Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

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sharukh
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Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by sharukh » Thu Dec 21, 2017 3:40 pm

Hi,

My real investing started only in 2012, no real experience of brutal bear market.

I am following age in bonds. currently aged 33, so have around 30% in bonds.
It feels so dumb to hold bonds as everything is going up, stocks,gold, houses etc..

Currently I rent: The house values in the place I live(Near Manhattan) have gone up like 60+%(aggregate) in 4 years. So essentially I lost a lot of money by holding money in bonds, it is worth a lot less compared to what it is worth 4 years ago.

How do I retain the value of the bonds, may be buy a house ? or increase stock percentage in AA?
I dont think CPI numbers match any way near to what the inflation I see, ex: increase in rental prices or increase in house purchase prices.

Do you feel that you lost lot of money due to inflation or in opportunity cost ? What solutions did you employ ?

Thanks.

mcraska
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by mcraska » Thu Dec 21, 2017 3:56 pm

I'm assuming you are younger, and if you are 20+ years away from retirement I'd be at more of a 90 - 10 allocation in your retirement accounts. Like you said Bonds aren't providing much growth especially when you account for inflation. Honestly its primarily comes down to your individual tolerance for risk.

If you are talking taxable accounts, bonds are even a worse idea because the interest is taxed at your effective tax rate. I like high dividend yielding funds / ETFs because the dividend yield can help keep you positive in a bear market. I'm not a big cash emergency fund guy either. My philosophy is just invest 30% more than you need in your emergency fund so you can handle crashes.

Buying a house is a nice hedge against inflation, but you have to use leverage responsibly. It also allows you to open a HELOC and use equity in your home for emergencies if needed.

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by pkcrafter » Thu Dec 21, 2017 4:07 pm

Do not let emotions get in the way of your investing strategy and decisions.

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.

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by bloom2708 » Thu Dec 21, 2017 4:16 pm

Don't outsmart yourself. Stay the course. Absolutely nothing wrong with 30% bonds.

If stocks only went up, there would be no such thing as bonds. Stocks do not always go up. When they go down (and fast) you will be wishing you had more bonds. So it goes.

Stay at 30% until you go through your first downturn. That might be 3 months, 6 months, 2 years, nobody knows.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by GuyFromGeorgia » Thu Dec 21, 2017 4:20 pm

Bonds aren't for bull markets, they are for when the Bear creeps in. Let's say you instead had a 90/10 AA. That 20% differential of your total assets might have been a few thousand, maybe tens of thousands of missed upside. But don't forget that you had 70% of your assets increase over the last few years and that would have been quite a bit. A proper Asset Allocation is the sweet spot between your time horizon in the market and your ability to sleep at night. Don't underestimate what a 50% stock market drop will do to your mind, especially if you happen to lose your job. How many months can you keep your house, feed your family, live your lifestyle if that were to happen? I hit red 9 times in a row in Vegas once. Each win I wish I had more on the table.....Don't ask what happened on the 10th roll....

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by onthecusp » Thu Dec 21, 2017 4:27 pm

I only started buying bonds a bit over a year ago since I was late to the sensible investing party. They have gone down a little :( as my stock allocation has skyrocketed :D .
All new money is going into bonds for now, actually to increase my allocation since I'm nearing retirement. I figure I'm buying low. Why would you change your allocation now? 70/30 is not extremely conservative or anything. You should be able to hold that AA for 20 years.

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by KlangFool » Thu Dec 21, 2017 4:29 pm

OP,

"I feel dumb that I cannot see the future and buy X about 4 years ago. X had gone up about 60% in the last 4 years." You can replace X with anything.

What is wrong with this statement?

KlangFool

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by Alexa9 » Thu Dec 21, 2017 4:29 pm

See what your portfolio would have done in 2008 and if you could have stomached it or worse. The sleep test is a common measure of how aggressive your portfolio should be. If you have an iron stomach, then 90% equities is reasonable while you're young. 100% equities doesn't generally outperform 90% and it's more volatile.

