Should Bonds be removed from Asset Allocation

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Closer2323
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Should Bonds be removed from Asset Allocation

Post by Closer2323 » Mon Aug 12, 2019 12:14 pm

With what is going on right now with interest rates should the entire idea of Bonds as a % of your asset allocation be changed in favor of Cash?

For example if you are normally 80/20 Asset Allocation change that to 80% Stocks 20% Cash?

Are Intermediate Bonds less of a concern right now vs. short term bonds?

JoeRetire
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Re: Should Bonds be removed from Asset Allocation

Post by JoeRetire » Mon Aug 12, 2019 12:21 pm

What is going on now that is making you rethink your asset allocation plan?

Usually that's a sign that your asset allocation wasn't appropriate to begin with and that you want to come up with percentages that you can set and forget.

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ruralavalon
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Re: Should Bonds be removed from Asset Allocation

Post by ruralavalon » Mon Aug 12, 2019 12:30 pm

Closer2323 wrote:
Mon Aug 12, 2019 12:14 pm
With what is going on right now with interest rates should the entire idea of Bonds as a % of your asset allocation be changed in favor of Cash?

For example if you are normally 80/20 Asset Allocation change that to 80% Stocks 20% Cash?

Are Intermediate Bonds less of a concern right now vs. short term bonds?
In my opinion the primary purpose of a bond (fixed income) allocation is portfolio safety, volatility reduction. In my opinion any diversified short-term or intermediate-term bond fund with good credit quality will fulfill that objective. Also a money market fund with a reasonable yield will do. CDs are also a choice.

I would not switch around among these choices based on "what is going on right now with interest rates" or based on any predictions about interest rates. Market timing the bond market is just as bad as trying to market time the stock market.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

TaxingAccount
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Re: Should Bonds be removed from Asset Allocation

Post by TaxingAccount » Mon Aug 12, 2019 12:31 pm

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Last edited by TaxingAccount on Tue Aug 13, 2019 3:26 pm, edited 1 time in total.

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Closer2323
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Re: Should Bonds be removed from Asset Allocation

Post by Closer2323 » Mon Aug 12, 2019 12:35 pm

TaxingAccount wrote:
Mon Aug 12, 2019 12:31 pm
JoeRetire wrote:
Mon Aug 12, 2019 12:21 pm
What is going on now that is making you rethink your asset allocation plan?
Maybe the fact that the bond bubble has reached absurd levels??
This is what is making me rethink things. I understand the purpose of having Bonds and am satisfied with 20% of my allocation in a more stable area however I am concerned that this is uncharted territory for Bonds and that some other asset class may serve better as a Ballast.

JoeRetire
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Re: Should Bonds be removed from Asset Allocation

Post by JoeRetire » Mon Aug 12, 2019 12:36 pm

TaxingAccount wrote:
Mon Aug 12, 2019 12:31 pm
JoeRetire wrote:
Mon Aug 12, 2019 12:21 pm
What is going on now that is making you rethink your asset allocation plan?
Maybe the fact that the bond bubble has reached absurd levels??
So, based on your interpretation of "absurd", have you removed bonds from your asset allocation?

What was it before? What is it now? What has to happen before you decide to change it back? Or have you changed to an asset allocation that you think will carry you for the long run this time?

TaxingAccount
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Re: Should Bonds be removed from Asset Allocation

Post by TaxingAccount » Mon Aug 12, 2019 12:42 pm

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ruralavalon
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Re: Should Bonds be removed from Asset Allocation

Post by ruralavalon » Mon Aug 12, 2019 12:43 pm

Closer2323 wrote:
Mon Aug 12, 2019 12:35 pm
TaxingAccount wrote:
Mon Aug 12, 2019 12:31 pm
JoeRetire wrote:
Mon Aug 12, 2019 12:21 pm
What is going on now that is making you rethink your asset allocation plan?
Maybe the fact that the bond bubble has reached absurd levels??
This is what is making me rethink things. I understand the purpose of having Bonds and am satisfied with 20% of my allocation in a more stable area however I am concerned that this is uncharted territory for Bonds and that some other asset class may serve better as a Ballast.
What bond fund are you currently using for your ballast?

