Which would you choose if you were me ?

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mikebee
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Which would you choose if you were me ?

Post by mikebee » Fri Apr 13, 2018 11:01 am

EITHER
$6,000 per month for 15 years (joint annuity from PIA)
Premium $2M (half my net worth).
I am 76, wife is 60.
The monthly income is COA.
OR
Income from the $2M invested in VWIAX (Vanguard High Yield Corporate Bond Fund) VWEAX yielding 5.54%.
No concern about principal loss as investment would stay until we both die.
No heirs. All remaining funds after we both are dead would go to charities.
Two homes. No debts of any sort.
Seems to me two risks : Option 1 PIA goes under or Option 2 massive defaults by many US companies.
Bogleheads expertise would be very much appreciated.

oldnewinvestor
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Re: Which would you choose if you were me ?

Post by oldnewinvestor » Fri Apr 13, 2018 11:03 am

You need to give a little more information. Annual cost of living post tax, pre tax. Social security income etc.

WhiteMaxima
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Re: Which would you choose if you were me ?

Post by WhiteMaxima » Fri Apr 13, 2018 11:10 am

Divide 2 mil by two. One for option 1, or for option 2. If I were you, I would do 1/3, with 1/3 into index fund.

aristotelian
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Re: Which would you choose if you were me ?

Post by aristotelian » Fri Apr 13, 2018 11:11 am

I would not put my life savings in junk bonds, I know that much.

capjak
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Re: Which would you choose if you were me ?

Post by capjak » Fri Apr 13, 2018 11:12 am

Since based on your post you want to secure your expenses through end of life ....


Lots of options, just thoughts (I am not really a Finance Wizard so not recommendation):

1. Consider laddering the SPIA purchasing maybe 200,000 per year over the next 10 years using different companies rated A or better (A+ or better preferred) by AM BEST. While holding a " Secure Bond Pool" (e.g. Zero coupon Treasury mature 200,000 every year forward and/or TIPS) such that you are assured of having the $$ to purchase the SPIA in future years

2. Consider 30 year TIPS Ladder

3. Consider mix of 2&3 with 15% High Yield Bond

4 #1 but ladder % increase every year 0%, 2%,3% etc based on current inflation

inbox788
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Re: Which would you choose if you were me ?

Post by inbox788 » Fri Apr 13, 2018 11:22 am

FWIW, I'm getting over $8k/month at https://www.immediateannuities.com/ even with 15 year guarantee.

VWIAX - Vanguard Wellesley Income Fund Admiral Shares
VWEAX - Vanguard High-Yield Corporate Fund Admiral Shares

Code: Select all

Bond Ratings
SectorVWEAX
US Goverment0.00%
AAA4.44%
AA-0.01%
A0.00%
BBB4.65%
[b]BB44.37%
B35.94%[/b]
Below B8.45%
Others2.16%

Top 10 Holdings (8.96% of Total Assets)
Name	Symbol	% Assets
Sprint 7.875%	N/A	1.31%
US Treasury Note 1%	N/A	1.05%
US Treasury Note 0.75%	N/A	1.02%
US Treasury Note 0.875%	N/A	1.02%
US Treasury Note 1.125%	N/A	1.01%
Univision Comms 144A 5.125%	N/A	0.80%
First Data 144A 7%	N/A	0.78%
Dish Dbs 6.75%	N/A	0.66%
Navient Corporation 6.5%	N/A	0.66%
Navient Corporation 6.75%	N/A	0.65%
https://finance.yahoo.com/quote/VWEAX/holdings?p=VWEAX

Odd that 4%+ US Treasury Notes vs. 0% US Government, so I assume it's most of the 4.44% AAA. Bulk is B and BB rated.

$2M @ 5.54% is over $9k/month

$2M is a heavy price to pay for a guarantee. With your net worth, I'd be inclined to take some chance, but not necessarily on junk bonds. Not sure if Wellesley was just a typo, but that's a better choice IMO with 3% yield and even if you have to draw down on the original investment.

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Tamarind
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Re: Which would you choose if you were me ?