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by nisiprius » Thu Dec 21, 2017 4:30 pm

I didn't feel dumb holding bonds in 2008-2009. In fact, knowing our bonds were there is probably what made it possible for us to tolerate staying the course in our stocks and not sell them during the crisis.

People wish they could be invested in stocks during bull markets and pull out during bear markets. That's another way of saying they'd like to get the risk premium of stocks without actually taking the risk. I think that's the investing equivalent of perpetual motion.

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sharukh
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by sharukh » Thu Dec 21, 2017 5:37 pm

onthecusp wrote:
Thu Dec 21, 2017 4:27 pm
You should be able to hold that AA for 20 years.
Thank you, I was thinking of the same.

sharukh
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by sharukh » Thu Dec 21, 2017 5:39 pm

I see, we cant predict the future, so we play safe, i am having this feeling, because i am looking at the past and have clear view. Thank you.
KlangFool wrote:
Thu Dec 21, 2017 4:29 pm
OP,

"I feel dumb that I cannot see the future and buy X about 4 years ago. X had gone up about 60% in the last 4 years." You can replace X with anything.

What is wrong with this statement?

KlangFool

sharukh
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by sharukh » Thu Dec 21, 2017 5:40 pm

Right, I have to do sleep test more than anything.
Alexa9 wrote:
Thu Dec 21, 2017 4:29 pm
See what your portfolio would have done in 2008 and if you could have stomached it or worse. The sleep test is a common measure of how aggressive your portfolio should be. If you have an iron stomach, then 90% equities is reasonable while you're young. 100% equities doesn't generally outperform 90% and it's more volatile.

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by MittensMoney » Thu Dec 21, 2017 5:42 pm

Personal choice obviously, but I don't hold any bonds. I'm a little younger, 27 years old, but knowing my money is going to be sitting in my 401k and Roth IRA for the next 4 decades means holding bonds will significantly hamper my growth. The caveat, of course, is that I'm fully confident I will buy and never sell (until retirement). During a downturn, hold and keep investing. If you don't think you can do that, then it makes sense to hold bonds for the peace of mind factor.

sharukh
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by sharukh » Thu Dec 21, 2017 5:42 pm

Right, market down turn and loosing job happens around the same time in worst case scenarios. so holdings more bonds is basically paying for the insurance. This sounds like a nice summary for picking AA - "A proper Asset Allocation is the sweet spot between your time horizon in the market and your ability to sleep at night." Thanks for sharing your Vegas story.
GuyFromGeorgia wrote:
Thu Dec 21, 2017 4:20 pm
Bonds aren't for bull markets, they are for when the Bear creeps in. Let's say you instead had a 90/10 AA. That 20% differential of your total assets might have been a few thousand, maybe tens of thousands of missed upside. But don't forget that you had 70% of your assets increase over the last few years and that would have been quite a bit. A proper Asset Allocation is the sweet spot between your time horizon in the market and your ability to sleep at night. Don't underestimate what a 50% stock market drop will do to your mind, especially if you happen to lose your job. How many months can you keep your house, feed your family, live your lifestyle if that were to happen? I hit red 9 times in a row in Vegas once. Each win I wish I had more on the table.....Don't ask what happened on the 10th roll....

sharukh
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by sharukh » Thu Dec 21, 2017 5:46 pm

Thanks for sharing your experience.
I guess when the next bear happens, I will appreciate the bonds for allowing us to ride through.
nisiprius wrote:
Thu Dec 21, 2017 4:30 pm
I didn't feel dumb holding bonds in 2008-2009. In fact, knowing our bonds were there is probably what made it possible for us to tolerate staying the course in our stocks and not sell them during the crisis.

People wish they could be invested in stocks during bull markets and pull out during bear markets. That's another way of saying they'd like to get the risk premium of stocks without actually taking the risk. I think that's the investing equivalent of perpetual motion.

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Orange: Vanguard Total Bond Market Index Fund, VBMFX.