Has anything in your personal circumstances changed to make you want greater stability?
Last edited by ruralavalon on Mon Aug 12, 2019 12:46 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

JoeRetire
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Re: Should Bonds be removed from Asset Allocation

Post by JoeRetire » Mon Aug 12, 2019 12:44 pm

TaxingAccount wrote:
Mon Aug 12, 2019 12:42 pm
JoeRetire wrote:
Mon Aug 12, 2019 12:36 pm
TaxingAccount wrote:
Mon Aug 12, 2019 12:31 pm
JoeRetire wrote:
Mon Aug 12, 2019 12:21 pm
What is going on now that is making you rethink your asset allocation plan?
Maybe the fact that the bond bubble has reached absurd levels??
So, based on your interpretation of "absurd", have you removed bonds from your asset allocation?

What was it before? What is it now? What has to happen before you decide to change it back? Or have you changed to an asset allocation that you think will carry you for the long run this time?
I use CDs instead of bonds, thanks.
I guess CDs are a reasonable alternative. What duration did you choose? How much interest are you getting?
And did you only change that recently? (I'm not sure when absurdity was reached).

When bonds become no longer absurd, what asset allocation will you return to?

Northern Flicker
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Re: Should Bonds be removed from Asset Allocation

Post by Northern Flicker » Mon Aug 12, 2019 12:51 pm

With Vanguard money-market funds having a 7-day yield north of 2% and the 5-year treasury having a yield that is about 60 bp lower, I have to fight the urge to re-allocate our intermediate treasury holdings to cash or short-term TIPS. But I also remind myself why we hold intermediate treasuries, which is to offer some protection against the very types of risks that has caused intermediate rates to fall so sharply in recent months.

I also remind myself that the treasury market is the deepest, most liquid, efficient market on the planet. The treasury market usually does a good job of rooting out fair value for treasury bonds. (Bonds that can have liquidity problems and bonds with call features may be mis-priced at times, as it is more difficult to price liquidity risk and optionality).

Some months ago when the yield curve flattened, there were postings describing how there no longer was any term premium to hold intermediate bonds given the flat rates, so might as well shorten duration and get the same yield with less risk. This would have missed out on some solid returns. The market probably had fair value pegged right then. And it probably does now as well.

TaxingAccount
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Re: Should Bonds be removed from Asset Allocation

Post by TaxingAccount » Mon Aug 12, 2019 12:51 pm

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Last edited by TaxingAccount on Tue Aug 13, 2019 3:26 pm, edited 1 time in total.

Cochese
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Re: Should Bonds be removed from Asset Allocation

Post by Cochese » Mon Aug 12, 2019 12:55 pm

JoeRetire wrote:
Mon Aug 12, 2019 12:44 pm
TaxingAccount wrote:
Mon Aug 12, 2019 12:42 pm
JoeRetire wrote:
Mon Aug 12, 2019 12:36 pm
TaxingAccount wrote:
Mon Aug 12, 2019 12:31 pm
JoeRetire wrote:
Mon Aug 12, 2019 12:21 pm
What is going on now that is making you rethink your asset allocation plan?
Maybe the fact that the bond bubble has reached absurd levels??
So, based on your interpretation of "absurd", have you removed bonds from your asset allocation?

What was it before? What is it now? What has to happen before you decide to change it back? Or have you changed to an asset allocation that you think will carry you for the long run this time?
I use CDs instead of bonds, thanks.
I guess CDs are a reasonable alternative. What duration did you choose? How much interest are you getting?
And did you only change that recently? (I'm not sure when absurdity was reached).

When bonds become no longer absurd, what asset allocation will you return to?


CDs are reasonable for some people’s needs, but trying to time the bond market is likely to prove fruitless over the long run.

Bear in mind that TaxingAccount is a market timer, both equity and bond markets. In the popular “Freefall” thread he claims to have sold all of his equity around 3 August.

Good luck out there.

JoeRetire
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Re: Should Bonds be removed from Asset Allocation

Post by JoeRetire » Mon Aug 12, 2019 1:07 pm

Cochese wrote:
Mon Aug 12, 2019 12:55 pm
CDs are reasonable for some people’s needs, but trying to time the bond market is likely to prove fruitless over the long run.
I agree. It's not something I do.
Bear in mind that TaxingAccount is a market timer, both equity and bond markets. In the popular “Freefall” thread he claims to have sold all of his equity around 3 August.
I understand.

