No Bonds? Late 30s, early 40s?

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UnLearnYourself
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No Bonds? Late 30s, early 40s?

Post by UnLearnYourself »

Curious to get the Bogle perspective on a portfolio that includes NO bonds, or a very low level of bonds for somebody in their late 30s/early 40s?

I'm 38, so I've got a solid 20+ years till retirement, and watching markets ebb and flow won't keep me up at night so I'd say I have a solid risk tolerance. I'd certainly want to get more conservative as I near retirement, but wanted to hear from people in this community on the matter.

I'm migrating out of target date funds (that had a 7% bond holding) and into more of a 3-fund portfolio in order to cut down on expense ratio fees, so in the coming weeks I'll have to set my AA and this question is a fairly timely one for me to make an initial decision on. Prior advice on these forums was suggesting 20% bonds or more. So just wanting to explore this a bit further.
Last edited by UnLearnYourself on Fri Jan 31, 2020 1:55 pm, edited 1 time in total.
yougotitdude
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Re: No Bonds? Late 30s, early 40s?

Post by yougotitdude »

What's the worst market draw down you've experienced?
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UnLearnYourself
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Re: No Bonds? Late 30s, early 40s?

Post by UnLearnYourself »

yougotitdude wrote: Fri Jan 31, 2020 1:54 pm What's the worst market draw down you've experienced?
I graduated college in 2005 so I got to see what little money I had in the market all but disappear a few years later. Being the amateur I was at the time I sold what I had and ran for the hills! Then I spoke to my grandfather who was a banker who explained to me why he was buying, and shared the concept of dollar cost averaging to me. So I got back in. Despite that wisdom I was still a little shook by watching what took place and hadn't quite learned enough to have a real strong grasp on investing, so in the few years that followed I had a super conservative portfolio with 40% + bonds while doing residential energy audits. I did an audit for a financial advisor who spent 3+ hours talking to me about finance and brought me in his office and showed me a chart of the past 100+ years of the S&P and how that curve inevitably continued to rise over time, and being in my late 20s a light bulb went off and I realized how much time I had to ride the dips, which looks like little blips on that big chart.

So to that point, I haven't been all that exposed to market draws, but conceptually I have a fair handle on the dynamic and know myself well enough to know I'm disciplined enough at this age not to overreact if/when another big hit comes.
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Re: No Bonds? Late 30s, early 40s?

Post by retired@50 »

yougotitdude wrote: Fri Jan 31, 2020 1:54 pm What's the worst market draw down you've experienced?
This raises a good issue. If all you've ever experienced are blue skies, it's hard to know how you'll react to a thunderstorm.

I'd recommend at least 10% to 20% in bonds to reduce volatility and help you rest easier when the market does head south. You could take the next couple of years to move into the bond position if you're in no hurry to reduce volatility.

Regards,
This is one person's opinion. Nothing more.
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Re: No Bonds? Late 30s, early 40s?

Post by Unladen_Swallow »

I don't subscribe to a Bond formula.

Your allocation is unique to your financial situation (which your post doesn't detail). Just going by age isn't a worthy exercise in my view.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman
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UnLearnYourself
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Re: No Bonds? Late 30s, early 40s?

Post by UnLearnYourself »

retired@50 wrote: Fri Jan 31, 2020 2:02 pm
yougotitdude wrote: Fri Jan 31, 2020 1:54 pm What's the worst market draw down you've experienced?
This raises a good issue. If all you've ever experienced are blue skies, it's hard to know how you'll react to a thunderstorm.

I'd recommend at least 10% to 20% in bonds to reduce volatility and help you rest easier when the market does head south. You could take the next couple of years to move into the bond position if you're in no hurry to reduce volatility.

Regards,
So what I'm gathering from these couple posts is my greater risk is emotional, and not so much mathematical?

Let's say hypothetically that I am 100% certain that I will not lose sleep and that I won't react and make drastic moves to my accounts in a bad market environment. Is there any strong reason for me to hold a large sum or any bonds at this age?
seymore92
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Re: No Bonds? Late 30s, early 40s?

Post by seymore92 »

I’m in a similar position (age) as OP. I refer to this vanguard page and note in the Growth section that the average return for a 100/0 vs 80/20 is close (0.7% difference), with the 80/20 having a much smaller worst-case historical downturn.

https://personal.vanguard.com/us/insigh ... llocations

I’m currently around 90/10 due to the amount of tax-deferred space for bonds but slowly increasing through I-bond purchases and maybe other tax-free bond options in the future.
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Re: No Bonds? Late 30s, early 40s?

Post by UnLearnYourself »

Unladen_Swallow wrote: Fri Jan 31, 2020 2:02 pm I don't subscribe to a Bond formula.

