I'll call BS. I do not see rates at 3.75 by end of 2017.

I agree with this.
Lets say they start raising in June 2015. That would mean 2.5 years to run it up to 3.75. The economy would have to be doing very well for that to happen.

I agree with you Dex. The economy would have to be doing very well for that to happen. But we are talking bonds, not stocks. Yeah, the economy doing very well would be great for stocks, and I hope that's exactly what happens. And in the scenario you mention, "2.5 years to run it up to 3.75", bonds would tank big time. Certainly the U.S. Aggregate Bond Market Index. In that scenario, junk bonds probably do OK. And corporates much better than Treasuries.
Personally, I have no forecast for interest rates, the bond market or the stock market. I'll leave the forecasting to others.

I'll call BS. I do not see rates at 3.75 by end of 2017.

I agree with this.
Lets say they start raising in June 2015. That would mean 2.5 years to run it up to 3.75. The economy would have to be doing very well for that to happen.

I believe, although I couldn't find the details again of what I've read, that two of the most hawkish members of the Fed, Fisher and Plosser, will rotate off as voters next year. This should make the Fed more dovish on balance. At the same time, Yellen has shown herself to be pretty dovish so far and to the extent that history provides any evidence, the Fed's chairperson usually gets what they want even though there's a committee that "votes" on whatever the Fed does. At the press conference after the meeting finished Yellen commented on the "Dot Plot" specifically and my interpretation was that she essentially said it just reflects each member's expectations about a future that hasn't happened yet and it doesn't tell you anything about how much confidence each member has in their own projections.
In terms of what happens when the Fed raises rates, in theory at least, the longer the term the less the rate should adjust. That's because what people believe about the next 10 years shouldn't have a 1:1 relationship with what happens today (although admittedly it does sometimes) and because future rates should already discount what's expected for the future.
I think if you wanted you could use the historical information from the Fed to graph or create a table of what has historically happened to 10 Years when the Fed Funds rate changes, or pretty much any other comparison you'd want to do.
federalreserve.gov/releases/h15/data.htm
If you do that I'm sure lots of people, including myself would love to see the graph :)
The following link shows the history for the Fed's target for rates. To my surprise when rates have gone up historically they've gone up pretty quickly.
newyorkfed.org/markets/statistics/dlyrates/fedrate.html

I'll call BS. I do not see rates at 3.75 by end of 2017.
"the Fed just said last week that this is what they expect to do! "
And how many times has one Fed governor said one thing only to have another Fed governor say the opposite a few days later? How many times have they changed their forecasts? How many times have they moved the goalposts?
Go about your business and invest in a way that is appropriate for you. This whole situation with what the Fed is doing and analyzing whether or not a couple of words ("considerable time") were the same on the last Fed statement has really brought this whole thing into a new realm of utter ridiculousness. (Yellen: "No mechanical interpretation of "considerable time" - in other words "it depends on what your definition of is is".)
Edited to add, and sure enough...."http://headlines.ransquawk.com/headlines/fed-s-kocherlakota-says-should-be-very-cautious-about-starting-to-raise-rates-with-inflation-so-low-23-09-2014"

@JohnChisum, the bond fund you went into has a manager that is actively doing things to prepare. A lot of bond funds never do that, because by prospectus they have to stay pretty close to an index, like the total bond market index, which is based on the "Barclays Capital U.S. Aggregate Float Adjusted Index, a broad proxy for the investment-grade U.S. bond market", according to M*.
There seem to be two big IFs:
1. Will the Federal Reserve actually raise rates 3.75% by the end of 2017?
2. What will happen to longer term interest rates, such as the 10-year Treasury rate?
PIMCO doesn't believe the Fed will go that high. Bill Gross and company believe there will be a "New Neutral" rate of 2%, not the old standard of close to 4%, which apparently the Fed still believes in.
But look, the Fed just said last week that this is what they expect to do! And they told the whole world. We'll see who turns out to be correct, the Fed or PIMCO.
With regards to your question about "will bond funds perform better than equity funds in this same climate", I have no idea. I've read that stocks have not reacted nearly as badly as bonds to the initial volley of interest rate hikes. But who knows if the past historical patterns will repeat themselves.

