Investor invests $100k fixed income portfolio through a financial advisor not 'savvy' in bonds.
Financial advisor, lacking any bond investing expertise, takes 1% annual fee and places $100k into a mega Vanguard bond fund, which, in turn, charges more fees.
Due to the low Vanguard bond fund returns and the 1% annual financial advisor fees, the investor earns less return on his $100k investment than his advisor makes on annual fees.
The $200+ billion Vanguard Total Bond Market Index Fund, which includes the Admiral Shares class (VBTLX), the BND ETF, and other share classes, is so big that it owns over 8,000 bonds and is not a discerning investor. It owns what the index tells it to own. The bond fund averages a weak 1.63% annual return from 2015-2018.
After financial advisor fees and Vanguard mutual fund management fees, the investor averaged an annual return of 0.63%, as the financial advisor earned 1.0% on the client’s assets. From 2015-2018, the financial advisor who prescribed investing in Vanguard Total Bond Market Index Fund made $4,040 compared to the client’s $2,509 return on investment. This is a poor investor outcome no matter how you cut it, and we call it the Vanguard Bond Fund Road to Nowhere. It shows how important it is for individual investors to reduce costs and increase bond investment returns by making direct investments in individual corporate bonds.
Owning fixed income investments directly rather than through a bond mutual fund or bond ETF offers many advantages, such as higher potential fixed income returns, greater investment transparency, contractual interest payments, a maturity date, and lower fees. That said, there are thousands of individual corporate bonds from which to choose, and it can be difficult to decide which corporate bonds to buy.
BondSavvy narrows the universe of corporate bonds to a select number we recommend to our subscribers. We then monitor our recommended bonds and issuing companies and decide whether to recommend buying more bonds, holding recommended bonds, or selling previously recommended bonds. Our subscribers follow the below three steps when investing in corporate bonds:
Are you ready to know everything about a bond that large bond fund managers know? BondSavvy empowers you to invest in corporate bonds by presenting exclusive corporate bond investment opportunities during The Bondcast, a subscriber-only investment webinar we host six times each year.
You decide which of our recommended bonds to buy and trade through your own online brokerage. BondSavvy does not hold customer assets. Investing in bonds online is an efficient and competitive marketplace, where individual investors can trade at bond prices that are competitive with large bond funds.
Our goal is to maximize the total return on each corporate bond we recommend. Bond prices have ceilings and cannot increase in value to the extent stocks can. We therefore advocate selling bonds prior to maturity when we believe a recommended bond has maximized its return and run out of upside potential.
The only investment blog dedicated to investing in individual corporate bonds
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