Your allocation is unique to your financial situation (which your post doesn't detail). Just going by age isn't a worthy exercise in my view.
I make about $100k a year with a 5-10% bonus depending on the year's performance, married, max out my 401k with a company who adds an additional 6% in and has an accelerated match plan the longer you're with the company (will go up another 2.5% in just shy of 2 years, then another 2.5% several years later), max my Roth and my wife's, max our HSA and try to pay out of pocket as much as we can to let that accrue, have an 11 month old baby that I'm putting $300/mo into a 529, have another on the way in April who I plan to do the same for, and plan to increase contributions for both of them as I see a few raises over the next couple years. Wife isn't working for now to be with the kids but was earning around $50k a year when she was, so I'd suspect that income will return to an extent over the next few years. I have no student loans, a small auto loan at 2.49%, I own a 3-family in a very very strong rental market that we also live in, and after rents my monthly mortgage obligation is only about $500/mo on a 20yr loan at 3.5%. We're by no means rich, but I feel we have a very stable Bogle-worthy financial setup overall. And while I am not necessarily planning for or counting on this, my wife and I both stand to inherit some decent assets far into the future, but I function as if there's nothing there.
Last edited by UnLearnYourself on Fri Jan 31, 2020 2:14 pm, edited 2 times in total.
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UnLearnYourself
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Re: No Bonds? Late 30s, early 40s?

Post by UnLearnYourself »

seymore92 wrote: Fri Jan 31, 2020 2:07 pm I’m in a similar position (age) as OP. I refer to this vanguard page and note in the Growth section that the average return for a 100/0 vs 80/20 is close (0.7% difference), with the 80/20 having a much smaller worst-case historical downturn.

https://personal.vanguard.com/us/insigh ... llocations

I’m currently around 90/10 due to the amount of tax-deferred space for bonds but slowly increasing through I-bond purchases and maybe other tax-free bond options in the future.
Can you speak more to the tax-deferred space for bonds and tax-free bond options? Last I posted on a similar issue folks were recommending I use my Roth to hold any/all bonds and my 401k for equities. So much to learn...
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1789
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Re: No Bonds? Late 30s, early 40s?

Post by 1789 »

Age 36 here. No bonds. Only cash in MMFs
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
FrugalConservative
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Re: No Bonds? Late 30s, early 40s?

Post by FrugalConservative »

Age 40.

85/15.

I sleep well at night, but that is me, others may be more comfortable at 70/30.
seymore92
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Re: No Bonds? Late 30s, early 40s?

Post by seymore92 »

Non-Roth (traditional) 401k/IRÁ for bonds. Roth for your stocks! If something isn’t going to grow much (bonds) you want that to be the traditional tax-deferred 401k/ira space which will be taxed when you convert/withdraw. You want your gains to be tax-free as much as possible. So all my iRA is bonds and all my Roth is VTI (or equivalents)
BV3273
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Re: No Bonds? Late 30s, early 40s?

Post by BV3273 »

Like someone else stated my fixed income is in HYS and a Muni fund held in my taxable. That’s it. It serves dual purpose as an EF and the fixed income portion of my overall portfolio. Everything else is equities.
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Re: No Bonds? Late 30s, early 40s?

Post by retired@50 »

UnLearnYourself wrote: Fri Jan 31, 2020 2:05 pm
retired@50 wrote: Fri Jan 31, 2020 2:02 pm
yougotitdude wrote: Fri Jan 31, 2020 1:54 pm What's the worst market draw down you've experienced?
This raises a good issue. If all you've ever experienced are blue skies, it's hard to know how you'll react to a thunderstorm.

I'd recommend at least 10% to 20% in bonds to reduce volatility and help you rest easier when the market does head south. You could take the next couple of years to move into the bond position if you're in no hurry to reduce volatility.

Regards,
So what I'm gathering from these couple posts is my greater risk is emotional, and not so much mathematical?

Let's say hypothetically that I am 100% certain that I will not lose sleep and that I won't react and make drastic moves to my accounts in a bad market environment. Is there any strong reason for me to hold a large sum or any bonds at this age?
Yes, emotional risk is a reality that most investors face. * IF * you have a cast iron stomach and won't do anything impulsive, then maybe you are one of the rare folks who never bothers to hold bonds. At some point though, as they say, when you've won the game, it may be time to take your money (or some of it) off the table. This gets into holding enough high quality bonds to match your expenses during retirement. I'd suggest you look into some of the efficient frontier diagrams that show how holding bonds affects a portfolio. See link.

Regards,

https://www.youngresearch.com/wp-conten ... ontier.png
This is one person's opinion. Nothing more.
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Re: No Bonds? Late 30s, early 40s?

Post by KlangFool »

UnLearnYourself wrote: Fri Jan 31, 2020 2:05 pm
So what I'm gathering from these couple posts is my greater risk is emotional, and not so much mathematical?

Let's say hypothetically that I am 100% certain that I will not lose sleep and that I won't react and make drastic moves to my accounts in a bad market environment. Is there any strong reason for me to hold a large sum or any bonds at this age?
UnLearnYourself,

1) If you are unemployed in a recession and you used up all your emergency fund, you will sell stock to feed your family regardless of your feeling. So, the risk is not only emotional.

