Should I be in Bonds?

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Mtangler25
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Location: Montana

Should I be in Bonds?

Post by Mtangler25 » Mon Apr 22, 2019 9:32 am

Greetings Bogleheads,

I am starting to question weather I need to be in Bonds at this point in my life. I am 25 years old, getting married this September and I/we have no children. I make a good salary and this is my second year in the workforce (full time).

Here is my Portfolio

Roth IRA;

Schwab US Dividend Equity ETF (SCHD)

Schwab Total Stock Market Index (SWTSX)

Schwab International Index (SWISX)

Schwab US Aggregate Bond Index (SWAGX)


Currently 94% of my portfolio is in the equity indexes/ETF and only about 6% in the Bond fund. I have around $7,000 invested in total, my question is should I continue putting a small amount in Bonds or just sell the Bond fund and make my portfolio 100% equity until I am about 30-35. I understand that Bonds are a safe haven but I feel that the safe haven isn't needed at this point in my life and I should try to grow for the next 5-10 years before allocating bonds into my portfolio.


I do have a SIMPLE IRA through my work but I have no Bonds in that account and my main focus is my Roth, at least for this question.

Thank you in advance!

magicrat
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Re: Should I be in Bonds?

Post by magicrat » Mon Apr 22, 2019 9:41 am

There's nothing wrong with 100% stocks at your age. However, the risk is that you won't actually be able to handle a 50%+ decline in equities the way you think you can and will panic sell.

bloom2708
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Re: Should I be in Bonds?

Post by bloom2708 » Mon Apr 22, 2019 9:44 am

Put 10% bonds in your Simple IRA at work. Leave Roth and Taxable 100% stock index funds.

It is good, even at 25, so have a small slice of bonds so you can understand what happens when stocks are plummeting.

10-15% at any age is a good floor. You may stay at that level until 35 and as your investments grow, adjust according to your need to take risk.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

dbr
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Re: Should I be in Bonds?

Post by dbr » Mon Apr 22, 2019 9:49 am

For $7000 invested at your age being 100% stocks is fine. It really doesn't matter. The issue is different ten years from now when the size of the portfolio becomes significant.

Do you have an emergency fund?. If you have some thousands of dollars in a backup savings account you probably already are allocated more to fixed income than to stocks.

Topic Author
Mtangler25
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Location: Montana

Re: Should I be in Bonds?

Post by Mtangler25 » Mon Apr 22, 2019 10:14 am

dbr wrote:
Mon Apr 22, 2019 9:49 am
For $7000 invested at your age being 100% stocks is fine. It really doesn't matter. The issue is different ten years from now when the size of the portfolio becomes significant.

Do you have an emergency fund?. If you have some thousands of dollars in a backup savings account you probably already are allocated more to fixed income than to stocks.
Yes I do have an Emergency fund (I am a Dave Ramsey guy)

Quaestner
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Re: Should I be in Bonds?

Post by Quaestner » Mon Apr 22, 2019 4:44 pm

For your retirement investments, I agree that being 100% in bonds is fine at this point in your career. You can revisit this in your 30's, as you suggest. For savings that isn't dedicated to retirement - down payment for home, car, furniture, honeymoon, etc. - that money should likely NOT be in stocks. (I suspect you know this but felt it needed to be said.)

Topic Author
Mtangler25
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Location: Montana

Re: Should I be in Bonds?

Post by Mtangler25 » Mon Apr 22, 2019 4:49 pm

Quaestner wrote:
Mon Apr 22, 2019 4:44 pm
For your retirement investments, I agree that being 100% in bonds is fine at this point in your career. You can revisit this in your 30's, as you suggest. For savings that isn't dedicated to retirement - down payment for home, car, furniture, honeymoon, etc. - that money should likely NOT be in stocks. (I suspect you know this but felt it needed to be said.)
This might be a typo but you said "100% in bonds is fine" I assume you meant stocks! and all my other savings is in high yield savings accounts! Thank you for mentioning, definitely important!

Quaestner
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Re: Should I be in Bonds?

Post by Quaestner » Mon Apr 22, 2019 5:14 pm

You are correct - my bad!

pward
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Re: Should I be in Bonds?

Post by pward » Mon Apr 22, 2019 5:43 pm

I personally would never recommend any person place all their eggs in one basket. But you are young and likely do not have a lot of capital at risk in the grand scheme, so it's probably not a big deal provided you have the fortitude to sit through a 50-90% drop all the while *still* making all of your scheduled contributions (note stocks did lose 90% of their value in the Great Depression, so while very rare, it can happen again).

Remember, in the grand scheme, the most important factor is savings rate, especially for someone at 25 years old. This is much more important than your asset allocation. If diversifying into some bonds can help your behavior, and help you sleep at night, then I think they deserve a spot in your portfolio. You can also grab more volatile bonds like long term nominal treasuries (TLT) or zeros (EDV) because you can get a bigger diversification bang out of a smaller allocation, should you want to keep a high stock allocation.

Never forget that at any point in time the coming 10 years will be very different from the prior 10 years. Always be careful of the common problem of projecting the present infinitely into the future, because it never quite turns out that way.

ericcohen
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Re: Should I be in Bonds?

Post by ericcohen » Mon Apr 22, 2019 8:03 pm

You should be in 100% stocks at your age and level of net worth.

As the saying goes: "Buy stocks to become wealthy. Then buy bonds to stay wealthy."

:sharebeer

pascalwager
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Re: Should I be in Bonds?