I was asking for his asset current allocation and when he would change it back, but didn't actually expect to hear him respond with what he has done. So far, my expectations are correct.

chevca
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Re: Should Bonds be removed from Asset Allocation

Post by chevca » Mon Aug 12, 2019 1:07 pm

TaxingAccount wrote:
Mon Aug 12, 2019 12:51 pm
JoeRetire wrote:
Mon Aug 12, 2019 12:44 pm
TaxingAccount wrote:
Mon Aug 12, 2019 12:42 pm
JoeRetire wrote:
Mon Aug 12, 2019 12:36 pm
TaxingAccount wrote:
Mon Aug 12, 2019 12:31 pm

Maybe the fact that the bond bubble has reached absurd levels??
So, based on your interpretation of "absurd", have you removed bonds from your asset allocation?

What was it before? What is it now? What has to happen before you decide to change it back? Or have you changed to an asset allocation that you think will carry you for the long run this time?
I use CDs instead of bonds, thanks.
I guess CDs are a reasonable alternative. What duration did you choose? How much interest are you getting?
And did you only change that recently? (I'm not sure when absurdity was reached).

When bonds become no longer absurd, what asset allocation will you return to?
I was in cash but I got a 3.1% 5 year CD that I got right before the rate went down to 2.65%. Absurdity was reached when the 10 year yield fell below 2%. Hope this helps.
When was the last time absurdity was reached then? Hint... it wasn't that long ago.

But, this time is different....

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Wiggums
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Re: Should Bonds be removed from Asset Allocation

Post by Wiggums » Mon Aug 12, 2019 1:13 pm

Any fixed income type would be acceptable if you don’t like bonds. I personally stay the course. I’m boring that way and my crystal ball is in the shop. :-)

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ruralavalon
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Re: Should Bonds be removed from Asset Allocation

Post by ruralavalon » Mon Aug 12, 2019 1:53 pm

Wiggums wrote:
Mon Aug 12, 2019 1:13 pm
Any fixed income type would be acceptable if you don’t like bonds. I personally stay the course. I’m boring that way and my crystal ball is in the shop. :-)
+ 1, our time machine is broken.

We use Vanguard Intermediate-term Bond Index Fund (VBILX) and will stick with that.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Ferdinand2014
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Re: Should Bonds be removed from Asset Allocation

Post by Ferdinand2014 » Mon Aug 12, 2019 2:05 pm

Closer2323 wrote:
Mon Aug 12, 2019 12:14 pm
With what is going on right now with interest rates should the entire idea of Bonds as a % of your asset allocation be changed in favor of Cash?

For example if you are normally 80/20 Asset Allocation change that to 80% Stocks 20% Cash?

Are Intermediate Bonds less of a concern right now vs. short term bonds?
I consider fixed income to be cash and bonds. Cash I consider to be T-bills of less then 1 year duration and on the shortest term spectrum of bonds from a pragmatic standpoint. My fixed income allocation has always been cash (T-Bills). I do not make predictions regarding interest rates or inflation.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

rkhusky
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Re: Should Bonds be removed from Asset Allocation

Post by rkhusky » Mon Aug 12, 2019 2:48 pm

If you are not going to withdraw the money for 5+ years, an intermediate bond fund is fine. If it helps you sleep at night, put 20% of fixed income in a money market, short term bonds, or CD’s.

With low interest rates, I consider CD’s tiresome.
It’s a lot easier to rebalance with a bond fund - no early withdrawal penalty.

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Re: Should Bonds be removed from Asset Allocation

Post by MotoTrojan » Mon Aug 12, 2019 2:53 pm

TaxingAccount wrote:
Mon Aug 12, 2019 12:31 pm
JoeRetire wrote:
Mon Aug 12, 2019 12:21 pm
What is going on now that is making you rethink your asset allocation plan?
Maybe the fact that the bond bubble has reached absurd levels??
If this bond bubble is absurd then what do you think about all the other nations with negative interest rates?

UpperNwGuy
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Re: Should Bonds be removed from Asset Allocation

Post by UpperNwGuy » Mon Aug 12, 2019 3:07 pm

40% of my portfolio is in intermediate-term bonds. I am pleased with how they perform. I sleep well at night. I don't plan any changes.

