Make me feel good about my bond allocation

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jvini
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Make me feel good about my bond allocation

Post by jvini » Wed Jan 17, 2018 12:08 pm

Hi all, I love this site and visit often. I have been investing for about 25 years and have been very fortunate. I have a simple 3 ETF portfolio (for the most part) VTI, VXUS, BND. As I watch my daily gain %, I notice that it's almost always a fraction less than the S&P (my overall bench mark). Day in and day out, I'll see about a .2 or a bit more difference. Because I've managed to build a decent sized portfolio, this adds up to thousands of dollars over time. I know it's because my allocation to BND, which is about 37%. (I'm 51). I know it will help in a recession. I know it's the right thing to do along with rebalancing, which I do and dollar cost averaging, which I also do. It's a bit frustrating to see this shock absorber lessen my gains over time. Yet, I'm sticking to the plan, year in and year out. FYI, I use age-13 in bonds for my allocation when I rebalance. Thanks.

furwut
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Re: Make me feel good about my bond allocation

Post by furwut » Wed Jan 17, 2018 12:13 pm

WAY TO GO! :beer








There, do you feel better?

livesoft
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Re: Make me feel good about my bond allocation

Post by livesoft » Wed Jan 17, 2018 12:15 pm

Don't compare to s&p500. Compare to VSMGX instead.
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retire57
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Re: Make me feel good about my bond allocation

Post by retire57 » Wed Jan 17, 2018 12:16 pm

Will be interested to see the respones as we are in a similar spot. We went 50/50 in 2016 and our bond allocation looks like a great big drag on our returns. Because it is.

We lived through 1987, 2001, and 2008 so we aren't strangers to sub-optimal returns. But, even with all our experience, NOT timing the market takes discipline.

Gufomel
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Re: Make me feel good about my bond allocation

Post by Gufomel » Wed Jan 17, 2018 12:17 pm

The S&P 500 isn't an appropriate benchmark for a 63/37 portfolio. Your portfolio has significantly lower risk than the S&P, so you should expect lower return.

Is your expected retirement in roughly 10 years? If so, something in the ballpark of a 60/40 portfolio sounds reasonable. Age-13 seems to be something you've been comfortable sticking with, so don't change it now. What you don't want to do is change to 70/30, see a 10% drop in stocks, and panic back to 63/37.

Stay the course.

Rajsx
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Re: Make me feel good about my bond allocation

Post by Rajsx » Wed Jan 17, 2018 1:05 pm

I share the same feeling, wish my asset allocation would call for 70% Stocks, looking at the recent Stock Returns.

But, at 61 having almost won the game, I am on the sidelines these days with a safer (I think) 45/55 S/B allocation, my primary goals are a mixture of sustain > grow my portfolio.

Enjoy the party folks while it lasts
We do not stop laughing because we grow old, we grow old because we stop laughing !!

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BogleMelon
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Re: Make me feel good about my bond allocation

Post by BogleMelon » Wed Jan 17, 2018 1:09 pm

A couple of weeks ago, after some reading, I decided to link the bond percentage in my portfolio to how I become closer to my retirement goal. The closer I become the more conservative I will be, regardless of my age. It makes more sense for me that way. YMMV though!
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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BolderBoy
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Re: Make me feel good about my bond allocation

Post by BolderBoy » Wed Jan 17, 2018 1:12 pm

Hah. I'm at 30/70 and many days I see portfolio bumps >$2k in the last year. In the latter 1990s, I regularly saw daily portfolio bumps of $10k-20k. But my AA was closer to 95/5 and I wasn't a happy camper when March 2000 came along.

Come the next correction you will either be glad you have the AA you have or realize you need to change it to be more conservative going forward.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

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bottlecap
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Re: Make me feel good about my bond allocation

Post by bottlecap » Wed Jan 17, 2018 1:34 pm

Age minus 13 is reasonable. I hope you feel better.

JT

jvini
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Re: Make me feel good about my bond allocation

Post by jvini » Wed Jan 17, 2018 4:00 pm

Thanks all. I do feel better : ) I'm hoping to retire in the next 6 to 10 years, and feel incredibly fortunate that we have a lot saved in our portfolio now. Maybe even enough to retire. Each percentage point I'm missing out on is thousands of dollars, but during a correction, that's thousands I won't be losing on paper. No need to be greedy. We just want security. We've saved enough for 2 private college tuitions in a few years.

I've been pretty religious about sticking to my bond allocation of age-13, and will keep doing so, although won't ever go much beyond 60/40 to keep up with inflation. It's served us well. We live below our means, live simply, and have a lot relative to what we spend, so while we could take more risk, I'd rather stay the course and be happy where we are.

jvini
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Re: Make me feel good about my bond allocation

Post by jvini » Wed Jan 17, 2018 6:12 pm

furwut wrote:
Wed Jan 17, 2018 12:13 pm
WAY TO GO! :beer








There, do you feel better?
I do : )

elnegativo
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Re: Make me feel good about my bond allocation

Post by elnegativo » Wed Jan 17, 2018 6:30 pm

I recently started upping my bond allocation and I initially felt the same - it was a drag on returns. Then I decided to stop looking at it that way and start looking at the dollar figure as money I had "safe." Now when I rebalance into bonds, I see my "safe" number go up. Made me feel a little better about it anyway.

Copernicus
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Re: Make me feel good about my bond allocation

Post by Copernicus » Wed Jan 17, 2018 6:37 pm

bottlecap wrote:
Wed Jan 17, 2018 1:34 pm
Age minus 13 is reasonable. I hope you feel better.