2) Please understand the trade-off of each AA. There is no reason to have AA outside the range of 70/30 to 30/70. You are not provided sufficient additional return to take those extra risks. Check out the following URL.

https://personal.vanguard.com/us/insigh ... llocations

KlangFool
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UnLearnYourself
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Re: No Bonds? Late 30s, early 40s?

Post by UnLearnYourself »

retired@50 wrote: Fri Jan 31, 2020 2:27 pmI'd suggest you look into some of the efficient frontier diagrams that show how holding bonds affects a portfolio. See link.

Regards,

https://www.youngresearch.com/wp-conten ... ontier.png
Thanks I will certainly spend time reviewing this.
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UnLearnYourself
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Re: No Bonds? Late 30s, early 40s?

Post by UnLearnYourself »

KlangFool wrote: Fri Jan 31, 2020 2:28 pm2) Please understand the trade-off of each AA. There is no reason to have AA outside the range of 70/30 to 30/70. You are not provided sufficient additional return to take those extra risks. Check out the following URL.

https://personal.vanguard.com/us/insigh ... llocations

KlangFool
I will review this as well. Better understanding these dynamics is exactly why I made this post and why I love this community of investors. Thanks for the added food for thought.
seymore92
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Re: No Bonds? Late 30s, early 40s?

Post by seymore92 »

The book a Random Walk Down Wall Street discusses the efficient frontier nicely too. It’s an unintuitive concept for sure.
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Re: No Bonds? Late 30s, early 40s?

Post by Dottie57 »

retired@50 wrote: Fri Jan 31, 2020 2:02 pm
yougotitdude wrote: Fri Jan 31, 2020 1:54 pm What's the worst market draw down you've experienced?
This raises a good issue. If all you've ever experienced are blue skies, it's hard to know how you'll react to a thunderstorm.

I'd recommend at least 10% to 20% in bonds to reduce volatility and help you rest easier when the market does head south. You could take the next couple of years to move into the bond position if you're in no hurry to reduce volatility.

Regards,
+1. Lower volatility and a way to rebalance.

Bet your urge to run for the hills would be highly amplified when you see a stockpile in the 100s of thousands melt away.
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Re: No Bonds? Late 30s, early 40s?

Post by sycamore »

UnLearnYourself wrote: Fri Jan 31, 2020 2:11 pm
Unladen_Swallow wrote: Fri Jan 31, 2020 2:02 pm I don't subscribe to a Bond formula.

Your allocation is unique to your financial situation (which your post doesn't detail). Just going by age isn't a worthy exercise in my view.
I make about $100k a year with a 5-10% bonus depending on the year's performance, married, max out my 401k with a company who adds an additional 6% in and has an accelerated match plan the longer you're with the company (will go up another 2.5% in just shy of 2 years, then another 2.5% several years later), max my Roth and my wife's, max our HSA and try to pay out of pocket as much as we can to let that accrue, have an 11 month old baby that I'm putting $300/mo into a 529, have another on the way in April who I plan to do the same for, and plan to increase contributions for both of them as I see a few raises over the next couple years. Wife isn't working for now to be with the kids but was earning around $50k a year when she was, so I'd suspect that income will return to an extent over the next few years. I have no student loans, a small auto loan at 2.49%, I own a 3-family in a very very strong rental market that we also live in, and after rents my monthly mortgage obligation is only about $500/mo on a 20yr loan at 3.5%. We're by no means rich, but I feel we have a very stable Bogle-worthy financial setup overall. And while I am not necessarily planning for or counting on this, my wife and I both stand to inherit some decent assets far into the future, but I function as if there's nothing there.
You and your family are doing great by focusing on keeping expenses reasonable, minimizing debt (or keeping only "good" debt), maximizing available tax advantages (401k, HSA, Roth), diversification (via real estate), all good stuff and in my opinion more important at your stage of life than having the right AA. You've got years ahead of earning potential in front of you.

Others posts above talked about the emotional aspect of dealing with a downturn. I agree that it's important, and think it's why having some minimal amount of fixed income (say 15%) is good until you experience a bear market for the first time.
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Re: No Bonds? Late 30s, early 40s?

Post by Dandy »

There are several things about investing, age and risk that weren't always fully realized by me.
1. Percentages can mislead e.g. a 50% drop in equities feels and is somewhat is different if you have $20,000 in equities vs $200,000. "lose $10k and you feel that you can make it up with contributions rather quickly. Not so for when you "lose" $100k.

2. Age and associated risk kind of sneaks up on you a second at a time. It is easy to under estimate how much contribution time is left and what effect that has on helping to make up any portfolio plunges. If your 55 with a 50/50 allocation of a 2 million portfolio a 50% drop in equities is $500k. You may plan to work to 60 but contributions are usually not going to give you as much help as they did when you had more human capital.

Also, many retirees are surprised that their company often decides when the will retire. (I worked for 2 mega companies and lost one job at 52 and the other at 60. Was planning on retiring at 65 -- surprise! Your human capital is important and not always under your control -- so with the same allocation the real risk is different as your human capital fades. Every year older is one less year of contributions, and salary, and bonus, and company match, and one year closer to drawing down from your portfolio.

