[Three fund portfolio - Retirement income as the bond allocation?]

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DazedandConfused
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[Three fund portfolio - Retirement income as the bond allocation?]

Post by DazedandConfused » Tue Dec 05, 2017 2:29 pm

[Split into a new thread from: The Three-Fund Portfolio --admin LadyGeek]

I am retiring April 1, 2018. I am considering the Three-Fund Portfolio when I roll over my current 403b with the exception of using John Bogle's idea of considering secure retirement income as bonds in the allocation. Using that my bond allocation would be about 84%. Does this make sense?
"I don't want to belong to any club that will accept me as a member." Groucho

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saltycaper
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Re: The Three-Fund Portfolio

Post by saltycaper » Tue Dec 05, 2017 3:40 pm

DazedandConfused wrote:
Tue Dec 05, 2017 2:29 pm
I am retiring April 1, 2018. I am considering the Three-Fund Portfolio when I roll over my current 403b with the exception of using John Bogle's idea of considering secure retirement income as bonds in the allocation. Using that my bond allocation would be about 84%. Does this make sense?
The question of whether or not to include other "predictable" income sources as a bond is not unique to the three-fund portfolio. Lots of threads on this topic:

https://www.google.com/search?q=social+ ... eheads.org

Anecdotally, I think many investors consider other income sources as a reason to increase their stock allocation within the rest of their portfolio, as well as a way to figure out what the allocation should be. Going to the trouble of calculating the other income sources and coming up with a very high bond allocation like 84% and then just going with it seems to defeat the point of making the calculation, unless the 84% is really what you wanted.

You likely will get more/better responses if you start a new thread.
"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said." --Alan Greenspan

dbr
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Re: [Three fund portfolio - Retirement income as the bond allocation?]

Post by dbr » Tue Dec 05, 2017 4:46 pm

DazedandConfused wrote:
Tue Dec 05, 2017 2:29 pm
[Split into a new thread from: The Three-Fund Portfolio --admin LadyGeek]

I am retiring April 1, 2018. I am considering the Three-Fund Portfolio when I roll over my current 403b with the exception of using John Bogle's idea of considering secure retirement income as bonds in the allocation. Using that my bond allocation would be about 84%. Does this make sense?
It does not make sense. More sense would come from looking at your need, ability, and willingness to take risk with stock and bond investing. Those factors would be influenced by the existence of income sources but the result of that could be anything. The concepts of n/a/w are discussed by Larry Swedroe in some of his books. If income sources give you a high ability to take risk and you have the need, then you would take more risk. If income sources mean you have no need to take risk, then you would take less risk. Etc.

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DazedandConfused
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Re: [Three fund portfolio - Retirement income as the bond allocation?]

Post by DazedandConfused » Tue Dec 05, 2017 5:42 pm

My retirement income comes from CSRS, State Retirement and Social Security. My 403B balances were knocked down because of unforseen circumstances. This is why using the retirement funds as bonds creates the 84%. I am basically looking for an 8% return on the 403b, which I have maintained for many years. I could live off the retirement funds only.
"I don't want to belong to any club that will accept me as a member." Groucho

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saltycaper
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Re: [Three fund portfolio - Retirement income as the bond allocation?]

Post by saltycaper » Tue Dec 05, 2017 5:52 pm

Is the 403b 100% stocks?
"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said." --Alan Greenspan

dbr
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Re: [Three fund portfolio - Retirement income as the bond allocation?]

Post by dbr » Tue Dec 05, 2017 6:07 pm

If you could live off the retirement income streams alone, then the question becomes what do you want from the 403b. The answer could be anywhere from a minimally risky reserve of cash to a 100% stock investment to get as much future wealth as possible from what is there. How do you arrive at wanting an 8% return from the 403b? If that makes sense then you need to invest your investable assets at least 100% stock provided you have the ability to manage if you lose a lot of money and provided you have the psychology not to bail out if things go wrong.

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Re: [Three fund portfolio - Retirement income as the bond allocation?]