JT
I am not familiar with Age-13. Where does it come from?

Hogan773
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Re: Make me feel good about my bond allocation

Post by Hogan773 » Thu Jan 18, 2018 4:11 pm

elnegativo wrote:
Wed Jan 17, 2018 6:30 pm
I recently started upping my bond allocation and I initially felt the same - it was a drag on returns. Then I decided to stop looking at it that way and start looking at the dollar figure as money I had "safe." Now when I rebalance into bonds, I see my "safe" number go up. Made me feel a little better about it anyway.
I am mid 40s and running about 65/35 (actually it is now more like 68/32 as the market continues to pump).

Have been considering backing down to 60/40 or so just due to a feeling that the market is toppy, but that would also be market timing......

In any case I see the 35% as safe but also an opportunity to reinvest if equities dive....can then reallocate some of that 35% (which would be higher percentage at that point) into cheaper equities

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TomatoTomahto
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Re: Make me feel good about my bond allocation

Post by TomatoTomahto » Thu Jan 18, 2018 4:35 pm

We “won” the game and I have a fixed amount in bonds. All new money goes to equities. I no longer worry about it. It’s almost as good as retiring.

SocalLiving
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Re: Make me feel good about my bond allocation

Post by SocalLiving » Thu Jan 18, 2018 5:01 pm

elnegativo wrote:
Wed Jan 17, 2018 6:30 pm
I recently started upping my bond allocation and I initially felt the same - it was a drag on returns. Then I decided to stop looking at it that way and start looking at the dollar figure as money I had "safe." Now when I rebalance into bonds, I see my "safe" number go up. Made me feel a little better about it anyway.
This is exactly the sentiment that makes me feel ok with all my recent contributions going to bonds (according to my AA). Seeing the"safe number" go up makes me stick to the plan.

Hogan773
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Re: Make me feel good about my bond allocation

Post by Hogan773 » Thu Jan 18, 2018 5:24 pm

TomatoTomahto wrote:
Thu Jan 18, 2018 4:35 pm
We “won” the game and I have a fixed amount in bonds. All new money goes to equities. I no longer worry about it. It’s almost as good as retiring.
Can you explain further? This may be akin to a thread I created earlier where I was questioning whether once you hit a comfortable number, you can

a) have a higher equity component because your bonds, even if a lower percentage, are enough of a safety net that you should be fine in any case

or conversely you can

b) have a lower equity component because you already have reached the "summit" and therefore protecting that summit is more important than seeing if you can get well above that summit. i.e. protect that big pile you have, and don't put it all at risk where an equity market shock could put you back off the summit and potentially change your situation from "I've already won" to something less desirable

retireearly
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Re: Make me feel good about my bond allocation

Post by retireearly » Thu Jan 18, 2018 5:37 pm

BogleMelon wrote:
Wed Jan 17, 2018 1:09 pm
A couple of weeks ago, after some reading, I decided to link the bond percentage in my portfolio to how I become closer to my retirement goal. The closer I become the more conservative I will be, regardless of my age. It makes more sense for me that way. YMMV though!
That sounds real interesting! Could you elaborate on that, please.

Hitting mid-40's, I was 100/0 and didn't mind risk. I plan to work another 10 years, wife wants to work another 20. So, after the run the last years, I knew I should be lowering risk. I'm struggling with homing in on FI AA! I gradually moved from 0 to 33% in the last year but then used about 7% to move back into the Int markets. So, I sit at 74/26 and some days I want to take some of the tremendous gains and go to 65/35, other days stay at 80/20 with that 20% just being Tiaa Traditional and not even bother with total bond index funds!
Age:44/45, M kids 8/13. Current AA 75/25, working on final resting place for FI. Desired stock AA 50/50 but due to current valuations,current overweight Int.Tilt to US SCV, Int SC & EM

retireearly
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Re: Make me feel good about my bond allocation

Post by retireearly » Thu Jan 18, 2018 5:44 pm

elnegativo wrote:
Wed Jan 17, 2018 6:30 pm
I recently started upping my bond allocation and I initially felt the same - it was a drag on returns. Then I decided to stop looking at it that way and start looking at the dollar figure as money I had "safe." Now when I rebalance into bonds, I see my "safe" number go up. Made me feel a little better about it anyway.

Do you mind sharing some specifics, like how far you from retirement or better yet, your "goal' number"? Also, your age/current AA? I'm trying to do the same regarding "safe space" funds but it is only taking me so far. Mid 40-s, I'd like to retire in 10 years but my wife wants 20 for her. So, we wouldn't need to touch anything for at least 20 years. So I look at about 20% of the portfolio as that first part we'd need to tap into (most of that, 18%, is in Tiaa trad) but then I think why do I need another 10%, or another 15% in bonds, if that won't be needed for 25 years or so?
Age:44/45, M kids 8/13. Current AA 75/25, working on final resting place for FI. Desired stock AA 50/50 but due to current valuations,current overweight Int.Tilt to US SCV, Int SC & EM

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TomatoTomahto
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Re: Make me feel good about my bond allocation

Post by TomatoTomahto » Thu Jan 18, 2018 5:50 pm

Hogan773 wrote:
Thu Jan 18, 2018 5:24 pm
TomatoTomahto wrote:
Thu Jan 18, 2018 4:35 pm
We “won” the game and I have a fixed amount in bonds. All new money goes to equities. I no longer worry about it. It’s almost as good as retiring.
Can you explain further? This may be akin to a thread I created earlier where I was questioning whether once you hit a comfortable number, you can

a) have a higher equity component because your bonds, even if a lower percentage, are enough of a safety net that you should be fine in any case

or conversely you can

b) have a lower equity component because you already have reached the "summit" and therefore protecting that summit is more important than seeing if you can get well above that summit. i.e. protect that big pile you have, and don't put it all at risk where an equity market shock could put you back off the summit and potentially change your situation from "I've already won" to something less desirable
Long story short, we have at least 30x our residual expenses (I.e., expenses minus SS minus pensions) in fixed income. That should be sufficient. Everything else is in PRIMECAP, TSM, and TISM. Easy Peasy, as long as you’ve got enough. Being off the asset allocation train is relaxing.