3. If you have set a reasonable retirement number goal and reach it you may not need the same allocation that got you there. The shift from a more growth portfolio and risk to a more asset preservation and less risk is often a difficult transition. e.g. "I got to my number with XX/YY allocation -- why change? " There is still some decent growth possible with a lower risk portfolio -- possibly for a retirement of decades. Going from a 60/40 to a 40/60 doesn't mean no growth.

4. I piled up a nice retirement nest egg in my 401k and enjoyed the tax breaks that came with double digit contributions. I spent less time focusing on my retirement tax bracket. The focus was on getting to my number, when to take Social Security, my allocation in retirement and my early of retirement income. RMDs will keep me in a high tax bracket for life.
Not a complaint. But, should have done a bit more Roth Conversions or Roth contributions.

My recommendations are: Think of risk in terms of dollars not only percentages, assume you will have to retire 5 years before you want to, when you get close to your number and/or retirement goal reduce risk, focus on post retirement tax bracket to see what Roth Conversions make sense and the goal that is most important is that you can securely fund your retirement. I think, except for those who are very early in the accumulation stage, - fixed income plays an increasing role.
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Re: No Bonds? Late 30s, early 40s?

Post by carminered2019 »

from 1995-2019(age 24-50) I was 100% in equities with zero bonds even with couple major recessions, many corrections and Sep 11 attack and I was still up 375%+ in 2019. The key is to stay low on yearly expenses, have a secured job, DO NOT SELL in a down market but buy more and be 100% in equities until you are close to retirement age.

There has never been a negative return in any 20 year time frame from the DOW.
Last edited by carminered2019 on Fri Jan 31, 2020 4:30 pm, edited 2 times in total.
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UnLearnYourself
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Re: No Bonds? Late 30s, early 40s?

Post by UnLearnYourself »

Dandy wrote: Fri Jan 31, 2020 2:52 pm There are several things about investing, age and risk that weren't always fully realized by me.
1. Percentages can mislead e.g. a 50% drop in equities feels and is somewhat is different if you have $20,000 in equities vs $200,000. "lose $10k and you feel that you can make it up with contributions rather quickly. Not so for when you "lose" $100k.

2. Age and associated risk kind of sneaks up on you a second at a time. It is easy to under estimate how much contribution time is left and what effect that has on helping to make up any portfolio plunges. If your 55 with a 50/50 allocation of a 2 million portfolio a 50% drop in equities is $500k. You may plan to work to 60 but contributions are usually not going to give you as much help as they did when you had more human capital.

Also, many retirees are surprised that their company often decides when the will retire. (I worked for 2 mega companies and lost one job at 52 and the other at 60. Was planning on retiring at 65 -- surprise! Your human capital is important and not always under your control -- so with the same allocation the real risk is different as your human capital fades. Every year older is one less year of contributions, and salary, and bonus, and company match, and one year closer to drawing down from your portfolio.

3. If you have set a reasonable retirement number goal and reach it you may not need the same allocation that got you there. The shift from a more growth portfolio and risk to a more asset preservation and less risk is often a difficult transition. e.g. "I got to my number with XX/YY allocation -- why change? " There is still some decent growth possible with a lower risk portfolio -- possibly for a retirement of decades. Going from a 60/40 to a 40/60 doesn't mean no growth.

4. I piled up a nice retirement nest egg in my 401k and enjoyed the tax breaks that came with double digit contributions. I spent less time focusing on my retirement tax bracket. The focus was on getting to my number, when to take Social Security, my allocation in retirement and my early of retirement income. RMDs will keep me in a high tax bracket for life.
Not a complaint. But, should have done a bit more Roth Conversions or Roth contributions.

My recommendations are: Think of risk in terms of dollars not only percentages, assume you will have to retire 5 years before you want to, when you get close to your number and/or retirement goal reduce risk, focus on post retirement tax bracket to see what Roth Conversions make sense and the goal that is most important is that you can securely fund your retirement. I think, except for those who are very early in the accumulation stage, - fixed income plays an increasing role.
Thank you for your thoughtful reply! (And for the thoughtful replies of each post really). As always plenty to consider.

One kicker at the moment is I don't even have a number I'm reaching for set yet! So far my focus has been on fundamental education, maxing out my tax advantaged accounts, understanding the impact of fees and reducing them, establishing an AA and rebalancing schedule, etc. But now that I'm just about at a position where I have these basics met I need to turn my focus towards more specific longer term goals as well as what's next as my income increases and I find myself with more cash to invest above and beyond these foundational accounts. Always more to learn, and I love learning and find it very empowering and rewarding.

Almost all thanks goes to this community for offering incremental knowledge as questions arise.
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Re: No Bonds? Late 30s, early 40s?