Post by Tamarind » Fri Apr 13, 2018 11:37 am

Probably neither, but the annuity is likely better than the HY fund.

capjak
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Re: Which would you choose if you were me ?

Post by capjak » Fri Apr 13, 2018 12:12 pm

inbox788 wrote:
Fri Apr 13, 2018 11:22 am
FWIW, I'm getting over $8k/month at https://www.immediateannuities.com/ even with 15 year guarantee.
Mikebee's annuity quote is COLA from Prudential (A+ rated AM Best) which pays 72,000 for 2 million premium.

Besides immediate annuity may discuss with Stan the Annuity Man, http://www.stantheannuityman.com.

oldnewinvestor
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Re: Which would you choose if you were me ?

Post by oldnewinvestor » Fri Apr 13, 2018 12:53 pm

mikebee wrote:
Fri Apr 13, 2018 11:01 am
EITHER
$6,000 per month for 15 years (joint annuity from PIA)
Premium $2M (half my net worth).
I am 76, wife is 60.
The monthly income is COA.
OR
Income from the $2M invested in VWIAX (Vanguard High Yield Corporate Bond Fund) VWEAX yielding 5.54%.
No concern about principal loss as investment would stay until we both die.
No heirs. All remaining funds after we both are dead would go to charities.
Two homes. No debts of any sort.
Seems to me two risks : Option 1 PIA goes under or Option 2 massive defaults by many US companies.
Bogleheads expertise would be very much appreciated.
Sorry didn't see the high yield bond fund. Those are junk bonds. Be careful. There are no free lunches.

mikebee
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Re: Which would you choose if you were me ?

Post by mikebee » Fri Apr 13, 2018 1:16 pm

Thanks for your interesting replies.
It is a junk bond fund but less risky than the total stock market fund, rated risk 3 cf 4 . It is also conservatively run by Michael Hong of Wellesley who has a good reputation. As I said the principal value does not concern me as I would hold to death.
We have about $25,000 pa in index linked pensions and ss.
Very low expenses. No longer interested in travelling or new cars although I do have a 12 year old Z4 which I love slightly less than my wife.
The $4M is now totally in total stock fund which scares me. I think there must be another recession/crash in the next 15 years and I dont want to risk our spending money.

inbox788
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Re: Which would you choose if you were me ?

Post by inbox788 » Fri Apr 13, 2018 1:33 pm

mikebee wrote:
Fri Apr 13, 2018 1:16 pm
The $4M is now totally in total stock fund which scares me. I think there must be another recession/crash in the next 15 years and I dont want to risk our spending money.
Which fund? If it's 100% total stock or total us stock, why?

https://www.bogleheads.org/wiki/Asset_a ... C_and_need

How long has it been invested as such? If it's been 10 years, you'll more than likely have doubled and even a 50% drop only gets you back to where you were. And as far as junk bonds, I'm not sure they're any better than a moderate AA.

https://www.valuewalk.com/2014/03/junk-bond-funds-bad/

oldnewinvestor
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Re: Which would you choose if you were me ?

Post by oldnewinvestor » Fri Apr 13, 2018 7:45 pm

mikebee wrote:
Fri Apr 13, 2018 1:16 pm
Thanks for your interesting replies.
It is a junk bond fund but less risky than the total stock market fund, rated risk 3 cf 4 . It is also conservatively run by Michael Hong of Wellesley who has a good reputation. As I said the principal value does not concern me as I would hold to death.
We have about $25,000 pa in index linked pensions and ss.
Very low expenses. No longer interested in travelling or new cars although I do have a 12 year old Z4 which I love slightly less than my wife.
The $4M is now totally in total stock fund which scares me. I think there must be another recession/crash in the next 15 years and I dont want to risk our spending money.
I'm in no way a financial guru. I'm learning. IMHO here is some math that may help. I still don't know what your spending is per year after tax but here it goes anyway.

You are 76yo. You wife is 60. Lets say you both live to 100. So she needs 40 more years of income.

