Yes, it is a good general rule of thumb. The issue you do run into, however, is that you have to hold on to that fund for that amount of time from any given point of time. So, if a fund has a duration of 12.9 years today, you have to hold it for 12.9 years from today. And then the same is true tomorrow. And next month. And next year. You always have to hold it for that long. You are always waiting 12.9 years from the current point.Is that a rule of thumb for bond funds? Look at the duration to get an idea of how long you should probably hold it?
VWETX is a long term bond fund with a high duration risk.
Average duration is 12.9 years.
Vanguard gives it a 3 out of 5 on the risk rating, almost entirely due to the duration risk.
Those NAV / price declines in a rising rate environment are to be expected with a bond fund with such long duration.
To break even, you're probably going to need to hold it for at least as long as the duration.
The other factor to consider is that from a mental accounting standpoint, we tend to benchmark our portfolios to whatever the value we last measured. So, a bond fund with a duration of 12.9 years might go from $10,000 to $13,000 then back to $10,000 after 12.9 years. We don’t see that we broke even after 12.9 years. We just see that we lost close to 25% on our bond fund in 2022.
In terms of short term bond funds, I do own Vanguard Short Term Treasury Index. After the rate rise in 2022, there’s a lot to like about this fund and it, as well as other short era bond funds and money market funds, have become quite popular here recently. Phrases like “take your risk on the equity side” and “short term bonds are all that are needed to offset equity risk” are frequently posted. That may all be true BUT - if interest rates fall, which has happened as recently as 2020, you’ll find that the rates on short term bonds will fall quickly. Some of these funds returned 1% or less for multiple years in the 2009-2017 time frame. Money market funds during that same time returned essentially zero during that time.
Short term bond funds are fine, but they have their own risks, like any investment.
Statistics: Posted by Kenkat — Mon Jan 13, 2025 4:10 pm