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sharukh
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by sharukh » Thu Dec 21, 2017 5:46 pm

I guess your footnotes is rightly applicable to me now-
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.
pkcrafter wrote:
Thu Dec 21, 2017 4:07 pm
Do not let emotions get in the way of your investing strategy and decisions.

Paul

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by Zithron » Thu Dec 21, 2017 5:48 pm

Make sure when you look at your return on bonds that you're including dividends paid out, and not just looking at the NAV of a bond fund. I'm not suggesting you're not, but many people make that mistake.

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by Grt2bOutdoors » Thu Dec 21, 2017 5:57 pm

What's dumb about these returns from funds holding a 70/30 allocation?:
As of yesterday, Target Retirement Fund returned 16.92% ytd, it held a tad bit more, 71.24% equity. Holding bonds certainly is no downer for those shareholders in these funds.
Last edited by Grt2bOutdoors on Thu Dec 21, 2017 6:22 pm, edited 1 time in total.
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by dbr » Thu Dec 21, 2017 5:59 pm

I am about 50% in bonds. I don't feel dumb because I know my asset allocation meets my need to take risk while not exceeding my ability and willingness to take risk.

It might be in your case you are dumb if your need to take risk has not been met. But the first question is do you even know how much need you have to take risk? To determine that you are going to have to project the range of outcomes you can expect from your investments compared to what you are trying to do.

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by dbr » Thu Dec 21, 2017 6:00 pm

Grt2bOutdoors wrote:
Thu Dec 21, 2017 5:57 pm
What's dumb about these returns from funds holding a 70/30 allocation?:
As of yesterday, Target Retirement Fund returned 16.92% ytd, it held a tad bit more 71.24% equity. Holding bonds certainly is no downer for those shareholders in these funds.
It's inadequate if they need more return than that to meet their objectives, uncertainty in outcome taken into account.

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by sharukh » Thu Dec 21, 2017 6:03 pm

Yes, You are right, I should first figure out "what I am trying to do?" in other words what have I earmarked the money for?
I guess, I have mentally earmarked portion of bond money to house purchase, as the house prices went up, I guess, i am feeling the "fear of missing out".
Thank you.
dbr wrote:
Thu Dec 21, 2017 5:59 pm
I am about 50% in bonds. I don't feel dumb because I know my asset allocation meets my need to take risk while not exceeding my ability and willingness to take risk.

It might be in your case you are dumb if your need to take risk has not been met. But the first question is do you even know how much need you have to take risk? To determine that you are going to have to project the range of outcomes you can expect from your investments compared to what you are trying to do.

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by Grt2bOutdoors » Thu Dec 21, 2017 6:25 pm

dbr wrote:
Thu Dec 21, 2017 6:00 pm
Grt2bOutdoors wrote:
Thu Dec 21, 2017 5:57 pm
What's dumb about these returns from funds holding a 70/30 allocation?:
As of yesterday, Target Retirement Fund returned 16.92% ytd, it held a tad bit more 71.24% equity. Holding bonds certainly is no downer for those shareholders in these funds.
It's inadequate if they need more return than that to meet their objectives, uncertainty in outcome taken into account.
If a double digit return in the high teens in insufficient, then there are other levers that can be used, though not all may have the ability to exercise them. Saving more is one way, lowering expectations is another. I'm not saying either is a desirable option on the part of the saver, in the end we all need to make choices along the way, myself included.
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by Grt2bOutdoors » Thu Dec 21, 2017 6:27 pm

sharukh wrote:
Thu Dec 21, 2017 6:03 pm
Yes, You are right, I should first figure out "what I am trying to do?" in other words what have I earmarked the money for?
I guess, I have mentally earmarked portion of bond money to house purchase, as the house prices went up, I guess, i am feeling the "fear of missing out".
Thank you.
dbr wrote:
Thu Dec 21, 2017 5:59 pm
I am about 50% in bonds. I don't feel dumb because I know my asset allocation meets my need to take risk while not exceeding my ability and willingness to take risk.

