Eliminating bonds?

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RobLyons
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Eliminating bonds?

Post by RobLyons »

Is anyone else ditching or reducing their bond holdings?

As a rule of thumb I evaluate my risk tolerance about 2-3x per year and then adjust my asset allocation based off that evaluation. Based on my evaluation of my risk tolerance I've decided I'm eliminating bonds and it would be interesting to hear arguments for or against this. My reasons include I'm young, have great confidence, many years left to invest, financial stability, and excellent pension.

About 1/2 my portfolio is in pre tax workplace 403b and 1/2 in his and her Roth IRAs

Previously my bond holdings (WFBIX in my workplace 403b) totaled about 10% of total portfolio so this is not a big jump by any means, rather a deviation from the previous norm. So my workplace 403b will now look like this:

60% VIIX - Vanguard Institutional Index Fund Institutional Plus Shares - 0.02% exp ratio
20% VTRLX - Vanguard Institutional Target Retirement 2050 Fund Institutional Shares - 0.09% exp ratio
20% VTSNX - Vanguard Total International Stock Index Fund Institutional Shares - 0.08% exp ratio

A second job 403b recently started, fund:

2% FXAIX - Fidelity 500 index fund


With his and her Roths looking like
75% VTSAX
25% VTIAX


So am I being overly confident? Reckless with my investments? Any feedback appreciated.
Thanks!
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jebmke
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Re: Eliminating bonds?

Post by jebmke »

strictly a risk tolerance question that only you can answer. Lots of people are 100% equity. Some of my retiree friends are 100% equity, although most have pretty good pensions which reduce or eliminate their dependence on portfolio assets.
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atdharris
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Re: Eliminating bonds?

Post by atdharris »

I dumped my bond fund in March 2020 and went 100% equity after the sudden rate drop caused my fund to spike. I have no regrets. Unless you believe in negative rates, bond funds only have so high to move with rates at 0%.
Somethingwitty92912
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Re: Eliminating bonds?

Post by Somethingwitty92912 »

Only you can answer this question. The only advice I’d give is to pick an allocation and stick to it. Review your risk tolerance once a year at most not 3+. Ideally review your accounts once every 3 years. Go live your life.
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Re: Eliminating bonds?

Post by AerialWombat »

Adjusting your AA 2-3 times per year seems a bit excessive. I think you’d be best served by picking an AA and sticking to it.

I continue to buy bonds every month as per my 30/70 AA.
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Re: Eliminating bonds?

Post by bloom2708 »

Are you 25 or 55 or 75?

Some have no bonds, a large emergency fund and some "dry powder". :annoyed

Bonds still have their place. The next 20-30% dip you will know why bonds exist.

Yes, the value ebbs and flows in a narrower range. Right now, rate pressure is higher and the price of bond fund drops. Completely expected.
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David Jay
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Re: Eliminating bonds?

Post by David Jay »

I really don’t like the concept of evaluating one’s risk tolerance 2-3 times a year. This opens one up to all kinds of behavioral mis-steps.

I would select an Asset Allocation that I could live with through thick-and-thin. When the market slumps. When you lose your job. When interest rates soar. It only changes when life stage changes (i.e. when approaching retirement).
Last edited by David Jay on Sun May 02, 2021 8:15 am, edited 1 time in total.
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FootballFan5548
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Re: Eliminating bonds?

Post by FootballFan5548 »

I would just be careful of recency bias.

Equity markets have been on a historic bull run for a decade or more (absent March 2020). There's a reason people hold bonds. Ditching them because the equity market is extremely outperforming goes against the reason people hold bonds in the first place.
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Re: Eliminating bonds?

Post by Grt2bOutdoors »

You have a pension? Therefore you already hold fixed income. Let’s be conservative before the pension naysayers come out in full force to talk about funding and pension failures. Assume you will get just half of what you are promised in annual retirement income- take that number and use a discount rate of 5-6 percent to approximate the net present value of in today’s dollars. That will be your fixed income allocation. Feel free to go 100 percent equity in the accounts you do control on the outside of the pension. But just be prepared for a rollercoaster of a ride - all of the time.
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RobLyons
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Re: Eliminating bonds?

Post by RobLyons »

AerialWombat wrote: Fri Apr 30, 2021 8:46 am Adjusting your AA 2-3 times per year seems a bit excessive. I think you’d be best served by picking an AA and sticking to it.

