!

          Reply
  5. Fritz @ TheRetirementManifesto says

    December 20, 2017 at 9:38 pm

    Ah, being sneaky binding those bond holding details in the fine print!!

    I’m considering a shift in my bond holdings from VWITX (~yr 6 maturity munis) to VFSTX (short term investment grade). Income drops next summer when I retire, combined with new tax code means Muni’s of less value to me after-tax. Getting nervous about 6 yr maturity w interest rate hikes.

    More ballast with short- or mid- maturities?

    Reply
    • jlcollinsnh says

      December 21, 2017 at 1:49 am

      More ballast with short, and less potential returns.

      I like to reward those who read deeply and carefully. 😉

      Reply
  6. Matt says

    December 20, 2017 at 10:00 pm

    Jim, thanks as alway s for sharing your experience with us! Your insight is always very helpful to me. I have a few questions if you don’t mind.

    1. What was your stock/bond allocation before and after all the transactions you reference in this post?

    2. This market is at historic highs based on Shiller’s CAPE (it’s second highest in history at 32), all time high for the market cap to GDP ratio (“the Buffett Yardstick”), and Bogle’s adjusted Expected Returns Formula for the next 10-years is currently calling for less than 4% gross returns for equities (Note: the worst average annual returns in history over any 10-year period were 2.5%). I’m curious what you might change your stock/bond allocation to A. if the Shiller PE hit 45 as it almost did in 2000 and B. If Shiller’s PE dropped below 10 as it occasionally does. C. Do you think it’s wise to consider making weighting changes at times like these (PE of 45 or 10) or do you still see it as a fool’s errand to do so? Thanks again!

    Reply
    • Matt says

      December 20, 2017 at 10:20 pm

      *Note: please scratch the word “still” off the last sentence.

      Reply
    • jlcollinsnh says

      December 21, 2017 at 1:59 am

      Hi Matt…

      1. ~75/25 before and ~70/25/5 now with the 5% being some cash that has flowed in of late. I have some pending expenses that will use some of that and once I have a firm handle on those the balance, if any, will go into VTSAX.

      2. Under 10 and over 45 would be very extreme levels and would certainly prompt me to take a look. But I would be very slow to act on it, if at all, and very keen to understand what was behind it. But even then, just when you think you know what’s going on, Mr. Market makes you the fool.

      Reply
  7. Josh Cook says

    December 20, 2017 at 10:09 pm

    Mr. Collins. I would love to try the paid version of Can I Retire Yet’s retirement calculate. I have tried the free version and am looking for a little more detail. BTW, I was able to convince both my daughters (11 and 13) to read your book. I enjoyed it and I think I was a great exposure for them. Thanks. Josh

    Reply
    • jlcollinsnh says

      December 22, 2017 at 4:20 pm

      Prior experience with the basic version and indoctrinating your kids for the win! “Mr. Collins” didn’t hurt either. 🙂

      The third and final free Pro Code goes to Mr. Cook.

      Provided, of course, you respond to this comment and prove you are still paying attention.

      Reply
      • Jeff says

        January 2, 2018 at 9:21 am

        What if I take his reply?

        Reply
  8. Jone says

    December 20, 2017 at 10:12 pm

    Hi Jim, I’m wondering if you have access to a Vanguard Municipal bond fund in your state? I live in PA and hold VPAIX in my taxable account. It serves a couple of purposes for me. Works as a portion of my bond ballast as well as a deeper “layer” of FU money.
    Other thoughts on munis
    Happy holidays to you and yours!

    Reply
    • jlcollinsnh says

      December 21, 2017 at 2:04 am

      Munis are for people who hold bonds in their taxable accounts and who are in high tax brackets. Only then does the lower interest rate they pay make sense.

      I hold ours in our IRAs and, where possible, that is my recommendation.

      But, sure, they work fine as ballast if they are otherwise the best choice for you.

      Enjoy the holiday!

      Reply
      • Jone says

        December 21, 2017 at 7:46 am

        Jim,

        Thank you for your thoughts!

        Munis offer a wide range of benefits, including attractive current income free from federal and, in most cases, state and local taxes; a high degree of safety with regard to payment of interest and repayment of principal; and a predictable stream of dividend income. In these ways they are similar to holding VBTLX in an IRA account.

        However, for very little additional risk you can increase your yield slightly and place munis in a taxable account where a “young” guy like me can actually use the funds if needed. By placing the munis in my taxable account, I not only enjoy the ballast effect of bonds with regards to equities, I can also enjoy fairly predictable current income, stable(-ish) principle, tax avoidance, and funds accessibility.

        Using Vanguard’s fund comparison tool for VBTLX and VPAIX there are some other interesting points to ponder:

        Overview VBTLX VPAIX
        Risk Potential 2 3
        Expense ratio .05 .19

        Average Annual Performance

        YTD 3.14% 5.14%
        1 Yr -0.13% 1.32%
        3 yr 2.62% 3.84%
        5 yr 1.97% 3.64%
        10 yr 4.22% 5.94%
        Since inception 4.24% 4.47%

        In each of the above comparative periods munis win. Scroll further down Vanguard’s fund comparison tool will show the after tax total return results. Again, munis come out ahead in each of the comparative periods.

        Notable differences in favor of VBTLX are three:

        Expenses: The muni fund is significantly more expensive than VBTLX. However, this is Vanguard so the cost is still quite reasonable.

        Average maturity: the average maturity of VBTLX is 8.4 years compared to 16.2 years for the PA bond fund. This is a pretty minor difference as we are talking about bond funds vice individual bonds.

        Size: VBTLX includes a significant chunk of national level US Treasuries. These are invested in by people and corporations all over the world. PA municipal bonds are issued by the governments and other authorized entities of the state of Pennsylvania. Thus, the tax base of munis is far smaller.

        Notable differences in favor of VPAIX:

        Accessibility: Munis are typically held in a taxable account thus they can be tapped for whatever “emergency” happens to arise with little fuss and no (or very few) tax considerations.

        Performance: For very little additional risk or cost VPAIX yields an additional ~1.5% (+/-) year over year for the past many years.

        Source of income: While US treasuries are backed by the “full faith and credit of the United States,” municipal bonds are funded in similar manner. In both cases the issuing governments have the power to tax (or levy fees) on their constituents to ensure bond payments are made. Corporate bonds (the other significant chunk of VBTLX) do not have this power.

        So tax bracket considerations aside, I invest about 20% of my bond holdings in VPAIX in my taxable account. This slice serves primarily as typical ballast to stock gyrations; similar to any bond holding. However, given the location of the funds, I can tap into munis on that nasty day when the market crashes and I need a new motorcycle from the local dealership’s going out of business sale (or other emergency).

        While the money is in the muni bond fund the principle is relatively stable and the yield is better than most CDs and other bond funds (especially on an after tax basis). I can withdraw some or all of the funds without any penalties or tax considerations with the possible exception of some small capital gains. I also have the knowledge that I’m investing in projects that help my local infrastructure. I love you guys in the other 49 states, but I primarily drive on PA roads and my kids attend PA schools.