It might be in your case you are dumb if your need to take risk has not been met. But the first question is do you even know how much need you have to take risk? To determine that you are going to have to project the range of outcomes you can expect from your investments compared to what you are trying to do.
Don't worry, there will always be another house.
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by goblue100 » Thu Dec 21, 2017 6:34 pm

sharukh wrote:
Thu Dec 21, 2017 5:46 pm
Thanks for sharing your experience.
I guess when the next bear happens, I will appreciate the bonds for allowing us to ride through.
nisiprius wrote:
Thu Dec 21, 2017 4:30 pm
I didn't feel dumb holding bonds in 2008-2009. In fact, knowing our bonds were there is probably what made it possible for us to tolerate staying the course in our stocks and not sell them during the crisis.

People wish they could be invested in stocks during bull markets and pull out during bear markets. That's another way of saying they'd like to get the risk premium of stocks without actually taking the risk. I think that's the investing equivalent of perpetual motion.

Blue: Vanguard Total Stock Market Index Fund, VTSMX.
Orange: Vanguard Total Bond Market Index Fund, VBMFX.

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Here's a question for OP. In the graph above, when your bonds are up 2 or 3% and your equity position is down 50%, will you be able to re-balance back to 70 / 30? Sometime in the future that may be a test you have to pass. Many people couldn't take it anymore, and moved their remaining stock money to cash or bonds in late 2008 / early 2009.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by F150HD » Thu Dec 21, 2017 7:10 pm

sharukh wrote:
Thu Dec 21, 2017 3:40 pm
Hi,

My real investing started only in 2012, no real experience of brutal bear market.

I am following age in bonds. currently aged 33, so have around 30% in bonds.
It feels so dumb to hold bonds as everything is going up, stocks,gold, houses etc..
Unsure if you've seen this, but useful. See 'Growth' lower down the page:

Vanguard portfolio allocation models

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by jhfenton » Thu Dec 21, 2017 7:31 pm

Don't let the conventional wisdom on this board fool you. 70/30 at 33 is very conservative if you have expectations of a normal retirement age in the 60-70 range. Age in bonds is seldom appropriate as an asset allocation. It is a terrible rule of thumb. For reference, at your age the top target date funds on the market have you between 85 and 95% in equities.

People on the conservative end of the spectrum talk about being able to sleep at night. Well, I would not have been able to sleep if someone had made me keep 30% of our portfolio in bonds at age 33. We were happily 100% equities until late 2015 at age 45. At that point, we took stock (no pun intended) and realized we were probably 12-17 years from retirement and that it was time to back off a bit. At first we added a few percent, then a bit more, and we've finally settled on about 20% in bonds (with a target of 35%-40% bonds at retirement age). (If we go a bit more conservative than 40%, it would be solely for the window between retirement and collecting social security at age 70.)

Only you can judge your own personality and response to a market crash like 2000 or 2008. We lived through both, and the urge to sell never crossed my mind.

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by sschoe2 » Thu Dec 21, 2017 7:35 pm

I only hold $50k bonds as a second tier efund. The rest of the money won't be touched for decades so it is in stocks. If you are 100percent confident in your earning potential you can go all or nearly all stocks. I am in a rather poor demand profession that is more likely to spit me out in a bear market so I need those reserves.

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by whodidntante » Thu Dec 21, 2017 7:39 pm

Age in bonds is far too conservative for me. It could be too conservative for you, also.

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by flyingaway » Thu Dec 21, 2017 7:48 pm

I have a 70/30 allocation. Of course, I wish I had 100/0 allocation since about 13 months ago. But nobody knows anything for sure. I might also have wished that I invested all my money in bitcoin a few years ago.
Seriously, I have no regret to lose a few percentage of gains this year.

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by tibbitts » Thu Dec 21, 2017 7:57 pm

I'd say that in the midst of the downturn, <= 50% equities for any age was a very popular, certainly one of the most popular, Boglehead positions. So times have changed, and people have been emboldened by the near-instant recovery from the past two downturns. So the issue is whether those people will hang on after their equities are still down vs. bonds after 30 or 40 years. It would almost be worth that happening just to see...