I continue to buy bonds every month as per my 30/70 AA.

I haven't adjusted anything in maybe 2 years but I understand what you're saying. I think I'll consider mixing in bonds when I get closer to retirement.
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RobLyons
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Re: Eliminating bonds?

Post by RobLyons »

bloom2708 wrote: Fri Apr 30, 2021 8:51 am Are you 25 or 55 or 75?

Some have no bonds, a large emergency fund and some "dry powder". :annoyed

Bonds still have their place. The next 20-30% dip you will know why bonds exist.

Yes, the value ebbs and flows in a narrower range. Right now, rate pressure is higher and the price of bond fund drops. Completely expected.

40. I plan to retire at full retirement age of 65 or 67 but continue investing into my 70s/80s. So 40 year horizon.
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RobLyons
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Re: Eliminating bonds?

Post by RobLyons »

FootballFan5548 wrote: Fri Apr 30, 2021 8:59 am I would just be careful of recency bias.

Equity markets have been on a historic bull run for a decade or more (absent March 2020). There's a reason people hold bonds. Ditching them because the equity market is extremely outperforming goes against the reason people hold bonds in the first place.

I'm dumping them based on I'm young, have many years left to invest, financial stability, excellent pension and I would say the performance is last on my list. If I made decisions based strictly on performance I would be YOLO dogecoin and GameStop investing and that's not the case at all. Basically I would be fine with a 30 or 40% dip.
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eye.surgeon
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Re: Eliminating bonds?

Post by eye.surgeon »

It will be interesting to watch the bonds conversation during the next market correction when people start to remember that you don't hold bonds for returns.

It's perfectly reasonable to hold no bonds if you can tolerate the higher volatility. What is not reasonable is to drop bonds because they are expected to have zero returns and you view the purpose of bonds as providing returns.
Last edited by eye.surgeon on Fri Apr 30, 2021 10:25 am, edited 1 time in total.
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goingup
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Re: Eliminating bonds?

Post by goingup »

Are you holding cash as part of an emergency fund? I note that on this forum some say they are 100% stocks but hold 2 years expenses of cash, CDs, etc. Anyways, it makes a person's portfolio a lot less risky with a robust cash holding.

If you're 40 with high risk tolerance and a pension you're probably just fine.
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Re: Eliminating bonds?

Post by Grt2bOutdoors »

eye.surgeon wrote: Fri Apr 30, 2021 10:12 am It will be interesting to watch the bonds conversation during the next market correction when people start to remember that you don't hold bonds for returns.

It's perfectly reasonable to hold no bonds if you can tolerate the higher volatility. What is not reasonable is to drop bonds because they are expected to have zero returns and you view the purpose of bonds as providing returns.
As Warren Buffet said “you know who’s swimming naked when the tide pulls out”. :D. If you tune in tomorrow you’ll be able to get an update on Warrens latest belief about low bond yields BUT they will always continue to hold a significant slug of high quality fixed income assets. And it’s not just to be available to buy companies or shares of stock!
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Re: Eliminating bonds?

Post by watchnerd »

RobLyons wrote: Fri Apr 30, 2021 8:37 am Is anyone else ditching or reducing their bond holdings?
Nope.

In fact, I've been trimming back equities and buying more individual long bonds for my ladder.
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watchnerd
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Re: Eliminating bonds?

Post by watchnerd »

eye.surgeon wrote: Fri Apr 30, 2021 10:12 am What is not reasonable is to drop bonds because they are expected to have zero returns and you view the purpose of bonds as providing returns.
Right.

I don't buy bonds to make money.

I buy bonds as insurance.
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anon_investor
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Re: Eliminating bonds?

Post by anon_investor »

RobLyons wrote: Fri Apr 30, 2021 10:10 am
FootballFan5548 wrote: Fri Apr 30, 2021 8:59 am I would just be careful of recency bias.

Equity markets have been on a historic bull run for a decade or more (absent March 2020). There's a reason people hold bonds. Ditching them because the equity market is extremely outperforming goes against the reason people hold bonds in the first place.

I'm dumping them based on I'm young, have many years left to invest, financial stability, excellent pension and I would say the performance is last on my list. If I made decisions based strictly on performance I would be YOLO dogecoin and GameStop investing and that's not the case at all. Basically I would be fine with a 30 or 40% dip.
If you are young, why did you even buy bonds in the first place?
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ApeAttack
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Re: Eliminating bonds?

