VCLAX

KweenieQ

The tiering is there, too, but VCADX has actually performed better over the past year than VCLAX. Five-year return is also better for VCADX. The long-term holdings in VCLAX "should" provide a higher return, but it's telling that they aren't. The factors that govern long-term rates are different from those for short- and intermediate-term rates. I'm not sure what precisely governs intermediate-term rates, but short-term rates more closely follow the Fed daily rate. My guess with intermediate-term rates is that they inch a little higher than short-terms as an enticement for potential buyers to invest longer. Interest-rate risk begins to be a factor as one gets closer to a 5-year maturity. Long-term rates more closely follow the market's perception of the economic outlook relative to the date of issuance. Inflation expectations at the time matter; interest-rate risk is much higher over 10 years. Government pays the lowest level it can get away with, but because of the added risk, it usually has to center its rate a bit higher than for the shorter-term bonds. Overlaying all this in a bond fund is the effect of the secondary bond market itself. Unless a fund is buying only new issues (at face value, or "par"), they're buying bonds on the secondary market at prices dictated by the market: sometimes discounted (say, 98%) and sometimes at a premium (say, 102%) relative to face value. Maybe a bond's got a particularly great rate and is not callable. That might be worth a premium. Maybe a bond's interest rate set 3 years ago is no longer competitive with today's market and needs to be sold at a discount to find a buyer at all. If you hold a bond to maturity, you get its full face value returned to you, regardless of what you paid for the bond. Anyhow, there could be a couple of reasons why the return for VCLAX is lagging. Something to think about.

Opportunist_Ad3972

I did. Not sure I’m understanding “tiering” effect. E.g. VCLAX(long term) vs VCADX(intermediate term)

Rand-Seagull96734

Municipal Bonds, which are free of dederal taxes and also of some states with high state taxes. Municipal bonds' after tax returns have a decent spread to Treasuries which are free of only state taxes. VCLAX is an example for California residents.

Ehud_Muras

That seems like a good one. You may do a search and find any CA muni funds that are insured. Their interest rates may be a lower, but they provide protection if the issuer can't meet any of its obligations. However, you could buy short term treasury securities. Popular etfs that hold them are (TBIL, SGOV,TFLO) Their expense ratios are similar to VCLAX and with an interest rate of around 5.15+% per year. Interest on US treasuries are exempt from state income taxes.

throwawayawayayayay

Bad time to hold bond funds? I own VBTLX in tax-advantaged accounts and VCLAX/VCADX/VWLUX in taxable accounts and they've been plummeting (for bonds) this year and the slight increase in yield doesn't nearly make up for it. I would have figured that future fed rate increases would already be "priced in" as of a few weeks ago, but they keep dropping and I'm wondering if it's worth cashing out for the next few months while rates are still increasing. I don't like the idea of holding cash and losing to inflation, but I like the idea of holding bonds and losing to cash even less.