Bond allocation

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nydoc
Posts: 146
Joined: Mon Jul 22, 2019 5:57 pm

Bond allocation

Post by nydoc »

Hi,
We have 75:25 asset allocation with all bonds in 401K invested in total US bond index. Recently there have been a lot of discussion about bonds. Is our bond allocation still right or should we change it to something else?
Thanks.
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happenstance
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Location: NYC

Re: Bond allocation

Post by happenstance »

Stay the course.

It’s true that bond yields are low now, and they will likely stay low for some time in the future. Of course nobody knows for how long, so what’s the alternative? The general wisdom is that you should only change your asset allocation if your need, willingness, or ability to take risk has changed.
sycamore
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Re: Bond allocation

Post by sycamore »

happenstance wrote: Mon Aug 31, 2020 4:23 pm Stay the course.

It’s true that bond yields are low now, and they will likely stay low for some time in the future. Of course nobody knows for how long, so what’s the alternative? The general wisdom is that you should only change your asset allocation if your need, willingness, or ability to take risk has changed.
+1.

Also, consider investment options other than bonds for your fixed-income allocation. CDs generally aren't yielding much more than bonds of similar duration but you might find a decent CD here and there (search on depositaccounts.com). Or look for bank or brokerage signup bonuses. These options aren't as scalable or simple as a bond mutual fund but they can help make up for lousy yields nowadays.
retiredjg
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Re: Bond allocation

Post by retiredjg »

I don't see a reason to change anything.
Topic Author
nydoc
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Re: Bond allocation

Post by nydoc »

happenstance wrote: Mon Aug 31, 2020 4:23 pm Stay the course.

It’s true that bond yields are low now, and they will likely stay low for some time in the future. Of course nobody knows for how long, so what’s the alternative? The general wisdom is that you should only change your asset allocation if your need, willingness, or ability to take risk has changed.
Nothing has changed for us but I often hear that rules of the game has changed.
rossington
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Re: Bond allocation

Post by rossington »

nydoc wrote: Mon Aug 31, 2020 7:18 pm
happenstance wrote: Mon Aug 31, 2020 4:23 pm Stay the course.

It’s true that bond yields are low now, and they will likely stay low for some time in the future. Of course nobody knows for how long, so what’s the alternative? The general wisdom is that you should only change your asset allocation if your need, willingness, or ability to take risk has changed.
Nothing has changed for us but I often hear that rules of the game has changed.
Bonds provide stability for your portfolio during times of market volatility in stocks. Were you comfortable with your AA in March?
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
Johm221122
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Re: Bond allocation

Post by Johm221122 »

nydoc wrote: Mon Aug 31, 2020 4:10 pm Hi,
We have 75:25 asset allocation with all bonds in 401K invested in total US bond index. Recently there have been a lot of discussion about bonds. Is our bond allocation still right or should we change it to something else?
Thanks.
I have been Hearing discussions about bonds since I started investing over 20 years ago. Invest in a portfolio that matches your "need,ability and willingness" to take risk,then turn off the noise (Financial media).
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happenstance
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Re: Bond allocation

Post by happenstance »

nydoc wrote: Mon Aug 31, 2020 7:18 pm Nothing has changed for us but I often hear that rules of the game has changed.
Nobody knows the future, and so nobody knows the best asset allocation ex-ante is. These people are either trying to sell you investment products or write headlines to attract your attention for ad dollars. They always say this time is different. Tune it all out; they don’t know anything special.
50ismygoal
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Re: Bond allocation

Post by 50ismygoal »

Most of the responses to the many posts like this imply that the OP either must keep their bond holdings as-is, or they will change their AA and buy more equities with what used to be bond funds. But I’d love to see more comments related to the risks of shifting bond funds, not to equities, but to online savings or money market accounts. From what I’ve read, there isn’t much downside risk and if the OP is concerned about losing NAV should interests rates rise, that’s a legitimate concern.
jimkinny
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Re: Bond allocation

Post by jimkinny »

Consider CDs and I-Bonds. Fixed income isn't going to give much yield now, no matter what you do. It could be this way for a year or two, maybe 10-15 years.
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happenstance
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Re: Bond allocation

Post by happenstance »

50ismygoal wrote: Tue Sep 01, 2020 8:14 am Most of the responses to the many posts like this imply that the OP either must keep their bond holdings as-is, or they will change their AA and buy more equities with what used to be bond funds. But I’d love to see more comments related to the risks of shifting bond funds, not to equities, but to online savings or money market accounts. From what I’ve read, there isn’t much downside risk and if the OP is concerned about losing NAV should interests rates rise, that’s a legitimate concern.
Moving into CDs, money markets, Treasury instruments are all fine options for fixed income. If you primarily hold bonds in your 401k though, many of those are not available. Switching to those may also change the duration of your fixed income allocation. My asset allocation specifies a target duration range for the fixed income allocation, so that kind of shuffling could be considered changing the AA.
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