I thought I would share a simple comparison of the long-term total return performance (current income plus change in value) that I examined of the major bond asset classes:

                                Total Return Comparison of Major Bond Asset Classes

Here are a few observations:

• USA treasury inflation protected securities (TIPS) did the best long-term*, even though the current SEC yield is currently a mere 3.45%. This outperformance came with no need to take on the additional risk of corporate bonds.
• Simply indexing the entire USA bond market has yielded outstanding results. In fact, Morningstar now rates VBMFX as 5 out of 5 stars. Not only that, but this is the only fund on my list that actually had a postiive return during the bear market of this past year. Indexing bonds rocks!
• International bonds did not outperform USA bonds, even though interest rates overseas have typically been higher and the dollar has been weaker over the past 10 years.
• USA high income yield (HIY) did the worst long-term, even though the current SEC yield is a whopping 13.85%. In other words, loss of principle has eroded the NAV so severely that the overall total performance has been poor. **

* Assuming the 10-year performance will soon be close to that of the index.
** Hmmm...I sense an ElLobo response somewhere... ;-)

Dan

You're welcome, closer. I myself used to use VBMFX (BND) / VIPSX (TIP) / BEGBX *, but cut my bonds down to just VBMFX for simplicity. Also, I'm not trying to get rich quick here or to take unnecessary risk.

* Since BEGBX is now closed, I used RPIBX as a substitute.

I did this simple exercise because I got confused trying to figure out monthly cash flows from bond funds, reinvestment to boost NAV, SEC vs. other types of yields, and a host of other supporting details that was making my head spin.

One of my points was that instead of stretching for yield with VWEHX, you could use VBMFX, pull off some of the principle, and get a higher current income with less loss of value. VBMFX also provided a positive return during this bear market, which is almost unheard of.

Simple and cheap (indexing) has worked out pretty well so far.

Dan

Thanks for the good post.  I'm glad I hold VBMFX and VIPSX as my primary bonds.
Got into int'l bonds with a bit of LSGLX earlier this year, and have been a tad disappointed.  Not sure what I'm gonna do with that one.

Big Steve

Good bond portfolio. Yes, I've had most of those American Century bond funds too...up until today.  I had CPTNX, BTTNX, ACITX.   CPTNX and BTTNX have done fine over the past few months, as expected.  You have done well if you have held them all year.

Now Dan Fuss says in his Dec 12 video that it is time to get out of treasury bonds, and the treasury bond bubble conversation on this forum tends to support that.  With 0% interest rates...what is a guy  to do with federal bonds?

With all the talk now of 2009 inflation as a certainty, because of the 0% rate, ACITX may be better than ever.  Another interesting fund now is AONIX, which recently held 50% cash, 28% bonds, and 22 stocks.  It is another American Century fund of funds. It seems to provide a little exposure if the stock market rally is for real, and has some international bonds instead of all treasury bonds.   I will exchange  CPTNX for AONIX Friday.  The upside for CPTNX is very limited, and the downside is huge.

It is too bad American Century does not have a complete corporate bond fund, like VFSTX.  Corporate bonds are apparently the things to buy right now. I wonder why American Century is so sparse on high quality corporate bond funds....they must take a special type of investment research.

"It is too bad American Century does not have a complete corporate bond fund, like VFSTX.  Corporate bonds are apparently the things to buy right now. I wonder why American Century is so sparse on high quality corporate bond funds....they must take a special type of investment research. "

Re?

Well maybe it's Due to the fact they are Corporate /Co.'s and How have Co.'s been doing of late this yr and into the Next?  Kinda Risky maybe? and If your Fund Familiy is a "Long Term" investment basis? Could be the reason why.. they stayed out of them in the past and not to interested in Jumping on the wagon now..

and as for VFSTX? Sure, looks good for the short term, but the past 10 yrs? Not so much vs the likes of even VFITX or VBMFX  do they?

And Don't forget something else.. Who is doing all the hyping about them? ie: Consider the source...Many are out to Support their Industry & Jobs, Hidden agendas,  while others have a shorter term investment Horizion as well. And they ain't giving such Great Ylds or Potentials for Recovery $ away for Being in Good Shape are  they?

and if greats like Bill Gross , Larry Swobe can't beat them? Who can? Let alone the likes of Vanguards VWEHX  ( -24% ytd ) and a BIG, BIG, - 6% apy past 3 yrs now? Real nice.....Sure it might Gain back +30%, but so what..! Your just going to be even at best, while they line their pockets with your $ in the  meantime for free...!

 And do you want to  own Bonds issued by a Bunch of Decieving people, from Both the Rating Firms all the way up?    I think it's One of the Best of American Century funds staying out of them..