        Reply
        • David says

          December 23, 2017 at 1:13 pm

          Jone, great points and I do the same as you except I’m in California so I hold VCAIX in my taxable account. I want to have a good chuck of money in my taxable account that I can take out at any time for larger purchases or emergencies but don’t want the volatility of only stocks. Thus, I keep VCAIX & VTSAX in my taxable account to get the benefits of both without the tax inefficiencies of keeping VBTLX in my taxable account.

          Reply
          • Adam says

            January 2, 2018 at 6:33 pm

            In a taxable account, how are the dividends from VBTLX handled. Are they qualified or not, or partially qualified? I can seem to find this info anywhere on the Vanguard site.
            Thanks for any help!

          • jlcollinsnh says

            January 3, 2018 at 5:51 pm

            Hi Adam…

            Bonds and bond funds like VBTLX pay interest, not dividends. Typically interest is taxed as ordinary income.

        • DH says

          January 31, 2019 at 10:49 pm

          I think the performance numbers listed here are asset value, so those gains would be capital gains, and you’d pay normal taxes on them. The Yield value would be the important one for a tax-exempt bond fund.

          Looking at VBTLX and VCAIX today, I see SEC yields of 3.17% and 2.15% (respectively). So if you’re in California and your combined Federal + State marginal tax rate is higher than 32% (1 – (2.15%/3.17%)) then you should consider VCAIX instead of VBTLX if you want to hold bonds in a taxable account.

          (You could re-do the above analysis to include asset value appreciation. My non-experienced guess is that doesn’t make sense because the relative yields are probably more consistent (and predictive of the future) than asset value appreciation).

          Reply
  9. Financially Free, Pharm.D. says

    December 20, 2017 at 11:24 pm

    Ha I was happy you addressed the question of a potential crash around the corner… My heart stopped for a sec and I almost thought everything I learned from you was a lie if all of a sudden you were predicting the market.

    That and the bitcoin article fakeout ????

    Reply
    • jlcollinsnh says

      December 21, 2017 at 2:08 am

      Shhh…

      Don’t tell anybody, but…

      …I’ve sold all my VTSAX and VBTLX and have plowed it into Bitcoin. I will then sell those just before they crash (because of course I’ll just KNOW) and go into the WARM approach:
      https://jlcollinsnh.com/2017/09/09/sleeping-soundly-thru-a-market-crash-the-wasting-asset-retirement-model/

      I’ll be writing all about it next April 1st. 😉

      Reply
      • Jone says

        December 21, 2017 at 7:53 am

        Yeah! I was thinking about doing the same thing! Now I know I’m doing the the right thing!

        I just finished my cup of coffee and the grounds in the bottom told me that the Bitcoin market will crash on December 32nd at eleventy-two o’clock!

        Reply
      • Financially Free, Pharm.D. says

        December 21, 2017 at 11:18 pm

        Haha! Looking forward to the April 1st post! ????

        Also, do you have any more codes for the pro calculator? I’d love to check it out.

        Thanks, happy holidays!

        Reply
      • Zack says

        December 25, 2017 at 9:43 am

        As a teacher, I have to be very careful about using sarcasm with my students because sometimes they don’t get it even when it is clearly the opposite of what makes sense. Luckily this comment is buried in the comments so only astute readers will get to it…. We don’t want anyone crowding us out of our Bitcoin trade! 😉

        Reply
        • jlcollinsnh says

          December 25, 2017 at 10:20 am

          Sarcasm? What sarcasm?

          (He asked sarcastically) 😉

          Reply
  10. Jason@WinningPersonalFinance says

    December 20, 2017 at 11:46 pm

    Thanks for the update Jim. I appreciate you sharing the update of your experiment. As I’m still in the accumulation phase I’m mostly in equities. I’ll be sure to come back to this post when it’s time to reallocate more towards bonds.

    Good luck with the sales of the audio book.

    Reply
  11. jean-marc lenoir says

    December 21, 2017 at 1:58 am

    Love the audio book, and especially the readers voice. :). . also have a lump of cash and can’t see myself putting it in vtsax with a market so high. Maybe should go to vbtlx until it calms down.
    Also recommending everyone who has any interest in controlling their finance to your blog and book. Thank again for you great insight.

    Reply
  12. Adam says

    December 21, 2017 at 3:08 am

    I’ve been reading your blog for a few years now and am fully on board with the VTSAX strategy. If anyone asks me for investment advice I tell them “Vanguard’s VTSAX” and refer them to “The Stock Series” and “The Simple Path To Wealth”.

    Someone asked me a question that I haven’t been able to answer: If the market is expected to increase in the long run, why not invest in a leveraged bull ETF (such as TQQQ or UPRO)? The expense ratio is higher at around 1%, but the leveraged gains in the long run should more than offset this.

    Reply
    • Jone says

      December 21, 2017 at 7:55 am

      Because leverage works both ways and “the long run” can be very long indeed.

      Reply
    • jlcollinsnh says

      December 21, 2017 at 7:34 pm

      The main problem is that leverage can completely wipe you out in a down turn. Game over.

      If you are leveraged 2/1 and the market drops 50%, you are flat broke. Un-leveraged you have lost 50% of your investment. Painful but you still own the same number of shares that can rebound on the recovery.

      https://jlcollinsnh.com/2017/08/21/stocks-part-xxxi-too-hot-too-cold-not-pure-enough/

      Reply
  13. Paul says

    December 21, 2017 at 4:13 am

    Thanks for this Jim!
    Quick (unrelated) ebook-question: would you ever consider putting your ebook (as an epub file) in Apple’s iBooks store?

    I’ve bought the Kindle version, but epub’s are far superior in my eyes and converting the kindle version to an epub doesn’t work for me… (I can’t underline sentences in a converted version which is essential).
    I’d personally happily pay you $20,- for a perfect-working .epub version of the book and I have to think that goes for more people…

    Kind regards from the Netherlands

    Reply
    • jlcollinsnh says

      December 21, 2017 at 7:36 pm

      Hi Paul…

      Truth is, I don’t know.

      I published with Amazon’s CreateSpace and Kindle, so my guess is no.

      Reply
  14. Accidental FIRE says

    December 21, 2017 at 4:43 am

    Interesting experiment Jim, congrats on the higher returns. My VBTLX was doing good enough for average-ole me and I’ll just stick with it. Go with the horse that brung ya!

    Reply
    • jlcollinsnh says

      December 21, 2017 at 7:37 pm

      Yours is a voice of wisdom and good sense.

      The higher returns only worked because the wind stayed at my back, and that was pure luck.

      Reply
  15. WealthyDoc says

    December 21, 2017 at 6:03 am

    Most of my assets are outside of retirement funds. Does anyone here remember what Jim recommends in that situation? Keep all bonds in retirement funds and stocks outside? I ended up with municipal bonds since I’m in the highest tax bracket.

    Reply
    • jlcollinsnh says

      December 21, 2017 at 7:39 pm

      My suggestion is to keep bonds in tax-advantaged accounts where possible.

      Otherwise Munis are worth looking at, especially in the higher tax brackets. You should be fine.

      Reply
  16. Tunisha Stewart says

    December 21, 2017 at 6:32 am

    Thank you Jim for all of your wisdom and another great post! I have personally enjoyed your book and have shared it with my family. May I also have access to Darrow’s Pro version retirement calculator. Thanks a bunch!