John, the Fed also says they will raise rates in 2015....2016....and 2017. So it would be a steady raising of rates once they start. If it happens, and if the longer term rates follow suit, most bond funds are in trouble. The expected raise in 2015 would be to 1.25%, from the current rate of 0% to .25%. Even with that modest rise, the total bond market index would go down 5.7% in NAV, add in the 1.99% income for a total return of -3.7%. Again assuming that the longer term rates follow suit with what the Fed does.

Last week, the Federal Reserve released its "Dot Plot", which is a plot of what each member of the FOMC thinks the Fed Funds interest rate will be. They think they will have raised interest rates 3.75% by the end of 2017. That's a lot, and it has big implications for bond funds. The big question: if they raise rates 3.75%, how much will the 10-year Treasury yield rise? Will it also go up 3.75% from where it is now, which is 2.57%? IF it does (admittedly a very big IF), we are going to see some big drops in the NAV of bond funds. Take the Total Bond Market Index Fund (VBMFX). It has a Duration of 5.7 years. For every 1% increase in the corresponding interest rates of the bonds in the fund, the NAV is expected to drop 5.7%. IF the yield on the bonds in the fund goes up 3.75% over 3 years, we could see a 3.75 x 5.7 = 21.4% drop in the price of the fund. Add in the yield to get the total return. The current SEC yield is 1.99%. With a rise in rates/bond yields, the bond fund SEC yield will rise, but since the average bond in the Total Bond Market Fund has a maturity of 7.8 years, it should take a long time to clear those bonds out of the fund for the yield to rise enough to significantly offset the NAV drop. Not a pretty scenario for the bond market.
Your comments please!
http://blogs.marketwatch.com/capitolreport/2014/09/17/dot-plot-shows-fed-will-be-quick-about-raising-rates-once-it-starts/?mod=MW_story_top_stories

In case you're wondering what changed, Vanguard loosened the restrictions. You used to be limited to $25K per SSN (across all accounts); it's now $25K per account.
New wording: Current PRIMECAP Fund shareholders may invest up to $25,000 per Fund account per year in the Fund
Old wording: Current PRIMECAP Fund shareholders may invest up to $25,000 per year in the Fund. The $25,000 limit includes the total amount invested during any calendar year in each Fund account registered to the same primary Social Security or taxpayer identification number

Vanguard PRIMECAP Core Fund
http://www.sec.gov/Archives/edgar/data/826473/000093247114006730/ps1220a092014blue.htm
Vanguard Capital Opportunity Fund
http://www.sec.gov/Archives/edgar/data/932471/000093247114006729/capitalopportunityps11109201.htm
Vanguard PRIMECAP Fund
http://www.sec.gov/Archives/edgar/data/752177/000093247114006728/ps59a092014blue.htm
Here is one of the filings as an example:
Vanguard PRIMECAP Fund
Supplement to the Prospectus and Summary Prospectus
Important Changes to Vanguard PRIMECAP Fund
New or current Vanguard PRIMECAP Fund shareholders may not open new accounts or contribute to existing Fund accounts, except as described in this supplement. Clients enrolled in Vanguard Flagship Services® or Vanguard Asset Management Services™ may open new Fund accounts, investing up to $25,000 per Fund account per year as described in this supplement, in individual, joint, and/or personal trust registrations. There is no specific time frame for when the Fund might reopen for new account registrations by other Vanguard clients, or increase investment limitations.
Limits on Additional Investments
Current PRIMECAP Fund shareholders may invest up to $25,000 per Fund account per year in the Fund. The $25,000 limit includes the total amount invested during any calendar year in each Fund account. Dividend and capital gains reinvestments do not count toward the $25,000 annual limit. Participants in certain qualified retirement plans may continue to invest in accordance with the terms of their plans. Certain qualifying asset allocation programs may continue to operate in accordance with the program terms.
The Fund may modify these transaction policies at any time and without prior notice to shareholders. You may call Vanguard for more detailed information about the Fund’s transaction policies. Participants in employer-sponsored plans may call Vanguard Participant Services at 800-523-1188. Investors in nonretirement accounts and IRAs may call Vanguard’s Investor Information Department at 800-662-7447.
© 2014 The Vanguard Group, Inc. All rights reserved.
Vanguard Marketing Corporation, Distributor.
PS 59A 092014

