28 Years Old: In the current market, what % into bonds?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
YoungPup26
Posts: 2
Joined: Fri Dec 15, 2017 2:11 pm

28 Years Old: In the current market, what % into bonds?

Post by YoungPup26 » Fri Dec 15, 2017 5:18 pm

Hello, all.

I am new to the forum and stumbled upon it when considering the question alluded to in the title.

A little background:

I will be 28 in a just a little over a month.

I currently have a tad over 23k invested, 19k in a Roth IRA and 4k in a general investment/savings account. Both accounts are with Vanguard. I have the Vanguard 500 Index Fund and Vanguard Total Bond Market Index Fund in the IRA. The other account is all invested in the Target retirement 2035 fund.

My total asset mix is 74% stock and 26% bond.

I contribute $250 twice per month.

I am a teacher in Ohio and if things continue as they currently stand I will have a pension starting when I am 60. I don't really want to count on that though considering that there have been changes over the recent years, and not for the better.

My question is:

As the stock market continues to go up and up, how much should I be putting into my bond index? If I understand prevailing Boglehead theory correctly (and it's very possible I don't) then bonds are currently "on discount" but once the stock market corrects a little bit the value of bonds will increase and at that time I will switch more monies back into stock as they will be "on sale." Am I on the right track here?

Do I split 50-50 between stocks and bonds? Higher percentage in bonds? Higher percentage in stocks? I know these questions are probably totally noobish and I'm sorry about that. Thanks for taking some time to read!

JT

ThrustVectoring
Posts: 297
Joined: Wed Jul 12, 2017 2:51 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by ThrustVectoring » Fri Dec 15, 2017 6:12 pm

You plan on working at least another 32 years before retirement, right? If you have the emotional stability for it, the money you contribute now should be 100% stocks. The primary risk you face right now isn't a market correction, since most of your retirement savings are from future income. Rather, it's in not getting enough long-run return to fund the retirement lifestyle you want.

Yes, there's a rebalancing bonus from having bonds to sell in favor of stocks when their prices move against each other. With reasonable levels of pessimism, this isn't enough to counteract the long-run growth rate advantage of stocks over bonds.

iasw
Posts: 139
Joined: Mon Dec 05, 2016 2:02 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by iasw » Fri Dec 15, 2017 6:23 pm

Bonds = age is another rule of thumb that some use, and you are close. 75/25 at age 27.916 is certainly fine.

I am 32.5 and mine is 80/20. I will gradually add more to my bonds holdings as I mature.

Note though that asset allocation has nothing to do with "the current market." We aren't market timing; we are choosing our AA with the long view in mind.

RVosen
Posts: 40
Joined: Sun Dec 20, 2015 11:00 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by RVosen » Fri Dec 15, 2017 6:25 pm

It depends on how much risk tolerance you think you have. I'm 29 and have a 85%/15% I plan on keep for at least another 10 years.

I agree that you shouldn't necessarily count on a pension but it can be a little bit of insure towards a more stable retirement income.

iasw
Posts: 139
Joined: Mon Dec 05, 2016 2:02 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by iasw » Fri Dec 15, 2017 6:28 pm

As far as fund placement, a target date fund or bond fund in taxable isn't the best place for that. They belong in tax advantaged accounts for tax purposes.

For new money, can you contribute according to your AA with each deposit? So, $250 becomes $187.50 to stock fund and the rest to bond?

Then rebalance if market fluctuations get you off balance.

Thesaints
Posts: 1204
Joined: Tue Jun 20, 2017 12:25 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by Thesaints » Fri Dec 15, 2017 6:33 pm

YoungPup26 wrote:
Fri Dec 15, 2017 5:18 pm
If I understand prevailing Boglehead theory correctly (and it's very possible I don't) then bonds are currently "on discount" but once the stock market corrects a little bit the value of bonds will increase and at that time I will switch more monies back into stock as they will be "on sale." Am I on the right track here?
I had to double check the post's date. No, bonds are not on discount by any stretch of imagination; they are as expensive as they have ever been. That's the reason why stocks are also so expensive. If bonds become cheaper (i.e. their yield increases) stocks will follow through almost as an inevitable consequence.

Olemiss540
Posts: 303
Joined: Fri Aug 18, 2017 8:46 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by Olemiss540 » Fri Dec 15, 2017 6:36 pm

33, and currently 90/10. Target date funds set on AUTOPILOT. The less I tinker, the more i seem to have in my account so no plans to mess with it until my portfolio hits 750k or so.

bmritz
Posts: 9
Joined: Sun Nov 29, 2015 2:59 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by bmritz » Fri Dec 15, 2017 6:44 pm

Just to round out the suggestions given so far:

I'll turn 28 in a month, and I'm 90/10.