    Reply
    • jlcollinsnh says

      December 21, 2017 at 7:42 pm

      Flattery, passing my book around and your very cool name have secured you a Code for the Pro version, Tunisha!

      Provided you reply to this and prove you are still tuned in. 🙂

      Reply
      • Tunisha Stewart says

        December 21, 2017 at 8:27 pm

        Of course I’m tuned in Jim.

        Reply
        • jlcollinsnh says

          December 21, 2017 at 8:32 pm

          🙂

          Emailing your code now.

          Please let us know what you think of it if you are so inclined.

          Enjoy and Happy Holidays!

          Reply
  17. Stan says

    December 21, 2017 at 6:39 am

    Good article. I am going to do some rebalancing myself.

    Pro code please. I cannot find a good retirement calculator that works for me so. . . Pro code pleeeaasssee. Thanks!

    Reply
    • jlcollinsnh says

      December 31, 2017 at 11:26 am

      Complimenting the article, plus taking action and already in the hunt for a retirement calculator for the win! Stretching out the word “pleeeaassee” didn’t hurt either. ????

      The third and final free Pro Code goes to Stan.

      Provided, of course, you respond to this comment and prove you are still paying attention.????

      Reply
      • Financially Free, Pharm.D. says

        December 31, 2017 at 11:40 am

        Mr. Collins! I see that this is the second time you’ve given out the 3rd pro code due to readers not responding. In the event Stan doesn’t respond, I’d like to throw my hat in the final drawing also.

        Happy New Year to you and your family!

        Reply
        • jlcollinsnh says

          January 3, 2018 at 5:55 pm

          Looks like Stan is not paying attention and, since you are FF,PD…

          …the win passes on to you!

          Provided, of course, you are still paying attention and respond to this comment.

          Happy New Year!

          Reply
          • Financially Free, Pharm.D. says

            January 3, 2018 at 5:58 pm

            Of course I’m paying attention to you! Thanks for all that you do!

          • jlcollinsnh says

            January 3, 2018 at 6:19 pm

            Finally, someone is!

            I was beginning to get a complex. 😉

            Just PM’ed the code to you.

            Enjoy and may it help make your 2018 prosperous!

  18. Gwen @ Fiery Millennials says

    December 21, 2017 at 7:09 am

    May the new year be full of blessings for you and yours, Jim!

    Reply
    • jlcollinsnh says

      December 21, 2017 at 10:52 am

      Thank you, Gwen…

      …and to you and yours.

      I hope our paths cross again in 2018!

      Reply
  19. Roberto says

    December 21, 2017 at 8:44 am

    Forgive my ignorance if I am asking a stupid question but is this https://www.cnbc.com/2017/08/04/greenspan-bond-bubble-about-to-break-because-of-abnormally-low-interest-rates.html
    related to what we are discussing here? And if yes how? Let me be clear, I’ll chose good old Jl advice over Greenspan’s any day (no I am not looking to hit you with favors or loan requests, don’t worry) and the reason is because it makes 100% sense to me and I understand it. So this is what I am looking for, to understand better. I thought bonds were for oldish, totally averse to risk, kind of folks, what is this crash talk now?

    Reply
    • jlcollinsnh says

      December 21, 2017 at 7:48 pm

      Hi Roberto…

      The idea is that interest rates are so low they can only rise from here and rising rates mean lower bond prices. The longer the term, the greater the risk. So if this is a big concern for you, short-term treasuries are your best bet.

      But as always, just because someone is predicting a crash doesn’t mean it will happen or what it will actually look like if it does.

      For more, read: https://jlcollinsnh.com/2012/10/01/stocks-part-xii-bonds-and-a-bit-on-reits/
      and the link in Addendum #1

      Reply
      • Roberto says

        December 22, 2017 at 6:02 pm

        Thanks, I have a to do list item that says “read jlcollinsnh entire website”, had I checked that out, I wouldn’t have embarrassed myself with this question 🙂

        Reply
  20. Adam says

    December 21, 2017 at 10:19 am

    Timely! I just rebalanced into VBTLX earlier this week — now at 25% VBTLX, 10% VTIAX, 7.5% VGSLX, 57.5% VTSAX. A little more complicated… but international equities have been treating me well for the last couple of years and I like a bit of exposure there.

    Planning for FIRE effective 2030, I projected our retirement accounts would be up 25% from 1/1/17 to 1/1/18. We’re wildly beyond that at 37%, so I figured I could comfortably shift a bit more into bonds just in case there’s a fire sale on stocks coming up. It’s a nice feeling.

    So many numbers. At her desk my wife is probably rolling her eyes at me so hard right now and wondering why.

    Season’s greetings to you and yours. Thank you for all you’ve done over the last year, for me and countless others!

    Reply
    • jlcollinsnh says

      December 21, 2017 at 7:57 pm

      Hi Adam…

      Sounds like you are well on your way. Nicely done.

      Here’s to a healthy, happy and prosperous 2018!

      Reply
  21. MrWow says

    December 21, 2017 at 10:30 am

    Thanks for the sage advice. Interesting take. And it all goes back to understanding why you own certain things and staying true to that.

    I especially love your posts simply because I can hear you reading them to me in my head. Can you make a Siri voice over thing? So I can just have you read me everything?

    Most importantly, Happy Holidays to you and yours!!

    Reply
    • jlcollinsnh says

      December 21, 2017 at 8:01 pm

      Hey Mr. Wow…

      I’d’ve thought you’d have enough of my voice in your head from Ecuador!

      Can’t read you everything (unless you can ink a deal for me with Amazon) but my book has an audio version now.

      Just the thing to lull you and Mrs. Wow to sleep. 😉

      Reply
  22. Darrow Kirkpatrick says

    December 21, 2017 at 10:54 am

    Agreed on the approach to bond allocation. I was about 50/50 stocks/bonds during the runup to my retirement in the early 2000’s. And the performance of bonds then was a nice tailwind, probably not to be repeated anytime soon. Now, I’m happy with that same allocation with an eye not on the performance of our bonds, but as a stable counter-weight to stocks for producing retirement income, as needed.

    And thanks Jim for mentioning my new retirement calculators!

    Reply
    • jlcollinsnh says

      December 21, 2017 at 8:03 pm

      My pleasure, Darrow…

      …thanks for providing the codes to give to a couple of my lucky readers!

      Reply
  23. FIRECracker says

    December 21, 2017 at 11:50 am

    “JL is getting more conservative with his bond allocation. Is this his veiled warning to us the long-awaited crash is coming?”

    You know your audience too well 🙂

    Agree that lower quality bonds with higher yields are tempting but not a good counter-weight, so thanks for letting us peek behind the curtain to see your bond allocation.

    Happy Holidays and chat soon!

    Reply
  24. nadir says

    December 21, 2017 at 12:24 pm

    Great advice as always. Personally I’m 100% VTSAX as I’m still in the wealth accumulation phase and see no reason to “play it safe” by adding bonds.

    My question: Somewhere on this blog (maybe an article, maybe a comment) you toyed with the idea of going 100% VTSAX and accepting the “wild ride.” Is that still a possibility for you, or have you ruled it out? I’m just curious on your thoughts either way.
    Thanks and happy holidays!