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Phineas J. Whoopee
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Re: Should Bonds be removed from Asset Allocation

Post by Phineas J. Whoopee » Mon Aug 12, 2019 3:25 pm

Both cash, as you mentioned OP, and CDs will dampen the swings of a mixed equity / fixed income portfolio.

I think it's better to use the broader term fixed income instead of bonds. It includes CDs, and in many opinions including mine, cash.

If you're regularly investing over a long period, intending then to withdraw from your portfolio over a long time, what's happening today is less important.

The 80% of your portfolio in equities dominates your portfolio's risk. I wouldn't worry so much about obvious, inevitable popping of bubbles everyone can see but nobody accounts for, but if you'll be more confident in CDs or cash then by all means, at 80% stocks the choice will make little difference.

PJW

02nz
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Re: Should Bonds be removed from Asset Allocation

Post by 02nz » Mon Aug 12, 2019 3:28 pm

TaxingAccount wrote:
Mon Aug 12, 2019 12:31 pm
JoeRetire wrote:
Mon Aug 12, 2019 12:21 pm
What is going on now that is making you rethink your asset allocation plan?
Maybe the fact that the bond bubble has reached absurd levels??
How did you arrive at the conclusion that this was "fact," as opposed to an opinion or just some talking point of some talking head on TV?

FWIW I like to have some cash to chase bank bonuses. But I wouldn't move in and out of bonds because of economic headlines.

ohai
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Re: Should Bonds be removed from Asset Allocation

Post by ohai » Mon Aug 12, 2019 3:30 pm

If you think the "bond bubble" bursting is going to cause bond prices to fall, then you won't like what's going to happen to everything else, except maybe gold.

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Re: Should Bonds be removed from Asset Allocation

Post by Ice-9 » Mon Aug 12, 2019 4:19 pm

I believe in sticking to broad market index funds for equities. But with fixed income, as long as I stay in the universe of "sleep at night" securities (CDs, savings bonds, basically nothing riskier than Total Bond Market) I give myself some slack. I've never felt I could do too much harm actively choosing among such securities. The fixed income portion exists only to protect me from myself during volatile times for the stock market, so any of the above get the job done.

Throughout much of the early/mid part of the last decade, I opted to buy CDs in BrokerageLink in place of a bond fund. While not perfectly directly comparable, the yields on CDs for comparable maturities appeared to beat handily the SEC yields for the bond funds on my menu during a large part of that time period.

At some point that scenario stopped, so I made life simpler and started putting new fixed income contributions into short-term treasury index fund (FUMBX) or intermediate-term treasury index fund (FUAMX) instead. (One fund is in my 401(a) and the other in my 457.)

Since this thread appeared, I decided maybe I should check on yields again and re-assess.

1.84% FUMBX (short) SEC Yield
Avg maturity 2.8 yrs
Duration 2.61 yrs

vs. best new call-protected 3-yr CD on Fidelity at 1.75%

Also

1.92% FUAMX (int) SEC Yield
Avg maturity 7 yrs
Duration 6.32 yrs
vs. best new call-protected 7-yr CD on Fidelity at 1.95%

So, at least today on Fidelity, I see no compelling reason to choose CDs over the bond funds I would have purchased. I'm open to that changing, but for now I'm sticking with the bond funds for my fixed income allocation.
Last edited by Ice-9 on Mon Aug 12, 2019 4:30 pm, edited 2 times in total.

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Re: Should Bonds be removed from Asset Allocation

Post by willthrill81 » Mon Aug 12, 2019 4:25 pm

JoeRetire wrote:
Mon Aug 12, 2019 12:21 pm
What is going on now that is making you rethink your asset allocation plan?
TBM (VBTLX) is currently yielding 2.78%. A good money market (VMMXX) is yielding 2.21% and is liquid with essentially no volatility. Some 5 year CDs are paying 3.50% and are backed by the FDIC. I'd say those are potentially appealing enough to at least temporarily move out of TBM until the yields change.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Should Bonds be removed from Asset Allocation

Post by willthrill81 » Mon Aug 12, 2019 4:26 pm

Phineas J. Whoopee wrote:
Mon Aug 12, 2019 3:25 pm
I think it's better to use the broader term fixed income instead of bonds. It includes CDs, and in many opinions including mine, cash.
Do you include so-called 'cash equivalents' (e.g. T-bills) in your view of 'cash'? If so, which?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

SandysDad
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Re: Should Bonds be removed from Asset Allocation

Post by SandysDad » Mon Aug 12, 2019 4:43 pm

I consider Money Market, CD's, Commercial Bonds, and Treasury Bonds, and TIPS all part of the same general "bond mix" and I keep a mix of duration, insured / not insured etc.

