Confused on bond choice "noise"

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jimmieg
Posts: 48
Joined: Sun Feb 26, 2012 8:25 am

Confused on bond choice "noise"

Post by jimmieg » Mon Aug 13, 2018 10:58 pm

At 71, our 3 retirement accounts together hold a conservative 50/50 S/B allocation.
After greatly simplifying about 5 years ago, the portfolio primarily consists of VTI (Total Stock), BND (Total Bond) and VWINX (Wellesley). In addition, I have cash and a CD ladder set aside in a taxable acct that could cover 3 years of income needs before spending tax-sheltered. I count that account towards my overall allocation.

Now the question-
Having read all the recent Boglehead threads on bonds, including the long one with Mr. Swedroe, am I wrong to still conclude that my present portfolio is adequate for our 4%-5% desired return?. Or, do I need to immediately add some short-term bonds or treasuries, or tips or CD's instead of my Total Bond? Or get rid BND. Or buy more BND since it's having a bad year. I do have a little dry powder in retirement accounts to add to something...or not.

(Note: Our taxes are low enough not to be an issue).

ofckrupke
Posts: 545
Joined: Mon Jan 10, 2011 2:26 pm

Re: Confused on bond choice "noise"

Post by ofckrupke » Tue Aug 14, 2018 12:01 am

You may or may not get your 4-5% average return during the next decade, but rearranging things inside a fixed percentage bond slice will have little impact on that outcome. Your 3 year cash/like bucket mitigates much of the interest rate risk of an intermediate duration fund like BND. If you are content with the stock/bond split then I recommend you hold your course.

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Dale_G
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Location: Central Florida - on the grown up side of 81

Re: Confused on bond choice "noise"

Post by Dale_G » Tue Aug 14, 2018 12:21 am

Yes jimmieg, it is mostly noise. The bond market is very efficient in pricing bonds. Basically shorter term and lower risk bonds will have lower returns. Longer term and higher risk bonds will have greater returns. Total Bond is medium return and medium risk. There is no free lunch.

You probably have a 20 year time horizon, more than 3 times the duration of Total Bond Market. Hang in there.

Dale
Volatility is my friend

jimmieg
Posts: 48
Joined: Sun Feb 26, 2012 8:25 am

Re: Confused on bond choice "noise"

Post by jimmieg » Tue Aug 14, 2018 10:11 pm

Thanks for taking the time to post your thoughtful replies!

.

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