In some people's minds maybe sort of, but I would not regard that as a bona fide rule of thumb. It would be much better to understand the whole math of how bond funds respond to changes in interest rates and then decide for yourself what duration is a good fit for your financial situation and objectives.Is that a rule of thumb for bond funds? Look at the duration to get an idea of how long you should probably hold it?
VWETX is a long term bond fund with a high duration risk.
Average duration is 12.9 years.
Vanguard gives it a 3 out of 5 on the risk rating, almost entirely due to the duration risk.
Those NAV / price declines in a rising rate environment are to be expected with a bond fund with such long duration.
To break even, you're probably going to need to hold it for at least as long as the duration.
Also there is a problem with the whole concept of "how long you hold it." This goes back to why a person might own a bond fund in the first place. The case is fairly simple for the long term holder of a portfolio of stocks and bonds including stock funds and bond funds. "How long you hold it" as a practical matter is forever as one accumulates money and then later spends it over a lifetime. If a person puts money in a bond fund with an intent of taking all the money out at a certain point in time then probably a bond fund would not be a choice because the bond fund never matures and as the target date is approached the holding time to target gets less and less and the bond fund becomes more and more inappropriate for the purpose.
Of course there is also a range here from long bond funds with 20+ year durations where bond math matters a lot to ultra short funds of maybe 3 month duration where the asset is effectively cash for all practical purposes.
The bond math we are talking about includes bond pricing, calculating bond yield, definition and calculation of duration, and understanding how a bond holding evolves in time after changes in interest rate. Another more complex topic is that of duration matching of bond duration to planned liabilities over time.
Statistics: Posted by dbr — Mon Jan 13, 2025 2:06 pm