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Re: Should Bonds be removed from Asset Allocation

Post by onthecusp » Mon Aug 12, 2019 4:46 pm

MotoTrojan wrote:
Mon Aug 12, 2019 2:53 pm
TaxingAccount wrote:
Mon Aug 12, 2019 12:31 pm
JoeRetire wrote:
Mon Aug 12, 2019 12:21 pm
What is going on now that is making you rethink your asset allocation plan?
Maybe the fact that the bond bubble has reached absurd levels??
If this bond bubble is absurd then what do you think about all the other nations with negative interest rates?
Exactly this. If our rates move from absurdly low to negative, the value of bonds held will rise.

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Re: Should Bonds be removed from Asset Allocation

Post by gwrvmd » Mon Aug 12, 2019 4:53 pm

Chase2323
I have had an asset allocation of 80% stock and 20% cash for the past 20 years, In fact, in 40+ years of investing I have never owned a bond
It is the asset allocation of the book "Investing at Level 3" by Dr Jim Cloonan the founder of AAII (American Association of Individual Investors) . Great book, if you are interested in an 80/20 asset allocation buy the book. The essence of the concept is in chapters 4 - 6. (Uses only 4 Index Funds....very Bogleheadish)
I could never understand why people who were worrying about how to finance investing for a lengthening longevity were buying more or any bonds that do not move with inflation
For years I thought I had a high risk portfolio but 5 years ago I learned I was investing at Level 3.
Investing at Level 3 has treated me very well but you must have the fortitude to go through 2008 with out selling......Gordon
Disciple of John Neff

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Re: Should Bonds be removed from Asset Allocation

Post by Vulcan » Mon Aug 12, 2019 4:59 pm

Worries about bonds persisted for the good part of the past decade, yet over the last 12 months Total Bond handily beat S&P 500 (9% vs 2% with dividends reinvested).

Cash did about as well as S&P:)

Past performance and yada-yada.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

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Re: Should Bonds be removed from Asset Allocation

Post by Tyler Aspect » Mon Aug 12, 2019 5:54 pm

Closer2323 wrote:
Mon Aug 12, 2019 12:14 pm
With what is going on right now with interest rates should the entire idea of Bonds as a % of your asset allocation be changed in favor of Cash?

For example if you are normally 80/20 Asset Allocation change that to 80% Stocks 20% Cash?

Are Intermediate Bonds less of a concern right now vs. short term bonds?
If bond yield goes up, it is to your benefit long term. Long term higher yields are more important than temporary price drops for a few years.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

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Phineas J. Whoopee
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Re: Should Bonds be removed from Asset Allocation

Post by Phineas J. Whoopee » Mon Aug 12, 2019 5:55 pm

willthrill81 wrote:
Mon Aug 12, 2019 4:26 pm
Phineas J. Whoopee wrote:
Mon Aug 12, 2019 3:25 pm
I think it's better to use the broader term fixed income instead of bonds. It includes CDs, and in many opinions including mine, cash.
Do you include so-called 'cash equivalents' (e.g. T-bills) in your view of 'cash'? If so, which?
I view all of it as fixed income. I look at cash as fixed income with a zero duration.

I concede it is not necessarily the consensus view, but I find no reason, at least in my own portfolio construction, to draw the distinction. I clearly identified it in the part of my post you quoted as my opinion, not as a fact.

Does that answer your question?

