Bond fund question
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Bond fund question
Posted by WhalingVessel on 12/30 at 3:07 am
Which of these 2 bond funds is the way to go? They are both offered in my companies 401K plan.

The Vangaurd one has lower expenses and says a $10,000 investment would be worth $16,529 after 10 years. It has an expense ratio of .1 and says after 10 years will have accumulated to $128 worth of expenses. With a net of $16,401.

The Pimco one has high expenses and says a $10,000 investment would be worth $18,732 after 10 years. It has an expense ratio of .75 and says after 10 years will have accumulated to $930 worth of expenses. With a net of $17,802.

So am I reading it right and taking everything into account to assume that after 10 years with just the initial investment I'd have an extra 1400 if I went with the Pimco fund, thus the expenses not mattering? Or am I missing something.

I am aware that past performance is not an indication of future performance just trying to make sure I'm reading everything right.

VBTSX , PTTDX


This post was edited on 12/30 at 4:41 am

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Posted by fishfighter on 12/30 at 5:17 am to WhalingVessel
It all depends on your age putting moneys in bond funds. Back in Oct 2007, I had dumped all my 401k moneys in bonds. Had a feeling the market was going to crash and it did.

Fast farward to date, I left those moneys there and had a avg return of about 8% a year. Not great, but over all I was/am OK with that return. I have other acc's that I keep in stocks/cash. For me, it was the right thing to do.

What the future will hold on bonds is that I think the bottom will fall out mid next year. I'm retired now, but yet to start drawing any moneys from my retirement acc's.



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Posted by PlanoPrivateer on 12/30 at 11:13 am to WhalingVessel
Based on the numbers you wrote the PTTDX with the higher return is better. The easiest way for a bond fun to get a higher return is to go for a longer maturity, usually. I looked up the Maturity and Duration of both. VBTSX has a maturity of 7.2 years and a duration of 5.2 years which means it should have a higher return than PTTDX with a maturity of 6.99 years and a duration of 4.82 years. But it didn’t. I don’t know if this means, based on their current average maturity and duration, that VBTSX should outperform PTTDX in the future assuming they don’t change and interest rates don’t change.

In my opinion PIMCO is one of the best bond fund managers out there.

Since both are on the list offered by your 401K you could split your contribution between both of them and compare how they do.

My biggest fear with bond funds is their return will decrease and even lose money when interest rates rise from the current historically low rates. That’s what we need to watch out for and what fishfighter referred to as the bottom falling out mid next year. Quite frankly I don’t know what I’ll do with my bond funds in anticipation of the rising interest rates.



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Posted by WhalingVessel on 12/30 at 6:13 pm to PlanoPrivateer
We'll I'm switching my 401k contributions and was going to do 60% US stocks VIFSX, 25% International stocks VTSGX, and then the last 15% in a bond fund, either PTTDX or VBTSX.

Those seem to be the best options fund wise that my 401k offers. Which seem to be pretty good options as far as 401k's go.



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Posted by KG6 on 12/30 at 8:05 pm to WhalingVessel
I've got a lot of money in PTRAX. Not sure how that differs since they are both pimco total returns. I can't complain. Even when the share price looks bad ( I bought at around 11.76 and it's at 11.25 now) I still make money off dividends. I've probably made nearly %8-%10 over the last 3 years even though the price of the fund tanked right after I bought.


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Posted by WhalingVessel on 12/30 at 8:23 pm to KG6
Just didn't know if the .7 vs the .1 would hurt me much in the long run. The PIMCO fund would have to outperform the Vangaurd fund every year buy a decent amount to justify the larger expense ratio.


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Posted by matthew25 on 12/30 at 10:43 pm to WhalingVessel
Here is my quick n dirty:

VBTSX is a 3-Star; below average risk, average return. 4-year performance of 6,6,7,4. Manager with 20 years experience. Yield of 2.68%.

PTTDX is a 5-Star; average risk, high return. 4-year performance of 13,8,3,9. Manager with 26 years. Yield of 3.42%.

To me, the choice is obvious: PIMCO.


Edit to add: Don't be overly concerned with fund fees -- look at performance (the fees are factored in).


This post was edited on 12/30 at 10:44 pm

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Posted by WhalingVessel on 12/30 at 11:02 pm to matthew25
quote:

Edit to add: Don't be overly concerned with fund fees -- look at performance (the fees are factored in).
Are the fees factored in on the charts?

I was using the morningstar chart and put both funds on the chart and it seemed the PIMCO fund was outperforming it by around $2,000. But I didn't know if you then had to deduct the fees which was making them much closer.


This post was edited on 12/30 at 11:04 pm

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Posted by matthew25 on 12/31 at 12:32 am to WhalingVessel
Everything I have read on this Board (and there are several knowledgeable posters), and I then confirmed with the Manager at Scottrade, the charts are all factored with the fees.

But, let us say the fund does not make money. That is where the fee impact could make a difference.



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