4000000/40 years = 100000 dollars. I would say if you had this money in a place where say 30 to 40 % were stocks and the rest bonds you would keep up with inflation and most likely be able to withdraw more than 100K per year. If you add SS to this my guess is you will do very well.

You could divide some of it and get a SPIA. I wouldn't do the 2million. I would really stay away from the whole junk bond thing. Advisors will tell you anything to sell you their crap. It's safer than this and that. Then when you lose your money they remind you right away that YOU know the risks.

Stay conservative, safe and live a nice happy life.

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sergeant
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Re: Which would you choose if you were me ?

Post by sergeant » Fri Apr 13, 2018 10:38 pm

What is "an index linked pension" ??

I don't like either option. We need a bit more info to give a good answer. From what limited info that you have listed I would lower your stock allocation and increase fixed income allocation.
Lincoln 3 EOW!

MoneyMarathon
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Re: Which would you choose if you were me ?

Post by MoneyMarathon » Sat Apr 14, 2018 7:09 pm

mikebee wrote:
Fri Apr 13, 2018 11:01 am
$2M (half my net worth).
mikebee wrote:
Fri Apr 13, 2018 11:01 am
Income from the $2M invested in VWIAX (Vanguard High Yield Corporate Bond Fund) VWEAX yielding 5.54%.
I would suggest:
(a) Looking at the whole portfolio as one (not an 'income producing' portion and a separate stock portion).
(b) Looking at capital appreciation and dividends as being roughly equivalent, apart from tax treatment.

The Bogleheads wiki has relevant info:
https://www.bogleheads.org/wiki/Behavio ... accounting
https://www.bogleheads.org/wiki/Boglehe ... philosophy

That said, junk bonds are (slightly) underrated. They aren't some toxic/anomalous asset class like penny stocks (or crypto?), yet they're often treated like one and as something to be avoided in every situation. It's not really that simple.

Dollar for dollar, money in diversified corporate bonds (including high yield) is safer than money in diversified equities. This just follows from the rights of each investor class in a bankruptcy, which prioritizes debt.

Overall, the market is very efficient at balancing the risks/rewards of diversified junk, against that of a mix of equity and treasuries and investment grade. So you're not going to make out like a bandit by buying junk bonds, compared to a similar portfolio of about 30% equities and 70% treasuries that takes into account the correlations of equity risk and default risk. Here, I can show this.

Image

Portfolio 1 has 100% VWIAX, portfolio 2 has 70% IEF (7-10 year treasuries) and 30% SPY, and portfolio 3 has 100% IEF.

I don't know if I'd want junk bonds to be 50% of my portfolio, but it's not a terrible idea. Actually, subject to a constraint of 6% standard deviation, an efficient frontier analysis suggests about 75% VWIAX, 12.5% SPY, and 12.5% IEF. You're only suggesting 50%. From a risk-adjusted return perspective, this is much better than 100% equities, but you could still afford to carve out more space for treasuries in the rest of your portfolio, as a way to diversify all this equity and default risk.

The biggest problem is the tax hit. Bond income isn't taxed favorably, like dividends and capital gains. This also explains why the above efficient frontier analysis loves junk so much, since it's not (yet) taking taxes into account.

In short, why not do something balanced like 25% high yield, 25% treasuries, and 50% equities? Assuming you like the risk profile of that portfolio, which is roughly the same as someone with 60% equities and 40% treasuries. Rebalance annually and sell proportionally in order to get the income you need, if it's not being achieved with dividends, which is fine.

mikebee
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Re: Which would you choose if you were me ?

Post by mikebee » Sat Apr 14, 2018 10:04 pm

sergeant wrote:
Fri Apr 13, 2018 10:38 pm
What is "an index linked pension" ??

I don't like either option. We need a bit more info to give a good answer. From what limited info that you have listed I would lower your stock allocation and increase fixed income allocation.
An index linked pension is a pension which increases each year as the cost of living increases. Apologies if this was not clear but I am a recent immigrant from the UK where this is standard nomenclature.
I estimate our annual expenses at $75,000.
I have never worked in the USA and my wife, although a US citizen, has mostly been self employed on a very small income so we have no tax sheltered income.

mikebee
Posts: 72
Joined: Sat Mar 17, 2018 4:59 pm

Re: Which would you choose if you were me ?