    Reply
    • jlcollinsnh says

      December 21, 2017 at 8:16 pm

      Hi Nadir…

      Still thinking about it. If I do, it will be for one of these reasons, or a combination of the two:

      1. The common wisdom is that once you reach a certain level of wealth you no longer have to “play the game” and you can step away from stocks and their volatility. This is somewhat the idea behind WARM: https://jlcollinsnh.com/2017/09/09/sleeping-soundly-thru-a-market-crash-the-wasting-asset-retirement-model/

      True enough but, as always, I look at it a bit differently. The greater your level of wealth the better you can withstand the volatility of stocks. This puts you in a strong position to go for performance. Plus, even at my advanced age, I am investing for the long-term. My wife will very likely survive me by a couple a decades and beyond that I am investing for future generations.

      2. In the last couple of years some of my business interests have begun throwing off cash such that we are no longer drawing on the portfolio. For now I am uncertain if or how long this might last. But if it starts to look sustainable, that would push me towards 100% stocks.

      Reply
      • nadir says

        December 22, 2017 at 10:04 am

        Thank you as always for the reply. Hopefully we will see a blog post on this topic if you decide to go all in at some point. Either way, thanks for explaining and happy Friday.

        Reply
  25. Jenny says

    December 21, 2017 at 12:52 pm

    ooo can I get a code for the pro calculator? Happy Holidays to you to Mr. Collins!

    Reply
  26. Robert Finch says

    December 21, 2017 at 4:00 pm

    When the US gov’t defaults and it will your bonds will be worth (0). At the same time the Market will likely crash if not before.

    Reply
    • jlcollinsnh says

      December 21, 2017 at 8:19 pm

      True enough on both counts, and on a worldwide basis.

      But if that is your expectation, Bob, the important question is where are you investing?

      Reply
  27. Bill Muffi says

    December 21, 2017 at 6:06 pm

    We moved to 50% Bonds, 50% Stocks index funds several months ago.
    New money 50 % Treasury bond index fund.
    We have bought several copies of you book for gifts.
    Merry Christmas!

    Reply
    • jlcollinsnh says

      December 21, 2017 at 8:20 pm

      Thanks Bill…

      …hope those who receive the books enjoy and benefit from them.

      Merry Christmas to you and yours and have a healthy, happy and prosperous New Year!

      Reply
  28. JimH says

    December 21, 2017 at 6:09 pm

    I retired a couple of years at the ripe age of 57 because of accelerated savings, sticking to consistent investing through the global financial crisis of 2008-2009 and being cheap. Actually, my daughter says I’m not cheap, I’m economical. I shudder to think how much better off I’d be if I knew of the advice of Jim, MMM, Darrow Kirkpatrick and all the others 40 years ago.

    Jim’s book is awesome and if you haven’t read it yet, get it now. I’ve simplified my traditional and Roth IRA’s with the two primary funds of VTSAX and VBTLX. But, recently I chickened out and sold a little of the stock in the traditional IRA and have it in money market and CD’s. Why did I do this? Jim’s guest post by A. Noonan Moose got me to thinking of sleeping soundly through a market crash.

    And Jim you do NOT need to send me the code as I, after reading Darrow’s most recent post, purchased PRC Gold to help determine cash flow, Roth conversions, etc. Sorry Darrow but I wanted a desktop version.

    Reply
    • jlcollinsnh says

      December 21, 2017 at 8:23 pm

      Hi Jim…

      Sounds like you’ve done just fine without us 😉

      Thanks for the very kind words on the book.

      Have a healthy, happy and prosperous 2018 and beyond!

      Reply
  29. Pierre says

    December 21, 2017 at 7:56 pm

    Hi, I’m 51 and try to figure out if I have enough money to retire soon, this tool seem to be well done to run simulations and it could probably help me, if you still have code I’ll appreciate.
    Thanks for work, I’m a big fan

    Happy holidays

    Reply
  30. soundnlight says

    December 21, 2017 at 10:19 pm

    Hi Jim,
    I very much enjoy reading your blog, and it’s one of the few I really look forward too. Now, sparked by the last photograph of your column, I’m wondering whether you plan to remain at your beach house through the Wisconsin winter?! I grew up in Michigan myself, near Detroit, but away from the massive snow drifts along the water. I now live in Baltimore, where it’s comparatively warmer and sunnier. I remember those drifts can get high and windy! FWIW I’m on a slower track to FI. I could probably claim FI now if I moved to a cheaper locale and got rid of one of our cars…

    Reply
    • jlcollinsnh says

      December 22, 2017 at 4:13 pm

      Hi SNL…

      This winter we are as the work on the place continues and our daughter is visiting. Longer-term, we’ll go back to the full time travel and spend a month or two here each year spring & fall. That will open it up for the lucrative summer rental season and allow us to flee each winter to someplace warm. Or at least not as cold. 🙂

      Reply
  31. Tim Cullum says

    December 22, 2017 at 11:22 am

    Less than 2 % over the last 5 years is dismal. I can get 3.15% guranteed Interest. I hate bonds!

    Reply
    • Hope says

      January 5, 2019 at 1:55 pm

      Where are you getting 3.15% guranteed?

      Reply
  32. Wayne says

    December 23, 2017 at 12:22 pm

    Thanks Jim, I enjoy your blog and your book.

    Is the EFT BND the same as VBTLX?

    Wayne

    Reply
    • jlcollinsnh says

      December 23, 2017 at 5:01 pm

      Thanks Wayne.

      Yep, that’s it.

      Reply
  33. Shane says

    December 23, 2017 at 2:53 pm

    I would love to try the pro version.

    Reply
  34. Teri says

    December 25, 2017 at 2:05 pm

    Thank you JL. I had been in VBLTX and have since changed to VBTLX after this article and checking the long term graphs on both of these. VTLTX has a higher return currently (along with higher costs) and has been worse. Like you said, bonds are for stability and VBLTX is not as stable as VBTLX.

    Merry Christmas & Happy New Year to your and yours.
    Teri

    Reply
  35. William says

    December 26, 2017 at 5:15 pm

    Hi there Mr. Collins – a big, great thanks to you and your willingness to share with and support the FI community. I’m a whippersnapping 26 years, and excited for how much my future has opened up as I improve my practices with money – currently at a 75% savings rate. I hand-wrote you a letter expressing my concerns about a soon-coming inheritance. Could I email you images of the letter? I want to ensure I am responsible with such a great gift, as responsible action provides me greater opportunity to improve others lives in the future.
    Cheers, William

    Reply
    • jlcollinsnh says

      December 27, 2017 at 8:09 pm

      Hi William…

      Congratulations on your 75% savings rate. That bodes well for your handling of the coming inheritance.

      Unfortunately, I don’t provide personal consultations. However, if you read thru this blog and/or my book you’ll have an excellent idea of the advice I’d give. More importantly, the reasons behind that advice as well.

      Good luck!

      Reply
  36. Matt says

    January 2, 2018 at 6:58 pm

    Hi Mr Collins–

    Appreciate you coming out with a full post here. I was the one who asked a question you answered on the ChooseFI podcast about this very issue.