The allocation suggestions in the first responses to this thread are: 100/0, 90/10, 85/15, 80/20, 75/25. That alone should tell you that this is a personal decision.

Why is 90/10 right for me? My thoughts mirror ThrustVectoring's post. In the long run, stocks ought to have higher growth, and I'd like to take advantage of that growth while I have a long time horizon to be invested.

I also wanted to get to the more aggressive side of my comfort zone while I am younger with less assets to lose. I haven't been through a major market correction, but I'm almost certain I'd stay the course during a market drop given my current asset level. Psychologically, losing 50% now would be a lot easier to handle rather than losing 50% 15 years from now when I have 10x more to lose.

User avatar
inittowinit
Posts: 100
Joined: Thu Jul 05, 2012 6:37 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by inittowinit » Fri Dec 15, 2017 6:52 pm

Piling on with another data point.

I'm also 28 and the AA of my investable assets is 95/5.

If I count the balance in my DB pension account as a bond, I am at 85/15.

The correct AA for you is whatever lets you sleep at night while still giving you a decent likelihood of achieving your long-term goals.

User avatar
eye.surgeon
Posts: 188
Joined: Wed Apr 05, 2017 1:19 pm
Location: California

Re: 28 Years Old: In the current market, what % into bonds?

Post by eye.surgeon » Fri Dec 15, 2017 6:56 pm

from 90/10 to age in bonds, depending on risk tolerance.
"I would rather be certain of a good return than hopeful of a great one" | Warren Buffett

RRAAYY3
Posts: 380
Joined: Thu Jan 17, 2013 12:32 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by RRAAYY3 » Fri Dec 15, 2017 7:10 pm

I’ll be 33 next month and I’m not even considering bonds - there’s no point unless you would panic in a market downturn

I don’t plan on adding bonds to my portfolio for another 7-10 years at least. At that point I’ll start to care about “stability” and “keeping what I have”

For now - I want as much earning potential as possible and couldn’t care less about volatility (all I would do in a correction is buy more shares)

Thesaints
Posts: 1204
Joined: Tue Jun 20, 2017 12:25 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by Thesaints » Fri Dec 15, 2017 7:15 pm

During market crashes there is a psychological element that many believe they will master.
There is also a more material element that may not allow people to stick to their plan. They may actually need the money, especially considering that during recessions jobs are more frequently lost than created.

iasw
Posts: 139
Joined: Mon Dec 05, 2016 2:02 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by iasw » Fri Dec 15, 2017 7:24 pm

I am 80/20 because I had a negative net worth in 2008... maybe I can stomach losing 50% of my equity holdings, but I haven't tested it yet so that's why I'm not all in stocks.

Yes, personal decision absolutely.

Vanguard has a risk tolerance calculator you can look at.

GLState
Posts: 104
Joined: Wed Feb 15, 2017 10:38 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by GLState » Fri Dec 15, 2017 7:31 pm

Delete

Nottooold
Posts: 3
Joined: Tue Sep 26, 2017 5:04 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by Nottooold » Fri Dec 15, 2017 7:39 pm

I had zero bonds in my portfolio until I retired, it was a great choice.

bmritz
Posts: 9
Joined: Sun Nov 29, 2015 2:59 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by bmritz » Fri Dec 15, 2017 7:42 pm

To get a feel for the relative risk vs. returns, here is a table from Vanguard of historical returns in the past 91 years.

Keep in mind that the table only tracks gains/losses for 91 calendar years. Gains and losses within 1 year periods can be larger than this table shows, because they might occur across two consecutive calendar years, or the portfolio may swing back the other direction before Dec. 31.

Image

RRAAYY3
Posts: 380
Joined: Thu Jan 17, 2013 12:32 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by RRAAYY3 » Fri Dec 15, 2017 7:49 pm

It’s insane to me that you could be 100% bonds and in the worst year still manage to loss 8% ... thanks for posting that chart

ddurrett896
Posts: 679
Joined: Wed Nov 05, 2014 3:23 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by ddurrett896 » Fri Dec 15, 2017 7:51 pm

YoungPup26 wrote:
Fri Dec 15, 2017 5:18 pm
My question is:

As the stock market continues to go up and up, how much should I be putting into my bond index? If I understand prevailing Boglehead theory correctly (and it's very possible I don't) then bonds are currently "on discount" but once the stock market corrects a little bit the value of bonds will increase and at that time I will switch more monies back into stock as they will be "on sale." Am I on the right track here?