Post by mbasherp »

Mid 30’s here, no bonds. We do have a 6 month cash emergency fund and sinking fund for expected replacements. That, combined with our personal situation and and the fact that we have a near 6 figure taxable account in equities means that I feel we are covered for every reasonable liquidity need. Holding bonds for rebalancing or as an extended emergency fund doesn’t appeal much in our case. Emotional arguments don’t sway me much, since all of my bad financial moves were made years ago before I learned to stop acting emotionally.

There’s a concept I have pondered regarding the order of investments. My thought is that, all else being equal, it would be best to buy all the stock allocation I expect to have in my lifetime before buying the bonds I expect to need in my retirement asset allocation. Stocks have a higher expected return, so buying earlier means buying cheaper. And adding bonds later has the effect of a bond tent strategy, even if not being one officially.

The only caveat when being so heavily invested in stocks is that you have to be careful not to get caught with your pants down in a crash. Always have expected/potential spending available in cash. Beyond that, after even a couple years of accumulation you will have extended funds available if things got really bad. Further beyond that, doomsday arguments wouldn’t be prevented by any percentage of bond allocation.
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Re: No Bonds? Late 30s, early 40s?

Post by Hockey10 »

I never had any bonds until I was in my 50s. As long as you can handle the risk of large stock market drops and can sleep well at night, I don't see a need for bonds at your age.
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Tony-S
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Re: No Bonds? Late 30s, early 40s?

Post by Tony-S »

UnLearnYourself wrote: Fri Jan 31, 2020 1:53 pm Curious to get the Bogle perspective on a portfolio that includes NO bonds, or a very low level of bonds for somebody in their late 30s/early 40s?
I was 100% stocks until I was 52 because there was only one or two 10 year periods where bonds did better. I’m now 56 and am 70/30 and will go to 60/40 in a couple of years before 50/50 at 65.
renegade06
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Re: No Bonds? Late 30s, early 40s?

Post by renegade06 »

I’m 44 years old and I have 10% bonds all in my 401k. FWIW, Vanguard 2040 has 17% bonds and my plan is to get closer to that. I am using that target date retirement has a general rule of thumb.
stocknoob4111
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Re: No Bonds? Late 30s, early 40s?

Post by stocknoob4111 »

I am at 16% bonds wanting to go to 0%.... mid 40s. For a 15+ year time horizon I don't see the point of holding any bonds...
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Re: No Bonds? Late 30s, early 40s?

Post by yougotitdude »

retired@50 wrote: Fri Jan 31, 2020 2:27 pm
UnLearnYourself wrote: Fri Jan 31, 2020 2:05 pm
retired@50 wrote: Fri Jan 31, 2020 2:02 pm
yougotitdude wrote: Fri Jan 31, 2020 1:54 pm What's the worst market draw down you've experienced?
This raises a good issue. If all you've ever experienced are blue skies, it's hard to know how you'll react to a thunderstorm.

I'd recommend at least 10% to 20% in bonds to reduce volatility and help you rest easier when the market does head south. You could take the next couple of years to move into the bond position if you're in no hurry to reduce volatility.

Regards,
So what I'm gathering from these couple posts is my greater risk is emotional, and not so much mathematical?

Let's say hypothetically that I am 100% certain that I will not lose sleep and that I won't react and make drastic moves to my accounts in a bad market environment. Is there any strong reason for me to hold a large sum or any bonds at this age?
Yes, emotional risk is a reality that most investors face. * IF * you have a cast iron stomach and won't do anything impulsive, then maybe you are one of the rare folks who never bothers to hold bonds. At some point though, as they say, when you've won the game, it may be time to take your money (or some of it) off the table. This gets into holding enough high quality bonds to match your expenses during retirement. I'd suggest you look into some of the efficient frontier diagrams that show how holding bonds affects a portfolio. See link.

Regards,

https://www.youngresearch.com/wp-conten ... ontier.png
Well, no one is 100% certain they won't sell. What if the market drops 80% and you lose your job? Believe me, there was a very real chance we could have gone through a second Great Depression in 2008. With that being said, a 100% stock portfolio should beat a mixture of stocks and bonds over the next 20-30 years.
stocknoob4111
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Re: No Bonds? Late 30s, early 40s?

Post by stocknoob4111 »

When your portfolio is large enough you will have wild swings of tens of thousands, a smattering of bonds isn't going to help you if you're risk averse... may as well go all in else do something radical such as 50/50. Most are not that conservative. Holding 10% or 20% bonds isn't going to help you that much when you have other "WILD" asset classes like International and Emerging markets which many people hold.

As I said I have 16% bonds and lost $25k just in the last week since the high, if I were the panicking type the bonds certainly would not save me from not panicking.
GAAP
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Re: No Bonds? Late 30s, early 40s?

Post by GAAP »

I've done a lot of things financially that paid off because I was lucky -- including around Black Monday, the dot-com bubble, and the 2008 crisis. Now, I prefer to be more rational and consistent.

Saying that stocks eventually go up is not providing any real information. If they didn't go up eventually, nobody would buy them. The important question for the investor is whether or not they go up high enough and in sufficient time to meet needs and desires -- and that is far less certain.