PJW

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Re: Should Bonds be removed from Asset Allocation

Post by willthrill81 » Mon Aug 12, 2019 6:01 pm

Phineas J. Whoopee wrote:
Mon Aug 12, 2019 5:55 pm
willthrill81 wrote:
Mon Aug 12, 2019 4:26 pm
Phineas J. Whoopee wrote:
Mon Aug 12, 2019 3:25 pm
I think it's better to use the broader term fixed income instead of bonds. It includes CDs, and in many opinions including mine, cash.
Do you include so-called 'cash equivalents' (e.g. T-bills) in your view of 'cash'? If so, which?
I view all of it as fixed income. I look at cash as fixed income with a zero duration.

I concede it is not necessarily the consensus view, but I find no reason, at least in my own portfolio construction, to draw the distinction. I clearly identified it in the part of my post you quoted as my opinion, not as a fact.

Does that answer your question?

PJW
Yes, thank you. The reason I asked is that some mean cash to be a savings account or money market account, while others consider T-bills and no-penalty CDs to be cash as well.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Should Bonds be removed from Asset Allocation

Post by Trader Joe » Mon Aug 12, 2019 6:16 pm

Closer2323 wrote:
Mon Aug 12, 2019 12:14 pm
With what is going on right now with interest rates should the entire idea of Bonds as a % of your asset allocation be changed in favor of Cash?

For example if you are normally 80/20 Asset Allocation change that to 80% Stocks 20% Cash?

Are Intermediate Bonds less of a concern right now vs. short term bonds?
What I do is invest my money in equities (Vanguard 500 Index Fund Admiral Shares (VFIAX)) and I keep cash in (Vanguard Prime Money Market Fund (VMMXX)). I do not use bonds.

TaxingAccount
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Re: Should Bonds be removed from Asset Allocation

Post by TaxingAccount » Tue Aug 13, 2019 2:57 am

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JoeRetire
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Re: Should Bonds be removed from Asset Allocation

Post by JoeRetire » Tue Aug 13, 2019 5:43 am

TaxingAccount wrote:
Tue Aug 13, 2019 2:57 am
Not sure what you are insinuating about me but if you didn't expect me to respond and I responded then when the bond bubble pops you won't expect that to happen either.
I was insinuating nothing. Instead, I was asking about your asset allocation.

"What was it before? What is it now? What has to happen before you decide to change it back? Or have you changed to an asset allocation that you think will carry you for the long run this time?"

You chose not to answer.

TaxingAccount
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Re: Should Bonds be removed from Asset Allocation

Post by TaxingAccount » Tue Aug 13, 2019 6:11 am

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JoeRetire
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Re: Should Bonds be removed from Asset Allocation

Post by JoeRetire » Tue Aug 13, 2019 6:28 am

TaxingAccount wrote:
Tue Aug 13, 2019 6:11 am
I was 90% us stock and 10% cash until august 2018. Now it's 18% us stock, 33% CDs, and 49% cash in my taxable account and 42%% us stock, 18% international stock, and 40% bonds in my 401k and HSA. I bought the 18% stock during last weeks selloff when the s&p 500 fell below 2840. I'm waiting for the s&p 500 to reach 2840 again before I switch to 42% us stock, 18% international stock, 35% CDs in my taxable account. Already did this with my IRAs last week went it went to 2820 but the bounce back happened so fast I didn't have time to get the funds transferred in time. Hope this helps.
It does help, thanks.

Good luck with all that...

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Re: Should Bonds be removed from Asset Allocation

Post by goblue100 » Tue Aug 13, 2019 6:41 am

ruralavalon wrote:
Mon Aug 12, 2019 1:53 pm
Wiggums wrote:
Mon Aug 12, 2019 1:13 pm
Any fixed income type would be acceptable if you don’t like bonds. I personally stay the course. I’m boring that way and my crystal ball is in the shop. :-)
+ 1, our time machine is broken.

We use Vanguard Intermediate-term Bond Index Fund (VBILX) and will stick with that.
+2. I use AGG for my intermediate bond needs. Last year everyone was concerned because rates were going to sky rocket. Now the recent cut has everyone up in arms. Nobody knows nothing. Set it, balance it, and stay the course.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

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Re: Should Bonds be removed from Asset Allocation

Post by RickBoglehead » Tue Aug 13, 2019 6:42 am

TaxingAccount wrote:
Tue Aug 13, 2019 6:11 am
JoeRetire wrote:
Tue Aug 13, 2019 5:43 am
TaxingAccount wrote:
Tue Aug 13, 2019 2:57 am
Not sure what you are insinuating about me but if you didn't expect me to respond and I responded then when the bond bubble pops you won't expect that to happen either.
I was insinuating nothing. Instead, I was asking about your asset allocation.