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BogleMelon
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Re: Make me feel good about my bond allocation

Post by BogleMelon » Thu Jan 18, 2018 7:00 pm

retireearly wrote:
Thu Jan 18, 2018 5:37 pm
BogleMelon wrote:
Wed Jan 17, 2018 1:09 pm
A couple of weeks ago, after some reading, I decided to link the bond percentage in my portfolio to how I become closer to my retirement goal. The closer I become the more conservative I will be, regardless of my age. It makes more sense for me that way. YMMV though!
That sounds real interesting! Could you elaborate on that, please.
I am 38 years, according to age in bonds or even age in bonds -10, I should be at least 28% in bonds if not more. But I started the game late (4 years ago) due to the fact that I am new comer to US and started from scratch.. When I started I had only few thousands and it didn't make sense to go that much in bonds based on my age so I chose 10% only. Fast forward today, still $50K only in retirement accounts and 15% in bonds.

The thing is, I really have years ahead in terms of contributing, but what if somehow I was able to increase the momentum and offset the lost years (market bull, wife got higher paid job, i got promoted..etc)? The need for me to take risk would decrease, even though not so many years would be passed. Hence, I would choose to decrease my risk allocation.

So... I adjusted my IPS so that instead of bonds related to age, I have a table that shows milestones along with bond ratio. When I hit $100K balance I would increase the bonds to 20%. When I hit $200K it will be 25% in bonds. say the market crashed at that point and balance dropped to $100K again (I am getting far away from retirement), so I need to take more risk, then I increase the stock allocation again (buying low).. and so on

I also have a simple formula that shows how much my balance could go down based on that allocation assuming the market will go down by 50%... the reason is to visualize the loss before it happens make sure I am ok with it..
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

RRAAYY3
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Re: Make me feel good about my bond allocation

Post by RRAAYY3 » Thu Jan 18, 2018 8:02 pm

jvini wrote:
Wed Jan 17, 2018 12:08 pm
Hi all, I love this site and visit often. I have been investing for about 25 years and have been very fortunate. I have a simple 3 ETF portfolio (for the most part) VTI, VXUS, BND. As I watch my daily gain %, I notice that it's almost always a fraction less than the S&P (my overall bench mark). Day in and day out, I'll see about a .2 or a bit more difference. Because I've managed to build a decent sized portfolio, this adds up to thousands of dollars over time. I know it's because my allocation to BND, which is about 37%. (I'm 51). I know it will help in a recession. I know it's the right thing to do along with rebalancing, which I do and dollar cost averaging, which I also do. It's a bit frustrating to see this shock absorber lessen my gains over time. Yet, I'm sticking to the plan, year in and year out. FYI, I use age-13 in bonds for my allocation when I rebalance. Thanks.
Your “shock absorber” lowers returns - hence the lower returns

retireearly
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Re: Make me feel good about my bond allocation

Post by retireearly » Fri Jan 19, 2018 3:29 pm

BogleMelon wrote:
Thu Jan 18, 2018 7:00 pm
retireearly wrote:
Thu Jan 18, 2018 5:37 pm
BogleMelon wrote:
Wed Jan 17, 2018 1:09 pm
A couple of weeks ago, after some reading, I decided to link the bond percentage in my portfolio to how I become closer to my retirement goal. The closer I become the more conservative I will be, regardless of my age. It makes more sense for me that way. YMMV though!
That sounds real interesting! Could you elaborate on that, please.
I am 38 years, according to age in bonds or even age in bonds -10, I should be at least 28% in bonds if not more. But I started the game late (4 years ago) due to the fact that I am new comer to US and started from scratch.. When I started I had only few thousands and it didn't make sense to go that much in bonds based on my age so I chose 10% only. Fast forward today, still $50K only in retirement accounts and 15% in bonds.

The thing is, I really have years ahead in terms of contributing, but what if somehow I was able to increase the momentum and offset the lost years (market bull, wife got higher paid job, i got promoted..etc)? The need for me to take risk would decrease, even though not so many years would be passed. Hence, I would choose to decrease my risk allocation.

