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Why You Should Avoid Most Bond Index Funds

FYI: Most of these funds are larded with securities issued by heavily indebted countries, including the U.S.
Regards,
Ted
http://www.kiplinger.com/printstory.php?pid=12598

Comments

  • "So when you buy the Vanguard index fund or a similar fund sponsored by another firm, you’re investing 70% of your money in government debt. That’s a giant allocation -- way too much, in my view."

    Well, yeah, maybe, but who says that you have to put all of your bond allocation in that one fund? You can spread out your sector allocations any way that you want to (as Skeet, with some 52 funds, would be the first to tell you). Other than the one sentence stating that these indexes are heavy on government, the rest of the article is garbage. These guys get paid for this stuff and then complain about other Wall Street ripoffs. I'm less than impressed.
  • Old_Joe said:



    Well, yeah, maybe, but who says that you have to put all of your bond allocation in that one fund? You can spread out your sector allocations any way that you want to (as Skeet, with some 52 funds, would be the first to tell you). I'm less than impressed.

    Agreed Old_Joe. Even John Bogle, who I believe 'invented' the first bond index fund, agrees with the author that this index is too heavily weighted toward US government bonds. So Bogle's solution is very simple: he says couple the total bond index fund with a corporate bond index fund, and you have the problem solved. Bogle also entertains the idea of 'fixing the total bond market index', but feels the resistance to that would be too great, as the Barclay's Index is very much ingrained in the financial world. So he says take one third to two thirds of the money you would have in the total bond index and put it in a corporate bond index. Now you own two bond index funds, with a more correct aggregate weighting of government vs. corporate bonds.
  • I never cared for Vanguard Total Bond index but I do own it. I also own TIPS, International Bonds (Tempelton), The Fidelity Bond fund mentioned, The Vanguard Intermediate Fund mentioned, and some high yield with TRowe Price. I hope I am on the right track. Good posts on this topic. Thanks for all the great comments
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