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I am re-balancing my portfolio to be a little more conservative. I am considering taking some of what's currently in equity ETFs and putting them into VBMFX, a "Total Bond Market Index Fund". Is buying shares of this the same thing as reallocating investments to bonds, for the sake of risk management?

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    VBMFX is not an ETF, it's a Mutual Fund. – ruief Sep 22 '18 at 19:21
  • @WakeDemons3 - I did, I edited the title after ruief commented – horse hair Sep 25 '18 at 18:19
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tl;dr A hold-to-maturity bond strategy has a different risk profile to a buy-to-trade bond strategy.


There are different kinds of risks as well as different amounts of each kind of risk. It depends on the risk you are seeking to mitigate.

For example, there's the risk that the entity behind the bond is unable to pay coupons or renegs on its bond-repayment obligations, or that whatever is paid doesn't keep pace with inflation, etc.

A bonds strategy would be expected to weigh these risks and come up with a portfolio that has an acceptable mix of bonds.

The headline advantage of bonds over shares is that (subject to the entity honouring its obligations) you know how much capital you will get back if you hold the bond to maturity. However, bonds can be traded, and trading brings with it the risk of capital loss, as well as the prospect of capital gain, which somewhat negates this headline advantage.

So buying shares in a bond fund is not "the same thing as reallocating investments to bonds, for the sake of risk management". For example, if you are buying a bond to hold to maturity, presumably you wouldn't buy one for which you'd make a loss at maturity. However, the 1-yr performance reported on the VMBFX performance page is currently:

  • Total Bond Mkt Index Inv: -1.31%
  • Spliced BloomBarc USAgg Flt AdjIx* (Benchmark): -1.09%

As with any managed fund or index, you need to consider its strategy and composition etc, not just the nature of individual assets in the asset class it invests in.

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Yes, if you are looking for the asset class “bonds”, the ETF you cite would qualify, as would individual bonds. The benefit of the ETF is the ease of buying and selling.

When looking at such ETFs, just be aware of what comprises the ETF. A long term bond or ETF will have a different risk/reward profile that one that’s short term, for example.

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There are many types of bonds and some have higher risk than others. You can generally learn more about a fund's holdings by going to the provider's website. In your example, you can find out more about the holdings by going here: https://investor.vanguard.com/mutual-funds/profile/portfolio/vbmfx

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