Bonds or bond funds bought 5-15 years ago have been barely positive (and mostly negative after inflation adjust) [View all]

[nmmi]

Last edited Thu Nov 28, 2024, 01:14 AM - Edit history (1)

Probably true going back even further than 15 years, but good total return stats are harder to find beyond that, so I kept it at 15 years.

I chose 5 years as the beginning of the range since it is well before the inflation and general high interest rates began. With periods less than say 4 years, I'd have to do a lot of fiddling around to get numbers for all 4 example bond funds below, and it would depend on the precise starting date, and most of these funds weren't around 15 years ago.

For example, for VCOBX, the first one below, the 3 year total return was minus 1.84%/year, while the one year return was positive 8.11%.

In the below, all the %/year numbers are total returns: price appreciation plus dividends earned (actually they've all depreciated in price in the past 5 or more years, so the dividends have been what's made their total returns overall positive)

This was originally written 2 days ago, so some values might be slightly different.

Let's take the intermediate-term Vanguard Core Bond fund VCOBX
https://www.morningstar.com/funds/xnas/vcobx/chart and https://www.morningstar.com/funds/xnas/vcobx/performance
Over the past 5 years they've gained 0.47%/year on average, there's no 10 year, but the category has gained 1.38%/year in the past 10 years and 2.35%/year over the past 15 years.


Or VICSX, the Vanguard Interm-Term Corporate Bond Index fund ...
Over the past 5 years: 0.96%/year, Over the past 10 years: 2.80%/year, There's no 15 year record for VICSX, but for that category its been 3.73%/year

Looking at shorter maturity, VBIRX Vanguard Short-Term Bond Index Fund. It has an effective average maturity of 2.8 Years, Average duration: 2.6 Years.
Its performance: 5Y: 1.18%/year, 10Y: 1.54%/year, 15Y: 1.69%/year

Looking at even shorter maturity, VUBFX Vanguard Ultra-Short-Term Bond Fund -- with an average effective maturity of 1.2 years, and average duration of 1.0 years:
Its performance: 5Y: 2.37%/year, no 10Y. Since 2/24/15 inception (so 9 3/4 years): 2.01%/year.

Remember that inflation during these periods have been higher, so while they have gained a bit in nominal dollars, they have almost all lost in purchasing power over these periods.

As for what may happen going forward: yes bond fund yields are decent now. And as interest rates drop, their values will rise, for a two-fer: "good" yields plus price appreciation.

It has been my hope that my funds would perform quite well going forward. For example my intermediate bond funds gained about 13% in just a couple of months last fall when overall interest rates dropped for a time.

But instead, as I wrote in another thread, interest rates have counter-intuitively RISEN since the Fed's first rate cut Sept 18, except on the shorter end like less than one year. Bad for bond fund values for existing bond holders, very bad.

But eventually, we had hoped preelection, that eventually intermediate and longer rates would come down. But with the coming lunacy of Felonious Maximus at the country's helm and his Mad Magazine gallery of cabinet and administration picks, and plans to raise tariffs bigly, all that is out the window.

Edited to add: For longer term periods, one can use
https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
Although this is updated only yearly. It has end of year values all the way back to 1926.

Over the last 30 years 12/31/1993 thru 12/31/2023:

10Y Treasury bonds: increased 3.336-fold (averaging 4.10%/year)
(1.0410^30 = 3.338)

BAA Corporate Bonds: increased 6.860-fold (averaging 6.63%/year)
(1.0663^30 = 6.861)

S&P 500: increased 17.693-fold (averaging 10.05%/year)
(1.1005^30 = 17.689)

At 12/31/2023 the S&P 500 was 4770, and the10 Y Treasury yield was: 3.87%