Do I split 50-50 between stocks and bonds? Higher percentage in bonds? Higher percentage in stocks? I know these questions are probably totally noobish and I'm sorry about that. Thanks for taking some time to read!
Simple answer is find an AA you're comfortable with and stick to it. In my situation, I'm 31 and 100% stocks.

bmritz
Posts: 9
Joined: Sun Nov 29, 2015 2:59 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by bmritz » Fri Dec 15, 2017 7:53 pm

RRAAYY3 wrote:
Fri Dec 15, 2017 7:49 pm
It’s insane to me that you could be 100% bonds and in the worst year still manage to loss 8% ... thanks for posting that chart
You're welcome! And I thought the same thing -- what's more insane, the fact that 100% bonds lost 8% in 1969 or gained 32.6% in 1982!?

DrGoogle2017
Posts: 1041
Joined: Mon Aug 14, 2017 12:31 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by DrGoogle2017 » Fri Dec 15, 2017 7:53 pm

I would say 0% until at least age 40. But do make sure you have an emergency fund.

Thesaints
Posts: 1204
Joined: Tue Jun 20, 2017 12:25 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by Thesaints » Fri Dec 15, 2017 8:31 pm

RRAAYY3 wrote:
Fri Dec 15, 2017 7:49 pm
It’s insane to me that you could be 100% bonds and in the worst year still manage to loss 8% ... thanks for posting that chart
Is it a loss too small, or too large ?

aristotelian
Posts: 3445
Joined: Wed Jan 11, 2017 8:05 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by aristotelian » Fri Dec 15, 2017 8:37 pm

I would say anywhere from 0 to 30% at that age. I am 25% at Age 42.

Grt2bOutdoors
Posts: 17529
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: 28 Years Old: In the current market, what % into bonds?

Post by Grt2bOutdoors » Fri Dec 15, 2017 8:45 pm

75/25 is as good if not better than 95/5 or 100 percent equity. You will not know your true risk tolerance until you’ve been battle tested. The crash of 2008/2009 was one such event that created such fear and panic that market sold off throwing the baby out with the bath water.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

SimplicityNow
Posts: 327
Joined: Fri Aug 05, 2016 10:31 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by SimplicityNow » Fri Dec 15, 2017 8:51 pm

Since you are a relatively new investor I would argue that 100% is not a good place to start. Not because it won't yield the largest return over time but because you have not weathered a severe correction. Even though the amount you have invested is small compared to what it will be in 20 or 30 years, I'm sure right now it seems like a large chunk of change.
Mainly for this reason, many argue that an asset allocation of 80%stocks and 20% bonds gives you most of the return but softens the blow when there is a severe downturn in the stock market. It may also reduce the serious mistake that many make of selling when the market falls.

Some of the more eloquent and experienced posters like Duckie and Ruralavalon may be along shortly to give you more detailed advice and reasoning.

My suggestion is to learn more about asset allocation by first reading the wiki and then a book or two on the topic. It is time well spent.

Helo80
Posts: 470
Joined: Sat Apr 29, 2017 8:47 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by Helo80 » Fri Dec 15, 2017 9:42 pm

I've been anti-bond since college, and I still largely am... about your age as well. 2009 was rough, but I was not relying on said investments for anything but long term capital appreciation (40+ years).

At the end of the day, it's all about risk aversion.... some people hate to lose money, but it's not like a pure S&P500 or TSM one-fund portfolio is betting a single number on the craps table.

User avatar
randomizer
Posts: 881
Joined: Sun Jul 06, 2014 3:46 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by randomizer » Fri Dec 15, 2017 9:43 pm

75:25 is a good ratio.

tigermilk
Posts: 498
Joined: Thu Aug 15, 2013 9:32 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by tigermilk » Fri Dec 15, 2017 9:54 pm

Go with zero for the next 10 to 15 years. Once yoiu reach your 40s you can reevaluate getting bonds.

User avatar
badbreath
Posts: 738
Joined: Mon Jul 18, 2016 7:50 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by badbreath » Fri Dec 15, 2017 10:08 pm

I have the Vanguard 500 Index Fund and Vanguard Total Bond Market Index Fund in the IRA. The other account is all invested in the Target retirement 2035 fund.
Don't know were the funds are in to give you a answer. Taxable or deductible?

