How to Choose Bond Funds [Why Higher Yield is a Bad Idea]

Описание: I share how evaluate bond funds, with a detailed comparison of two bond funds. We will discuss why going after higher yields in bonds can be a mistake!

The two funds we will use are FXNAX and FTBFX. The concepts apply for comparing any bond index funds (FXNAX vs FTBFX, FXNAX vs VBTLX, VBTLX vs VBILX)!

#BondFunds #ChoosingBondFund #FXNAX #FTBFX

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--- Outline
00:00 Intro
Investors are often tempted to go after a higher return when selected bond funds. Is this a good idea? This video covers two concepts for bond index fund strategy: 1. How to evaluate bond funds and 2. Why I think going after a higher return is bad.

01:09 Comparing Two Funds: FXNAX & FTBFX
I use FXNAX and FTBFX for the comparison. The concepts apply for comparing any bond funds (FXNAX vs FTBFX, FXNAX vs VBTLX, VBTLX vs VBILX)!

02:52 Active vs Passive & Fees
FXNAX is a passive index fund and FTBFX is an actively managed fund. This is reflected in the fees, with FTBFX charging 18x in fees.

03:59 Duration
I provide an overview of duration, which is a key metric in understanding risk of bond funds.

05:47 Fixed Income Style Map
The fixed income style map is very useful for quickly getting an idea of a fund’s composition. I discuss how to interpret the style map, which has two dimensions: interest rate sensitivity and credit quality. I compare the style maps of the two funds.

07:37 Credit Quality
I compare the credit quality of the two funds.

08:20 Diversification
I discuss and compare different aspects of diversification: portfolio, asset class, and regional diversification.

09:49 Risk & Volatility Measures
I discuss the high-level difference in risk characteristics then look at the standard deviation and sharpe ratios.

11:14 Higher Bond Returns?
I address the question “Should you seek higher yields from bonds?” I detail why I think it’s a bad idea.

12:20 Getting a Better Return - Two Portfolios
I walk through two portfolios to illustrate why seeking a higher return via bonds is a bad idea. We can see bonds are likely the wrong tool for improving portfolio returns. Stocks are a far more efficient tool for increasing risk adjusted returns in a portfolio.

14:54 My Thoughts
I share why FXNAX is the only bond fund in my portfolio. I discuss another bond strategy which uses only treasuries.

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Disclaimer: I am not a financial advisor. My videos are for educational purposes and are my opinions. You should seek advice from a professional advisor or perform your own research. There is no guarantee you will be successful following my opinions.