No Bonds? Late 30s, early 40s?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
User avatar
Ben Mathew
Posts: 1331
Joined: Tue Mar 13, 2018 11:41 am
Location: Seattle
Contact:

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

Post by Ben Mathew »

UnLearnYourself wrote: Sat Feb 01, 2020 9:30 pm
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...
To learn more about the ideas behind the lifecycle approach, see Lifecycle Investing by Ayres and Nalebuff. A caveat: In the typical investor's case, savings are so low early on that they advocate borrowing to invest in stocks to hit the target stock allocation. This is mathematically correct, but IMO it would be psychologically difficult to tolerate large losses early in life. I favor the simpler and easier approach of stopping at 100% stocks even when the math suggests leveraging.
Topic Author
UnLearnYourself
Posts: 371
Joined: Tue Feb 01, 2011 9:19 pm

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

Post by UnLearnYourself »

So I just moved money from my Vanguard TIRA into my Fidelity 401k per some advice of other bogleheads in a discussion about back door and mega back door contributions.

Now I'm ready to reset my funds with a lot of the prior advice in this thread in mind. Though I'm still struggling with my AA final decision. A couple new questions: How much should I factor my "emergency funds" (high yield savings with Ally) and the equity I have in my home relative to my bonds position?

I must say, at 38 years old I am very tempted to go 100% equities or maybe 90/10 or 85/15. I have a firm grasp on market cycles and know my portfolio value at any given point is meaningless until I get to or near to the point of needing to draw from it. So even in a significant down market I'm not worried about acting emotionally.

However, the one bit of truth I've read is in the case of a extended job loss (and I work for a very stable electric utility company so feel my work is much more secure than the average person), and the flat out need of accessing funds to pay bills and survive. With that in mind I know how long I can last with my Ally accounts. But how much should one rely, if at all, on available home equity? And of course I understand real estate is a market and subject to downturns, so the equity I see in my home today may not be there tomorrow.

But is there a recommended formula or rule of thumb that I should consider as I set the AA of my Roth and 401k accounts?
Unladen_Swallow
Posts: 784
Joined: Tue Dec 10, 2019 6:12 pm

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

Post by Unladen_Swallow »

I'm 45, so is my spouse.

I have 0% bonds.
Spouse has a Target date fund with 10 or 12% bonds.


We will consider retirement in 5 years. If circumstances don't allow it, we might postpone it a year or two. Or some scaled back version of work, or casual work, or just one of us...

We were in the workforce in 2000 and 2008. The crises were very close to us - directly affected our peers and friends. We were focused on our careers and all our effort was to keep our job even when the industry downsized. The stock market was not our concern at all.

We are debt averse and don't have a mortgage. If there is a terrible drawdown today, we will move on. We won't be homeless, nor will we starve.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman
User avatar
fredflinstone
Posts: 2728
Joined: Mon Mar 29, 2010 7:35 am
Location: Bedrock

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

Post by fredflinstone »

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.
How's your no-bond strategy working out for you so far?
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8
Topic Author
UnLearnYourself
Posts: 371
Joined: Tue Feb 01, 2011 9:19 pm

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

Post by UnLearnYourself »

fredflinstone wrote: Thu Feb 27, 2020 5:25 pm
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.
How's your no-bond strategy working out for you so far?
Looks like I'm buying cheaper shares today than I was last week. And honestly I'm not looking very closely at all besides unavoidable headlines. I have my strategy for now and it's based on a 20-30yr outlook so I have zero concerns with the market today, tomorrow, or next decade even. In fact I could argue my retirement could benefit from the markets getting slammed short term.
retired@50
Posts: 3626
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

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

Post by retired@50 »

UnLearnYourself wrote: Thu Feb 27, 2020 5:33 pm Looks like I'm buying cheaper shares today than I was last week.
...
In fact I could argue my retirement could benefit from the markets getting slammed short term.
No need to argue this point. Anyone who's read Warren Buffet's hamburger analogy already knows this.

See link. https://moneyfyi.wordpress.com/2018/02/15/18091/

Regards,
This is one person's opinion. Nothing more.
User avatar
fredflinstone
Posts: 2728
Joined: Mon Mar 29, 2010 7:35 am
Location: Bedrock

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

Post by fredflinstone »

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?
Indeed.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8
BoggledHead2
Posts: 562
Joined: Tue Jun 12, 2018 6:50 pm

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

Post by BoggledHead2 »

Bonds are for helping you sleep at night

I see no reason to own bonds until I’m about 10 years from retirement

100/0 with oversized cash emergency fund to buy some dips as they come while auto investing as well ... works for me. Best of all worlds
BoggledHead2
Posts: 562
Joined: Tue Jun 12, 2018 6:50 pm

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

Post by BoggledHead2 »

Currently 100/0 ... Thinking I’ll be 90/10 @ 40 ... 80/20 @ 45 ... 70/30 @ 50 ... 60/40 @ 55 / early retirement

I’ll start shifting some 401K contributions to a bond fund at some point, ultimately converting everything to a target date fund and using my taxable account to either rebalance / harvest losses / earn dividends in cash

Trying to get to the point where quarterly dividends cover some expenses
LeslieSmiley
Posts: 121
Joined: Fri May 08, 2015 7:43 pm

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

Post by LeslieSmiley »

i align with this.

80% to 90% stock with 10% emergency fund in high yield saving and no penalty CD for the majority of my accumulating years. saw a paper loss of 55% of my 7 figure portfolio in 2008, didn't sell or change my AA and continued to max out my retirement contribution to all stocks. when i turned 50, i started shifting to 75/25 to 70/30 and 5% of the 30% fixed income is in total market bond fund whereas the rest is in high yield CD (3% to 4% APY). i am in my early 50's now and i am sticking to 70/30 probably for another 5 years. having a decent pension helps me to take on a bit more risk.

BoggledHead2 wrote: Tue Mar 10, 2020 11:20 am Bonds are for helping you sleep at night

I see no reason to own bonds until I’m about 10 years from retirement

100/0 with oversized cash emergency fund to buy some dips as they come while auto investing as well ... works for me. Best of all worlds
Mario2222
Posts: 64
Joined: Mon Dec 24, 2018 12:16 am

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

Post by Mario2222 »

I invested my Roth IRA in Vanguard target date fund 2045. 90/10 stocks/bonds. I’m 39 years old.
Dennisl
Posts: 145
Joined: Sun Jun 09, 2019 1:46 pm

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

Post by Dennisl »

I’m 38 and 60/40. Was feeling kind of dumb watching everyone else’s target date funds killing it while I managed my 60/40. Nice to be able to rebalance when stocks drop in value. I’m probably being much too conservative, but I don’t lose sleep at night. That being said, might sleep even better if I went target date and stopped reading these forums before bedtime. Do what makes sense for you, whether it’s 100% stocks, a mix, us vs intl, SCV, whatever.
Post Reply