Until a few month ago I paid little attention to these funds. Since then I researched some especially Arnott and the RAFI fundamental index, in particular the offering from Schwab. FNDF. It's on my watch list.
Having more choices is always better.

I'm in the same boat as you here John. We have ended up in the same place. I heard Rob Arnott give a webinar on "smart beta" and the RAFI, and it was very appealing, the idea of getting the price out of the weighting scheme. It's certainly an intriguing idea, possibly worth it. Professor Jeremy Siegel is also big on an alternative way to weight indexes. He's the advisor to the Wisdom Tree family. He's apparently big on dividend weighting. It all sounds very interesting. One thing is that the expense ratios are higher on these alternative methods of weighting and selection of the index. VTI only costs 5 basis points, .05%. A big issue is that if you are already invested, you have to sell things and pay capital gains taxes to re-invest in a "smart beta" index. We should take a look at performance of the RAFI funds vs. VTI and the traditional cap weighted index funds.

Would like to see SHLD stop falling.
Can't wait until earnings season.
Suspect it will be pretty good, given the vibrancy across nation this summer.
M* says I'm US Eq 50/EM 10/US Bond 10/Cash 30, shorts factored in.

"I don't care what HIS opinions are on index funds or how he handles investment costs, but when he directs his nonsensical 2nd hand information in my direction, I feel obligated to give him the "Facts"!"
Tampabay,
1. Being you do not care what MJG has to offer, and it happens to be a whole bunch, why are you reading his posts?
2. Being you do not care, why are you even on MFO? To talk about yourself?
3. "nonsensical 2nd hand information"? Huh?!?!
4. " I feel obligated to give him the "Facts"!" Who are you?!?!
5. Regarding your comment to me, no, I do not know your portfolio. From another board, which you are persona non grata, I know your " Stock Sector| Holdings Detail Vs. the S&P (per Morningstar)". I asked you "Would you be so kind to share your portfolio with us?" Possibly you should care what MJG says, so you can learn the difference.
Good luck with your "portfolio".
Mona

Did a little shuffling/position size changes in existing positions but otherwise not doing anything. I'm finding very little of interest and only adding a little to "best ideas" - things I can see holding for 5 years or more. Just continuing to reinvest divs.

Scott....thanks for the note on WPC awhile back. It's establishing a firm position in the income sleeve.

Happy to help! It's a looooong-term holding for me and remains one of my largest holdings.
Actually, I didn't even notice this from a couple of days ago:
"NEW YORK, Sept. 18, 2014 /PRNewswire/ -- W. P. Carey Inc. (NYSE: WPC) reported today that its Board of Directors increased its quarterly cash dividend 4.4% to $0.94 per share, which equates to an annualized rate of $3.76 per share. Payable on October 15, 2014 to stockholders of record as of September 30, 2014, this marks W. P. Carey's 54th consecutive quarterly dividend increase. Since going public in 1998, W. P. Carey has paid over $1.5 billion in dividends to investors."
http://money.cnn.com/news/newsfeeds/articles/prnewswire/NY16615.htm

Asset Allocation | Holdings Detail Morningstar
Tampabay
Long% Short% Net%
Cash 3 0 3
U.S. Stocks 77 0 77
Foreign Stocks 5 0 5
Bonds 14 0 14
Other 1 0 1
Not Classified 0 0 0
Total 100 0 100
For What its Worth: 77% U.S. stocks 3% cash 0% short, Ready for 4th Quarter run up? Really.....