Post by ApeAttack »

I am 40 and have a 90:10 AA as well, and have been contemplating going all equities because I have a decent pension that I can collect at 60. I'm reluctant to pull the trigger until the next market downturn though. I guess this makes the 10% sort of like dry powder, even though I don't like that concept very much.

I am paying off my mortgage a bit early which I mentally categorize as buying bonds (many will take issue with that mental accounting). Plus I'm buying I-Bonds for my emergency fund. So I feel like I already have moderate exposure to bonds and bond-like things.

In the long run, 90:10 vs 100:0 probably won't make much difference as long as you don't panic sell at the next downturn.
Just another lazy index investor who recently found out about I-Bonds (https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm).
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dodecahedron
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Re: Eliminating bonds?

Post by dodecahedron »

RobLyons wrote: Fri Apr 30, 2021 10:06 am
bloom2708 wrote: Fri Apr 30, 2021 8:51 am Are you 25 or 55 or 75?

Some have no bonds, a large emergency fund and some "dry powder". :annoyed

Bonds still have their place. The next 20-30% dip you will know why bonds exist.

Yes, the value ebbs and flows in a narrower range. Right now, rate pressure is higher and the price of bond fund drops. Completely expected.

40. I plan to retire at full retirement age of 65 or 67 but continue investing into my 70s/80s. So 40 year horizon.
Are you *vested* in your pension? How rock-solid stable is your job/industry/human capital? Do you have solid disability insurance? (There are things not under your control that could make your time horizon much shorter than you think.)
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Re: Eliminating bonds?

Post by RubyTuesday »

Opposite for me. Just trimmed some equities (tax gain harvest up to top of 0% LTGC) and will be buying fixed income (Series I Savings bonds and TIPs funds) and making HSA contributions.
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Re: Eliminating bonds?

Post by flyonnylon »

Yes.

I realized a few years ago that I was way too conservative and that BND was only marginally better than holding cash in my portfolio.

I’m mid-30s but didn’t start making real income until 30 and had $310k loans to pay off so the most reasonable investment strategy for me is to invest like a 22 yo engineering grad who wants to retire at age 30..

Millennials don’t remember the astronomical interest rates of the 70s or significant bond yields, we just know that in 2008 and 2020 the fed bailed everyone out and will obviously keep printing, so it seems the best way to hedge inflation is 100% equities with a small percentage in small-cap tech and hope for the best.. if the apocalypse is coming its a few decades away at least in my optimistic opinion.
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Re: Eliminating bonds?

Post by RobLyons »

anon_investor wrote: Fri Apr 30, 2021 2:16 pm
RobLyons wrote: Fri Apr 30, 2021 10:10 am
FootballFan5548 wrote: Fri Apr 30, 2021 8:59 am I would just be careful of recency bias.

Equity markets have been on a historic bull run for a decade or more (absent March 2020). There's a reason people hold bonds. Ditching them because the equity market is extremely outperforming goes against the reason people hold bonds in the first place.

I'm dumping them based on I'm young, have many years left to invest, financial stability, excellent pension and I would say the performance is last on my list. If I made decisions based strictly on performance I would be YOLO dogecoin and GameStop investing and that's not the case at all. Basically I would be fine with a 30 or 40% dip.
If you are young, why did you even buy bonds in the first place?


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RobLyons
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Re: Eliminating bonds?

Post by RobLyons »

dodecahedron wrote: Fri Apr 30, 2021 2:57 pm
RobLyons wrote: Fri Apr 30, 2021 10:06 am
bloom2708 wrote: Fri Apr 30, 2021 8:51 am Are you 25 or 55 or 75?

Some have no bonds, a large emergency fund and some "dry powder". :annoyed

Bonds still have their place. The next 20-30% dip you will know why bonds exist.

Yes, the value ebbs and flows in a narrower range. Right now, rate pressure is higher and the price of bond fund drops. Completely expected.

40. I plan to retire at full retirement age of 65 or 67 but continue investing into my 70s/80s. So 40 year horizon.
Are you *vested* in your pension? How rock-solid stable is your job/industry/human capital? Do you have solid disability insurance? (There are things not under your control that could make your time horizon much shorter than you think.)

Vested, yes.