So... I adjusted my IPS so that instead of bonds related to age, I have a table that shows milestones along with bond ratio. When I hit $100K balance I would increase the bonds to 20%. When I hit $200K it will be 25% in bonds. say the market crashed at that point and balance dropped to $100K again (I am getting far away from retirement), so I need to take more risk, then I increase the stock allocation again (buying low).. and so on

I also have a simple formula that shows how much my balance could go down based on that allocation assuming the market will go down by 50%... the reason is to visualize the loss before it happens make sure I am ok with it..
Thanks for your background and info! This board is great to see how everyone views risk/reward, their different backgrounds, goals, etc!
Age:44/45, M kids 8/13. Current AA 75/25, working on final resting place for FI. Desired stock AA 50/50 but due to current valuations,current overweight Int.Tilt to US SCV, Int SC & EM

PickitPaul
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Re: Make me feel good about my bond allocation

Post by PickitPaul » Fri Jan 19, 2018 4:21 pm

TomatoTomahto wrote:
Thu Jan 18, 2018 5:50 pm
Hogan773 wrote:
Thu Jan 18, 2018 5:24 pm
TomatoTomahto wrote:
Thu Jan 18, 2018 4:35 pm
We “won” the game and I have a fixed amount in bonds. All new money goes to equities. I no longer worry about it. It’s almost as good as retiring.
Can you explain further? This may be akin to a thread I created earlier where I was questioning whether once you hit a comfortable number, you can

a) have a higher equity component because your bonds, even if a lower percentage, are enough of a safety net that you should be fine in any case

or conversely you can

b) have a lower equity component because you already have reached the "summit" and therefore protecting that summit is more important than seeing if you can get well above that summit. i.e. protect that big pile you have, and don't put it all at risk where an equity market shock could put you back off the summit and potentially change your situation from "I've already won" to something less desirable
Long story short, we have at least 30x our residual expenses (I.e., expenses minus SS minus pensions) in fixed income. That should be sufficient. Everything else is in PRIMECAP, TSM, and TISM. Easy Peasy, as long as you’ve got enough. Being off the asset allocation train is relaxing.
When you say fixed income, is it all in bond funds or individual bonds, cd ladders? Or combination? I wonder if contributing to a bond fund now like the Total Bond Fund Index is wise when interest rates will rise? Is there an alternative to this eventual loss in principal investing with a bond fund?

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BogleMelon
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Re: Make me feel good about my bond allocation

Post by BogleMelon » Fri Jan 19, 2018 4:31 pm

PickitPaul wrote:
Fri Jan 19, 2018 4:21 pm
I wonder if contributing to a bond fund now like the Total Bond Fund Index is wise when interest rates will rise?
First, If the interest will rise, then everyone else know this already, which is priced-in as of today's NAV..
Second, How do you know that the rates will rise?
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

MindTheGAAP
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Re: Make me feel good about my bond allocation

Post by MindTheGAAP » Fri Jan 19, 2018 4:35 pm

BogleMelon wrote:
Thu Jan 18, 2018 7:00 pm
retireearly wrote:
Thu Jan 18, 2018 5:37 pm
BogleMelon wrote:
Wed Jan 17, 2018 1:09 pm
A couple of weeks ago, after some reading, I decided to link the bond percentage in my portfolio to how I become closer to my retirement goal. The closer I become the more conservative I will be, regardless of my age. It makes more sense for me that way. YMMV though!
That sounds real interesting! Could you elaborate on that, please.
I am 38 years, according to age in bonds or even age in bonds -10, I should be at least 28% in bonds if not more. But I started the game late (4 years ago) due to the fact that I am new comer to US and started from scratch.. When I started I had only few thousands and it didn't make sense to go that much in bonds based on my age so I chose 10% only. Fast forward today, still $50K only in retirement accounts and 15% in bonds.

The thing is, I really have years ahead in terms of contributing, but what if somehow I was able to increase the momentum and offset the lost years (market bull, wife got higher paid job, i got promoted..etc)? The need for me to take risk would decrease, even though not so many years would be passed. Hence, I would choose to decrease my risk allocation.

So... I adjusted my IPS so that instead of bonds related to age, I have a table that shows milestones along with bond ratio. When I hit $100K balance I would increase the bonds to 20%. When I hit $200K it will be 25% in bonds. say the market crashed at that point and balance dropped to $100K again (I am getting far away from retirement), so I need to take more risk, then I increase the stock allocation again (buying low).. and so on

I also have a simple formula that shows how much my balance could go down based on that allocation assuming the market will go down by 50%... the reason is to visualize the loss before it happens make sure I am ok with it..
Think this is a strategy you should feel pretty good about if you ask me - I like the portfolio value perspective of it.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

elnegativo
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Re: Make me feel good about my bond allocation

Post by elnegativo » Fri Jan 19, 2018 7:00 pm

retireearly wrote:
Thu Jan 18, 2018 5:44 pm
elnegativo wrote:
Wed Jan 17, 2018 6:30 pm
I recently started upping my bond allocation and I initially felt the same - it was a drag on returns. Then I decided to stop looking at it that way and start looking at the dollar figure as money I had "safe." Now when I rebalance into bonds, I see my "safe" number go up. Made me feel a little better about it anyway.

Do you mind sharing some specifics, like how far you from retirement or better yet, your "goal' number"? Also, your age/current AA? I'm trying to do the same regarding "safe space" funds but it is only taking me so far. Mid 40-s, I'd like to retire in 10 years but my wife wants 20 for her. So, we wouldn't need to touch anything for at least 20 years. So I look at about 20% of the portfolio as that first part we'd need to tap into (most of that, 18%, is in Tiaa trad) but then I think why do I need another 10%, or another 15% in bonds, if that won't be needed for 25 years or so?
I'm 47, my wife is 45. My "plan" calls for me to increase my bond allocation by 2 percent each year until I hit 60/40 - or 50/50 - I have not made up my mind on that. This year I am 73/27. I think I would like to retire (at least from my primary occupation) late fifties/early sixties but not sure on that either. I would like to be at 5 million for retirement, but could do with less, obviously.

I don't know if my info helps because your situation is different. If you are fairly confident you wife will work for 20 more year and be able to work (ie not laid off) and you really don't need the money for 20 years, then you can be more aggressive with your portfolio. Plus I vacillate on whether I am being too aggressive or too passive myself. Probably has something to do with the fact that I have not clearly made up my mind when, or at what income level, I really want to retire.

