Check Your Bond Fund

I had a great conversation with @Mindingmythirties last week on Bond Funds

Let me loop you in..../

/.....THREAD

1/ Bond Yields Move Opposite of Interest

When interest rates are high, bond yields are low.

If you have a balanced portfolio, your stocks will offset this.

2/ Face Value Not Guaranteed

If you bought a bond certificate, you would be entitled to the face value of the bond.

With a bond fund (even index) the fund changes its composition to match the market.

That market may be the total bond market or the fund managers picks.

3/ Check Your Turnover

FXNAX - 38%
VBTLX - 31%

My bond fund FXNAX has a turnover of 38%. Liz’s bond fund VBTLX has a turnover of 31%.

This means less of her bonds are being exchanged. Resulting in less sensitivity to interest rates.

4/ Bond Losses are Nothing Like Stocks

1973-2016

Worst 12 month bond loss is ~13.9%.
Worst 12 month stock loss is ~43%

If you are a long term passive indexer, you’ve got nothing to worry about.

The new higher interest bonds in your portfolio will return your losses.

@MindingMy30s