As rock solid as an industry/company can be these days

Yes I have disability insurance through work, provides 60% income for up to 6 months I believe. I may supplement...
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RobLyons
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Re: Eliminating bonds?

Post by RobLyons »

goingup wrote: Fri Apr 30, 2021 10:19 am Are you holding cash as part of an emergency fund? I note that on this forum some say they are 100% stocks but hold 2 years expenses of cash, CDs, etc. Anyways, it makes a person's portfolio a lot less risky with a robust cash holding.

If you're 40 with high risk tolerance and a pension you're probably just fine.

Yes I keep about 6 months locally plus we have another month worth under a floor board and in the walls.
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pseudoiterative
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Re: Eliminating bonds?

Post by pseudoiterative »

AerialWombat wrote: Fri Apr 30, 2021 8:46 am Adjusting your AA 2-3 times per year seems a bit excessive. I think you’d be best served by picking an AA and sticking to it.
David Jay wrote: Fri Apr 30, 2021 8:56 am I really don’t like the concept of evaluating one’s risk tolerance 2-3 times a year. This opens one up to all kinds of behavioral mis-steps.
Picking a single asset allocation and holding it constant won't always be a very good policy if investment conditions change. E.g. if real prices for stock were to climb 1000% with no change the underlying economic value of the businesses, you might be advised to completely exit the stock market. But since many (most? all?) people will often make unforced behavioural errors when adjusting investment policies, maybe holding a constant asset allocation is a less-bad option than making ad-hoc unsystematic adjustments.

In theory, I think dynamic changes to asset allocation could be done in a principled reliable way, avoiding behavioural missteps, by instead of systematising and locking in a constant asset allocation, instead systematising and locking in a decision process used to derive and output the asset allocation.

E.g. one could decide to use mean-variance portfolio optimisation to set an allocation, using a fixed risk-tolerance parameter, and fixed definitions of how to define expected return and covariance between asset classes from standard data sources. Running that same portfolio optimisation methodology with up-to-date data inputs will output different asset allocations as expected yield and expected risk of asset classes change, even if your individual risk tolerance doesn't.

In practice, I doubt that 1 in 1000 individual investors could be able or willing to attempt to do this -- it would be a fair bit of work, especially systematising how to gather data, removing additional points of possible behavioural mis-steps from the standardised decision process, and executing rebalancing.

For individuals who want a dynamic asset allocation that reacts intelligently to changes in current investment conditions, it might be advised to outsource that work to some low cost managed fund (perhaps a retirement date target fund?) that applies a similar disciplined allocation process internally, instead of managing their asset allocations directly as an individual.
Last edited by pseudoiterative on Fri Apr 30, 2021 5:19 pm, edited 6 times in total.
J295
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Re: Eliminating bonds?

Post by J295 »

We were 100% equity until early retirement in 2013. Then reduced.

I will say the almost 50% drop over 16 months in the Great Recession was quite unnerving even for someone like me with a solid job and nearly 30 years of investment experience.
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Re: Eliminating bonds?

Post by David Jay »

pseudoiterative wrote: Fri Apr 30, 2021 5:08 pmIn theory, I think dynamic changes to asset allocation could be done in a principled reliable way, avoiding behavioural missteps, by instead of systematising and locking in a constant asset allocation, instead systematising and locking in a decision process used to derive and output the asset allocation..
From the OP, this does not strike me as a data-driven process:
RobLyons wrote: Fri Apr 30, 2021 8:37 amMy reasons include I'm young, have great confidence, many years left to invest, financial stability, and excellent pension.
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Re: Eliminating bonds?

Post by ruralavalon »

RobLyons wrote: Fri Apr 30, 2021 8:37 am Is anyone else ditching or reducing their bond holdings?
No. We are staying with Vanguard Intermediate-term Bond Index Fund (VBILX).

RobLyons wrote: Fri Apr 30, 2021 8:37 amAs a rule of thumb I evaluate my risk tolerance about 2-3x per year and then adjust my asset allocation based off that evaluation. Based on my evaluation of my risk tolerance I've decided I'm eliminating bonds and it would be interesting to hear arguments for or against this.
In my opinion reevaluating asset allocation and risk tolerance 2-3 times per year is a bad idea. Your risk tolerance probably doesn't change that often. What in your personal or financial life changes that often?

Pick an asset allocation that you can stick with in all market conditions, and stay the course.