Admiral
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Re: Make me feel good about my bond allocation

Post by Admiral » Fri Jan 19, 2018 7:14 pm

I think you will feel a lot better when the equity markets are tanking than when they are skyrocketing, as they have been. And that's "when" not "if."

And isn't that the point of the bond allocation, ultimately?

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Cycle
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Re: Make me feel good about my bond allocation

Post by Cycle » Fri Jan 19, 2018 7:35 pm

TomatoTomahto wrote:
Thu Jan 18, 2018 5:50 pm
Hogan773 wrote:
Thu Jan 18, 2018 5:24 pm
TomatoTomahto wrote:
Thu Jan 18, 2018 4:35 pm
We “won” the game and I have a fixed amount in bonds. All new money goes to equities. I no longer worry about it. It’s almost as good as retiring.
Can you explain further? This may be akin to a thread I created earlier where I was questioning whether once you hit a comfortable number, you can

a) have a higher equity component because your bonds, even if a lower percentage, are enough of a safety net that you should be fine in any case

or conversely you can

b) have a lower equity component because you already have reached the "summit" and therefore protecting that summit is more important than seeing if you can get well above that summit. i.e. protect that big pile you have, and don't put it all at risk where an equity market shock could put you back off the summit and potentially change your situation from "I've already won" to something less desirable
Long story short, we have at least 30x our residual expenses (I.e., expenses minus SS minus pensions) in fixed income. That should be sufficient. Everything else is in PRIMECAP, TSM, and TISM. Easy Peasy, as long as you’ve got enough. Being off the asset allocation train is relaxing.
I'm familiar with the earlier post. WanderingDOC also has an interesting take on this that involves real estate income.

In pre-retirement years if u have some real estate income, no debt, a robust cash reserve account, two incomes in fields that were unaffected by last recession, it seems like anything beyond 10-15% bonds is just needlessly missing out on gains for unneeded risk reduction.

I question often why not 100% stocks if I'm not retiring for a decade plus

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TomatoTomahto
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Re: Make me feel good about my bond allocation

Post by TomatoTomahto » Fri Jan 19, 2018 9:06 pm

PickitPaul wrote:
Fri Jan 19, 2018 4:21 pm
TomatoTomahto wrote:
Thu Jan 18, 2018 5:50 pm
Long story short, we have at least 30x our residual expenses (I.e., expenses minus SS minus pensions) in fixed income. That should be sufficient. Everything else is in PRIMECAP, TSM, and TISM. Easy Peasy, as long as you’ve got enough. Being off the asset allocation train is relaxing.
When you say fixed income, is it all in bond funds or individual bonds, cd ladders? Or combination? I wonder if contributing to a bond fund now like the Total Bond Fund Index is wise when interest rates will rise? Is there an alternative to this eventual loss in principal investing with a bond fund?
Mostly Total Bond, but also some Stable Value, some Intermediate Term Tax-Free (in taxable), and some I-bonds. Individual bonds and CD ladders are too much work for me; YMMV.

I’m not worried about the time when “interest rates will rise.” First, I’ve been hearing that for years. Second, I’m hoping that my life duration exceeds the fund’s duration, and rising yields will be appreciated.

nance
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Re: Make me feel good about my bond allocation

Post by nance » Sat Jan 20, 2018 7:53 pm

Yes, sinking NAV is not fun to watch.

Another possibility is to put some BND targeted funds into CDs.
This has been covered in the past..
viewtopic.php?t=153309

BND SEC Yield is 2.63% right now.

5 year CDs are yield in the same zone.
https://www.depositaccounts.com/cd/5-year-cd-rates.html

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oldcomputerguy
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Re: Make me feel good about my bond allocation

Post by oldcomputerguy » Sat Jan 20, 2018 8:20 pm

elnegativo wrote:
Wed Jan 17, 2018 6:30 pm
I recently started upping my bond allocation and I initially felt the same - it was a drag on returns. Then I decided to stop looking at it that way and start looking at the dollar figure as money I had "safe." Now when I rebalance into bonds, I see my "safe" number go up. Made me feel a little better about it anyway.
=1. I'm in retirement now, DW still will be working for a couple more years. We have (discounting SS and what she'll get from her pension) in excess of ten to twelve years' expenses in fixed-income across the board. I sleep pretty well.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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nedsaid
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Re: Make me feel good about my bond allocation

Post by nedsaid » Sat Jan 20, 2018 8:27 pm

Gufomel wrote:
Wed Jan 17, 2018 12:17 pm
The S&P 500 isn't an appropriate benchmark for a 63/37 portfolio. Your portfolio has significantly lower risk than the S&P, so you should expect lower return.

Is your expected retirement in roughly 10 years? If so, something in the ballpark of a 60/40 portfolio sounds reasonable. Age-13 seems to be something you've been comfortable sticking with, so don't change it now. What you don't want to do is change to 70/30, see a 10% drop in stocks, and panic back to 63/37.

Stay the course.
You need to use a blended index to benchmark your portfolio. Your simple 3 ETF portfolio by definition would match the blended index save for a very small expense ratio in the ETFs. A portfolio with 37% bonds should not be benchmarked against the S&P 500 which is 100% stocks. You are comparing apples to oranges, no wonder why you experience frustration.
A fool and his money are good for business.

