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|Subject: Re: Bonds vs Bond Funds--Again||Date: 12/31/2009 8:14 AM|
|Author: TMFGalagan||Number: 29623 of 35227|
So...if my supposedly CHEAP and INDEXED bond ETF has a 61% TOR ...
It's hard to argue with SIMPLE arithmetic. The more you trade, the more you lose.
Thanks for sharing the turnover info on your bond ETF. This is a great reason why bond indexes might not be a smart way to go. If they trade this much, a buy-and-hold individual bond approach that involves a lot less trading might be a much better way to go. Sure, it takes more effort, and the one-time upfront trading costs may seem higher in the short run, but over time, it may be a more efficient way to build a solid bond portfolio.
It's a good reminder that just because something has the word Index slapped on it doesn't necessarily mean that it acts the way you'd want it to. To get the same benefits as a typical stock index fund, an efficient bond index would need to find bonds it could buy and hold until maturity. That's clearly NOT what your bond ETFs are doing.
But as you've shown us, not all indexes are designed to be optimal for investors. That's very good to know.
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