    I have about $20,000 in a Coverdale account for each of my children, now age 15 and 17, for college. I had it all in the market (VTSAX of course) and then moved to a bond fund (VICSX) in August. I’m in the wealth preservation stage at this point. Would VBTLX be the best place to protect this principle or would cash be a better spot. Obviously the super low interest rates are a concern to me as it seems the only place they will go is up.

    Thanks for this series. I’ve read it all and all the comments at least twice. Grateful for all you do! Matt

    Reply
    • jlcollinsnh says

      January 3, 2018 at 5:47 pm

      Hi Matt…

      Thanks for the Choose FI question and nice to see you over here.

      You are right to be concerned about interest rates. When they rise again it will be tough for bonds, especially if the rise is rapid. So cash is a bit safer, at least in the short term. Longer term, the value of cash is eroded by inflation.

      In short, there is no perfect solution but for the reasons I explain in the post for me VBTLX is the best choice.

      Reply
      • Matt says

        January 5, 2018 at 9:19 pm

        Thanks for the prompt reply. Stay warm!

        Reply
  37. Crew Dog says

    January 6, 2018 at 2:00 pm

    Jim/J.L.,

    Thanks for the PC Guide links, they look to be interesting reading.

    Wanted to add a military wrinkle to the discussion: We (Spousal Unit & I) followed rules-of-thumb about asset allocation (% stocks/bonds) UNTIL we reached military retirement. Once that guaranteed pension was locked in, we became much more aggressive with our allocation. In fact, after reading an article Doug Nordman wrote over at the-military-guide.com that referenced the book “Are You a Stock or a Bond?,” we decided that a military pension easily met all the same parameters as investing in bonds, so we transitioned to a nearly 100% equity position. [Your writings helped influence this decision too, of course! ;-)] Admittedly, this was an easier decision since we live well below our means and the pension itself covers all of our living expenses.

    I know not many folks have pensions these days, but I throw this out there as food for thought. Whatever path you take to get to FI, as you say, “The greater your level of wealth the better you can withstand the volatility of stocks.” In our case, the guaranteed income each month and our low overhead allows us to invest our other assets for growth, rather than income or preservation.

    Reply
    • jlcollinsnh says

      January 7, 2018 at 7:31 pm

      Good point, CD…

      …pensions, military and otherwise, can serve the same role as bonds in a portfolio. Same goes for Social Security.

      Reply
  38. Meg says

    January 7, 2018 at 9:58 am

    Hi Jim,
    I want to open vanguard accounts (VTSAX) for my 2 teenagers (16 and 12) but I want to make sure that when they are on their own they can just take them over. These would be regular taxable accounts that will be started with saved gift money ($5k each) and I will add $200 per month to each and they will (ideally) just let them grow for 40+ years. When they are each on their own and take over each of their accounts, they will continue the $200/month deposit. So in other words, i want to make sure that they can just assume ownership of the accounts when they are adults and avoid having to sell the shares to open new accounts under their own names. Do you know if that’s possible? (A “seamless” transfer of ownership at the age of 22 or whenever they finish school). I’m guessing it would have to be a UTMA account to start because they are minors but can they must take them over when they are adults? BTW, i don’t care if it interferes with their financial aid eligibility when it comes time for college. We plan on funding their college out of pocket without any loans.

    Reply
    • jlcollinsnh says

      January 7, 2018 at 7:37 pm

      Hi Meg…

      Great idea and definitely doable. We did exactly this for our daughter.

      Unfortunately, it has been awhile and I don’t remember the exact mechanics. As I recall, we used a UGTM account.

      I’d suggest you call Vanguard, explain what you want to set up and let them guide you.

      Of course, as I am sure you know, once they come of age it is their money and their call on whether it is left alone to grow or spent. 😉

      Reply
      • Meg says

        January 7, 2018 at 11:01 pm

        I showed them a savings calculator and explained how money begets money and they are super STOKED about getting started. You’re right once they are of age they’ll be able to do what they wish with the money but my plan is by then they will be so conditioned to letting it grow and adding to it on a regular basis.

        Reply
  39. Rica says

    January 8, 2018 at 5:58 pm

    Question:

    My father-in-law wants to sell my husband and me his Florida condo for $1. He is worried about losing the condo to medical fees in the event of needing Medicaid to cover potential long-term care. He has made a good middle-to upper-middle class living, but is a big spender and has never saved any money for retirement.

    The idea is that we would take ownership but he and his wife (my husband’s stepmother) could still use it a few times a year throughout their lives. They are about 70 and perfectly healthy. But now we would pay the taxes and condo fees and also do the work of renting it out for 6 months a year (the maximum allowed) which currently more than covers the annual costs.

    On one hand, this is a roughly $125,000 value being given to us, which is nice. And the motivation is pure–protecting this asset from being eaten up by health care costs. On the other hand, this puts us on the hook for ongoing condo fees, taxes, and costs and/or the hassles of covering those expenses by renting the place out.

    If indeed my father-in-law does end up in asset shredding long-term care, this will turn out to have been a good way to save the condo. But if my father-in-law doesn’t end up in long-term care, we will have taken on a big burden many years earlier than necessary just to get something my husband would have ultimately inherited anyway. Or worse, if my father-in-law needs the money for something not covered by Medicaid, like in-home care or just other old age expenses, we could end up taking on 10 years of condo expenses/hassles only to feel obligated to sell the condo and give him all proceeds. Or maybe he’ll need to live there full-time instead of just vacationing there, rendering our “ownership” an expense without any benefits in terms of our own potential use of the condo.

    Do you have any thoughts on how to handle a situation like this? A) Should we do it? B) How should we talk to my in-laws about it?

    Thank you,

    Rica

    Reply
    • jlcollinsnh says

      January 8, 2018 at 6:20 pm

      Hi Rica…

      First, I have to start by saying I am ethically uncomfortable with strategies like this that seek to shift the burden of care and its cost from those who have resources to the rest of us taxpayers.

      That said, if you and your in-laws go this route be very careful that you understand the limitations of this approach. The government has guidelines designed to block such approaches. So do your research.

      It sounds like this is a vacation condo? If so, your in-laws are pushing you into being Airbnb-type landlords which is a part time job. You seem to have a pretty good handle on what this will entail. Run the numbers. With effort it could be profitable.

      Further, it sounds like they aren’t giving you the condo but only putting it in your name until/unless they need it or don’t.

      Again, it sounds like you have a good read on the deal. It would not be for me, but only you can decide if it is for you.

      As for how to talk to them about it…

      …decide first what you want to do and then say…

      …thanks, let’s do it or…

      …no thanks, it is not right for us.

      Good luck!

      Reply
  40. snowcanyon says

    January 9, 2018 at 12:27 pm

    Random question for the crowd: I currently have all my bond funds in taxable due to poor choices in my 401k. My company just added VBTLX to my 401k options, so I’m going to add that. I have VBTLX and VWITX in my taxable account. I’d like to nix VBTLX in my taxable and switch to a different bond fund so that I can engage in tax-loss harvesting without running afoul of the wash-sale rule after adding VBTLX in my 401k.

    Any suggestions for a good alternative bond fund to replace my VBTLX and pair with VWITX in my taxable account? Thank you!

    Reply
  41. Sonny Ruckstuhl says

    January 9, 2018 at 10:46 pm

    Jlcollinsnh

    Just wanted to say thanks and happy new year!