With the lull before earning season and mid term elections, I am wondering what investors on the board might be thinking, positioning, and or doing?
For me I have been mostly looking as the recent dip did not go deep enough to peak my buying interest in equities. In checking one of my reference sites I find that the S&P 500 Index is trading on a TTM P/E Ratio of 19.3 and on Forward Estimates at 16.8 while its year-to-date gain has been about 8.7%. With this I am wondering how much is still left in the ride until we reach year end? Yes, indeed a lot of uncertainties exist. I am still thinking October might bring a buying opportunity with a dip or pull back coming. After all, we have mid-term elections coming the first part of November before we get to the traditional fall rally phase part of the year starting somewhere between Halloween to Thanksgiving and carrying on past Christmas to the first part of the New Year.
My target asset allocations are 15% cash, 35% income, 40% equity and 10% other. Currently, I am cash heavy at 20%, income light at 25%, equity heavy at 45% and neutral in other assets at 10% as shown by Morningstar’s x-ray. I’d like to move 5% of my cash to equities for the anticipated traditional fall stock market rally but wish to position in during a good dip or pull back in the stock market. Should we get to the rally without the anticipated dip then I’ll just most likely let things ride as they are and forgo a rebalance after the 1st quarter. Heck, I always enjoyed my fall rally “spiff” investment move as it was a way I generated a little extra cash. My spiff investments set ups have been hard to come by of late.
I’ll close with I am currently just looking while I ponder.
So ... What might you be thinking?
Old_Skeet

Thanks Old_Skeet. Your explanation is clearer than Teds.

John, I didn't open any of the links, but this year I've read several articles about "smart beta" or "strategic beta". What I've learned from those articles is basically that any 'index' weighting that is not capitalization weighted like the S&P 500 and like most traditional indexes, is "smart beta", if it was done that way to try and enhance returns based on back testing.
A prime example are the RAFI Fundamental Indexes from the Rob Arnott group, where they weight the index constituents by several fundamental factors such as free cash flow, dividends, sales, etc. They want to get away from cap weighting.
Another example are the dividend weighted indexes found in many of the Wisdom Tree ETFs.
Other examples could be earnings weighted. Anything to get the market price factor out of the equation.
Another example is equal weighted. Guggenheim has an equal weighted S&P 500 ETF, so I guess each stock is weighted 0.2%
Some "smart beta" ETFs tilt to value and small cap.
Some address volatility. Some address momentum.
A better term than "smart" beta would be "Factor Investing".....it's essentially coming up with a rules based method of weighting each stock in the index, and in many cases, a rules based method of selecting the stocks in the index.

Mona, love you, but you know my portfoilio by heart by know, but I'm going to give MJG MY Stock Sector| Holdings Detail Vs. the S&P (per Morningstar)
Portfolio Tampabay
(% of Stocks sector) vs S&P 500 (%)
Tampabay S&P
Cyclical 18.30 30.51
Basic Materials 0.98 3.36
Consumer Cyclical 9.47 10.42
Financial Services 7.81 14.76
Real Estate 0.04 1.97
Sensitive 23.83 43.02
Communication Services 11.52 3.98
Energy 2.66 10.39
Industrials 3.36 10.94
Technology 6.29 17.72
Defensive 57.87 26.47
Consumer Defensive 29.10 9.37
Healthcare 27.73 14.09
Utilities 1.04 3.01
No diversification there Baby ,"a diverse array" not really....tb