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pennstater2005
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Re: Make me feel good about my bond allocation

Post by pennstater2005 » Sat Jan 20, 2018 9:36 pm

I'm 39 with 20% in bonds. I think it's reasonable. I think what you're doing is reasonable. If you are thinking about this a lot then you must not have your AA where it needs to be yet. Tweak it if need be. You'll feel better about your bonds though when the market decides to correct itself.
“If you think nobody cares if you're alive, try missing a couple of car payments.” – Earl Wilson

J295
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Re: Make me feel good about my bond allocation

Post by J295 » Sat Jan 20, 2018 9:49 pm

OP. Greed and fear are poor travel companions. Your AA seems reasonable. We are 58 and retired with 48% non-equities (bnd, short term bonds, i bonds, tips, CDs, floating rate fund, amx savings). From past experience I’ll still feel pain in materially declining equity markets but it will be nicely buffered by these non- equities and knowledge of the nice wave we’ve all been riding.

coachd50
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Re: Make me feel good about my bond allocation

Post by coachd50 » Sat Jan 20, 2018 10:22 pm

Hogan773 wrote:
Thu Jan 18, 2018 4:11 pm
elnegativo wrote:
Wed Jan 17, 2018 6:30 pm
I recently started upping my bond allocation and I initially felt the same - it was a drag on returns. Then I decided to stop looking at it that way and start looking at the dollar figure as money I had "safe." Now when I rebalance into bonds, I see my "safe" number go up. Made me feel a little better about it anyway.
I am mid 40s and running about 65/35 (actually it is now more like 68/32 as the market continues to pump).

Have been considering backing down to 60/40 or so just due to a feeling that the market is toppy, but that would also be market timing......

In any case I see the 35% as safe but also an opportunity to reinvest if equities dive....can then reallocate some of that 35% (which would be higher percentage at that point) into cheaper equities
But is it "market timing" to change the allocation as your time horizon shortens?

Hogan773
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Re: Make me feel good about my bond allocation

Post by Hogan773 » Mon Jan 22, 2018 12:21 pm

coachd50 wrote:
Sat Jan 20, 2018 10:22 pm
Hogan773 wrote:
Thu Jan 18, 2018 4:11 pm
elnegativo wrote:
Wed Jan 17, 2018 6:30 pm
I recently started upping my bond allocation and I initially felt the same - it was a drag on returns. Then I decided to stop looking at it that way and start looking at the dollar figure as money I had "safe." Now when I rebalance into bonds, I see my "safe" number go up. Made me feel a little better about it anyway.
I am mid 40s and running about 65/35 (actually it is now more like 68/32 as the market continues to pump).

Have been considering backing down to 60/40 or so just due to a feeling that the market is toppy, but that would also be market timing......

In any case I see the 35% as safe but also an opportunity to reinvest if equities dive....can then reallocate some of that 35% (which would be higher percentage at that point) into cheaper equities
But is it "market timing" to change the allocation as your time horizon shortens?
No, but I would generally like to be around 70% equities especially as my total portfolio grows and I get more comfortable that the magnitude of the safer piece would still cover my expenses and keep us in a warm house and not in a cardboard box by the train tracks. So the fact that I may take it down to 60% or 65% and wait for the equity market decline because the equity market feels toppy to me would be engaging in market timing.

visualguy
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Re: Make me feel good about my bond allocation

Post by visualguy » Mon Jan 22, 2018 7:17 pm

Hogan773 wrote:
Mon Jan 22, 2018 12:21 pm
No, but I would generally like to be around 70% equities especially as my total portfolio grows and I get more comfortable that the magnitude of the safer piece would still cover my expenses and keep us in a warm house and not in a cardboard box by the train tracks. So the fact that I may take it down to 60% or 65% and wait for the equity market decline because the equity market feels toppy to me would be engaging in market timing.
Right, but you said before that your planned asset allocation was 65/35. If you now change it to 70/30, then the question is why? Is it market timing? Does the bigger "safer" piece really make a difference unless you are switching to a bucket strategy?

I think re-balancing makes sense theoretically when your allocation is skewed by 5%+ (unless you're switching to a bucket scheme), but it's hard to do it if you have to sell in taxable and pay taxes... Re-balancing is really when things start getting tricky in terms of managing a Boglehead portfolio...

Hogan773
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Re: Make me feel good about my bond allocation

Post by Hogan773 » Tue Jan 23, 2018 5:40 pm

visualguy wrote:
Mon Jan 22, 2018 7:17 pm
Hogan773 wrote:
Mon Jan 22, 2018 12:21 pm
No, but I would generally like to be around 70% equities especially as my total portfolio grows and I get more comfortable that the magnitude of the safer piece would still cover my expenses and keep us in a warm house and not in a cardboard box by the train tracks. So the fact that I may take it down to 60% or 65% and wait for the equity market decline because the equity market feels toppy to me would be engaging in market timing.
Right, but you said before that your planned asset allocation was 65/35. If you now change it to 70/30, then the question is why? Is it market timing? Does the bigger "safer" piece really make a difference unless you are switching to a bucket strategy?

I think re-balancing makes sense theoretically when your allocation is skewed by 5%+ (unless you're switching to a bucket scheme), but it's hard to do it if you have to sell in taxable and pay taxes... Re-balancing is really when things start getting tricky in terms of managing a Boglehead portfolio...
I think as my wealth grows I actually might start sliding my AA up a bit on the equity side; as someone else was posting, at some point you can have plenty of "safety" in the form of bonds at an absolute level - enough that you have effectively covered your conceivable needs for the rest of your life - and at that point you could theoretically allow your AA to drift up. Kinda like you are playing with the "house's money" on the equity side....