Post by pascalwager » Mon Apr 22, 2019 9:32 pm

If you're doing a rising equity (RE) glidepath (as per Estrada studies) in the accumulation stage, then you might want to start out at 80 to 100% bonds. You would end up at the mirror-image AA at retirement and then begin a declining equity (DE) glidepath in retirement.

bizkitgto
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Re: Should I be in Bonds?

Post by bizkitgto » Mon Apr 22, 2019 10:01 pm

I like to think of bonds as defense...80/20 is my ratio of stocks/bonds. At your age though it's perfectly acceptable to be 100% in stocks.
Keep it simple: 20% BND, 50% VTI and 30% VXUS

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Stinky
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Re: Should I be in Bonds?

Post by Stinky » Tue Apr 23, 2019 8:58 am

ericcohen wrote:
Mon Apr 22, 2019 8:03 pm
You should be in 100% stocks at your age and level of net worth.

As the saying goes: "Buy stocks to become wealthy. Then buy bonds to stay wealthy."

:sharebeer
I agree with this.

You said in the original post and that you may stay 100% stocks until age 30-35. That’s what I did, and what I’ve advised my children to do.
It's a GREAT day to be alive - Travis Tritt

TaxingAccount
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Re: Should I be in Bonds?

Post by TaxingAccount » Tue Apr 23, 2019 9:04 am

I'd go 50/50 here at this point in the cycle

Topic Author
Mtangler25
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Location: Montana

Re: Should I be in Bonds?

Post by Mtangler25 » Tue Apr 23, 2019 9:12 am

TaxingAccount wrote:
Tue Apr 23, 2019 9:04 am
I'd go 50/50 here at this point in the cycle
Are you saying 50% Bonds at 25 years old?

TaxingAccount
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Re: Should I be in Bonds?

Post by TaxingAccount » Tue Apr 23, 2019 9:15 am

Mtangler25 wrote:
Tue Apr 23, 2019 9:12 am
TaxingAccount wrote:
Tue Apr 23, 2019 9:04 am
I'd go 50/50 here at this point in the cycle
Are you saying 50% Bonds at 25 years old?
yes

Topic Author
Mtangler25
Posts: 116
Joined: Mon Jul 10, 2017 7:44 pm
Location: Montana

Re: Should I be in Bonds?

Post by Mtangler25 » Tue Apr 23, 2019 9:17 am

TaxingAccount wrote:
Tue Apr 23, 2019 9:15 am
Mtangler25 wrote:
Tue Apr 23, 2019 9:12 am
TaxingAccount wrote:
Tue Apr 23, 2019 9:04 am
I'd go 50/50 here at this point in the cycle
Are you saying 50% Bonds at 25 years old?
yes
Interesting, may I ask why you recommend such a conservative allocation at a young age?

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Geographer
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Location: Virginia

Re: Should I be in Bonds?

Post by Geographer » Tue Apr 23, 2019 9:39 am

Mtangler25 wrote:
Tue Apr 23, 2019 9:17 am
TaxingAccount wrote:
Tue Apr 23, 2019 9:15 am
Mtangler25 wrote:
Tue Apr 23, 2019 9:12 am
TaxingAccount wrote:
Tue Apr 23, 2019 9:04 am
I'd go 50/50 here at this point in the cycle
Are you saying 50% Bonds at 25 years old?
yes
Interesting, may I ask why you recommend such a conservative allocation at a young age?
Market timing. My guess is he's saying that we're nearing a peak in the cycle and a crash will happen soon. Probably not the best advice for a new investor.

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2pedals
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Re: Should I be in Bonds?

Post by 2pedals » Tue Apr 23, 2019 10:20 am

I would recommend no more than 80% in stocks but count your separate emergency money as bonds. So keep in mind you don't exceed 80% when building your savings.

pward
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Re: Should I be in Bonds?

Post by pward » Tue Apr 23, 2019 10:27 am

Geographer wrote:
Tue Apr 23, 2019 9:39 am
Mtangler25 wrote:
Tue Apr 23, 2019 9:17 am
TaxingAccount wrote:
Tue Apr 23, 2019 9:15 am
Mtangler25 wrote:
Tue Apr 23, 2019 9:12 am
TaxingAccount wrote:
Tue Apr 23, 2019 9:04 am
I'd go 50/50 here at this point in the cycle
Are you saying 50% Bonds at 25 years old?
yes
Interesting, may I ask why you recommend such a conservative allocation at a young age?
Market timing. My guess is he's saying that we're nearing a peak in the cycle and a crash will happen soon. Probably not the best advice for a new investor.
Market timing aside, asset allocation takes a distant second place to savings rate. The difference in the last 20 years between 100% stock and 50/50 in accumulations was only ~1.3% CAGR, but with much less volatility (21% max drawdown vs 51%). In other words, someone his age should worry much more about optimizing savings rate vs worrying about optimizing his asset allocation, as even a conservative asset allocation was still good enough. So, if someone will stick to the plan 50/50 would still be a fine choice even for someone his age. Far too many younger people worry about stocks vs bonds when they should be placing that energy in finding ways to save and invest more money. Pick a plan you can stick with, and then find ways to keep investing more.

https://www.portfoliovisualizer.com/bac ... 0&total3=0

272 Sheep
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Re: Should I be in Bonds?

Post by 272 Sheep » Tue Apr 23, 2019 10:39 am

Benjamin Graham said (in his opinion) no-one should exceed 75% stocks and less than 25% stocks.
Of course, he came out of the Great Depression era.

Carl W.

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