Hi all. I'm 54 and 2-4 years from retirement. I will hopefully be able to live off of a 3% withdrawal. I'm currently in a 60/40 portfolio.
I'd like people's thoughts on my going from all of my fixed asset portion being in Vanguard Total Bond Fund (BND) to 50% stable value fund paying 2.2%, 25% BND, 25% VGIT (intermediate treasuries).
I didn't enjoy watching BND drop over 5% at one point during the pandemic crash, saved from falling further by planned FED intervention into corporate bonds.
The fixed asset portion of my portfolio is to provide stability, my equities provide risk. Thank you in advance. I really appreciate your thoughts
Changing bond allocation from 100% BND?
Re: Changing bond allocation from 100% BND?
Your proposed changes are reasonable.
Stable value funds are not immune to rates changing.
Int-Term Treasuries pay less than BND but offer less risk. Rising rates will decrease the price here as well.
With a 6.6 duration for BND, you still have a 35-40 year investing horizon likely. It would also be quite reasonable to stand pat and ride the little ups and downs.
Your portfolio WILL fluctuate and go down at times. If you are 20, 30, 40, 50, 60% stocks. It is part of the journey.
Stable value funds are not immune to rates changing.
Int-Term Treasuries pay less than BND but offer less risk. Rising rates will decrease the price here as well.
With a 6.6 duration for BND, you still have a 35-40 year investing horizon likely. It would also be quite reasonable to stand pat and ride the little ups and downs.
Your portfolio WILL fluctuate and go down at times. If you are 20, 30, 40, 50, 60% stocks. It is part of the journey.
Re: Changing bond allocation from 100% BND?
I think it is OK to mess with your 40% in bonds. I certainly do. BUT!!! BUT:
Be sure you keep careful and accurate records of the performance of Total US Bond and whatever else you do. That is, if you don't change what would the performance be? And whatever you change to, what is the actual performance.
I do this myself, so that I know absolutely that what I have done outperforms staying in total US bond. However, while the difference is significant, it only amounts to a few tens of thousands of dollars.
Finally, also have a plan to go back to Total US Bond Index. For instance, a plan might be "When Total US Bond has lost more the 5% YTD, then I'm buying it all back" or something like that.
Be sure you keep careful and accurate records of the performance of Total US Bond and whatever else you do. That is, if you don't change what would the performance be? And whatever you change to, what is the actual performance.
I do this myself, so that I know absolutely that what I have done outperforms staying in total US bond. However, while the difference is significant, it only amounts to a few tens of thousands of dollars.
Finally, also have a plan to go back to Total US Bond Index. For instance, a plan might be "When Total US Bond has lost more the 5% YTD, then I'm buying it all back" or something like that.
Re: Changing bond allocation from 100% BND?
the reasoning here makes no sense
Your BND portion of the assets dropped by 5% during a global pandemic with millions of people dying......and that is a problem how ? Its amazing if that was the only drop given the size of the crises
If you don't feel good about that particular bond fund, sure pick something different. But the desire for even more stability seems questionable. If you want to go for rate, choose a short term bond fund for the next couple of years because inflation and the rates will raise.....but that's what we think should happen since the last recession and it did not really happen.
Given that you seem to be trying to tweak yield slightly (kind of pointless at a rate of 2%ish IMO), why not just increase stock allocation ? Or does that collide with the desire for asset stability in a crises....but then don't tweak your stability Anker too much.
I would do absolutely nothing
Your BND portion of the assets dropped by 5% during a global pandemic with millions of people dying......and that is a problem how ? Its amazing if that was the only drop given the size of the crises
If you don't feel good about that particular bond fund, sure pick something different. But the desire for even more stability seems questionable. If you want to go for rate, choose a short term bond fund for the next couple of years because inflation and the rates will raise.....but that's what we think should happen since the last recession and it did not really happen.
Given that you seem to be trying to tweak yield slightly (kind of pointless at a rate of 2%ish IMO), why not just increase stock allocation ? Or does that collide with the desire for asset stability in a crises....but then don't tweak your stability Anker too much.
I would do absolutely nothing
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.
Re: Changing bond allocation from 100% BND?
If you plan on draining the stable value fund for living or other expenses when you retire, than fine. I’m not really clear on the present value of your BND fund and the proposed amount for the stable value fund. 2.25% is pretty good right now, but barely enough to cover inflation. If we’re talking about a balance of 5 years of living expenses or less, then fine. But more than that, I’m not sure about. Same with straying from BND for the intermediate treasures. I’m just not sure about what will happen with interest rates and bonds of any kind. It’s a hard choice.
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Re: Changing bond allocation from 100% BND?
Stay with BND but increase your allocation to stocks.
Re: Changing bond allocation from 100% BND?
i would have used the stable value fund some time ago. What is the sec yield on BND now, likely about 1/2 of what you can get with the stable value fund plus you do not have any risk associated with the possibility of a Fed rate increase or improving economy leading to interest rates rising and also Fed stopping QE.
Re: Changing bond allocation from 100% BND?
And then it went on to hit all time highs by summer. The drop was brief, about 14 days and you were back even and climbing. Just make sure you are not reacting to what happened after July 31. If I had a stable value fund paying 2.2% and it didn't have crazy fees attached, I would put all my fixed income there for the time being since it is offering more than BND does today. Nothing wrong with shopping around. But I don't think BND did anything to be ashamed of over the last year, quite the contrary it once again did its job well.
70% Global Stocks / 30% Bonds
Re: Changing bond allocation from 100% BND?
If you want to reduce bond drops during stock crashes, don't hold corporate bonds.
I don't.
I take my business risk on the equity side.
I don't.
I take my business risk on the equity side.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder