Bond conundrum: looking for recommendations

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waywardguy
Posts: 10
Joined: Sat Feb 03, 2018 12:36 pm

Bond conundrum: looking for recommendations

Post by waywardguy » Mon Feb 12, 2018 9:14 pm

I have a low 7-figure portfolio and I'm 53. I've got about 55% in domestic and international equities (funds, ETF's), about 42% in cash and the remainder in REIT's and bonds. An age-10 bond allocation would put me at 43% bonds - so a 'simple' solution would say, take your cash and buy bonds. A couple of other salient points:

1) about 70% of my portfolio is in after tax accounts, 30% in Rollover IRA and 401k;
2) generally, bonds would be better to hold in tax deferred accounts and low turnover/equity ETF's/funds in after tax accounts

The part I'm struggling with:

A) with about 70% of my portfolio after tax, I can't get to 43% bonds unless I max out my 401k/Rollover IRA with all bonds, then buy more bonds with after tax accounts.
B) My goal is to retire around 60-62 and live off after tax accounts and defer SS until age 70. That would lead me to think that, with a longer horizon before needing to draw proceeds from tax-deferred accounts, I can better tolerate risk (equities) in my 401k/Rollover IRA;
C) where then, should I leverage bonds?:
  • buy equities in 401k/Rollover IRA and invest in muni-bond funds in after tax accounts?
  • buy corporates and govt bonds in after tax accounts and don't let the tax tail wag the portfolio dog?
  • Forego bonds (given rising rates - at least for now) and invest in CD ladder?
  • something else?
Appreciate any thoughtful advice my BH brethren may share... Thx in advance!

livesoft
Posts: 59177
Joined: Thu Mar 01, 2007 8:00 pm

Re: Bond conundrum: looking for recommendations

Post by livesoft » Mon Feb 12, 2018 9:15 pm

What I would suggest depends on your marginal income tax brackets state and federal.
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waywardguy
Posts: 10
Joined: Sat Feb 03, 2018 12:36 pm

Re: Bond conundrum: looking for recommendations

Post by waywardguy » Mon Feb 12, 2018 9:45 pm

livesoft wrote:
Mon Feb 12, 2018 9:15 pm
What I would suggest depends on your marginal income tax brackets state and federal.
Thx livesoft, should have included that. Fed: 33%, state (MA): 5.1%

livesoft
Posts: 59177
Joined: Thu Mar 01, 2007 8:00 pm

Re: Bond conundrum: looking for recommendations

Post by livesoft » Mon Feb 12, 2018 9:52 pm

With that info, I would put 100% bonds in 401(k) and rollover IRA. Then only a little bond funds in taxable as tax-exempt muni for MA. My AA would be about 65% equities which all fit in taxable.

I would not have REITs at all (apologies to @staythecourse).
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MotoTrojan
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Joined: Wed Feb 01, 2017 8:39 pm

Re: Bond conundrum: looking for recommendations

Post by MotoTrojan » Mon Feb 12, 2018 9:58 pm

If you implement livesoft's plan (looks sound) don't forget that you can still sell equities from your taxable account (which will be mostly comprised of them) without having to reduce your equity exposure; ie. you can sell equities from taxable, but have the net effect be a sale of bonds, by simply exchanging bonds in your 401k for equity funds (with no tax consequences). Always best to think of the portfolio as one pot in my opinion, and then determine a global AA to get you through your various stages.

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