    Look forward to meeting you one day.

    -Day before kindergarten

    Reply
    • jlcollinsnh says

      January 12, 2018 at 11:21 am

      Thanks Sonny…

      Same to you and yours!

      Reply
  42. Christopher Cerny says

    January 12, 2018 at 11:19 am

    So, if bonds are to smooth the ride out, why not use short term treasuries rather than VBTLX and just less of them?

    Reply
    • jlcollinsnh says

      January 12, 2018 at 11:23 am

      That would work, but with interest rates so low it would be “dead” money.

      For me, VBTLX stokes the right balance of ballast and bit of interest while I wait.

      Reply
      • Christopher Cerny says

        January 25, 2018 at 8:46 am

        Would intermediate and long term bonds suffer greatly if we entered a long period of strong inflation?

        Reply
        • jlcollinsnh says

          January 25, 2018 at 2:23 pm

          Interest rates tend to rise in response to increasing inflation and rising rates drive down bond prices.

          So yes, strong inflation = higher interest rates = lower bond prices.

          https://jlcollinsnh.com/2012/10/01/stocks-part-xii-bonds-and-a-bit-on-reits/

          That said, the advantage of VTBLX is that it has bonds of all maturities and bonds acquired at many different times. So there is a steady flow of bonds reaching maturity creating new money to buy the new, higher interest rate bonds.

          But still, it too can be expected to take a hit with rising rates, especially if that rise is fast.

          Reply
          • Mr Wheat says

            February 6, 2018 at 11:18 pm

            The risk to benefit ratio of VTBLX concerned me in early 2017 due to low interest rates, so after reading great articles on CDs from Harry Sit and Allan Roth I moved 2/3 of my VTBLX into 3% CDs with a low early withdrawal penalty and the other 1/3 into shorter duration VBIRX (kept for rebalancing). Time will tell if it was a good move, but after a year no regrets. If anything I keep wondering why I don’t move my VBIRX into a money market fund.

          • jlcollinsnh says

            February 7, 2018 at 11:43 am

            Sounds like a good approach, if a bit more complicated; especially if you have laddered your CDs.

          • Hope says

            January 5, 2019 at 1:49 pm

            What is the term of your 3% CDs -where are you purchasing? Is 3% the max you have found? I wonder the same about cds versus the vanguard total bond fund. I believe the bond fund lost money last year if I’m not mistaken?

  43. Richard says

    February 12, 2018 at 12:23 pm

    I read your “if you can’t buy vanguard” article but I didn’t what I was looking for.
    My brokerage only allows me to buy Ishares commission free and they seem to have similar or better ERs than VG.
    Would you be ok with someone using :
    -ITOT instead of VTSAX (VTI)
    -IUSB instead of VBTLX (BND)
    Thank you JLC. Big fan

    Reply
    • jlcollinsnh says

      February 12, 2018 at 1:43 pm

      Thanks Richard…

      …much appreciated!

      Both ITOT and IUSB closely replicate the same portfolios in VTSAX and VBTLX, so you should be fine with them. Just keep a close eye on the ERs. These can be changed at anytime and, unlike VG which is always seeking to lower costs, other investment firms have a strong financial motivation to raise them.

      Also, you can buy VG funds directly thru VG at no charge, so there is no reason to go thru a brokerage.

      Reply
      • Richard says

        February 13, 2018 at 1:19 pm

        Awesome. Thanks JLC. I’ll investigate opening an account with VG directly.

        Reply
  44. TGM says

    February 21, 2018 at 8:18 am

    What are your thoughts on using VBILX as a replacement for VBTLX? When comparing the two I see that VBILX seems to be VBTLX minus the MBS. VBILX has better 5 and 10 year returns, still retains good credit quality, has similar duration and performed better during 2008 than VBTLX. I am torn between the two but went with VBILX in place of VBTLX in my IRA. Your thoughts? (By the way, I really enjoyed your interview by the Mad Fientist. It changed my AA philosophy a bit.) Thanks.

    Reply
    • jlcollinsnh says

      February 21, 2018 at 9:24 am

      Hi TGM…

      VBILX should be fine if you prefer it.

      I prefer VBTLX for the slightly lower costs and because the performance is good enough (and not the reason I hold bonds). But this is splitting hairs. 🙂

      That interview was great fun to record, glad you enjoyed it too!

      Reply
  45. Justin says

    June 1, 2018 at 10:57 am

    I ended up going with VBTLX in 2017 when I shifted from 100% equities to something approaching 90% equities right now (basically “taking some profits”, or more uncharitably “timing the market 😉 ).

    A commenter on the blog suggested I should go with the short term corp bond fund that had a similar but slightly lower yield. The reasoning being that I can take on less interest rate risk, and I should basically ignore the credit risk that comes with going 100% corp vs a total bond index blend that’s mostly government bonds.

    I kind of shrugged and went back to the reason I want a 10% slice of bonds in my asset allocation. Stability. Something that is unlikely to drop significantly in the event of a strong economic downturn. Some dry powder, not to have to reinvest in equities in a downturn (which I might do) but rather to live on for a few years should the stock market tank.

    With the corp bond fund, I feel like a credit crunch or big recession could lead to bigger credit risk losses in the corp fund (which would be highly correlated with losses in the equities side of the ledger!). Which is exactly the kind of risk I’m seeking to avoid with my bond slice.

    And VBTLX is simple. I like simple.

    In other words, what you said 🙂

    Reply
    • jlcollinsnh says

      June 1, 2018 at 6:41 pm

      Yeah, it pays to understand why you want to own an investment and how it fits into your goals. It is not just about the performance specs. 😉

      Thanks for checking in!

      Reply
  46. CR or BZ Bound says

    July 3, 2018 at 1:43 am

    Boy howdy Jim; keep up the great work!

    Just in case a pro version is still out there… thought that I would at least try.

    Reply
    • jlcollinsnh says

      July 3, 2018 at 10:00 am

      Thanks, Bound!

      Not sure I understand your second line…

      Reply
      • CR or BZ Bound says

        July 4, 2018 at 12:42 am

        Sure thing Jim.

        Apologies for not being more clear. I was asking if there was still a chance to get a code to get Darrow’s Pro version?

        Reply
        • jlcollinsnh says

          July 4, 2018 at 1:36 pm

          Ah, got it.

          Those free codes are long gone, but the Pro version is pretty inexpensive.

          Reply
  47. george says

    July 12, 2018 at 9:58 am

    hello jim —
    given the current (7/12/18) rate environment, where do you put excess taxable non equity investment money? thanks in advance

    Reply
    • jlcollinsnh says

      July 12, 2018 at 10:05 am

      Hi George…

      Assuming by “non equity investment money” you mean money you are saving to spend on something in the future like a house, car, emergency; regardless of the low interest rate I keep mine in VMMXX (money market fund) and our bank savings account. It is about having the money instantly available. Everything else is in VTSAX or VBTLX.

      Reply
  48. David Z says

    August 21, 2018 at 2:42 pm

    Hi Jim,

    Loving your blog and inspired to make the change from gut-wrenching volatility to simplicity. Simplicity is beautiful!