Make sure you really understand the implications of the efficient frontier.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee
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burt
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Re: No Bonds? Late 30s, early 40s?

Post by burt »

Start with age in bonds. You can adjust +/- 10% depending on your desires.
That's it. Done.
Read some books on the Bogleheads Wiki.

burt
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Re: No Bonds? Late 30s, early 40s?

Post by Unladen_Swallow »

OP,

Thank you for the details. Based on this information and your other posts in this thread, your risk tolerance seems low (or still figuring it out). I wouldn't advise you to have a stock allocation higher than you could tolerate, lest you panic and act against your interests.

In your circumstances (young family, single earner), my focus would be on keeping my job, and having a very secure (and substantial) Emergency fund. If it were me, this would be at least 1 yr (preferably 18 months) expenses in risk free account (savings). Include healthcare in this cost too.

Your mortgage/rental combination seems fine. Your savings rate seems fine.

Do not treat your retirement accounts as tappable or something that you need to constantly manage. Set it on auto pilot and let it be. Now, about the asset allocation. I wouldn't go more conservative than 70/30. Your accounts will go up and down, as they should. Do yourself a favor and let it. There is no reason to panic if you fully understand and accept the nature of investing.

An large Emergency fund to me is critical in your situation.

UnLearnYourself wrote: Fri Jan 31, 2020 2:11 pm
Unladen_Swallow wrote: Fri Jan 31, 2020 2:02 pm I don't subscribe to a Bond formula.

Your allocation is unique to your financial situation (which your post doesn't detail). Just going by age isn't a worthy exercise in my view.
I make about $100k a year with a 5-10% bonus depending on the year's performance, married, max out my 401k with a company who adds an additional 6% in and has an accelerated match plan the longer you're with the company (will go up another 2.5% in just shy of 2 years, then another 2.5% several years later), max my Roth and my wife's, max our HSA and try to pay out of pocket as much as we can to let that accrue, have an 11 month old baby that I'm putting $300/mo into a 529, have another on the way in April who I plan to do the same for, and plan to increase contributions for both of them as I see a few raises over the next couple years. Wife isn't working for now to be with the kids but was earning around $50k a year when she was, so I'd suspect that income will return to an extent over the next few years. I have no student loans, a small auto loan at 2.49%, I own a 3-family in a very very strong rental market that we also live in, and after rents my monthly mortgage obligation is only about $500/mo on a 20yr loan at 3.5%. We're by no means rich, but I feel we have a very stable Bogle-worthy financial setup overall. And while I am not necessarily planning for or counting on this, my wife and I both stand to inherit some decent assets far into the future, but I function as if there's nothing there.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman
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anon_investor
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Re: No Bonds? Late 30s, early 40s?

Post by anon_investor »

Hockey10 wrote: Fri Jan 31, 2020 4:24 pm I never had any bonds until I was in my 50s. As long as you can handle the risk of large stock market drops and can sleep well at night, I don't see a need for bonds at your age.
+1. I would add if you carry a cash emergency fund you can count that as part of your "fixed income" allocation. I do.
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Re: No Bonds? Late 30s, early 40s?

Post by Horsefly »

I'm retired, age 61 now, retired at age 55. Started investing when I graduated college in 1980 (remember the old Value Line Funds? :shock: ).

Until I retired, I don't think my bond holdings ever got about 5%; Probably was closer to 0% most of the time. I didn't really see the use of it. Yeah, they theoretically don't go down as fast as equities, but they also don't go up as fast, and we invest with the idea of things going up over time. Anyway, I finally started putting more in bonds (only in my tIRA), where I now have something close to 80/20. I think overall I'm still something like 85/15. I'll never say never, but don't plan on increasing my bond holdings anytime soon.
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Re: No Bonds? Late 30s, early 40s?

Post by fredflinstone »

The stock market was up nearly 30 percent last year, and I'm seeing more and more "no bonds" posts. What could possibly go wrong?
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8
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Re: No Bonds? Late 30s, early 40s?

Post by investnoob »

I'll be 42, next month.

100% of my "asset allocation" is in stocks.

I did this because I have a defined benefit pension plan that I contribute to, and 1 year left on my mortgage, and a few months of expenses in cash.

I don't need to take the risk, but I can afford it. Kinda silly, I guess.
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Re: No Bonds? Late 30s, early 40s?

Post by Ron Ronnerson »

I was 100% equities until age 41. I’m now 45 and have about 22% in bonds. As my account balances and age have increased, I have more to lose yet less time on my side. The emotional factor should not be ignored. It is one thing to say you won’t panic when everything is fine and you don’t have much invested. However, your perspective could be very different if you’re faced with big losses to your portfolio along with being laid off during an economic downturn.

I was 100% equities until my early 40s due to a number of reasons. These included having a good emergency fund, job security (tenure), a defined benefit pension plan, and relatively low balances at the time. Now that I’m a bit older and would lose a larger amount if investments dropped, I’m beginning to shift to more bonds. My plan is to slowly get to about 30-35% bonds by the time I’m ready to retire.