Post by mikebee » Sat Apr 14, 2018 10:13 pm

inbox788 wrote:
Fri Apr 13, 2018 1:33 pm
mikebee wrote:
Fri Apr 13, 2018 1:16 pm
The $4M is now totally in total stock fund which scares me. I think there must be another recession/crash in the next 15 years and I dont want to risk our spending money.
Which fund? If it's 100% total stock or total us stock, why?

https://www.bogleheads.org/wiki/Asset_a ... C_and_need

How long has it been invested as such? If it's been 10 years, you'll more than likely have doubled and even a 50% drop only gets you back to where you were. And as far as junk bonds, I'm not sure they're any better than a moderate AA.

https://www.valuewalk.com/2014/03/junk-bond-funds-bad/
Actually $2.5 M in VTSAX and $0.5M in VEUSX
The remaining million is the value of our two houses which I have counted towards my net worth.
Not been invested that long as I recently brought over some UK investments as well as selling two apartments in the UK since emigrating to the USA.

mikebee
Posts: 72
Joined: Sat Mar 17, 2018 4:59 pm

Re: Which would you choose if you were me ?

Post by mikebee » Sat Apr 14, 2018 10:19 pm

MoneyMarathon wrote:
Sat Apr 14, 2018 7:09 pm
mikebee wrote:
Fri Apr 13, 2018 11:01 am
$2M (half my net worth).
mikebee wrote:
Fri Apr 13, 2018 11:01 am
Income from the $2M invested in VWIAX (Vanguard High Yield Corporate Bond Fund) VWEAX yielding 5.54%.
I would suggest:
(a) Looking at the whole portfolio as one (not an 'income producing' portion and a separate stock portion).
(b) Looking at capital appreciation and dividends as being roughly equivalent, apart from tax treatment.

The Bogleheads wiki has relevant info:
https://www.bogleheads.org/wiki/Behavio ... accounting
https://www.bogleheads.org/wiki/Boglehe ... philosophy

That said, junk bonds are (slightly) underrated. They aren't some toxic/anomalous asset class like penny stocks (or crypto?), yet they're often treated like one and as something to be avoided in every situation. It's not really that simple.

Dollar for dollar, money in diversified corporate bonds (including high yield) is safer than money in diversified equities. This just follows from the rights of each investor class in a bankruptcy, which prioritizes debt.

Overall, the market is very efficient at balancing the risks/rewards of diversified junk, against that of a mix of equity and treasuries and investment grade. So you're not going to make out like a bandit by buying junk bonds, compared to a similar portfolio of about 30% equities and 70% treasuries that takes into account the correlations of equity risk and default risk. Here, I can show this.

Image

Portfolio 1 has 100% VWIAX, portfolio 2 has 70% IEF (7-10 year treasuries) and 30% SPY, and portfolio 3 has 100% IEF.

I don't know if I'd want junk bonds to be 50% of my portfolio, but it's not a terrible idea. Actually, subject to a constraint of 6% standard deviation, an efficient frontier analysis suggests about 75% VWIAX, 12.5% SPY, and 12.5% IEF. You're only suggesting 50%. From a risk-adjusted return perspective, this is much better than 100% equities, but you could still afford to carve out more space for treasuries in the rest of your portfolio, as a way to diversify all this equity and default risk.

The biggest problem is the tax hit. Bond income isn't taxed favorably, like dividends and capital gains. This also explains why the above efficient frontier analysis loves junk so much, since it's not (yet) taking taxes into account.

In short, why not do something balanced like 25% high yield, 25% treasuries, and 50% equities? Assuming you like the risk profile of that portfolio, which is roughly the same as someone with 60% equities and 40% treasuries. Rebalance annually and sell proportionally in order to get the income you need, if it's not being achieved with dividends, which is fine.
Thank you for that very interesting and profound response. It has made me think about the possible high tax rate on the junk bond income, that, together with their higher risk makes it apparent to me that I should, maybe, drop that idea.

mikebee
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Re: Which would you choose if you were me ?