If all in deductable Just put it in the target date fund
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

RRAAYY3
Posts: 380
Joined: Thu Jan 17, 2013 12:32 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by RRAAYY3 » Fri Dec 15, 2017 10:17 pm

Thesaints wrote:
Fri Dec 15, 2017 8:31 pm
RRAAYY3 wrote:
Fri Dec 15, 2017 7:49 pm
It’s insane to me that you could be 100% bonds and in the worst year still manage to loss 8% ... thanks for posting that chart
Is it a loss too small, or too large ?
I was shocked that being so conservative could still result in an 8% loss

RRAAYY3
Posts: 380
Joined: Thu Jan 17, 2013 12:32 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by RRAAYY3 » Fri Dec 15, 2017 10:20 pm

I’m starting to feel like bonds offer more psychological benefits than actual financial benefits

I’m strongly considering using CDs when the time comes for me to “safely” preserve my accumulation

ddavis8871
Posts: 2
Joined: Sun Dec 18, 2016 6:33 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by ddavis8871 » Fri Dec 15, 2017 10:39 pm

Your target date fund has bond holdings in it which I would count as enough right now. Now is not the time to invest in bonds with interest rates projected to move up in the next few years. Also, I would look into moving into a 2040 or 2045 target date fund that will still give you bond exposure but will be positioned more towards growth. Also keep in mind that by the time you "retire" the US will be maybe 20% of the total global equity market so you should give yourself some intl exposure (25-30% intl would be a good place to be).

YoungPup26
Posts: 2
Joined: Fri Dec 15, 2017 2:11 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by YoungPup26 » Fri Dec 15, 2017 10:55 pm

Thank you all so much for quick responses and advice. It seems I'm at least not out of bounds with what I have currently and maybe could be a bit more aggressive. Someone suggested reading some books and I have done some of that but it's been a while. When I first started teaching I happened upon "Millionaire Teacher" by Andrew Hallam. I seem to remember him saying something about buying more of his bond funds when the stock market was going gangbusters but maybe I am mis-remembering that. I have also read Bogle's "The Little Book of Common Sense Investing" but I should probably go back and read that again as well.

Thanks again, everyone!

JT

MotoTrojan
Posts: 962
Joined: Wed Feb 01, 2017 8:39 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by MotoTrojan » Sat Dec 16, 2017 2:05 pm

YoungPup26 wrote:
Fri Dec 15, 2017 10:55 pm
Thank you all so much for quick responses and advice. It seems I'm at least not out of bounds with what I have currently and maybe could be a bit more aggressive. Someone suggested reading some books and I have done some of that but it's been a while. When I first started teaching I happened upon "Millionaire Teacher" by Andrew Hallam. I seem to remember him saying something about buying more of his bond funds when the stock market was going gangbusters but maybe I am mis-remembering that. I have also read Bogle's "The Little Book of Common Sense Investing" but I should probably go back and read that again as well.

Thanks again, everyone!

JT
I think you are confusing changing allocation with basic allocation balance. When stocks do well, you naturally need to buy more bonds to keep your ratio. Opposite is true when stocks do poorly. If it’s a big change/portfolio you may need more than contributions allow to fix it, thus buy/sell rebalancing (hopefully in a tax-advantaged account).

pkcrafter
Posts: 12280
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: 28 Years Old: In the current market, what % into bonds?

Post by pkcrafter » Sat Dec 16, 2017 2:38 pm

Welcome to the forum,
YoungPup26 wrote:
Fri Dec 15, 2017 5:18 pm
Hello, all.

I am new to the forum and stumbled upon it when considering the question alluded to in the title.

A little background:

I will be 28 in a just a little over a month.

I currently have a tad over 23k invested, 19k in a Roth IRA and 4k in a general investment/savings account. Both accounts are with Vanguard. I have the Vanguard 500 Index Fund and Vanguard Total Bond Market Index Fund in the IRA. The other account is all invested in the Target retirement 2035 fund.
It would be more tax efficient if you did not use a TR fund in taxable. Use tax-efficient S&P500 or total stock market in taxable, put bonds in tax deferred. All accounts as part of one portfolio and do rebalancing in tax-deferred. No international?
My total asset mix is 74% stock and 26% bond.

I contribute $250 twice per month.

I am a teacher in Ohio and if things continue as they currently stand I will have a pension starting when I am 60. I don't really want to count on that though considering that there have been changes over the recent years, and not for the better.

