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VBMFX
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Hack,

Rather than straw polls and popular opinion, do some research and make a rational decision based on fundamentals.

Specifically, get a hold of Bogle on Mutual Funds, the '94 edition, and read his Chapter Five: How to Select a Bond Mutual Fund. It's brief, but it's thoughtful, and he is good at tearing into components, constructing tables, considering taxes, expenses, etc., so that you come to understand the differences between the instruments. He knows mutual funds in and out, maybe better than anyone in the industry, and he knows to how to use them effectively in an investment program.

He's the guy --via his writings, archived at Vanguard-- whom you should be asking what to do, since that's where you're headed and those funds are his babies (at least indirectly).

Also, have you done something as obvious as getting a hold of the prosectuses and annual reports (going back 5 to 10 years) for your various choices, plus a couple you weren't considering, just for the sake of comparison, e.g., their long Treasury fund and their high yield fund? A lot can be learned from what the mangers say about what they did during a crisis, what they are currently doing, how they see the future and intend to position themselves. Past perforamance numbers aren't totally irrelevant, but what you really should be looking for from a fund manager, and what is most important, is a sense that you trust her or his judgment when markets get ugly or the unpredictable happens.

In a bull market, everyone is a genius. But when things get tough, you don't want a summer soldier managing your money.

Charlie
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I'd recommend Charlie's comments on trout fishing, above.
You didn't give your age or how long to retirement, but now is not a great time to buy bonds. As mine are being called away, I'm now buying stocks in defensive industries--like food, restaurants, Autozone, consumer stuff. Later on as the economy picks up and the Fed starts raising interest rates, THEN I'll buy bonds again.
If you really like bonds, look at the Vanguard high yield bond fund. It will benefit as the economy improves and the ratings of the companies issuing the bonds improve. On the whole I hate bond funds, but if you are going to get high yield ones, you want a bond pro doing the picking, and you want to be diversified--many issues, so if there is a mistake, it isn't 50% of your portfolio.
Best wishes, Chris
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I think Charlie and Chris are talking past Hack—even though I think others should listen to what they say.

Hack is not talking about newly putting money into a bond fund, He is talking about rolling over an existing bond fund, and wondering whether to stick with the same fund (Total bond Index) or move to a slight variant (Intermediate bond Index).

This returns us to a much broader issue with bond funds, one we've discussed in the past: how do we weigh potential yields on a fund against potential volatility.

I'd look at the yields on the two funds going back as far as possible (information available on annual reports: I have them downloaded, so I'll see if I can find on my next cup of coffee), then look at the charts to see how much each of the funds is currently above its long term average NAV. Given that this is a retirement account, I'd probably roll over to the same fund, for the time being, then think about switching to the other, if it seems to have higher yields, when the NAVs warrant.
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Later on as the economy picks up and the Fed starts raising interest rates, THEN I'll buy bonds again.


This seems like an interesting approach, although most people who thought rate rises were inevitable thought they would have already occured by now.

They were wrong about that, and they could be wrong about the "later this year" hypothesis as well. The fact is, this economy is crawling along weaker (on the corporate front) and slower than just about anyone expected, given the amount of stimulus injected over the past 18 months.

Could the masses be wrong, and rates simply stay low for a prolonged period? The people in japan didn't think it could happen.

-hack
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Lokicious-

Thanks for information that actually addressed my question. I was not asking about whether I should be in bonds at all, or whether I should go funds vs. individual bonds (questions that get discussed endlessly around here). This was not a simple "which fund should I buy". I can select funds. And the fact that both choices are index funds should suggest that I understand that I am accepting the market average returns and am not seeking to beat them. I really wanted to know how the group favored allocating among duration.

My question is distilled down to whether I should cluster in the intermediate range, or "sweet spot" of the yield curve, rather than spread it out with shorter and longer term durations. The volatility is the main issue, but this won't bother me as I'll be reinvesting dividends and thus dollar cost averaging in this indirect way. This money will be growing for 30 years until I start retirement.

The current yields and 5 year historical returns favor the intermediate fund, and I suspect this is in part due to their higher corporate and lower GNMA allocation. I am happy with this bond allocation. My longer time horizon makes corporates suitable for me.

Finally, the advice to roll it into the same fund is worthwhile. i can always decide later to shift without tax implications. Thus, there is no urgency in making this decision. I appreciate everyone's comments.

-hack
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Here are the numbers (I still don't know how to tabulate). They suggest that the intermediate fund has slightly higher yields on all years, except when there is probably some kind of inverted curve (e.g., '94) and that the intermediate fund is slightly more volatile. It's pretty much like comparing the Total fund with any of the other bond funds, just not as extreme. I still think the Total fund provides the best return/risk ratio of the bond funds, so it is probably where I'd want to be during my withdrawl phase, but not my accumulation phase. If it were me, I'd stick to the Total Fund for now and wait for the next big interest rate increase, then go for the Long Term Fund and leave it there until interest rates are low, somewhere near retirement, and switch back.

Anyway,

Year Capital Ret. (Intermediate/Total) Income Ret. Total Ret

'94 -8.2/-8.8 5.3/6.1 -2.9/-2.7
'95 13.3/10.6 7.8/7.6 21.1/18.2
'96 -3.9/-3.0 6.5/6.6 2.6/3.6
'97 2.4/2.5 7.0/6.9 9.4/9.4
'98 3.5/2.2 6.6/6.4 10.1/8.6
'99 -9.0/-6.8 6.0/6.0 -3.0/-0.8
'00 5.4/4.2 7.4/7.2 12.8/11.4
'01 2.6/1.9 6.7/6.5 9.3/8.4

Download the latest bond index fund report yourself to check my numbers.
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