Post by mikebee » Sat Apr 14, 2018 10:35 pm

Now rethought my IP to be as follows :
European VEUSX $1/2M income $12,000
US Total Stock VTSAX $1/2M income $9,000
US Total Bond VBTLX $1 1/2 M income $45,000
Berkshire-H B shares $1/2M income zero
I am a Buffet fan and the well diversified, well run busineses appeals to me. I can always sell a few shares after a year at low cgt rate for unexpected needs.
I would also have $100,000 in PMM for ready cash.
Above gives an income of $66,000 plus $24,000 pensions totals $90,000, more than our needs.
Does this sound like a good plan ?

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woof755
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Re: Which would you choose if you were me ?

Post by woof755 » Sat Apr 14, 2018 11:18 pm

The main problem with high yield corporate bonds is that when that risk shows up, it shows up at the same time your equities are being hit.
So, they're risky assets, and they are highly correlated with equities. Not as big a change from 100% equity as you think.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing

MoneyMarathon
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Re: Which would you choose if you were me ?

Post by MoneyMarathon » Sun Apr 15, 2018 1:45 am

mikebee wrote:
Sat Apr 14, 2018 10:35 pm
Now rethought my IP to be as follows :
European VEUSX $1/2M income $12,000
US Total Stock VTSAX $1/2M income $9,000
US Total Bond VBTLX $1 1/2 M income $45,000
Berkshire-H B shares $1/2M income zero
I am a Buffet fan and the well diversified, well run busineses appeals to me. I can always sell a few shares after a year at low cgt rate for unexpected needs.
I would also have $100,000 in PMM for ready cash.
Above gives an income of $66,000 plus $24,000 pensions totals $90,000, more than our needs.
Does this sound like a good plan ?
It's a pretty solid plan. Here's how I would tweak it:

20% to 25% - VTIAX - total ex-US stock
25% to 30% - VTSAX - total US stock
40% to 50% - VBTLX - total bond
0% to 10% - Berkshire-H B shares

(There is some wiggle room to determine the exact percentages...)

It's okay to have some individual stock to cheer for, but more than 10%, especially on such a large portfolio, can be nausea-inducing when it drops. Much nicer to be in well-diversified index funds. If there's a drop, you won't be alone and (hopefully) won't be kicking yourself and thinking about making sudden changes.

Same thing, but much less extreme, with the Europe fund. No need to bet on the companies domiciled in Switzerland, Germany, and the UK when there are plenty of companies worth considering that have HQs in Korea, Hong Kong, Canada, Australia, Japan, and elsewhere. Unless you know something that the market doesn't, maybe just maintain exposure to these equities at the market cap weighting.

mikebee
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Re: Which would you choose if you were me ?

Post by mikebee » Sun Apr 15, 2018 10:14 am

woof755 wrote:
Sat Apr 14, 2018 11:18 pm
The main problem with high yield corporate bonds is that when that risk shows up, it shows up at the same time your equities are being hit.
So, they're risky assets, and they are highly correlated with equities. Not as big a change from 100% equity as you think.
I see your point. Both may well go down simultaneously but would I not still be getting 5% + monthly payout from VWEAX whereas your stock fund would still be paying out less than inflation after tax ? I would remind you that Vanguard rate VTSAX as riskier than their high yield corporate bond fund VWEAX (4 against 3). Are you saying the Vanguard assessment is wrong ?

mikebee
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Re: Which would you choose if you were me ?