Instead of evaluation of risk tolerance, it sounds more like behavioural errors, such as performance chasing or market timing.

iShares US Aggregate Bond Index K (WFBIX) ER 0.05% is an excellent bond fund to use in your 403b account.

RobLyons wrote: Fri Apr 30, 2021 8:37 amMy reasons include I'm young, have great confidence, many years left to invest, financial stability, and excellent pension.
. . . . .
All of those are good reasons to consider a higher risk asset allocation.

Why are you so confident? What is your age? Did you have substantial investments in 2008? How did you react in that crash?
Last edited by ruralavalon on Sat May 01, 2021 12:28 pm, edited 1 time in total.
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Re: Eliminating bonds?

Post by stimulacra »

I've actually increased bonds this past year.

Interesting article from Bloomberg about how pensions are moving towards majority of their assets into bonds.
https://www.bloomberg.com/news/articles ... inside-out
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Re: Eliminating bonds?

Post by climber2020 »

RobLyons wrote: Fri Apr 30, 2021 8:37 am As a rule of thumb I evaluate my risk tolerance about 2-3x per year and then adjust my asset allocation based off that evaluation. Based on my evaluation of my risk tolerance I've decided I'm eliminating bonds and it would be interesting to hear arguments for or against this. My reasons include I'm young, have great confidence, many years left to invest, financial stability, and excellent pension.
If you evaluate your risk tolerance several times a year, surely you evaluated it in March/April of last year.

Why didn’t you decide to eliminate bonds then? Instead you waited until US stocks went up by over 60% to arrive at this decision.
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Re: Eliminating bonds?

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Oh man! I don't like to read stuff like this because it is another piece of evidence that we might be seeing euphoria in the stock market. Lots of folks believe that stocks are the only game in town because of very low interest rates. Speaking for myself, I don't want the volatility of a 100% stock portfolio. Been there, done that, bought that T-Shirt. Even now, with 64% or so of my portfolio in stocks at age 61, I feel like I am hanging way out there. Threads like this add to my nervousness as I see fellow investors throwing caution to the winds. I have yet to be convinced that there is a better diversifier to stocks than plain old boring bonds. The so-called Alternative investments have been a disappointment.
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Re: Eliminating bonds?

Post by ApeAttack »

nedsaid wrote: Sat May 01, 2021 12:41 pm Oh man! I don't like to read stuff like this because it is another piece of evidence that we might be seeing euphoria in the stock market. Lots of folks believe that stocks are the only game in town because of very low interest rates. Speaking for myself, I don't want the volatility of a 100% stock portfolio. Been there, done that, bought that T-Shirt. Even now, with 64% or so of my portfolio in stocks at age 61, I feel like I am hanging way out there. Threads like this add to my nervousness as I see fellow investors throwing caution to the winds. I have yet to be convinced that there is a better diversifier to stocks than plain old boring bonds. The so-called Alternative investments have been a disappointment.
Do you think you would feel differently if you were 20 years younger?
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Re: Eliminating bonds?

Post by theorist »

No bonds seems like a bold allocation for anyone above the age of about 40, to me. (I would go with age-20 I think.) But I’ve listened to interviews with Vanguard’s Jack Brennan and T Rowe Price’s Sebastien Page (both of whom have recent books) in the past week, and both of them say that they would hold a higher equity allocation for longer than conventional advice indicated in the past. Brennan explicitly says he’d hold more than 60% equities, rather than 60/40, at many stages where 60/40 used to be the conventional wisdom.

I’m sticking with my preset allocation (basically 70/30 at 50), but I find it interesting how this is now almost viewed as conservative!
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Re: Eliminating bonds?

Post by nedsaid »

ApeAttack wrote: Sat May 01, 2021 12:49 pm
nedsaid wrote: Sat May 01, 2021 12:41 pm Oh man! I don't like to read stuff like this because it is another piece of evidence that we might be seeing euphoria in the stock market. Lots of folks believe that stocks are the only game in town because of very low interest rates. Speaking for myself, I don't want the volatility of a 100% stock portfolio. Been there, done that, bought that T-Shirt. Even now, with 64% or so of my portfolio in stocks at age 61, I feel like I am hanging way out there. Threads like this add to my nervousness as I see fellow investors throwing caution to the winds. I have yet to be convinced that there is a better diversifier to stocks than plain old boring bonds. The so-called Alternative investments have been a disappointment.
Do you think you would feel differently if you were 20 years younger?
In early 2000, I was still 40 years old and I had 94% stocks/6% bonds and cash in my portfolio. Soon afterwards, I went to 80% stocks just before things crashed.