    First, I will cut to the chase with my question: given that CD rates have improved over the last year or so (and look to get even better with looming rate hikes), don’t CDs beat a bond fund for stability and return at this point in time?

    If I look at VBTLX, the average annual returns as of 6/30/2018 for 1yr are -0.53% (yikes!), 3yrs are 1.67%, and 5yrs are 2.22%. I spoke to a Vanguard rep about this, and he said these figures would include any interest.

    Not so good!

    But if I look at current CD tares as of today ( August 21, 2018) I see that the current 1yr return is 2.35%, 2yrs is 2.80%, 3yrs is 3.0% and 5yrs is 3.35%

    Not extraordinary but much better, and a guaranteed return at that.

    So again my question: at this point in time, with more interest rate hikes coming soon, WHY WOULD ANYBODY INVEST IN BOND FUNDS?

    Please help! I have searched the internet and have not gotten a good answer anywhere!

    And thank you for your wonderful blog,
    David

    Reply
    • David Z says

      August 25, 2018 at 3:33 pm

      Hello again Jim—

      No thoughts on my bond fund vs. CD question?

      Is VBTLX still the way to go mid-2018?

      Reply
    • jlcollinsnh says

      August 28, 2018 at 11:31 am

      Hi David…

      Thanks for pinging me. I thought for sure I had answered your question. Guess I only thought about answering it. 😉

      What attracts you about CDs is exactly what attracted me to those other bond funds as I describe in the post above: a better return. But, as I also say in that post, I don’t hold bonds for return. I hold them for ballast. I can get better long-term returns simply by increasing my allocation to VTSAX.

      That said, there is nothing wrong with using CDs for ballast instead. They have the advantage, as you note, of greater interest rates that are locked in.

      However, if rates continue to rise, you will be stuck with those now lower rates until the CD matures. The bond fund, as it is always buying new bonds as cash rolls in and old ones mature, will follow the rates up.

      Just like they will follow the rates down when that happens. 😉

      One final point. When you say “with more interest rate hikes coming soon” you are really saying that you are hearing “gurus” claim rates are going to rise. Sometimes gurus are right in predicting the future. More often they are wrong. 🙂

      Reply
      • David Z says

        August 28, 2018 at 11:53 am

        So true! I understand things a bit better now. And I appreciate the reply, Jim— of all the millions of financial blogs, yours is the one that really resonates.

        Reply
  49. Jeffrey Perez says

    August 23, 2018 at 6:29 pm

    JL,
    I just discovered my girlfriend had an annuity sold to her which is now capped at 12k and cannot be added to any further so now it just hopes for very minimal interest bumps. I was wondering what is the best way to get her money out of this vehicle and into something we can contribute further too and continue growing?
    Any help here would be greatly appreciated.
    Thank You,

    Jeff

    Reply
    • jlcollinsnh says

      August 24, 2018 at 10:22 am

      Hi Jeff…

      I consider annuities to be such a horrible option and would never own one, I have spent zero time figuring out how to unwind them.

      Two suggestions:

      –Reach out to Vanguard about transferring the annuity to them and your options once it is there.

      –My pal Darrow, caniretireyet.com, has written about them extensively. Check out his posts.

      Good luck!

      Reply
  50. Jim C says

    November 19, 2018 at 11:12 am

    Very nice article and notes! Just to follow up this line of reasoning, would you consider a slightly shorter duration (given rising rates) — and potentially higher quality (to avoid ALL credit quality issues)? Thanks! – jim

    Reply
    • jlcollinsnh says

      November 19, 2018 at 2:17 pm

      Thanks, Jim.

      Sure, you could do that. But this is the Simple Path designed for the long-term with its ever changing conditions.

      Reply
  51. Hope says

    January 5, 2019 at 2:09 pm

    Who has the best paying CD’s/highest rates right now for 2, 3, and 5 year? it seems to me that those might be a good alternative to bonds right now. It looks like the total bond fund at vanguard had a loss last year? Can someone explain to me with rising rates why the total bond index fund went down? And in a rising rate environment, I assume this will continue to happen?

    Reply
  52. JC Webber III says

    May 13, 2019 at 1:23 pm

    Why not go with TIPS (VTAPX) for both the counter weight effect of bonds plus the inflation protection? That’s what I’m doing instead of VBTLX.

    Reply
    • jlcollinsnh says

      May 13, 2019 at 6:59 pm

      VTAPX has a slightly higher ER and a slightly lower yield than VBTLX and, for inflation protection, I have VTSAX. VBTLX provides deflation protection.

      Reply
  53. Bill says

    October 21, 2019 at 9:39 am

    I just finished the Simple Path to Wealth (and gifted some copies!). I’m all in with the advice, except worried about the bond part, since the bond market seems to be so screwy in the last year or two with inversion, etc. At this time it seems that maybe it’s better to just sit on my 2% Ally account for that guaranteed return rather than put that money into VBTLX?

    Reply
  54. Jeanie says

    November 9, 2019 at 10:16 pm

    I just discovered your blog and am really enjoying it. I just getting started with Vanguard with a Roth and want to do VTSAX and VBTLX as you recommend. I notice they offer them as a mutual fund or ETF. Which one would be better? thanks.

    Reply
  55. Casey says

    November 27, 2019 at 11:17 pm

    JL, do you still happen to have any random “pro” codes available for the “Can I Retire Yet?” website? Merry (early) Christmas 2019!

    USAFperio (Casey)

    Reply
  56. Nate says

    May 30, 2021 at 10:26 am

    JL, after reading The Simple Path I was planning on retiring this year maintain a 75/25 split VTSAX/VBTLX. Now I’m hearing a lot of chatter about interest rates and bonds.

    Is this simple approach relevant? I hope to enjoy 20 years of retirement and look at my investments only 3-4 times a year.

    Love your book, I’ve had 3 friends read it as well.

    Reply
  57. Joseph says

    November 12, 2022 at 9:44 pm

    Good Evening Mr.Collins,
    For some time now I have been following your methods and they have truly changed my life. I have read The Simple Path to wealth along with this post. One of the things you mentioned was that in the wealth preservation phase hold VBTLX to smooth the ride. Looking at the data and performance history It appears that the performance of the fund is operating at a negative. what am I not understanding? perhaps interest paid out by these funds is not included in that number. My question is why would one prefer to keep money in VBTLX over cash? from my understanding, both are subject to inflation.

    Thank you so much again, we may never meet but, as someone in my twenties, you have changed my life and are one of my personal heroes.