Post by mikebee » Sun Apr 15, 2018 10:29 am

MoneyMarathon wrote:
Sun Apr 15, 2018 1:45 am
mikebee wrote:
Sat Apr 14, 2018 10:35 pm
Now rethought my IP to be as follows :
European VEUSX $1/2M income $12,000
US Total Stock VTSAX $1/2M income $9,000
US Total Bond VBTLX $1 1/2 M income $45,000
Berkshire-H B shares $1/2M income zero
I am a Buffet fan and the well diversified, well run busineses appeals to me. I can always sell a few shares after a year at low cgt rate for unexpected needs.
I would also have $100,000 in PMM for ready cash.
Above gives an income of $66,000 plus $24,000 pensions totals $90,000, more than our needs.
Does this sound like a good plan ?
It's a pretty solid plan. Here's how I would tweak it:

20% to 25% - VTIAX - total ex-US stock
25% to 30% - VTSAX - total US stock
40% to 50% - VBTLX - total bond
0% to 10% - Berkshire-H B shares

(There is some wiggle room to determine the exact percentages...)

It's okay to have some individual stock to cheer for, but more than 10%, especially on such a large portfolio, can be nausea-inducing when it drops. Much nicer to be in well-diversified index funds. If there's a drop, you won't be alone and (hopefully) won't be kicking yourself and thinking about making sudden changes.

Same thing, but much less extreme, with the Europe fund. No need to bet on the companies domiciled in Switzerland, Germany, and the UK when there are plenty of companies worth considering that have HQs in Korea, Hong Kong, Canada, Australia, Japan, and elsewhere. Unless you know something that the market doesn't, maybe just maintain exposure to these equities at the market cap

Agree about individual stocks, I just don't have the nerve for them anyway but I would regard B-H as almost like an index fund. VTSAX has 3467 companies, I would guess quite a few are dogs therein. Buffet does not tolerate dogs ?
I am old fashioned and regard Europe as having massive intellectual capital whereas Asia don't innovate much and rely on very low cost labor which means possible future political and currency instability.

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woof755
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Location: Honolulu

Re: Which would you choose if you were me ?

Post by woof755 » Sun Apr 15, 2018 1:05 pm

mikebee wrote:
Sun Apr 15, 2018 10:14 am
woof755 wrote:
Sat Apr 14, 2018 11:18 pm
The main problem with high yield corporate bonds is that when that risk shows up, it shows up at the same time your equities are being hit.
So, they're risky assets, and they are highly correlated with equities. Not as big a change from 100% equity as you think.
I see your point. Both may well go down simultaneously but would I not still be getting 5% + monthly payout from VWEAX whereas your stock fund would still be paying out less than inflation after tax ? I would remind you that Vanguard rate VTSAX as riskier than their high yield corporate bond fund VWEAX (4 against 3). Are you saying the Vanguard assessment is wrong ?
No, I'm not saying that. I sort of think of risk in a different way.

Yes, stock funds are more volatile than bonds, and will have a worse worst year and a better best year than a bond fund will.

In building a portfolio, I want bonds to have a little correlation to equities as possible. To me, bonds are for safety.
For you, you're using them for income. And I guess since you're at little risk of running out of money, you can take the dividend. But in a year like 2008 when equities are down 37% and the high yield corporate bond fund is down 21% it's hard to stick with a plan.

Anyways, not to derail. I see that you decided to switch to total bond market in your plan.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing

mikebee
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Re: Which would you choose if you were me ?

Post by mikebee » Sun Apr 15, 2018 1:38 pm

woof755 wrote:
Sun Apr 15, 2018 1:05 pm
mikebee wrote:
Sun Apr 15, 2018 10:14 am
woof755 wrote:
Sat Apr 14, 2018 11:18 pm
The main problem with high yield corporate bonds is that when that risk shows up, it shows up at the same time your equities are being hit.
So, they're risky assets, and they are highly correlated with equities. Not as big a change from 100% equity as you think.
I see your point. Both may well go down simultaneously but would I not still be getting 5% + monthly payout from VWEAX whereas your stock fund would still be paying out less than inflation after tax ? I would remind you that Vanguard rate VTSAX as riskier than their high yield corporate bond fund VWEAX (4 against 3). Are you saying the Vanguard assessment is wrong ?
No, I'm not saying that. I sort of think of risk in a different way.

Yes, stock funds are more volatile than bonds, and will have a worse worst year and a better best year than a bond fund will.