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by Grt2bOutdoors » Thu Dec 21, 2017 8:31 pm

whodidntante wrote:
Thu Dec 21, 2017 7:39 pm
Age in bonds is far too conservative for me. It could be too conservative for you, also.
OP's purpose of investing is to save up downpayment for a home. Do you still consider age in bonds to be too conservative? What if OP is inflexible on timing of home purchase? the markets don't care what one's plans may be, they gyrate in both directions up and down within milliseconds. Still think age in bonds could be too conservative for the OP?
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by onourway » Thu Dec 21, 2017 8:31 pm

Investors have fabulously short memories. It wasn't even that long ago where we finished a 15 year period where bonds out-performed equities. Many of us on this site look at the market every day. 15 years is an awfully long time to hold an under-performing asset. Many caved.

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The reason we continue to split up our portfolio is because we have no idea what the future is going to look like. A split somewhere between 50-50 and 80-20 gathers most of the upside while providing significant protection if things turn out different than planned.

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by nedsaid » Thu Dec 21, 2017 8:41 pm

sharukh wrote:
Thu Dec 21, 2017 3:40 pm
Hi,

My real investing started only in 2012, no real experience of brutal bear market.

I am following age in bonds. currently aged 33, so have around 30% in bonds.
It feels so dumb to hold bonds as everything is going up, stocks,gold, houses etc..

Currently I rent: The house values in the place I live(Near Manhattan) have gone up like 60+%(aggregate) in 4 years. So essentially I lost a lot of money by holding money in bonds, it is worth a lot less compared to what it is worth 4 years ago.

How do I retain the value of the bonds, may be buy a house ? or increase stock percentage in AA?
I dont think CPI numbers match any way near to what the inflation I see, ex: increase in rental prices or increase in house purchase prices.

Do you feel that you lost lot of money due to inflation or in opportunity cost ? What solutions did you employ ?

Thanks.
You will feel dumb until the next bear market. In the 2008-2009 financial crisis and bear market, I lost the equivalent of two years of take home pay. That really smarted but I was 72% stocks/28% bonds when things tanked, my losses were about 35%. Without bonds, the losses would have been about 50%. As I get older, I am less tolerant of volatility.
A fool and his money are good for business.

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by Stormbringer » Thu Dec 21, 2017 8:58 pm

sharukh wrote:
Thu Dec 21, 2017 3:40 pm
I am following age in bonds. currently aged 33, so have around 30% in bonds.
Age in bonds is a pretty conservative asset allocation. I prefer age minus 10 in bonds. Even Jack Bogle qualifies his "age in bonds" recommendation by suggesting that you count social security as part of your bond allocation, meaning that you have a large bond position even before you factor in the 30%.

I have my daughter, who is 23, at 10% in bonds. When she is 33 I will recommend that she be no more than 20% in bonds. At 48, I am 35% in bonds. Then again, I am not very risk averse.
"Compound interest is the most powerful force in the universe." - Albert Einstein

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by Afty » Thu Dec 21, 2017 10:07 pm

I agree that age in bonds is too conservative for most. In the absence of any other information, I would mirror the AA of the appropriate Target Retirement fund for you. That likely means 10% bonds at your age.

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by Grt2bOutdoors » Thu Dec 21, 2017 10:09 pm

Afty wrote:
Thu Dec 21, 2017 10:07 pm
I agree that age in bonds is too conservative for most. In the absence of any other information, I would mirror the AA of the appropriate Target Retirement fund for you. That likely means 10% bonds at your age.


For a home downpayment fund???
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by grettman » Thu Dec 21, 2017 10:12 pm

47 here. 90%/10% (CDs....I don't do bonds).

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by dwickenh » Thu Dec 21, 2017 10:13 pm

It worries me when educated investors insist that the only way to get to retirement at 33 is to go 100% equities. I start thinking about exuberance....