@mrdarcey, question for you. This is off topic, because it does not apply to Vanguard ETFs vs. Vanguard Traditional Index Funds. Vanguard has a patented, unique structure so that their ETFs are simply a different share class of the identical traditional index fund.
But for non-Vanguard ETFs vs. index funds, the financial press used to be very big on saying that ETFs would have lower taxable distributions than even traditional index funds in the event that a lot of shareholders sold, say in a bear market.
The press would always say that traditional index funds were very tax efficient, but in the event of a lot of selling, say in a bear market, the previously unrealized capital gains would become realized capital gains and affect all shareholders to some extent. Realized capital gains would be distributed to all shareholders of the traditional index funds, including those that did not sell.
But this would not take place in an ETF, because shareholder selling in a bear market would not cause unrealized capital gains to become realized for those in the ETF that did not sell.
I haven't heard this talked about much lately, but it used to be very common.
It's similar to an actively managed fund. If the managers sell a lot of individual stock at a gain [assuming it's not balanced out by other losses], those capital gains get distributed to all shareholders, who have to pay capital gains taxes on them, even though they didn't sell any shares of their mutual fund.
So if you have an S&P 500 traditional index fund, a bad bear market comes and tons of shareholders sell. The "managers" have to sell stocks to generate redemption proceeds. Supposedly that will cause a capital gains distribution to hit even those shareholders that didn't sell.

Hi Tampabay,
Thank you for reading my posts. I’m pleased that you are so happy with your current portfolio positions.
I too am very much dedicated to portfolio cost control. Together, we’re in Bogle’s camp in that regard; costs not only matter, they matter greatly. Congratulations on the excellent job you report for your personal portfolio’s low expenses. I have not been that industrious.
Various sources report that the average expense ratio for mutual funds range between 1.1% and 1.5% annually, without specifying how that average was calculated. I did not expect the range of that number. Like you, I like to reference the most reliable values I can access. So I went to ICI’s “2014 Investment Company Fact Book”.
From that reference, Figure 5.6 presents the “Expense Ratios of Actively Managed and Index Funds” from 2000 to 2013. The costs, which are asset-weighted average values, have been declining over that time period. Most recently, the average actively managed equity fund costs 89 basis points. Index equity funds cost 12 basis points. That 77 basis point differential is the hurdle that active management must overcome. A huge number of these funds trip over that hurdle.
I really try to only reference studies that have survived peer review. Therefore, I tend to emphasize academic studies and carefully selected industry work. For example, the cited Rick Ferri Whitepaper was the “Winner of the S&P Dow Jones Indices Third Annual SPIVA Award". It is an impressive Monte Carlo-based analysis. My opinion is that more work needs to be done using that tool.
Given the rather large number of low Expense Ratios that you cited (presumably not your complete portfolio), I was surprised by the comparison of your portfolio performance against the Total Stock Market Index. I would suspect that your portfolio is more nuanced, more complex than a single benchmark standard. Given that you are an informed and experienced investor, I anticipate that your holdings would benefit from a diverse array of investment categories: a ladder of bonds, international and emerging market holdings, small Cap value funds, some real estate positions, perhaps commodity and gold products.
If in fact your portfolio reflects fully broad diversification, then choosing to compare outcomes against a single market equity Index is an imprecise and loose standard. My portfolio is broadly diversified, so I deploy a mix of benchmark Indices that more closely resemble my actual portfolio allocations.
By the way, at the present time, the equity portion of my portfolio is divided about evenly between actively managed and Index holdings.
Again I was surprised by your quoting of portfolio performance year-to-date. I’m pleased that you are satisfied with its current superior output, but that is a meaningless comparison when discussing long-term investment philosophy and guidelines. Even the best hitter in baseball can go 0 hits for 5 at-bats today while a poor hitter can register 2 hits for 5 at-bats. Longer term performance records need to be examined.
Random short term outcomes are not truly indicative of skilful active fund management. I hope your actively managed funds continue to deliver superior results over a statistically meaningful time horizon that is compatible with your goals. Beware of a reversion-to-the-mean market pull. That happens frequently with active fund management. Index funds avoid that risk factor. Seeking positive Alpha introduces the risk of market underperformance.
You get to choose. I have never made any fund recommendation on MFO.
Active fund management is needed for market price discovery. I’ll close with the comment that opened my contributions to this discussion: I believe that “Active mutual fund management is certainly not dead, and will never die.” Wow, I’m quoting myself!
Best Wishes.