In building a portfolio, I want bonds to have a little correlation to equities as possible. To me, bonds are for safety.
For you, you're using them for income. And I guess since you're at little risk of running out of money, you can take the dividend. But in a year like 2008 when equities are down 37% and the high yield corporate bond fund is down 21% it's hard to stick with a plan.

Anyways, not to derail. I see that you decided to switch to total bond market in your plan.
I switched in deference to folks who are more knowledgable than I am and who mostly react by throwing up their hands in horror at the words "junk bonds".
Given that VWEAX is (1) a very conservative, well run fund and (2) we have only a 20 to 25 year time horizon, ie after we both die we have zero interest in what happens to our capital, I am struggling to understand why I should be concerned if the NAV drops 25% now and again as long as that lovely spending money comes rolling in each month.
I hope I don't appear argumentative, just sincerely trying to comprehend.
I get that defaults are a risk and wonder why I can never find default rates, I guess they must be hidden away in the small print somewhere.

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sergeant
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Re: Which would you choose if you were me ?

Post by sergeant » Sun Apr 15, 2018 2:25 pm

mikebee wrote:
Sat Apr 14, 2018 10:04 pm
sergeant wrote:
Fri Apr 13, 2018 10:38 pm
What is "an index linked pension" ??

I don't like either option. We need a bit more info to give a good answer. From what limited info that you have listed I would lower your stock allocation and increase fixed income allocation.
An index linked pension is a pension which increases each year as the cost of living increases. Apologies if this was not clear but I am a recent immigrant from the UK where this is standard nomenclature.
I estimate our annual expenses at $75,000.
I have never worked in the USA and my wife, although a US citizen, has mostly been self employed on a very small income so we have no tax sheltered income.
Got it, thanks. We usually refer to it as a pension with a COLA. I was afraid that maybe it was an index linked annuity. We usually refer to those as a scam.
Lincoln 3 EOW!

MoneyMarathon
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Re: Which would you choose if you were me ?

Post by MoneyMarathon » Sun Apr 15, 2018 3:54 pm

mikebee wrote:
Sun Apr 15, 2018 10:29 am
Agree about individual stocks, I just don't have the nerve for them anyway but I would regard B-H as almost like an index fund.
Berkshire Hathaway is not like an index fund. It can move down, without the whole market moving, just like any other stock. Anyone who doesn't have the nerve to buy some other individual issue should probably also stay away from Berkshire Hathaway, or keep the position small.
mikebee wrote:
Sun Apr 15, 2018 10:29 am
VTSAX has 3467 companies, I would guess quite a few are dogs therein. Buffet does not tolerate dogs ?
Buffett is a mere mortal, in both fallibility and lifespan.
mikebee wrote:
Sun Apr 15, 2018 10:29 am
I am old fashioned and regard Europe as having massive intellectual capital whereas Asia don't innovate much and rely on very low cost labor which means possible future political and currency instability.
As long as you'll stick to your guns when and if Europe trails behind the performance of non-Europe international for 10-30 years.

inbox788
Posts: 5235
Joined: Thu Mar 15, 2012 5:24 pm

Re: Which would you choose if you were me ?

Post by inbox788 » Sun Apr 15, 2018 4:30 pm

mikebee wrote:
Sun Apr 15, 2018 1:38 pm
I switched in deference to folks who are more knowledgable than I am and who mostly react by throwing up their hands in horror at the words "junk bonds".
Junk bonds overstates their risk. High Yield Bonds understate it. Two sides of the same coin. Risk adjusted, is the return better than a moderate AA? You'll have to consult the experts on that matter, but I don't think there is agreement, and my opinion is that it's complicated and unnecessary.
MoneyMarathon wrote:
Sun Apr 15, 2018 1:45 am
It's a pretty solid plan. Here's how I would tweak it:

20% to 25% - VTIAX - total ex-US stock
25% to 30% - VTSAX - total US stock
40% to 50% - VBTLX - total bond
0% to 10% - Berkshire-H B shares

(There is some wiggle room to determine the exact percentages...)
And I'd tweak it further to simplify it.

