Bond allocation

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Mcgrass
Posts: 4
Joined: Sat Oct 06, 2018 11:15 am

Bond allocation

Post by Mcgrass » Sun Dec 29, 2019 12:33 pm

I'm retired and am 68. Small pension and not taking social security until 70. About 1.2m in stocks, mostly index funds and 750k in money mkt at about 2% with Vanguard.I keep hearing about 100-age for stocks, but bond yields are so low and it seems interest rates will likely rise devaluing bonds further. I figure the cash will last 5 years or more so I don't worry too much about stock market variations. I'm rolling some of my IRA into a Roth each year. Any thoughts about my admittedly aggressive positions? Should I really consider bonds?

Quaestner
Posts: 238
Joined: Tue Jul 18, 2017 6:39 pm

Re: Bond allocation

Post by Quaestner » Sun Dec 29, 2019 12:46 pm

So, you're about at 60/40. You've got a pension (you'll get better answers if you say what size), SS in two years, plus close to $2 million. It seems like you can take risk, but do you need to? Are you single? Debt? Without knowing more, I would say yes, you should strongly consider bonds. If you are sticking with your asset allocation in the long run, that 40% would likely do more for you if most of it was in bonds vs. cash.

User avatar
bigROI
Posts: 217
Joined: Tue Jun 15, 2010 9:08 am

Re: Bond allocation

Post by bigROI » Sun Dec 29, 2019 12:48 pm

It might be good to consider some tax efficient munis vs money market that has just a 250k FDIC insurance.
VTEB or something similar might be good for 500k of those funds. I don't think you are to agressive with a SS and pension backing.
A penny saved is much more then a penny earned when you consider the tax/SS/medicare cut.

dbr
Posts: 32854
Joined: Sun Mar 04, 2007 9:50 am

Re: Bond allocation

Post by dbr » Sun Dec 29, 2019 12:55 pm

Money market is bonds in the sense of asset allocation and 2% is lousy return, so you are already there at 60/40 or so.

Is there any any sense is shifting cash to an actual bond fund right now? Probably not with a flat yield curve. Although personally I think a good long term holding is any low cost, diversified, intermediate term bond fund. Long term investors don't need to time interest rates.

Age based rules are silly and should be ignored. 60/40 is probably a very good asset allocation for people near and in retirement. So is 40/60. The one issue is what you might do if stocks would plunge 50% in a year. What is your thought about that? You would be $600,000 poorer nearly overnight. The question is what is the long term behavior of stocks given inevitable rises and falls in the market.
Last edited by dbr on Sun Dec 29, 2019 1:10 pm, edited 1 time in total.

Mr. Rumples
Posts: 887
Joined: Sun Aug 25, 2019 7:16 am

Re: Bond allocation

Post by Mr. Rumples » Sun Dec 29, 2019 12:57 pm

For my situation, a rising equity allocation as I age makes sense:

https://www.kitces.com/blog/should-equi ... ly-better/

User avatar
Mullins
Posts: 135
Joined: Wed May 08, 2019 4:38 pm

Re: Bond allocation

Post by Mullins » Sun Dec 29, 2019 1:07 pm

Mcgrass wrote:
Sun Dec 29, 2019 12:33 pm
I'm retired and am 68. Small pension and not taking social security until 70. About 1.2m in stocks, mostly index funds and 750k in money mkt at about 2% with Vanguard.I keep hearing about 100-age for stocks, but bond yields are so low and it seems interest rates will likely rise devaluing bonds further. I figure the cash will last 5 years or more so I don't worry too much about stock market variations. I'm rolling some of my IRA into a Roth each year. Any thoughts about my admittedly aggressive positions? Should I really consider bonds?
Your concerns about bonds are valid. How to treat it has to do with your plan for that money. I'm assuming the cash is there to ride out down markets or withdraw over the next five years?

If so, you have about 40% in cash, in effect, a very low yield short term bond as it is. But bond yields are low now too. Having five years of expenses in cash, you'd want the first couple of years you'll be withdrawing to remain in cash and so we're really talking about the third to fifth year's worth of cash, $300,000. I don't see a great need to put that segment of cash into bonds or see a big benefit in so doing, risking a couple of year's living expenses for a couple of points at the cost of increasing risk for money you're going to tap in three years.

DesertInvestor
Posts: 175
Joined: Tue Dec 20, 2016 1:04 pm

Re: Bond allocation

Post by DesertInvestor » Sun Dec 29, 2019 1:10 pm

I have similar situation and was thinking of buying stocks in my taxable and converting cash into bonds in tax deferred. At least in that scenario the yield is more tax efficient and add bonds to my asset allocation in addition to cash.

User avatar
patrick013
Posts: 2926
Joined: Mon Jul 13, 2015 7:49 pm

Re: Bond allocation

Post by patrick013 » Sun Dec 29, 2019 1:31 pm

Mcgrass wrote:
Sun Dec 29, 2019 12:33 pm
I keep hearing about 100-age for stocks, but bond yields are so low and it seems interest rates will likely rise devaluing bonds further. I figure the cash will last 5 years or more so I don't worry too much about stock market variations.
Age-in-bonds stop at 50-50 is pretty hard to beat, but 100-age for stocks is a conservative approach, safe and usually within one's budget. I'd go with a 3 year CD equal ladder myself for bonds. Good but not great returns but the principal would be safe. If stocks devalue we spend some CD's when they mature. Stock AA certainly depends on level of risk (stock AA) you decide.
age in bonds, buy-and-hold, 10 year business cycle

dbr
Posts: 32854
Joined: Sun Mar 04, 2007 9:50 am

Re: Bond allocation

Post by dbr » Sun Dec 29, 2019 1:34 pm

Don't forget that in theory if stocks go down one should be rebalancing into stocks by selling cash/bonds and buying stocks. It might be more comfortable to do that starting at 40/60 than at 60/40.

Post Reply