Individual circumstances and people’s risk tolerance vary quite a bit. I don’t think 100% equities is bad in all cases. However, I’d make sure to think things through carefully.
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Re: No Bonds? Late 30s, early 40s?

Post by rich126 »

I almost never own bonds until I was 56. I think I briefly had an income fund. Now at times I wouldn’t be 100% invested so I guess that could almost be counted as bonds. At your age I don’t think it is a big deal. May depend on your risk tolerance and job security. I think a few people don’t realize bonds can be risky since we’ve been in a mostly long term bond bull market.

Do what you are comfortable with. There are many ways to make money.
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Re: No Bonds? Late 30s, early 40s?

Post by dangling »

I am a noob and have a related question. 39 yrs old AA 85/15.

I understand that stocks have historically gone back up after small or big dips, but it may still cause big issues in retirement plans right? Let's say (imaginary numbers) I have 500K today and I am on track for my target of 2M in 25 yrs (with regular contributions throughout). Lets say a dip this year leaves me with 300K, even with regular contributions and market bounceback, I will probably get to 1.5M in 25 yrs; so now I am not on track.

Of course having bonds doesn't really help this situation because I may not even get to 1.5M with that - I am just trying to see if I have got this right.
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Re: No Bonds? Late 30s, early 40s?

Post by alibaba123 »

If you can set your emotions aside, the best allocation (in my current view) is 100% stocks all the way even into retirement. This is provided your withdrawal rate in retirement is less than 3%, and especially if you are able to cut back during years when your portfolio is down in real terms (although its not even necessary to cutback if your withdrawal rate is less than 3% according to the trinity study). How do you achieve being able to cutback significantly during down years? By maximizing your return during good years (i.e 100% stocks).

The way I see it, by maximizing my return, I am not only increasing the amount i have to spend (padding for unexpected expenses as well), i am making it safer by allowing a bigger cutback during down years due to higher portfolio growth in the accumulating years. I plan to use a constant percentage withdrawal rate of 2% in retirement with the ability to cut back when needed as i think i am very conservative.

here's a link to an article written by someone who, like me, is planning to go 100% stocks even into retirement:
https://www.gocurrycracker.com/path-100-equities/
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UnLearnYourself
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Re: No Bonds? Late 30s, early 40s?

Post by UnLearnYourself »

Unladen_Swallow wrote: Fri Jan 31, 2020 6:19 pmIn your circumstances (young family, single earner), my focus would be on keeping my job, and having a very secure (and substantial) Emergency fund. If it were me, this would be at least 1 yr (preferably 18 months) expenses in risk free account (savings). Include healthcare in this cost.

Do not treat your retirement accounts as tappable or something that you need to constantly manage. Set it on auto pilot and let it be.

An large Emergency fund to me is critical in your situation.
Between myself and my wife we probably have 24 months or more in a liquid high interest savings account. Above that we have a minimum of 2 years health costs in our HSA (in a worst case max out of pocket scenario) so realistically a few more years min, which I plan not to use but if necessary its there. I work for a state elec/gas utility company and feel pretty secure, so hopefully I'm checking those boxes too.

As for retirement funds I agree, they will never be touched. And I'm all for set it and forget it management...just at a point now where I'm looking to set it properly in order to forget it for the next few decades.
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Re: No Bonds? Late 30s, early 40s?

Post by UnLearnYourself »

fredflinstone wrote: Fri Jan 31, 2020 6:39 pm The stock market was up nearly 30 percent last year, and I'm seeing more and more "no bonds" posts. What could possibly go wrong?
I'm not asking this question having been motivated by this recent run. Honestly I havent even looked to see how much my accounts are "up." I contribute what I contribute regardless of market conditions and will continue to do so.

This is a general investing philosophy question as I'm turning away from target date funds to more of a 3-fund portfolio strategy with periodic rebalancing.
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Re: No Bonds? Late 30s, early 40s?

Post by stocknoob4111 »

with rates close to zero I consider Bonds (funds) to have huge interest rate risk, if you think it's a safe asset then think again... a lot of people discuss about this so called "Bond Bubble" that's been created due to interest rate policy and the unraveling could create a lot of pain.

Bonds performed well 2000-2016 but only because rates went from 7% to 1.5%! Now there isn't any margin for downward movement but the upward path could be strong especially if it's necessitated by rising inflation like what happened in the 70s.
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UnLearnYourself
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Re: No Bonds? Late 30s, early 40s?

Post by UnLearnYourself »

stocknoob4111 wrote: Sat Feb 01, 2020 9:26 am with rates close to zero I consider Bonds (funds) to have huge interest rate risk, if you think it's a safe asset then think again... a lot of people discuss about this so called "Bond Bubble" that's been created due to interest rate policy and the unraveling could create a lot of pain.