"What was it before? What is it now? What has to happen before you decide to change it back? Or have you changed to an asset allocation that you think will carry you for the long run this time?"

You chose not to answer.
I was 90% us stock and 10% cash until august 2018. Now it's 18% us stock, 33% CDs, and 49% cash in my taxable account and 42%% us stock, 18% international stock, and 40% bonds in my 401k and HSA. I bought the 18% stock during last weeks selloff when the s&p 500 fell below 2840. I'm waiting for the s&p 500 to reach 2840 again before I switch to 42% us stock, 18% international stock, 35% CDs in my taxable account. Already did this with my IRAs last week went it went to 2820 but the dip buyers came in so fast and bought VT Sacks that I didn't have time to get the funds transferred in time. Hope this helps.
Seems like your AA is all over the place.

For the OP, I consider the fixed income side of my AA to be bonds, CDs, and money markets. Last week I moved a big chunk from Vanguard Prime Money Market to 2.3% No Penalty CDs.
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z3r0c00l
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Re: Should Bonds be removed from Asset Allocation

Post by z3r0c00l » Tue Aug 13, 2019 6:42 am

So glad I didn't listen to the "why bonds" posts a year ago! Up what, 10%? Incredible year for bonds and glad to have it while stocks are floundering a bit.

lostdog
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Re: Should Bonds be removed from Asset Allocation

Post by lostdog » Tue Aug 13, 2019 6:57 am

According to our IPS, I will buy total world bond fund when we hit our target number.

For short term cash, I use vanguard short term bond index fund and a few months of cash in checking to pay the bills.
Last edited by lostdog on Tue Aug 13, 2019 6:59 am, edited 1 time in total.
VT/VTWAX+BNDW

UpperNwGuy
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Re: Should Bonds be removed from Asset Allocation

Post by UpperNwGuy » Tue Aug 13, 2019 6:58 am

z3r0c00l wrote:
Tue Aug 13, 2019 6:42 am
So glad I didn't listen to the "why bonds" posts a year ago! Up what, 10%? Incredible year for bonds and glad to have it while stocks are floundering a bit.
+1

bck63
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Re: Should Bonds be removed from Asset Allocation

Post by bck63 » Tue Aug 13, 2019 6:59 am

I couldn't stand being 100% equities so I really don't have a choice but to invest in bonds at an asset allocation I'm comfortable with. I hate cash but am planning on increasing cash to 5% of my portfolio, just to feel more comfortable and have more on hand. I don't think it will make a significant difference in my returns and will make me feel better.

Call_Me_Op
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Re: Should Bonds be removed from Asset Allocation

Post by Call_Me_Op » Tue Aug 13, 2019 7:10 am

Closer2323 wrote:
Mon Aug 12, 2019 12:14 pm
With what is going on right now with interest rates should the entire idea of Bonds as a % of your asset allocation be changed in favor of Cash?

For example if you are normally 80/20 Asset Allocation change that to 80% Stocks 20% Cash?

Are Intermediate Bonds less of a concern right now vs. short term bonds?
Cash is nothing more than a zero-duration bond. Changing duration of one's bond portfolio (based upon current economic conditions) is certainly not a crime, but has historically not paid-off. The reason is you are betting against the bond market, which is very large and very efficient.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

KlangFool
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Re: Should Bonds be removed from Asset Allocation

Post by KlangFool » Tue Aug 13, 2019 7:23 am

OP,

What is the problem?

If you have a fixed AA of 80/20, with the recent run up of bond, you would either

A) Put your new money into the stock.

B) Sell bond and buy the stock to keep your AA at 80/20.

Why do you need to change your AA?

My AA is at 60/40. With my annual rebalancing, I am selling the bond fund to buy the stock. I keep 1 1/2 year of expense in the emergency fund. I have plenty of cash too.

KlangFool

sabtastic
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Re: Should Bonds be removed from Asset Allocation

Post by sabtastic » Tue Aug 13, 2019 8:02 am

Stay the course. Stay the course. Stay the course.