My question is:

As the stock market continues to go up and up, how much should I be putting into my bond index? If I understand prevailing Boglehead theory correctly (and it's very possible I don't) then bonds are currently "on discount" but once the stock market corrects a little bit the value of bonds will increase and at that time I will switch more monies back into stock as they will be "on sale." Am I on the right track here?

Do I split 50-50 between stocks and bonds? Higher percentage in bonds? Higher percentage in stocks? I know these questions are probably totally noobish and I'm sorry about that. Thanks for taking some time to read!
This sounds like a clever way to reduce your equity allocation because you are getting nervous :happy but this is not Boglehead theory. BH philosophy is buy, then hold. Your current AA seems reasonable, but if you cannot handle the pressure, then reduce it some and then hold it there for 20 years. It's just that simple. If you can and will hold at 76/24 then you have to commit and stay there. You cannot avoid temporary losses due to volatility--it's part of the package.

https://finpage.blog/2016/04/26/underst ... olatility/

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

User avatar
BuyAndHoldOn
Posts: 112
Joined: Mon Mar 30, 2015 6:51 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by BuyAndHoldOn » Sat Dec 16, 2017 8:17 pm

I haven't read all the posts in this thread, I am just sharing my approach to this topic.

I don't worry about the % I have in Bonds/cash type instruments. I use bonds for savings - either for emergencies, or potential expenditures in the future. If all goes well, bonds will make up a smaller and smaller % of my assets over time; although right now, I do purchase bonds in addition to equities as I have a need for more [relatively] secure savings. Maybe when I got closer to retirement I would "re-balance" into bonds, but I don't plan to hold more bonds than I need to.

Point being: Use bonds to time your assets (the bonds) with your liabilities (expected and unexpected). But for all other investing, look to equities/growth vehicles.

bantam222
Posts: 73
Joined: Sun Nov 23, 2014 5:57 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by bantam222 » Sun Dec 17, 2017 1:25 am

I am 26 and 100% stocks

Looked at going 90/10 but ran some simulations on market crash scenarios and the money I save via 10% bond is so small it’s hardly worth it to bother

Finridge
Posts: 200
Joined: Mon May 16, 2011 7:27 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by Finridge » Sun Dec 17, 2017 2:19 am

The Vanguard Investor Questionnaire is a very useful tool. I wouldn't follow the recommendations it produces blindly, but it's worth considering.

https://personal.vanguard.com/us/FundsInvQuestionnaire

User avatar
stemikger
Posts: 4652
Joined: Thu Apr 08, 2010 5:02 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by stemikger » Sun Dec 17, 2017 7:23 am

I think you are fine with the AA (asset allocation) you currently have.

If I were you, I would keep it at that AA until 40 and revisit it. Maybe go to 70/30 until 50 then 60/40 for life.

Im 53 and hold 60/40 and plan to keep it there for the rest of my natural life and hopefully leave some behind.

Good Luck, you are definitely asking all the right questions.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

3funder
Posts: 156
Joined: Sun Oct 15, 2017 9:35 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by 3funder » Sun Dec 17, 2017 8:01 am

I'm 33; I was about 90% stocks at your age. I'm 80% now, but that's because my wife is a few years older and slightly more risk averse than I am. I've read the majority of the responses to your original post, and I'm sure you've concluded the following, if nothing else, from them: The majority of your retirement investments, at this point in time, should be in stocks. Whether that's 75% or 100% is up to you.

msk
Posts: 593
Joined: Mon Aug 15, 2016 10:40 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by msk » Sun Dec 17, 2017 8:07 am

+1
Young BHs are not looking for a get-rich-quick scheme (define rich...). They are resigned to saving and investing for decades in order to retire relatively early but comfortably. Basically investing in ETFs; and not in individual stocks or highly geared RE or some ridiculously risky project set up by your brother in law. It is plodding, sober investing. Why would such a youngster give up so early in life and cut back on his stock ETFs by parking money in bonds? It may make him sleep a bit easier. Until the day his stocks ETF drops 30+% and he panics and buys bonds. Totally wrong behavior! Panic can set in even with only 10% stocks. Learn in advance to control the inevitable panic by avidly reading this board; and go 100% stocks. If you buy your ETFs via Interactive Brokers you do not even need to set aside an emergency fund. Their margin rate is very low. Go forth and INVEST your savings, rather than park part of them. Save and invest 30% of your after tax income and relax as your NW grows, rather than just parking your money for safety. How much NW you have is what relieves panic... Speaking as a 73 year-old who retired at 55 and never bought a bond, yet. Older BHs who start their investing stories late in life are in a different category altogether and ought to stick to full BH principles. A 28 year-old saving 30% of income (in 100% stocks) will already be very comfortable by age 40, but of course not via 100% bonds. I chose the stocks extreme, and no regrets, so far.