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TomatoTomahto
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Re: Make me feel good about my bond allocation

Post by TomatoTomahto » Tue Jan 23, 2018 6:00 pm

Hogan773 wrote:I think as my wealth grows I actually might start sliding my AA up a bit on the equity side; as someone else was posting, at some point you can have plenty of "safety" in the form of bonds at an absolute level - enough that you have effectively covered your conceivable needs for the rest of your life - and at that point you could theoretically allow your AA to drift up. Kinda like you are playing with the "house's money" on the equity side....
IMO, the discussion of AA in percentage terms becomes less and less useful. Whatever your absolute amount of fixed income that you deem safe ($1M, $3M (my personal choice), $5M (another poster’s choice)), your “risky” assets should be the remainder. If that’s $1M in equities, or $10M, or $100M, so be it.

SimplicityNow
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Re: Make me feel good about my bond allocation

Post by SimplicityNow » Tue Jan 23, 2018 6:44 pm

TomatoTomahto wrote:
Thu Jan 18, 2018 4:35 pm
We “won” the game and I have a fixed amount in bonds. All new money goes to equities. I no longer worry about it. It’s almost as good as retiring.
Retirement is better ;)

I thought you were retired?

visualguy
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Re: Make me feel good about my bond allocation

Post by visualguy » Tue Jan 23, 2018 7:13 pm

Hogan773 wrote:
Tue Jan 23, 2018 5:40 pm
I think as my wealth grows I actually might start sliding my AA up a bit on the equity side; as someone else was posting, at some point you can have plenty of "safety" in the form of bonds at an absolute level - enough that you have effectively covered your conceivable needs for the rest of your life - and at that point you could theoretically allow your AA to drift up. Kinda like you are playing with the "house's money" on the equity side....
Yes, if you have enough in fixed income to cover you for the rest of your life, then that changes the picture. On the other hand, if you have, say 7 or 10 years in fixed income plus maybe re-balancing money, and you may be retired for 40 years, then I'm not sure it makes sense to go more aggressive on stock.

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TomatoTomahto
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Re: Make me feel good about my bond allocation

Post by TomatoTomahto » Tue Jan 23, 2018 9:07 pm

SimplicityNow wrote:
Tue Jan 23, 2018 6:44 pm
TomatoTomahto wrote:
Thu Jan 18, 2018 4:35 pm
We “won” the game and I have a fixed amount in bonds. All new money goes to equities. I no longer worry about it. It’s almost as good as retiring.
Retirement is better ;)

I thought you were retired?
It depends on what you consider retirement. I haven’t worked for a paycheck in more than a decade, but my wife still works outside the home, and I am the man behind the successful woman. Our youngest is 20 and in college, so I can no longer say I’m a SAHD.

My personal definition is that I’m nearly retired, but not fully, since my wife still works. Her dad still works in his late 80s, and enjoys it, so I can only hope that it’s not genetic.

🍅🍅

SimplicityNow
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Re: Make me feel good about my bond allocation

Post by SimplicityNow » Tue Jan 23, 2018 11:45 pm

TomatoTomahto wrote:
Tue Jan 23, 2018 9:07 pm
SimplicityNow wrote:
Tue Jan 23, 2018 6:44 pm
TomatoTomahto wrote:
Thu Jan 18, 2018 4:35 pm
We “won” the game and I have a fixed amount in bonds. All new money goes to equities. I no longer worry about it. It’s almost as good as retiring.
Retirement is better ;)

I thought you were retired?
It depends on what you consider retirement. I haven’t worked for a paycheck in more than a decade, but my wife still works outside the home, and I am the man behind the successful woman. Our youngest is 20 and in college, so I can no longer say I’m a SAHD.

My personal definition is that I’m nearly retired, but not fully, since my wife still works. Her dad still works in his late 80s, and enjoys it, so I can only hope that it’s not genetic.

🍅🍅
:thumbsup

retireearly
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Re: Make me feel good about my bond allocation

Post by retireearly » Wed Jan 24, 2018 2:13 pm

elnegativo wrote:
Fri Jan 19, 2018 7:00 pm
retireearly wrote:
Thu Jan 18, 2018 5:44 pm
elnegativo wrote:
Wed Jan 17, 2018 6:30 pm
I recently started upping my bond allocation and I initially felt the same - it was a drag on returns. Then I decided to stop looking at it that way and start looking at the dollar figure as money I had "safe." Now when I rebalance into bonds, I see my "safe" number go up. Made me feel a little better about it anyway.

Do you mind sharing some specifics, like how far you from retirement or better yet, your "goal' number"? Also, your age/current AA? I'm trying to do the same regarding "safe space" funds but it is only taking me so far. Mid 40-s, I'd like to retire in 10 years but my wife wants 20 for her. So, we wouldn't need to touch anything for at least 20 years. So I look at about 20% of the portfolio as that first part we'd need to tap into (most of that, 18%, is in Tiaa trad) but then I think why do I need another 10%, or another 15% in bonds, if that won't be needed for 25 years or so?
I'm 47, my wife is 45. My "plan" calls for me to increase my bond allocation by 2 percent each year until I hit 60/40 - or 50/50 - I have not made up my mind on that. This year I am 73/27. I think I would like to retire (at least from my primary occupation) late fifties/early sixties but not sure on that either. I would like to be at 5 million for retirement, but could do with less, obviously.

