Bond Funds Advice Needed

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Bond Funds Advice Needed

Postby pderas » Sat Mar 23, 2013 6:28 pm

I haven't been here on Bogleheads for years.
I did the studying, took your advice and since then (2009) have nearly doubled my investment portfolio.
Thanks!

Now I find myself in a quandary about Bond Funds.
Here's my current situation:

Current Retirement Assets (these are just mine as my husband is a disabled vet and gets adequate (non-taxable) monthly compensation)

Traditional IRA

1,803.741 shares VBLTX Vanguard Long-Term Bond Index Fund ------------------------$24,981.81
4,608.509 shares VBTLX Vanguard Total Bond Market Index Fund Admiral Shares $50,693.60
4,770.080 shares VTSAX Vanguard Total Stock Market Index Fund Admiral Shares $186,367.03

Roth IRA

132.852 shares VTSMX Vanguard Total Stock Market Index Fund Investor Shares $5,189.20

TOTAL $267,231.64

With recent stock market growth I find my investments a little more out of balance, stocks to bonds, than they have been before. On the other hand, I keep thinking I would rather be 100% in stocks in the current market. I watch the Stock Market pretty closely.

I retired at the beginning of 2012. I just turned 70 in January 2013. I'll need to start taking distributions from my IRA at 70-1/2. Don't currently need the money, but have to take it anyway.

My husband is a retired disabled vet whose income is not taxable.
My income is strictly Social Security at $2113 per month = annual $25,356.00
Our home is paid for.
We have no debts.

My brother, an attorney, advised me recently that I should be playing with Turbotax to figure out how much I can roll into my Roth IRA annually without paying a penalty. Unfortunately I didn't know about that strategy until now. I'll do that for this year at the end of the year.

Should I just bite the bullet and re-balance the Bogle way? Or is there new advice for an old Boglehead?
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Re: Bond Funds Advice Needed

Postby NYBoglehead » Sat Mar 23, 2013 7:58 pm

I wouldn't be 100% in stocks. I understand your worries about bonds, and I think it probably makes sense to get out of the long-term bonds since they have the most interest rate risk. TBM has closer to intermediate durations and shouldn't experience quite the same drop when/if interest rates rise.

Particularly because you don't need the money, I wouldn't take any excess risk with it. I would play with the numbers to convert some of the tIRA to a Roth if you've got space in the lower brackets, so that your RMDs will be lower when you have to start taking them.
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Re: Bond Funds Advice Needed

Postby pderas » Sat Mar 23, 2013 8:30 pm

Thanks for your advice NYBoglehead!
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Two Target funds

Postby Taylor Larimore » Sat Mar 23, 2013 8:38 pm

pderas:

Consider exchanging all the funds in your two retirement accounts into two Vanguard's Target Retirement Income funds designed by Vanguard experts specifically for retirees. Result: Greater diversification and simplicity (automatic rebalancing; contributions and withdrawals don't effect allocations; easier for caregivers and heirs).

https://personal.vanguard.com/us/funds/ ... IntExt=INT

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Bond Funds Advice Needed

Postby nedsaid » Sat Mar 23, 2013 8:39 pm

I have never believed in long term bonds or long term bond funds. The principle fluctuates too much with changes in interest rates. The purpose of bonds is to dampen the volatility of a portfolio. Owning the must volatile segment of the bond market seems to defeat the purpose of owning bonds in the first place. I myself have owned medium term bond funds with average maturities of 5-7 years. You get most of the yield of the long term bonds with a whole lot less volatility. The math nerds on this forum could quantify that statement for you.

Your portfolio seems too stock heavy for a 70 year old.

Congratulations on a paid off home and good Social Security. Your retirement assets of $267K is $267K more than what a lot of people have. You have done well. Always room for all of us to improve, but take time to pat yourself on the back.
A fool and his money are good for business.
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Re: Bond Funds Advice Needed

Postby pderas » Sat Mar 23, 2013 8:57 pm

Many thanks for your kind words nedsaid. But, in fact, it is Bogleheads I am thanking, for setting me on the right track back in 2009.
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Re: Bond Funds Advice Needed

Postby Default User BR » Sun Mar 24, 2013 10:21 am

nedsaid wrote:I have never believed in long term bonds or long term bond funds. The principle fluctuates too much with changes in interest rates. The purpose of bonds is to dampen the volatility of a portfolio. Owning the must volatile segment of the bond market seems to defeat the purpose of owning bonds in the first place.

You're making the mistake of viewing the bonds in isolation rather than in relation to the rest of the portfolio. Long bonds, in particular Treasuries, provide the best diversifier to stocks by having a low correlation.


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