    Reply

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      • Chautauqua 2014 preview, closing up for travel and other random cool things that caught my eye of late.
      • Case Study #10: Should Josiah buy his parents a house?
      • Case Study #9: Lars -- maximizing some good fortune and considering "dollar cost averaging"
      • Case Study #8: Ron's mother - she's doin' all right!
    • ► January (4)
      • roundup: Some random cool things
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      • Case Study #7: What it looks like when everything financial goes wrong
      • 1st Annual Louis Rukeyser Memorial Market Prediction Contest 2013 results, and my forecast for 2014
  • ► 2013 (41)
    • ► December (4)
      • Closing up for the Holidays, see you in 2014
      • Betterment: a simpler path to wealth
      • Case Study 6: Helping an ill and elderly parent
      • Stocks -- Part XX: Early Retirement Withdrawal Strategies and Roth Conversion Ladders from a Mad Fientist
    • ► November (3)
      • Death, Taxes, Estate Plans, Probate and Prob8
      • Case Study #5: Zero to 2.6 million in 25 years
      • Case Study #4: Using the 4% rule and asset allocations.
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      • Republic Wireless and my $19 per month phone plan
      • Case Study #3: Let's get Tom to Latin America!
      • The Stock Series gets its own page
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      • Case Study #2: Joe -- off to a fast start!
      • Chautauqua 2013: A Week of Dreams
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      • Closing up shop plus an opening at Chautauqua, my new podcast, phone, book and other random cool stuff
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      • They Will Kill You For Your Shoes!
    • ► June (4)
      • Stocks -- Part VIII-b: Should you avoid your company's 401k?
      • Shilpan's Seven Habits to Live More with Less
      • Stocks -- Part XIX: How to think about money
      • My path for my kid -- the first 10 years
    • ► May (5)
      • Why your house is a terrible investment
      • Stocks — Part XVIII: Investing in a raging bull
      • Dining with the Ghosts of Sarah Bernhardt and Alfons Mucha
      • How we finally got the house sold
      • Stocks — Part XVII: What if you can't buy VTSAX? Or even Vanguard?
    • ► April (4)
      • Greetings from Prague & a computer question
      • Swimming with Tigers, a 2nd chance on the Chautauqua, a financial article gets it wrong and I'm off to Prague
      • Storage, Moving and Movers
      • Homeless, and a bit on the strategy of dollar cost averaging
    • ► March (4)
      • Wild Turkeys, Motorcycles, Dining Room Sets & Greed
      • Roots v. Wings: considering home ownership
      • How about that stock market?!
      • The Blog has New Clothes
    • ► February (5)
      • Meet Mr. Money Mustache, JD Roth, Cheryl Reed & me for a Chautauqua in Ecuador
      • High School Poetry, Carnival, cool ads and random pictures that caught my eye
      • Consignment Shops: Best business model ever?
      • Cafes
      • Stocks -- Part XVI: Index Funds are really just for lazy people, right?
    • ► January (5)
      • Social Security: How secure and when to take it
      • Fighting giraffes, surreal landscapes, dancing with unicorns and restoring a Vanagon
      • My plan for 2013
      • VITA, income taxes and the IRS
      • How to be a stock market guru and get on MSNBC
  • ► 2012 (53)
    • ► December (6)
      • See you next year....until then: The Origin of Life, Life on Other Worlds, Mechanical Graveyards, Great Art, Alternative Lifestyles and Finding Freedom
      • Stocks -- Part XV: Target Retirement Funds, the simplest path to wealth of all
      • Stocks -- Part XIV: Deflation, the ugly escort of Depressions.
      • Stocks Part XIV: Deflation, the ugly escort of Depressions.
      • Stocks -- Part XIII: The 4% rule, withdrawal rates and how much can I spend anyway?
      • How I learned to stop worrying about the Fiscal Cliff and you can too.
    • ► November (2)
      • Rent v. owning: A couple of case studies in Ecuador
      • So, what does a month in Ecuador cost anyway?
    • ► October (4)
      • See you in December....
      • Meet me in Ecuador?
      • The Podcast: You can hear me now.
      • Stocks -- Part XII: Bonds
    • ► September (6)
      • Stocks -- Part XI: International Funds
      • The Smoother Path to Wealth
      • Case Study #I: Putting the Simple Path to Wealth into Action
      • Tales of Bolivia: Calle de las Brujas
      • Stocks -- Part X: What if Vanguard gets Nuked?
      • Travels in South America: It was the best of times....
    • ► August (1)
      • Home again
    • ► June (4)
      • Yellow Fever, closing up shop for the summer and heading to Peru y Bolivia
      • I could not have said it better myself...
      • Stocks -- Part IX: Why I don't like investment advisors
      • Happy Birthday, jlcollinsnh; and thanks for the gift Mr. MM!
    • ► May (6)
      • Stocks -- Part VIII: The 401K, 403b, TSP, IRA & Roth Buckets
      • Mr. Money Mustache
      • The College Conundrum
      • Stocks -- Part VII: Can everyone really retire a millionaire?
      • Stocks -- Part VI: Portfolio ideas to build and keep your wealth
      • Stocks -- Part V: Keeping it simple, considerations and tools
    • ► April (6)
      • Stocks -- Part IV: The Big Ugly Event, Deflation and a bit on Inflation
      • Stocks -- Part III: Most people lose money in the market.
      • Stocks -- Part II: The Market Always Goes Up
      • Stocks -- Part 1: There's a major market crash coming!!!! and Dr. Lo can't save you.
      • You can eat my Vindaloo, mega lottery, Blondie, Noa, Israel Kamakawiwo 'Ole, art, film and a ride on the Space Shuttle
      • Where in the world are you?
    • ► March (7)
      • How I lost money in real estate before it was fashionable, Part V: Sold! and the taxman cometh.
      • How I lost money in real estate before it was fashionable, Part IV: I become a Landlord.
      • How I lost money in real estate before it was fashionable, Part III: The Battle is Joined.
      • How I lost money in real estate before it was fashionable, Part II: The Limits of the Law.
      • How I lost money in real estate before it was fashionable, Part I: Impossibly Naive.
      • You, too, can be conned
      • Armageddon and the value of practical skills
    • ► February (6)
      • Rent v. Owning Your Home, opportunity cost and running some numbers
      • The Casanova Kid, a Shit Knife, a Good Book, Having No Regrets, Dark Matter and a bit of Magic
      • What Poker, Basketball and Mike Whitaker taught me about Luck
      • How to Give like a Billionaire
      • Go ahead, make my day
      • Muk Finds Success in Tahiti
    • ► January (5)
      • Travels with "Esperando un Camino"
      • Beanie Babies, Naked Barbie, American Pickers and Old Coots
      • Selling the House and Adventures in Staging
      • The bashing of Index Funds, Jack Bogle and a Jedi dog trick
      • Magic Beans
  • ► 2011 (22)
    • ► December (1)
      • Dividend Growth Investing
    • ► November (2)
      • The Mummy's head, Particle Physics and "Knocking on Heaven's Door"
      • "It's Better in the Wind" or why I ride a motorcycle
    • ► October (1)
      • Lazy Days and School Days
    • ► July (2)
      • The road to Zanzibar sometimes goes thru Ecuador...
      • Johnny wins the lotto and heads to Paris
    • ► June (16)
      • Chainsaws, Elm Trees and paying for College
      • Stuff I’ve failed at: the early years
      • Snatching Victory from the Jaws of Defeat
      • The. Worst. Used. Car. Ever.
      • Top Ten reasons your future is so bright it hurts my eyes to look at it
      • The Most Dangerous Words Your Customer Can Say
      • How not to drown in The Sea of Assholes
      • What we own and why we own it
      • The Ten Sales Commandments
      • My ever so formal and oh so dry CV
      • How I failed my daughter and a simple path to wealth
      • The Myth of Motivation
      • Why you need F-you money
      • My short attention span
      • Why I can’t pick winning stocks, and you can’t either
      • The Monk and the Minister

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