20% - VTIAX - total ex-US stock
40% - VTSAX - total US stock
40% - VBTLX - total bond
0% - Berkshire-H B shares

https://www.whitecoatinvestor.com/150-p ... han-yours/

If our portfolios overlap 90%, we're only discussing the difference in performance over 10% of the total portfolio. And if the difference in performance in the small sliver is only 10%, and varies which portfolio wins out every year, then over a number of years, either portfolio may be winning, but only by a very small mount. And AFAIK, I can't tell which is going to be better until after the fact, so it's a choice for me that's a small difference with no way to real differentiate, and I don't stress over the choice. A random decision or flip of a coin is adequate.

MoneyMarathon
Posts: 159
Joined: Sun Sep 30, 2012 3:38 am

Re: Which would you choose if you were me ?

Post by MoneyMarathon » Sun Apr 15, 2018 4:40 pm

inbox788 wrote:
Sun Apr 15, 2018 4:30 pm
And I'd tweak it further to simplify it.

20% - VTIAX - total ex-US stock
40% - VTSAX - total US stock
40% - VBTLX - total bond
inbox788 wrote:
Sun Apr 15, 2018 4:30 pm
And AFAIK, I can't tell which is going to be better until after the fact, so it's a choice for me that's a small difference with no way to real differentiate, and I don't stress over the choice
It's a good idea, if someone can execute on it.

I also like the 3 fund portfolio a lot more, but not everyone (for various individual reasons) can be just as satisfied.

bradpevans
Posts: 214
Joined: Sun Apr 08, 2018 1:09 pm

Re: Which would you choose if you were me ?

Post by bradpevans » Sun Apr 15, 2018 6:05 pm

mikebee wrote:
Fri Apr 13, 2018 11:01 am
EITHER
$6,000 per month for 15 years (joint annuity from PIA)
Premium $2M (half my net worth).
I am 76, wife is 60.
The monthly income is COA.
OR
Income from the $2M invested in VWIAX (Vanguard High Yield Corporate Bond Fund) VWEAX yielding 5.54%.
No concern about principal loss as investment would stay until we both die.
No heirs. All remaining funds after we both are dead would go to charities.
Two homes. No debts of any sort.
Seems to me two risks : Option 1 PIA goes under or Option 2 massive defaults by many US companies.
Bogleheads expertise would be very much appreciated.
I’m confused: 6k/month is 72K/year which is 1.08 million

What happens after 15 Years?
Is cost of living adjustment thst substantial?

mikebee
Posts: 72
Joined: Sat Mar 17, 2018 4:59 pm

Re: Which would you choose if you were me ?

Post by mikebee » Mon Apr 16, 2018 10:24 am

bradpevans wrote:
Sun Apr 15, 2018 6:05 pm
mikebee wrote:
Fri Apr 13, 2018 11:01 am
EITHER
$6,000 per month for 15 years (joint annuity from PIA)
Premium $2M (half my net worth).
I am 76, wife is 60.
The monthly income is COA.
OR
Income from the $2M invested in VWIAX (Vanguard High Yield Corporate Bond Fund) VWEAX yielding 5.54%.
No concern about principal loss as investment would stay until we both die.
No heirs. All remaining funds after we both are dead would go to charities.
Two homes. No debts of any sort.
Seems to me two risks : Option 1 PIA goes under or Option 2 massive defaults by many US companies.
Bogleheads expertise would be very much appreciated.
I’m confused: 6k/month is 72K/year which is 1.08 million

What happens after 15 Years?
Is cost of living adjustment thst substantial?
The policy is for my wife and myself. I am trying to find out what happens after 15 years/if I die before the 15 years which is likely. Obviously I want her to benefit as she will possibly live for another 30 years. The company is the only one giving coa/inflation protection so they are not really competing. Other insurance companies must be scared stiff of inflation. Being cynical, and having lived through 25% annual inflation in the 70s, I have a theory that the US government knows that the only way out of the debt/ss/medicare looming disasters is to engineer 5-10% inflation for a few years. The US population has had it too good for too long compared with the rest of the world.

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