Gyroscopic Investing

According to the fund announcement, the following three bond funds and ETFs have been changed to pure Treasury indexes:

• Vanguard Short-Term Government Bond Index Fund and ETF (VSBSX/VGSH)
• Vanguard Intermediate-Term Government Bond Index Fund and ETF (VSIGX/VGIT)
• Vanguard Long-Term Government Bond Index Fund and ETF (VLGSX/VGLT)

The benchmark changes (to remove agency bonds) were announced in August 2017 and implemented in the fourth quarter of 2017.

This means the Vanguard Long-Term Treasury Index Fund (VGLT) is a bit more suitable for the bond component of the Permanent Portfolio and related strategies.

If you're switching from long-term to intermediate-term U.S. Treasury bonds, the Vanguard Intermediate-Term Treasury Index Fund (VGIT) is also an option.

The three funds have a decent cost advantage: the expense ratio is 0.07%.

Although the link isn’t loading for me now, this is good to know - thank you! I remember seening an announcement regarding this, but I forgot all about it.

dualstow wrote:Although the link isn’t loading for me now, this is good to know - thank you! I remember seening an announcement regarding this, but I forgot all about it.

Here's a link to the press release:

Vanguard Plans Benchmark Changes For Three Bond Funds And ETFs

It was also covered in Barron's at the time:

Vanguard Switches up Benchmarks for 3 Bond Funds and ETFs

I'd been waiting for them to get rid of the Agency bonds so that I could start using these funds. I have been buying individuals, but I've found recently that buying individuals at Vanguard is getting harder; the minimum buys aren't low enough.

What is the new minimum?

dualstow wrote:What is the new minimum?

I just checked Vanguard 1 year treasuries and lowest minimum was 100 so basically $100,000. That is quite high.

However, it did let me set quantity at 1 through 99 but lowered effective yield from 1.87 to 1.84.

whatchamacallit wrote:

dualstow wrote:What is the new minimum?

I just checked Vanguard 1 year treasuries and lowest minimum was 100 so basically $100,000. That is quite high.

However, it did let me set quantity at 1 through 99 but lowered effective yield from 1.87 to 1.84.

Correct. I've been watching for a while now since one of my bills matured, and the only bills available at a reasonable minimum buy were far below the 1 year yield/were maturing in a few months.

Not worth the trouble anymore.

Why not buy them at auction?

Four-week bills on TD is another option, or could be used alongside VGSH for cash. Any longer than 4 weeks and I feel like liquidity would be an unnecessary hassle, and really even they might be pushing it. Cash should be readily accessible for rebalancing needs. Deep cash, or less accessible cash that you probably won't need for rebalancing should at least have an offsetting advantage, like higher interest rates or tax advantages.

IMO
YMMV
DGAF
XOXO

Jack Jones wrote:Why not buy them at auction?

That’s the only thing I’ve ever done except once or twice. No wonder I didnt notice a minimum. Sometimes the yield was lower than the indicative yield, and a few times it was better.

How about VGLT maturity and duration vs TLT? I know right now they look similar. But TLT descrption is 20+ year treasuries. VGLT is only 10+.

I see 7% in 10-20 and the rest in 20+
No?

Right now yes. But since the fund description/prospectus says only that the fund invests in 10+ year bonds, I wonder if we can always count on them being as long as TLT?

Go Vanguard. I wonder what prompted that move?

I've got a standard Boglehead stock/bond portfolio in my retirement accounts, and I've been wondering about switching part or all of total bond (BND) for VGLT. It should provide a better rebalancing boost, whereas BND can't do that - its job is to stay more or less steady and dampen stock swings. Anyone else done something like that?

Sophie, I checked out your suggestion at portfoliovisualizer.com using VTSMX for stocks, VBMFX for total bond market, VFITX for intermediate Treasuries, and VUSTX for long Treasuries. The data sets go back to 1993. Using a 60/40 split to stocks and bonds, the CAGR with total bonds is 8.40%, with intermed T's is 8.55%, and with long T's is 9.45%. The versions with Treasuries have lower max drawdowns and better Sharpe and Sortino ratios.

I guess the million dollar question is whether these results would repeat if we are going into a rising bond yield period? I guess if some part of the extra performance comes from rebalancing, that will mitigate the rising yields, so maybe at worst the version with Treasuries will be similar to the version with total bond market, or possibly the version with Treasuries will continue to out perform.

Jeffreyalan wrote:Right now yes. But since the fund description/prospectus says only that the fund invests in 10+ year bonds, I wonder if we can always count on them being as long as TLT?

sophie wrote:Go Vanguard. I wonder what prompted that move?

Looks like they're tracking the Bloomberg Barclays US Long Treasury Bond Index, according to the prospectus.

Jeffreyalan wrote:How about VGLT maturity and duration vs TLT? I know right now they look similar. But TLT descrption is 20+ year treasuries. VGLT is only 10+.

Because of the way indices typically build and weight holdings, it wouldn't surprise me if VGLT will always skew towards the longer end even with the 10-30 year allowable range in its prospectus. But even if they were to evenly distribute their bonds between 10-30 years, the average effective maturity would still be 20 years vs. 25 in TLT. Because of the way yield curves tend to flatten out past 10 years, I would not expect to see a huge performance difference.

Personally, I'm really happy to see Vanguard commit to treasuries and I think VGLT would be a fine addition to anyone's Permanent Portfolio.

rudiger wrote:According to
This means the Vanguard Long-Term Treasury Index Fund (VGLT) is a bit more suitable for the bond component of the Permanent Portfolio and related strategies.

This is good news. My Vanguard IRA is part of the PP. The IRA account consists of 33% VFIAX and 67% VLGSX. So it's kind of a lopsided Bogleheads subset inside of the PP. It is fun to watch it's behavior and now it is even more suitable for PP.

For the retail investor implementing the traditional permanent portfolio, it seems like VLGSX is the way to go?

avoid the need to sell a 20-year Bond and purchase a 30-year Bond? Along with Associated capital gain.

In terms of holding this in a taxable account, seems there is no particular concern like there is with EDV?