Well the above is a bit off, as it was looking at different time periods, including large part of the bond bull market.Thanks for the push to look at quantitative data. Very interesting and counterintuitive.You are falling into the trap of imagining that parsing out all the detailed differences between and among all kinds of bonds actually makes a difference.Need to think about adding bonds.
This is not to sell equities but when contributing new.
Will start in tax advantaged space.
Debating between VCIT or BND, something else, or just adding a bond heavy balanced fund like VG Wellesley.
I know that bonds are meant to ballast portfolio during bear markets, but also keeping in mind that bonds shouldn't drag the portfolio too much during bull markets, where % time in bull markets outnumber % of time in bear markets. So that's why I'm considering VCIT instead of BND.
Note that if you think you need bonds with higher expected return and more risk, you can accomplish the same thing by allocating a little more in stocks with less risky bonds or less in stocks with more risky bonds. Portfolio return is a matter of mean and variability of return and correlation among the returns of the different assets. VCIT has a correlation these days to stocks of .46 and BND of .24 and VGIT of -.08.
Also I would abandon the undefined metaphorical concept of "ballast" and look at actual quantitative data -- once in the trap you might as well go whole hog.
When looking at bonds, it is not the individual bond fund in and of itself, but how it makes the overall stock/bond portfolio behave.
When looking at the data, the bond fund that BY FAR helps the most overall is not BND or VCIT. In fact, although VCIT performs better than BND on average, when a portfolio is in withdrawal phase, BND performs better.
Cash, corporate, TIPS really don't do much to prevent portfolio failure vs BND, which is better.
However the two that do the best seem to be Short Term Investment Grade in second, with Long Term Treasury being the best bond fund that prevents portfolio drawdown failure. That was surprising, totally counterintuitive, and unexpected. High Yield Corporate was up there as well, but not as good as Long Term Treasury.
Cash is no replacement for bonds. Neither are TIPS.
I'll add that this was quantitative for a portfolio of 80% stocks / 20% bonds. Not sure if the preferred bond fund changes with 70/30 or 60/40. Would have to run it.
Still, just doing a Monte Carlo of the last 20 years, where data was available for multiple bond classes, the best portfolio success rates are still going to longer term treasury, with the 10 year Treasury having the highest chance of success, with Long Term treasury a close second and Intermediate Term treasury in third.
Total Bond (BND) and the shorter term funds did not stand out, when taken as part of a stock/bond split.
Long term corporate and high yield corporate had the highest average returns and the highest actual returns, but they had power portfolio success% and higher actual max drawdown than the intermediate and longer term treasuries.
I cannot seem to find a 10 year treasury fund.
Statistics: Posted by OldSport — Sat Mar 23, 2024 11:13 pm — Replies 8 — Views 571