JW-Retired
Posts: 6588
Joined: Sun Dec 16, 2007 12:25 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by JW-Retired » Sun Dec 17, 2017 8:09 am

bmritz wrote:
Fri Dec 15, 2017 7:42 pm
To get a feel for the relative risk vs. returns, here is a table from Vanguard of historical returns in the past 91 years.

Keep in mind that the table only tracks gains/losses for 91 calendar years. Gains and losses within 1 year periods can be larger than this table shows, because they might occur across two consecutive calendar years, or the portfolio may swing back the other direction before Dec. 31.

Image
I just want to point out that this 1 year period table doesn't give the Great Depression stock risk it's due, by a long shot. From the peak DOW in 1929 to the low in 1932 was a drop of 90%! Do you have enough bonds to get you through that?
JW
Retired at Last

Valuethinker
Posts: 33778
Joined: Fri May 11, 2007 11:07 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by Valuethinker » Sun Dec 17, 2017 8:25 am

RRAAYY3 wrote:
Fri Dec 15, 2017 10:17 pm
Thesaints wrote:
Fri Dec 15, 2017 8:31 pm
RRAAYY3 wrote:
Fri Dec 15, 2017 7:49 pm
It’s insane to me that you could be 100% bonds and in the worst year still manage to loss 8% ... thanks for posting that chart
Is it a loss too small, or too large ?
I was shocked that being so conservative could still result in an 8% loss
Check your data. 1994 the US 30 year Treasury dropped over 20% and bond markets generally were around (8%) from memory. 1980 from memory was a pretty bad year too. 1973-74 saw double digit inflation and a president resign (Gerry Ford should be given full credit for the restabilization he managed in his 2 years in office)-- it can't have been a good year.

One problem. In these horrible moments bonds paid c. 8% coupon, say, on average (10 year US Treasury) and similar yields. Thus,

Total Return approximately = Capital Return + Income Return (coupon)

However bond coupons (and Yields to Maturity) are now around 2%.

So if bond prices were to fall (16%) now, you'd get a (14%) total return, not a (8%). The mathematical picture is somewhat more complex than that (you have to take into account bond Duration & Convexity) but as a rough estimate.

herpfinance
Posts: 185
Joined: Tue Nov 18, 2014 4:52 pm
Location: Denmark

Re: 28 Years Old: In the current market, what % into bonds?

Post by herpfinance » Sun Dec 17, 2017 8:27 am

I'm probably more risk averse than most in this thread and so I have a retirement allocation of 75/25. If you include all assets (car savings, emergency fund, checking account), I'm at roughly 60/40. I'm in my early 30's.

It's an allocation that prevents me from worrying about investments too much. I also have a small part of the portfolio in individual stocks (included in the overall allocation) and I've watched a one day decline of over 40% in a holding. While not a substantial swing in terms of what I had invested, I think it would be a very unsettling experience to witness that large of a decline in my total portfolio, so I feel confident that my risk tolerance is not for a higher allocation of stocks.

I decided on the allocation after adhering to Benjamin Graham's 25-75% rule.
"The intelligent investor is a realist who sells to optimists and buys from pessimists" - Benjamin Graham

Valuethinker
Posts: 33778
Joined: Fri May 11, 2007 11:07 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by Valuethinker » Sun Dec 17, 2017 8:27 am

JW-Retired wrote:
Sun Dec 17, 2017 8:09 am
bmritz wrote:
Fri Dec 15, 2017 7:42 pm
To get a feel for the relative risk vs. returns, here is a table from Vanguard of historical returns in the past 91 years.

Keep in mind that the table only tracks gains/losses for 91 calendar years. Gains and losses within 1 year periods can be larger than this table shows, because they might occur across two consecutive calendar years, or the portfolio may swing back the other direction before Dec. 31.

Image
I just want to point out that this 1 year period table doesn't give the Great Depression stock risk it's due, by a long shot. From the peak DOW in 1929 to the low in 1932 was a drop of 90%! Do you have enough bonds to get you through that?
JW
An utterly critical point.

UK stock market, total return basis, real returns, did something like (80%) in 1972-74, an 18 month bear market. The nominal return was made much worse by c. 20% inflation at the time.

The Depression? Stocks then made back a lot of their losses by 1937, and promptly lost them again in 1938. The actual bottom of the bear market didn't come until 1942? And if you invested in 1929, you had not made your money back until the 1950s?

