Bond Allocation

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Guitarplayer
Posts: 48
Joined: Sun Jul 22, 2012 4:26 pm

Bond Allocation

Post by Guitarplayer »

Age: 62
Plan to "retire" in the next 2 years. May still work part time after the first year.
Investments: 100% Stock. Would like to balance portfolio with bonds to reduce volatility. I am considering the Total Bond Market Index from Vanguard. High risk tolerance (tested during several bear markets as I have been investing for about 28 years).

For now would like to allocate about 20% in bonds

I have about 50% in taxable and 50% in non-taxable retirement accounts.

Question: I will not be able to invest enough new money into the bonds due to short time frame before retirement so I am planning to sell some of the money that I have in non-taxable retirement mutual funds instead of from taxable accounts to avoid taxes. I am planning to sell worse performers first. Does this sound like a reasonable strategy? Other suggestions?

Thanks

Antonio
livesoft
Posts: 86079
Joined: Thu Mar 01, 2007 7:00 pm

Re: Bond Allocation

Post by livesoft »

Personally, I'd follow a written down asset allocation plan. That will mean that I sell best performers in tax-advantaged first. I would not have any bonds in taxable. In taxable, I would do any tax-loss harvesting which would probably mean selling worst performers and buying replacement shares of the exact same asset class, that is other worst performers, in order to keep my asset allocation plan intact.

Also, I would only be invested in passively-managed, low-expense ratio index funds, so if I had any actively-managed, non-low expense-ratio funds, I would replace those with the former whether they were worse performers or not.

Buy low, sell high. Not the other way 'round.
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Taylor Larimore
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Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Re: Bond Allocation questions

Post by Taylor Larimore »

Guitarplayer:

Welcome to the Bogleheads Forum!
I am considering the Total Bond Market Index from Vanguard.
Mr. Bogle often recommends this diversified, low-cost bond fund for tax-advantaged accounts. You can't go wrong. It should provide income and safety for your portfolio. Its worst annual decline since inception was -2.66%.
Question: I will not be able to invest enough new money into the bonds due to short time frame before retirement so I am planning to sell some of the money that I have in non-taxable retirement mutual funds instead of from taxable accounts to avoid taxes. I am planning to sell worse performers first. Does this sound like a reasonable strategy? Other suggestions?
Worst performers often become best performers. The general rule is to have an asset allocation plan--then select the funds to fill it--then stay-the-course. It's usually best, as you intend to do, to sell exchange shares of stocks funds for bond funds in your non-taxable account to bring your stock/bond ratio where you want it.

A 20% bond allocation is low for someone going into retirement. Mr. Bogle suggests a bond allocation equal to our age. This Vanguard asset-allocation tool may be helpful:

https://personal.vanguard.com/us/funds/ ... mmendation

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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