It is not the only way to get there. Many people have arrived there on even less equities at 33. I was 65/35 at 33. I am not rich by any means, but

my portfolio is more than enough for me to retire on. Everyone's path is different, many roads to Dublin and all that.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by Afty » Thu Dec 21, 2017 10:18 pm

Grt2bOutdoors wrote:
Thu Dec 21, 2017 10:09 pm
Afty wrote:
Thu Dec 21, 2017 10:07 pm
I agree that age in bonds is too conservative for most. In the absence of any other information, I would mirror the AA of the appropriate Target Retirement fund for you. That likely means 10% bonds at your age.


For a home downpayment fund???
Hmm... I read the OPs post as asking how to invest their retirement fund, not a home down payment fund. That's a good question for the OP: what is your goal for this money? What is the timeframe when you are going to need it?

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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by whodidntante » Thu Dec 21, 2017 10:23 pm

Grt2bOutdoors wrote:
Thu Dec 21, 2017 8:31 pm
whodidntante wrote:
Thu Dec 21, 2017 7:39 pm
Age in bonds is far too conservative for me. It could be too conservative for you, also.
OP's purpose of investing is to save up downpayment for a home. Do you still consider age in bonds to be too conservative? What if OP is inflexible on timing of home purchase? the markets don't care what one's plans may be, they gyrate in both directions up and down within milliseconds. Still think age in bonds could be too conservative for the OP?
I don't know that it is too conservative for the OP, but it would be for me. As I've posted here many times, I don't use buckets. Being risky with one bucket, while being safe with "n" others, is a complication I personally would not benefit from. So I implement my asset allocation across all investable assets. And I will do that if I'm in the market for a house (though I currently own one).

Dandy
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by Dandy » Thu Dec 21, 2017 10:33 pm

Since stock outperform bonds by a lot over the long run anything less than 100% could be viewed as a drag on performance. Not many investment guru's recommend a 30 year old have 100% in stocks. You will feel better about bonds when the stock market plunges and you have some bonds to re balance and buy equities when they are cheaper.

sharukh
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by sharukh » Thu Dec 21, 2017 11:14 pm

Hi grettman,

Do you rebalance on regular basis ?
grettman wrote:
Thu Dec 21, 2017 10:12 pm
47 here. 90%/10% (CDs....I don't do bonds).

sharukh
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by sharukh » Thu Dec 21, 2017 11:17 pm

Hi,

During bear market you will just let the stock portion to just ride. Do you hold a portion of money in bonds to buy when market goes down ?

Thanks.
sschoe2 wrote:
Thu Dec 21, 2017 7:35 pm
I only hold $50k bonds as a second tier efund. The rest of the money won't be touched for decades so it is in stocks. If you are 100percent confident in your earning potential you can go all or nearly all stocks. I am in a rather poor demand profession that is more likely to spit me out in a bear market so I need those reserves.

flyingaway
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by flyingaway » Thu Dec 21, 2017 11:30 pm

I don't know if anyone was saying age in bonds was too conservative in December 2008.

Quaestner
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by Quaestner » Thu Dec 21, 2017 11:39 pm

If you're an investor, you should get comfortable with at least one of your investments making you feel uncomfortable. That just seems like part of being diversified. Whether 30% bonds is reasonable allocation for someone of your age, circumstances, and temperament is a different question. Find your asset allocation and stick to it. I try to remind myself I can't time the market, and I recognize my bond position helps me sleep at night, even if my return isn't (currently) keeping up with my more aggressive minded buds.

hawkfan55
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by hawkfan55 » Fri Dec 22, 2017 12:23 am

Feels dumb to hold bonds
I'm hoping to hear this a little more... makes me feel better about my 45/55 Stock Bond Allocation. At 62 and retired, I do not have the time to recover from a long drawn out bear market in stocks and holding bonds gives me peace of mind.

A few famous quotes from Warren Buffet...
"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."
"It is not necessary to do extraordinary things to get extraordinary results."
"What we learn from history is that people don't learn from history."
Forum Library of Investing Advice: https://www.bogleheads.org/wiki/Main_Page

WanderingDoc
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by WanderingDoc » Fri Dec 22, 2017 1:20 am

sharukh wrote:
Thu Dec 21, 2017 3:40 pm
Hi,

My real investing started only in 2012, no real experience of brutal bear market.