So yes, I think young investors can be more aggressive, investors in their twenties and thirties can be up to 90% stocks in my view. Age 40 is a good time to start the process of portfolio de-risking.
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Re: Eliminating bonds?

Post by jcerickson »

RobLyons wrote: Fri Apr 30, 2021 8:37 am Is anyone else ditching or reducing their bond holdings?...

...So my workplace 403b will now look like this:

60% VIIX - Vanguard Institutional Index Fund Institutional Plus Shares - 0.02% exp ratio
20% VTRLX - Vanguard Institutional Target Retirement 2050 Fund Institutional Shares - 0.09% exp ratio
20% VTSNX - Vanguard Total International Stock Index Fund Institutional Shares - 0.08% exp ratio
Perhaps I missed something, but you'll still have bonds if you invest in the VTRLX Target 2050 fund - it contains about 10% Total Bond.

Curious then as to why you are including the Target fund in addition to your other 2 index funds (S&P 500 and International)?

I'm not contributing to my bond fund now but am building cash in an account earning 3.3% interest. :happy
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Re: Eliminating bonds?

Post by ruralavalon »

jcerickson wrote: Sat May 01, 2021 12:57 pm
RobLyons wrote: Fri Apr 30, 2021 8:37 am Is anyone else ditching or reducing their bond holdings?...

...So my workplace 403b will now look like this:

60% VIIX - Vanguard Institutional Index Fund Institutional Plus Shares - 0.02% exp ratio
20% VTRLX - Vanguard Institutional Target Retirement 2050 Fund Institutional Shares - 0.09% exp ratio
20% VTSNX - Vanguard Total International Stock Index Fund Institutional Shares - 0.08% exp ratio
Perhaps I missed something, but you'll still have bonds if you invest in the VTRLX Target 2050 fund - it contains about 10% Total Bond.

Curious then as to why you are including the Target fund in addition to your other 2 index funds (S&P 500 and International)?
That's about 2% bonds, the functional equivalent of 100% stocks/00% bonds.
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Re: Eliminating bonds?

Post by jcerickson »

ruralavalon wrote: Sat May 01, 2021 1:00 pm
jcerickson wrote: Sat May 01, 2021 12:57 pm
RobLyons wrote: Fri Apr 30, 2021 8:37 am Is anyone else ditching or reducing their bond holdings?...

...So my workplace 403b will now look like this:

60% VIIX - Vanguard Institutional Index Fund Institutional Plus Shares - 0.02% exp ratio
20% VTRLX - Vanguard Institutional Target Retirement 2050 Fund Institutional Shares - 0.09% exp ratio
20% VTSNX - Vanguard Total International Stock Index Fund Institutional Shares - 0.08% exp ratio
Perhaps I missed something, but you'll still have bonds if you invest in the VTRLX Target 2050 fund - it contains about 10% Total Bond.

Curious then as to why you are including the Target fund in addition to your other 2 index funds (S&P 500 and International)?
That's about 2% bonds, the functional equivalent of 100% stocks/00% bonds.
Understood, ruralavalon. :happy That was more of an observation of fact (the accountant in me...) followed in the next sentence by my real question..
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LilyFleur
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Re: Eliminating bonds?

Post by LilyFleur »

nedsaid wrote: Sat May 01, 2021 12:41 pm Oh man! I don't like to read stuff like this because it is another piece of evidence that we might be seeing euphoria in the stock market. Lots of folks believe that stocks are the only game in town because of very low interest rates. Speaking for myself, I don't want the volatility of a 100% stock portfolio. Been there, done that, bought that T-Shirt. Even now, with 64% or so of my portfolio in stocks at age 61, I feel like I am hanging way out there. Threads like this add to my nervousness as I see fellow investors throwing caution to the winds. I have yet to be convinced that there is a better diversifier to stocks than plain old boring bonds. The so-called Alternative investments have been a disappointment.
In my 401k, my index bond fund is down 2.63% for the year; stable value fund is up .69%, and S&P index fund is up 11.84%. I'm 61, semi-retired, and feel very comfortable with 55% in stocks, although I will admit to a wee bit of FOMO. I really appreciate access to a stable value fund at this time and I feel it's a good reason to keep my 401k instead of rolling it to an IRA, even though there are limited funds available. The index funds have very low expense ratios.