Post by gvsucavie03 » Tue Dec 05, 2017 8:41 pm

S.S. and other "guarantees" are not necessarily a guarantee. Neither is the stock market. I would not compartmentalize the income sources as risk-free. Stay diversified. I'd even consider TIPS.

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Re: [Three fund portfolio - Retirement income as the bond allocation?]

Post by SimplicityNow » Tue Dec 05, 2017 8:41 pm

Expecting an 8% return is not something I would count on, even in a 100% equity portion of a portfolio.

Mr. Bogle and other hypothesize a 2% real return on stocks over the next 10 years. Of course his crystal ball is no clearer then anyone else's.

As far as counting an income stream as a bond, I wouldn't do that either. It does however, as has already been mentioned, give you the ability to take more risk with your portfolio by having a higher percentage of equities if you decide that is appropriate.

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DazedandConfused
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Re: [Three fund portfolio - Retirement income as the bond allocation?]

Post by DazedandConfused » Tue Dec 05, 2017 8:47 pm

I am 100% in stocks and have been for several years. I haven't found 8% to be unreasonable. I want to stay ahead of MRD and inflation. I road out 2008 without bailing. If I went with the conventional wisdom and had 70% in bonds what could I expect as a return?
"I don't want to belong to any club that will accept me as a member." Groucho

2pedals
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Re: [Three fund portfolio - Retirement income as the bond allocation?]

Post by 2pedals » Tue Dec 05, 2017 8:51 pm

You may want to read Wade Pfau's new book, it is discussed in the following thread. I am reading it now and find it quite informative and interesting.

viewtopic.php?t=229814

gvsucavie03
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Re: [Three fund portfolio - Retirement income as the bond allocation?]

Post by gvsucavie03 » Tue Dec 05, 2017 9:04 pm

DazedandConfused wrote:
Tue Dec 05, 2017 8:47 pm
I am 100% in stocks and have been for several years. I haven't found 8% to be unreasonable. I want to stay ahead of MRD and inflation. I road out 2008 without bailing. If I went with the conventional wisdom and had 70% in bonds what could I expect as a return?
https://personal.vanguard.com/us/insigh ... llocations

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Taylor Larimore
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Annual vs. Total stock market declines

Post by Taylor Larimore » Tue Dec 05, 2017 10:27 pm

gvsucavie03 wrote:
Tue Dec 05, 2017 9:04 pm
DazedandConfused wrote:
Tue Dec 05, 2017 8:47 pm
I am 100% in stocks and have been for several years. I haven't found 8% to be unreasonable. I want to stay ahead of MRD and inflation. I road out 2008 without bailing. If I went with the conventional wisdom and had 70% in bonds what could I expect as a return?
https://personal.vanguard.com/us/insigh ... llocations
DazedandConfused:

Vanguard's model portfolio allocations are a good representation of how bonds reduce risk (and return). However, it is somewhat misleading because it does not show the full extent of a bad bear market.

For example, the Vanguard models suggest that the worst annualreturn for stocks between 1926 and 2016 was -41.3%. In fact, the Dow plunged nearly 90% during the 1929-1935 Depression.

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

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DazedandConfused
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Re: [Three fund portfolio - Retirement income as the bond allocation?]

Post by DazedandConfused » Wed Dec 06, 2017 12:18 pm

Thank you for the responses. You can probably tell that I am not a investing wizard, and though I may argue my point, all the while I am soaking up the advice that is given. I am one of those people who mulls things over, and my understandings of how bonds effect returns is limited. I latched onto the comment by John Bogle and ran with it, but you have opened my eyes. Although I have read several of the books suggested on this site I was always in denial about allocation.
"I don't want to belong to any club that will accept me as a member." Groucho

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Re: [Three fund portfolio - Retirement income as the bond allocation?]

Post by flyboy400 » Wed Dec 06, 2017 7:21 pm

Hopefully, you've discovered that you don't hold bonds for the returns - they allow you to sleep at night. You'll be happy with
bonds the next time the market drops 30%.

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