The storm is just brewing, so it is OK to be nervous, but if you start changing things now you won't be prepared for the real thing and you will panic.

I am curious though, given where things appear to be going, why are you nervous holding bonds, assuming high quality and low risk of default? If properly diversified the only real risk is currency which you would also be exposed to with cash...

FWIW, we are nearly 100% equities and have been for years (down payment savings excepted). Every bone in my body says to sell everything and run for the hills, but if I listened to that I would have sold in 2011 or even earlier and never got back in.

So, again, in John Bogle's voice "Stay the course"

chicagoan23
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Re: Should Bonds be removed from Asset Allocation

Post by chicagoan23 » Tue Aug 13, 2019 9:08 am

TaxingAccount wrote:
Tue Aug 13, 2019 6:11 am
JoeRetire wrote:
Tue Aug 13, 2019 5:43 am
TaxingAccount wrote:
Tue Aug 13, 2019 2:57 am
Not sure what you are insinuating about me but if you didn't expect me to respond and I responded then when the bond bubble pops you won't expect that to happen either.
I was insinuating nothing. Instead, I was asking about your asset allocation.

"What was it before? What is it now? What has to happen before you decide to change it back? Or have you changed to an asset allocation that you think will carry you for the long run this time?"

You chose not to answer.
I was 90% us stock and 10% cash until august 2018. Now it's 18% us stock, 33% CDs, and 49% cash in my taxable account and 42%% us stock, 18% international stock, and 40% bonds in my 401k and HSA. I bought the 18% stock during last weeks selloff when the s&p 500 fell below 2840. I'm waiting for the s&p 500 to reach 2840 again before I switch to 42% us stock, 18% international stock, 35% CDs in my taxable account. Already did this with my IRAs last week went it went to 2820 but the dip buyers came in so fast and bought VT Sacks that I didn't have time to get the funds transferred in time. Hope this helps.
This is hilarious. Do you really think that you know what the markets are going to do so well that you see a functional difference between 2840 and 2820? What size is your portfolio that you are making 20-30% swings with? And what are you going to do with your *five-year* CD fixed at 3.1%? Do you trade that too? I hope so because otherwise you would have been much better off buying Treasuries as rates started their fall. If it continues it will be even worse.

pkcrafter
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Re: Should Bonds be removed from Asset Allocation

Post by pkcrafter » Tue Aug 13, 2019 9:53 am

Closer2323 wrote:
Mon Aug 12, 2019 12:14 pm
With what is going on right now with interest rates should the entire idea of Bonds as a % of your asset allocation be changed in favor of Cash?
No. If you are going to change your AA based on very current news/events you will violate a primary Boglehead tenet -- Buy and then Hold. Then you are done until major long-term conditions change things. If this bond bump causes readers to change allocations, what are they going to do when tested with stocks? Bogleheads do not react to market noise or unusual fluctuations. Surprising to see some of the suggestions in this thread. Stay on course, nothing to see here.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

chicagoan23
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Re: Should Bonds be removed from Asset Allocation

Post by chicagoan23 » Tue Aug 13, 2019 10:29 am

TaxingAccount wrote:
Tue Aug 13, 2019 10:05 am
chicagoan23 wrote:
Tue Aug 13, 2019 9:08 am

This is hilarious. Do you really think that you know what the markets are going to do so well that you see a functional difference between 2840 and 2820? What size is your portfolio that you are making 20-30% swings with? And what are you going to do with your *five-year* CD fixed at 3.1%? Do you trade that too? I hope so because otherwise you would have been much better off buying Treasuries as rates started their fall. If it continues it will be even worse.
[inappropriate comment removed by Moderator Misenplace]
I am sure that your portfolio is outperforming mine on an absolute basis, which is OK with me because I have little need to take significant risk. But I assure you that I slept just fine throughout December, and for the past few years, actually.

Regardless, I'm curious as to why someone with such active trading tendencies would want to lock up their money for five years at 3.1%. Assuming that CD is for a substantial sum, it is worth a lot more now than it was when the 10-year yield was at 2.5%. Can you trade it? Are you waiting for rates to drop further before trading (if that's even possible), or are you really just looking for that safe 3.1% annual income over the next five years, with no liquidity?

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