I'm quite thankful I joined this forum and learned about a more age-appropriate asset allocation. Most folks on this forum wouldn't be able to sleep with the asset allocation I had in my late 50s.
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nedsaid
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Re: Eliminating bonds?

Post by nedsaid »

LilyFleur wrote: Sat May 01, 2021 1:15 pm
nedsaid wrote: Sat May 01, 2021 12:41 pm Oh man! I don't like to read stuff like this because it is another piece of evidence that we might be seeing euphoria in the stock market. Lots of folks believe that stocks are the only game in town because of very low interest rates. Speaking for myself, I don't want the volatility of a 100% stock portfolio. Been there, done that, bought that T-Shirt. Even now, with 64% or so of my portfolio in stocks at age 61, I feel like I am hanging way out there. Threads like this add to my nervousness as I see fellow investors throwing caution to the winds. I have yet to be convinced that there is a better diversifier to stocks than plain old boring bonds. The so-called Alternative investments have been a disappointment.
In my 401k, my index bond fund is down 2.63% for the year; stable value fund is up .69%, and S&P index fund is up 11.84%. I'm 61, semi-retired, and feel very comfortable with 55% in stocks, although I will admit to a wee bit of FOMO. I really appreciate access to a stable value fund at this time and I feel it's a good reason to keep my 401k instead of rolling it to an IRA, even though there are limited funds available. The index funds have very low expense ratios.

I'm quite thankful I joined this forum and learned about a more age-appropriate asset allocation. Most folks on this forum wouldn't be able to sleep with the asset allocation I had in my late 50s.
Mr. Bogle made a few surprising statements germane to our subject: 1) most retirees invest too conservatively, 2) a 65% stock/35% bond portfolio is good for most investors, and 3) take into account Social Security when determining asset allocation. He made statements that one could consider the actuarial value of Social Security as a bond in their portfolio. So with Mr. Bogle's statements in mind, what you have done sounds about right.

Bogle made another statement regarding the Vanguard Growth Index Fund and the Vanguard Value Index fund. He envisioned that investors would hold the Growth Index during their working years and then switch to the Value Index when they retired. He considered the holdings in the Value Index to be more conservative and thought retirees could benefit from the higher dividend yield.

Bogle also believed that income was important to retirees. He suggested taking a slice out of Total Stock Market and replacing it with higher yield dividend stocks and taking a slice out of Total Bond Market and replacing it with a good Corporate Bond fund. Stretch for yield a bit but not too much.

As far as factors, Bogle did allow Vanguard to create Small-Cap and Value Indexes. He actually was sort of a pioneer in factor investing though he didn't really believe in them.
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LilyFleur
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Re: Eliminating bonds?

Post by LilyFleur »

nedsaid wrote: Sat May 01, 2021 1:33 pm
LilyFleur wrote: Sat May 01, 2021 1:15 pm
nedsaid wrote: Sat May 01, 2021 12:41 pm Oh man! I don't like to read stuff like this because it is another piece of evidence that we might be seeing euphoria in the stock market. Lots of folks believe that stocks are the only game in town because of very low interest rates. Speaking for myself, I don't want the volatility of a 100% stock portfolio. Been there, done that, bought that T-Shirt. Even now, with 64% or so of my portfolio in stocks at age 61, I feel like I am hanging way out there. Threads like this add to my nervousness as I see fellow investors throwing caution to the winds. I have yet to be convinced that there is a better diversifier to stocks than plain old boring bonds. The so-called Alternative investments have been a disappointment.
In my 401k, my index bond fund is down 2.63% for the year; stable value fund is up .69%, and S&P index fund is up 11.84%. I'm 61, semi-retired, and feel very comfortable with 55% in stocks, although I will admit to a wee bit of FOMO. I really appreciate access to a stable value fund at this time and I feel it's a good reason to keep my 401k instead of rolling it to an IRA, even though there are limited funds available. The index funds have very low expense ratios.

I'm quite thankful I joined this forum and learned about a more age-appropriate asset allocation. Most folks on this forum wouldn't be able to sleep with the asset allocation I had in my late 50s.
Mr. Bogle made a few surprising statements germane to our subject: 1) most retirees invest too conservatively, 2) a 65% stock/35% bond portfolio is good for most investors, and 3) take into account Social Security when determining asset allocation. He made statements that one could consider the actuarial value of Social Security as a bond in their portfolio. So with Mr. Bogle's statements in mind, what you have done sounds about right.