Valuethinker
Posts: 33778
Joined: Fri May 11, 2007 11:07 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by Valuethinker » Sun Dec 17, 2017 8:34 am

herpfinance wrote:
Sun Dec 17, 2017 8:27 am
I'm probably more risk averse than most in this thread and so I have a retirement allocation of 75/25. If you include all assets (car savings, emergency fund, checking account), I'm at roughly 60/40. I'm in my early 30's.

It's an allocation that prevents me from worrying about investments too much. I also have a small part of the portfolio in individual stocks (included in the overall allocation) and I've watched a one day decline of over 40% in a holding. While not a substantial swing in terms of what I had invested, I think it would be a very unsettling experience to witness that large of a decline in my total portfolio, so I feel confident that my risk tolerance is not for a higher allocation of stocks.

I decided on the allocation after adhering to Benjamin Graham's 25-75% rule.
Risk averse yes.

But also wise-- very wise
. Ben Graham was a very wise man, trained Warren Buffett. The things he said are still true, it is, however, the case that the investing background has changed (there aren't a lot of companies out there trading for 2/3rds of working capital for example; information about company financials no longer takes weeks of diligent research, personal visits to company offices to ask for financial accounts, etc.-- the data can be accessed by a touch of the button).

Besides a very wise understanding of human nature, that we all think we have infinite risk tolerance (when markets are going up) but do not, in actuality, on the downside-- Graham was also astute about asset pricing.

Markets get over and undervalued. By capping equity exposure in the 25-75% range, he is protecting investors against the worst excesses of the mania of Crowds, the tendency for financial asset prices to swing too high and too low.

When stocks are undervalued you are forced to sell bonds, and buy stocks. And vice versa.

Valuethinker
Posts: 33778
Joined: Fri May 11, 2007 11:07 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by Valuethinker » Sun Dec 17, 2017 8:40 am

YoungPup26 wrote:
Fri Dec 15, 2017 5:18 pm
Hello, all.

I am new to the forum and stumbled upon it when considering the question alluded to in the title.

A little background:

I will be 28 in a just a little over a month.

I currently have a tad over 23k invested, 19k in a Roth IRA and 4k in a general investment/savings account. Both accounts are with Vanguard. I have the Vanguard 500 Index Fund and Vanguard Total Bond Market Index Fund in the IRA. The other account is all invested in the Target retirement 2035 fund.

My total asset mix is 74% stock and 26% bond.

I contribute $250 twice per month.

I am a teacher in Ohio and if things continue as they currently stand I will have a pension starting when I am 60. I don't really want to count on that though considering that there have been changes over the recent years, and not for the better.

My question is:

As the stock market continues to go up and up, how much should I be putting into my bond index? If I understand prevailing Boglehead theory correctly (and it's very possible I don't) then bonds are currently "on discount" but once the stock market corrects a little bit the value of bonds will increase and at that time I will switch more monies back into stock as they will be "on sale." Am I on the right track here?

Do I split 50-50 between stocks and bonds? Higher percentage in bonds? Higher percentage in stocks? I know these questions are probably totally noobish and I'm sorry about that. Thanks for taking some time to read!

JT
Hi

Ben Graham said never less than 25% in stocks and never more than 75%.

This is very wise advice. I would probably modify it to 20% bonds for your age. There is a case for 10% TIPS 10% straight US Treasury bonds, but it's not a big issue if you don't. TIPS bonds are the ultimate safe asset but empirically the prices are quite volatile and may not go up (or stay the same) when stocks are going down. Part of the whole point of bonds is to buy stocks cheap when the next bear market hits-- the rebalancing mechanism forces you to do this.

There are a lot of 100% or 90% equity comments here. I suggest they show Recency Bias. We are nearly 9 years into a bull market (from March 2009) where markets have more or less tripled. It gets a lot harder from here.

You are (unfortunately) wise not to consider your Pension, given the many fiscal challenges US states face with pensions. A pension is a bond proxy, and a CPI indexed government pension is a TIPS proxy.

So I would say be 20% bonds, and remember the purpose they fulfill in your portfolio, at your age, is to force you to buy equities in a Bear market, and sell them in a bull market.

This Bull is into a late phase. I cannot tell you whether the next Bear market is tomorrow, or 4 years from now. But it is coming.

User avatar
bottlecap
Posts: 5188
Joined: Tue Mar 06, 2007 11:21 pm
Location: Tennessee

Re: 28 Years Old: In the current market, what % into bonds?

Post by bottlecap » Sun Dec 17, 2017 8:42 am

The market is always current. Invest according to your IPS.

JT

boglewill34
Posts: 25
Joined: Thu Nov 16, 2017 12:52 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by boglewill34 » Sun Dec 17, 2017 9:09 am

To the level that it will exist, I view my pension as a fixed income portion of my (very small) portfolio. As such, I think I can reasonably justify being more risk tolerant in the remainder of my holdings. It’s still a psychological equation, but the pension can be seen as a floor to your investments.

RRAAYY3
Posts: 380
Joined: Thu Jan 17, 2013 12:32 pm

Re: 28 Years Old: In the current market, what % into bonds?

Post by RRAAYY3 » Sun Dec 17, 2017 9:29 am

Valuethinker wrote:
Sun Dec 17, 2017 8:25 am
RRAAYY3 wrote:
Fri Dec 15, 2017 10:17 pm
Thesaints wrote:
Fri Dec 15, 2017 8:31 pm
RRAAYY3 wrote:
Fri Dec 15, 2017 7:49 pm
It’s insane to me that you could be 100% bonds and in the worst year still manage to loss 8% ... thanks for posting that chart
Is it a loss too small, or too large ?
I was shocked that being so conservative could still result in an 8% loss
Check your data. 1994 the US 30 year Treasury dropped over 20% and bond markets generally were around (8%) from memory. 1980 from memory was a pretty bad year too. 1973-74 saw double digit inflation and a president resign (Gerry Ford should be given full credit for the restabilization he managed in his 2 years in office)-- it can't have been a good year.

One problem. In these horrible moments bonds paid c. 8% coupon, say, on average (10 year US Treasury) and similar yields. Thus,

Total Return approximately = Capital Return + Income Return (coupon)

However bond coupons (and Yields to Maturity) are now around 2%.

So if bond prices were to fall (16%) now, you'd get a (14%) total return, not a (8%). The mathematical picture is somewhat more complex than that (you have to take into account bond Duration & Convexity) but as a rough estimate.
Does that chart not say there was an 8.1% loss with 100% bonds in its worst year and that 14 years resulted in a loss? Am I missing something ?

Valuethinker
Posts: 33778
Joined: Fri May 11, 2007 11:07 am

Re: 28 Years Old: In the current market, what % into bonds?

Post by Valuethinker » Sun Dec 17, 2017 12:15 pm

RRAAYY3 wrote:
Sun Dec 17, 2017 9:29 am
Valuethinker wrote:
Sun Dec 17, 2017 8:25 am
RRAAYY3 wrote:
Fri Dec 15, 2017 10:17 pm
Thesaints wrote:
Fri Dec 15, 2017 8:31 pm
RRAAYY3 wrote:
Fri Dec 15, 2017 7:49 pm
It’s insane to me that you could be 100% bonds and in the worst year still manage to loss 8% ... thanks for posting that chart
Is it a loss too small, or too large ?
I was shocked that being so conservative could still result in an 8% loss
Check your data. 1994 the US 30 year Treasury dropped over 20% and bond markets generally were around (8%) from memory. 1980 from memory was a pretty bad year too. 1973-74 saw double digit inflation and a president resign (Gerry Ford should be given full credit for the restabilization he managed in his 2 years in office)-- it can't have been a good year.

One problem. In these horrible moments bonds paid c. 8% coupon, say, on average (10 year US Treasury) and similar yields. Thus,

Total Return approximately = Capital Return + Income Return (coupon)

However bond coupons (and Yields to Maturity) are now around 2%.

So if bond prices were to fall (16%) now, you'd get a (14%) total return, not a (8%). The mathematical picture is somewhat more complex than that (you have to take into account bond Duration & Convexity) but as a rough estimate.
Does that chart not say there was an 8.1% loss with 100% bonds in its worst year and that 14 years resulted in a loss? Am I missing something ?
Hi

I apologize if I was rude.

The VG data does not seem to accord with what i know happened historically. Thus, I need to dig into their data.

It may be I have confused nominal and real returns.

But I do remember 1994 and it may be total returns on bonds were minus 8 per cent. Priced returns were a lot worse than that ( the bond rout actually began the year before and finished before the year end).

Inb1980 81 interest rates spiked to 21 per cent again bond prices took a pounding.

8 per cent is not a worst case for bonds. Minus 12 to 15 is closer to it, intuitively.

But, then, neither is minus 50 per cent for stocks a worst case.

One again, my apologies if I was rude. Hulu are absolutely correct from that chart.

Post Reply