I don't know if my info helps because your situation is different. If you are fairly confident you wife will work for 20 more year and be able to work (ie not laid off) and you really don't need the money for 20 years, then you can be more aggressive with your portfolio. Plus I vacillate on whether I am being too aggressive or too passive myself. Probably has something to do with the fact that I have not clearly made up my mind when, or at what income level, I really want to retire.
We are 45/44 and I'm still tweaking my plan related to FI since I was 100 equities up until last year. I originally wanted to move to 85/15 and add a % or two a year but with the gains in the market, and learning more about "winning the game", I realized I didn't need 85/15 risk, so move to 67/33 by the fall. Within a month or two, I didn't like the opportunity cost of losing out of some market value I saw (international) and took 5% and moved it back from bonds to VSS/VEMAX and sat at 72/28. With the great gains of last 6-8 weeks, I'm already back to 73/27 or so and that is where I sit today! We have a much lower goal of about 2.5 but that was a goal from about 3-4 years ago. However, by being at about 1M at the end of 2015 to almost 500K more two years later and another 50K in 3-4 weeks this year, it causes me think think that maybe I should not take as much risk despite not minding the risk itself! My brain says to be 65/35 or 70/30, my heart says 85/15 or 80/20...so maybe I will just stick at 73/27 for a bit and if things are still good at the end of 2018, move to 70/30 or even a bit more FI!

Reading others and their thought-process is in deed helpful, esp. seeing how others don't necessarily see it as an easy decision!
Age:44/45, M kids 8/13. Current AA 75/25, working on final resting place for FI. Desired stock AA 50/50 but due to current valuations,current overweight Int.Tilt to US SCV, Int SC & EM

Hogan773
Posts: 247
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Re: Make me feel good about my bond allocation

Post by Hogan773 » Thu Jan 25, 2018 11:05 am

retireearly wrote:
Wed Jan 24, 2018 2:13 pm
elnegativo wrote:
Fri Jan 19, 2018 7:00 pm
retireearly wrote:
Thu Jan 18, 2018 5:44 pm
elnegativo wrote:
Wed Jan 17, 2018 6:30 pm
I recently started upping my bond allocation and I initially felt the same - it was a drag on returns. Then I decided to stop looking at it that way and start looking at the dollar figure as money I had "safe." Now when I rebalance into bonds, I see my "safe" number go up. Made me feel a little better about it anyway.

Do you mind sharing some specifics, like how far you from retirement or better yet, your "goal' number"? Also, your age/current AA? I'm trying to do the same regarding "safe space" funds but it is only taking me so far. Mid 40-s, I'd like to retire in 10 years but my wife wants 20 for her. So, we wouldn't need to touch anything for at least 20 years. So I look at about 20% of the portfolio as that first part we'd need to tap into (most of that, 18%, is in Tiaa trad) but then I think why do I need another 10%, or another 15% in bonds, if that won't be needed for 25 years or so?
I'm 47, my wife is 45. My "plan" calls for me to increase my bond allocation by 2 percent each year until I hit 60/40 - or 50/50 - I have not made up my mind on that. This year I am 73/27. I think I would like to retire (at least from my primary occupation) late fifties/early sixties but not sure on that either. I would like to be at 5 million for retirement, but could do with less, obviously.

I don't know if my info helps because your situation is different. If you are fairly confident you wife will work for 20 more year and be able to work (ie not laid off) and you really don't need the money for 20 years, then you can be more aggressive with your portfolio. Plus I vacillate on whether I am being too aggressive or too passive myself. Probably has something to do with the fact that I have not clearly made up my mind when, or at what income level, I really want to retire.
We are 45/44 and I'm still tweaking my plan related to FI since I was 100 equities up until last year. I originally wanted to move to 85/15 and add a % or two a year but with the gains in the market, and learning more about "winning the game", I realized I didn't need 85/15 risk, so move to 67/33 by the fall. Within a month or two, I didn't like the opportunity cost of losing out of some market value I saw (international) and took 5% and moved it back from bonds to VSS/VEMAX and sat at 72/28. With the great gains of last 6-8 weeks, I'm already back to 73/27 or so and that is where I sit today! We have a much lower goal of about 2.5 but that was a goal from about 3-4 years ago. However, by being at about 1M at the end of 2015 to almost 500K more two years later and another 50K in 3-4 weeks this year, it causes me think think that maybe I should not take as much risk despite not minding the risk itself! My brain says to be 65/35 or 70/30, my heart says 85/15 or 80/20...so maybe I will just stick at 73/27 for a bit and if things are still good at the end of 2018, move to 70/30 or even a bit more FI!

Reading others and their thought-process is in deed helpful, esp. seeing how others don't necessarily see it as an easy decision!
Everyone's HEART is saying we should be higher on equity allocation while the markets keep making new highs every day. Once that changes and CNBC is blaring about how the market is down 25% in only 2 months and the world is ending, our BRAINS will say to our HEARTS "I told you so"
Haha

jvini
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Re: Make me feel good about my bond allocation

Post by jvini » Sat Jan 27, 2018 3:26 pm

BogleMelon wrote:
Wed Jan 17, 2018 1:09 pm
A couple of weeks ago, after some reading, I decided to link the bond percentage in my portfolio to how I become closer to my retirement goal. The closer I become the more conservative I will be, regardless of my age. It makes more sense for me that way. YMMV though!
I think this is smart. If you look on Vanguard target date fund landing page, it actually lists each fund by age AND by years to retirement. If I'm 51, yet have enough to retire by 55, I can look at that particular fund and see how they allocate to equities vs. bonds (which I did) and it comes out to a ratio that I'm fairly close to in my AA. https://investor.vanguard.com/mutual-fu ... mpgn=PS:RE

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