I am following age in bonds. currently aged 33, so have around 30% in bonds.
It feels so dumb to hold bonds as everything is going up, stocks,gold, houses etc..

Currently I rent: The house values in the place I live(Near Manhattan) have gone up like 60+%(aggregate) in 4 years. So essentially I lost a lot of money by holding money in bonds, it is worth a lot less compared to what it is worth 4 years ago.

How do I retain the value of the bonds, may be buy a house ? or increase stock percentage in AA?
I dont think CPI numbers match any way near to what the inflation I see, ex: increase in rental prices or increase in house purchase prices.

Do you feel that you lost lot of money due to inflation or in opportunity cost ? What solutions did you employ ?

Thanks.
A house (that you live in) is not an investment. Its a place to live. Its a place to raise a family. Paying taxes, insurance, maintenance and repairs, HOAs, cutting the grass and shoveling snow, replacing the garage door, and hanging Christmas lights isn't an investment.

I currently rent, but I own and control $1.2M in real estate equity, which produce >$4300 in net monthly cash flow. The place that I live in costs me $1250 in rent. I own a couple of condos that rent for $3000 and $2700 per month.

Your biggest opportunity cost aside from bonds, is not owning any real assets which produce INCOME, that you could use today by the way, not in 30 years. Invest in income-producing real estate, and you won't need to own any bonds. ;)
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

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stemikger
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by stemikger » Fri Dec 22, 2017 1:59 am

sharukh wrote:
Thu Dec 21, 2017 3:40 pm
My real investing started only in 2012, no real experience of brutal bear market.
You are fine with 30% bonds. How will you feel with a huge downturn. That is the only real way to know what your risk tolerance is. The late Benjamin Graham (the "Einstein of Money") thinks 75% is the most an investor should have in stocks and 25% is the least. You are right on track.

Good Luck
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

msk
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by msk » Fri Dec 22, 2017 4:20 am

I was aged 33 40 years ago, and from what I have learnt in those 40 years this is what I would do at age 33:

1. Save and invest 30% of my after tax income, monthly, religiously.
2. Do I expect to stay near Manhattan over the next several years? Buy myself a home worth no more than 3x income; even if just a tiny apartment. Choose a mortgage that is short enough to gobble up a lot of my savings into payment of principal (that counts as part of the 30% savings and investing. Interest payments do not!).
3. Send all my savings to Interactive Brokers to buy whole market stock ETFs (either all US or all world, depends on taste). Interactive Brokers have very low margin rates, last time I checked 2.7%, so I do not have to keep aside any emergency fund.

Bonds? None. Why? When the market collapses 40%, will you actually shift your bonds to stocks, or wait for a 50% drop, or 60% drop? The psychology of staying the course is as relevant at 50% stocks as it is at 100% stocks. My first market collapse was in the mid 1980s and indeed I got very anxious (in retrospect, silly!) but I learned to control my response for all later market collapses and made quite hefty gains by buying Call options during the collapses in the 2000s. $50k worth of Call options lets you benefit on $1 million worth of the SP500 rising over the next year. Of course if there were no correction upwards throughout the following 12 months I would be out $50k... Take risks when young. A Manhattan apartment is a good alternative to bonds for a feeling of "security". IMHO of course.

grettman
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Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

Post by grettman » Fri Dec 22, 2017 6:46 am

sharukh wrote:
Thu Dec 21, 2017 11:14 pm
Hi grettman,

Do you rebalance on regular basis ?
grettman wrote:
Thu Dec 21, 2017 10:12 pm
47 here. 90%/10% (CDs....I don't do bonds).
No I don't. I don't advise others to do what I do either. I have yet to be able to come to terms with rebalancing. I still feel that I have about 10-13 years left to work so I am just not "there" yet mentally to feel that I have to, but I know this is wrong. I am trying to figure things out.

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