Bonds performed well 2000-2016 but only because rates went from 7% to 1.5%! Now there isn't any margin for downward movement but the upward path could be strong especially if it's necessitated by rising inflation like what happened in the 70s.
Excuse my ignorance but what is a potential consequence of a bond bubble? Say in the context of a 10%-20% holding in a retiremtent portfolio?
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Re: No Bonds? Late 30s, early 40s?

Post by stocknoob4111 »

UnLearnYourself wrote: Sat Feb 01, 2020 10:27 am Excuse my ignorance but what is a potential consequence of a bond bubble? Say in the context of a 10%-20% holding in a retiremtent portfolio?
If you buy bonds now you will lock in 2% for the duration of the fund which does not even cover inflation... however, if rates keep rising the NAV of your bond fund will keep falling. The bond fund will start yielding more and more to compensate but you will have to hold the fund for longer and longer to recoup the loss in NAV until rates stabilize. If you sell the fund before the time period you will lose money.

At the current juncture we may have reached a low point in yields, that is the argument many make. I have no knowledge what happens next... but there is limited margin to the downside.
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Re: No Bonds? Late 30s, early 40s?

Post by Triple digit golfer »

I like this article about bonds by The White Coat Investor, an active contributor to this forum.

https://www.whitecoatinvestor.com/bond- ... est-rates/

I also like this one.

https://www.whitecoatinvestor.com/in-defense-of-bonds/
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Re: No Bonds? Late 30s, early 40s?

Post by justsomeguy2018 »

UnLearnYourself wrote: Fri Jan 31, 2020 1:53 pm Curious to get the Bogle perspective on a portfolio that includes NO bonds, or a very low level of bonds for somebody in their late 30s/early 40s?

I'm 38, so I've got a solid 20+ years till retirement, and watching markets ebb and flow won't keep me up at night so I'd say I have a solid risk tolerance. I'd certainly want to get more conservative as I near retirement, but wanted to hear from people in this community on the matter.

I'm migrating out of target date funds (that had a 7% bond holding) and into more of a 3-fund portfolio in order to cut down on expense ratio fees, so in the coming weeks I'll have to set my AA and this question is a fairly timely one for me to make an initial decision on. Prior advice on these forums was suggesting 20% bonds or more. So just wanting to explore this a bit further.
I am your age and just recently looked more deeply at my AA. I think I was probably around 90/10 or 85/15, but switched it to 75/25 in the past few months.

My rationale was:
(1) stocks seem overvalued at the moment (a Boglehead sin, I know) and
(2) it may seem like you have 20 years for markets to recover, but as you get older your AA will get more conservative (presumably), so there will be some natural drift out of stocks and into bonds - it would be bad timing if this drift happened during a down/stagnant period for stocks
(3) if stocks do decline (or stagnate) over the next 20 years, in my mind, there is not much ammunition left with the Fed to combat this (vs. 2008 crash, the Fed was able to lower rates from 6% to 0%, creating an incredible 12-year bull run - same story with other central banks)
(4) growth risks (read between the lines here)

So to answer your question, I would not do "no bonds". Go 90/10 if you want to be aggressive and 80/20 if you want to be a bit more conservative (and 70/30 to be super conservative, doesn't sound like you want to go that route though).
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Re: No Bonds? Late 30s, early 40s?

Post by Ben Mathew »

The lifecycle model tells us that we minimize our lifetime stock risk by spreading out stock exposure over time. That calls for high stock percentage early (when we don't have a lot of savings built up) and a lower percentage closer to retirement (when most of our savings are in).

A quick way to check if you are overexposed or underexposed to stock today is to estimate how much $ you will have just before retirement. Let's say it's $1 million at age 65 (everything in real dollars). Suppose your lifetime target AA is 50/50. That implies $500K in stock around age 65. Discounting to today (27 years @ 3% real discount rate), the equivalent is $500,000/(1.03^27) = $225,095. If you have less stock than that, you are underexposed today relative to age 65. If you have more than that, you are overexposed today relative to age 65. That can serve as your guide.

Of course, this number is very sensitive to assumptions. That's always the fun of financial planning!
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UnLearnYourself
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Re: No Bonds? Late 30s, early 40s?

Post by UnLearnYourself »

Ben Mathew wrote: Sat Feb 01, 2020 12:13 pm The lifecycle model tells us that we minimize our lifetime stock risk by spreading out stock exposure over time. That calls for high stock percentage early (when we don't have a lot of savings built up) and a lower percentage closer to retirement (when most of our savings are in).

A quick way to check if you are overexposed or underexposed to stock today is to estimate how much $ you will have just before retirement. Let's say it's $1 million at age 65 (everything in real dollars). Suppose your lifetime target AA is 50/50. That implies $500K in stock around age 65. Discounting to today (27 years @ 3% real discount rate), the equivalent is $500,000/(1.03^27) = $225,095. If you have less stock than that, you are underexposed today relative to age 65. If you have more than that, you are overexposed today relative to age 65. That can serve as your guide.

Of course, this number is very sensitive to assumptions. That's always the fun of financial planning!
I like the grounding of this approach. Perhaps I should figure out what my number is and back into my AA to have another perspective to consider...
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