Bogle made another statement regarding the Vanguard Growth Index Fund and the Vanguard Value Index fund. He envisioned that investors would hold the Growth Index during their working years and then switch to the Value Index when they retired. He considered the holdings in the Value Index to be more conservative and thought retirees could benefit from the higher dividend yield.

Bogle also believed that income was important to retirees. He suggested taking a slice out of Total Stock Market and replacing it with higher yield dividend stocks and taking a slice out of Total Bond Market and replacing it with a good Corporate Bond fund. Stretch for yield a bit but not too much.

As far as factors, Bogle did allow Vanguard to create Small-Cap and Value Indexes. He actually was sort of a pioneer in factor investing though he didn't really believe in them.
Interesting. Anecdotally, I own a small percentage of my total portfolio (1.4%) in two individual stocks: Apple (growth) and Verizon (value). They seem to move in different directions, although the growth in Apple has far exceeded the slight drop in Verizon. On Friday, Apple went down and Verizon went up. I've owned both these stocks less than a year.

I have a small allotment in my brokerage account to a dividend index fund (4.6% is in SCHD). Be prepared for horrified responses after that statement! I think it's wise... the tax drag is minimal when you look at my entire portfolio and my yearly spend (I spend the dividends). I'm not posting my entire portfolio in this discussion, though, but in general I'm a good Boglehead.

Those last two suggestions by Bogle would pre-empt the possibility of a three-fund portfolio, although I think they are good suggestions and I personally don't have just three funds.
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nedsaid
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Re: Eliminating bonds?

Post by nedsaid »

LilyFleur wrote: Sat May 01, 2021 1:45 pm
nedsaid wrote: Sat May 01, 2021 1:33 pm
LilyFleur wrote: Sat May 01, 2021 1:15 pm
nedsaid wrote: Sat May 01, 2021 12:41 pm Oh man! I don't like to read stuff like this because it is another piece of evidence that we might be seeing euphoria in the stock market. Lots of folks believe that stocks are the only game in town because of very low interest rates. Speaking for myself, I don't want the volatility of a 100% stock portfolio. Been there, done that, bought that T-Shirt. Even now, with 64% or so of my portfolio in stocks at age 61, I feel like I am hanging way out there. Threads like this add to my nervousness as I see fellow investors throwing caution to the winds. I have yet to be convinced that there is a better diversifier to stocks than plain old boring bonds. The so-called Alternative investments have been a disappointment.
In my 401k, my index bond fund is down 2.63% for the year; stable value fund is up .69%, and S&P index fund is up 11.84%. I'm 61, semi-retired, and feel very comfortable with 55% in stocks, although I will admit to a wee bit of FOMO. I really appreciate access to a stable value fund at this time and I feel it's a good reason to keep my 401k instead of rolling it to an IRA, even though there are limited funds available. The index funds have very low expense ratios.

I'm quite thankful I joined this forum and learned about a more age-appropriate asset allocation. Most folks on this forum wouldn't be able to sleep with the asset allocation I had in my late 50s.
Mr. Bogle made a few surprising statements germane to our subject: 1) most retirees invest too conservatively, 2) a 65% stock/35% bond portfolio is good for most investors, and 3) take into account Social Security when determining asset allocation. He made statements that one could consider the actuarial value of Social Security as a bond in their portfolio. So with Mr. Bogle's statements in mind, what you have done sounds about right.

Bogle made another statement regarding the Vanguard Growth Index Fund and the Vanguard Value Index fund. He envisioned that investors would hold the Growth Index during their working years and then switch to the Value Index when they retired. He considered the holdings in the Value Index to be more conservative and thought retirees could benefit from the higher dividend yield.

Bogle also believed that income was important to retirees. He suggested taking a slice out of Total Stock Market and replacing it with higher yield dividend stocks and taking a slice out of Total Bond Market and replacing it with a good Corporate Bond fund. Stretch for yield a bit but not too much.

As far as factors, Bogle did allow Vanguard to create Small-Cap and Value Indexes. He actually was sort of a pioneer in factor investing though he didn't really believe in them.
Interesting. Anecdotally, I own a small percentage of my total portfolio (1.4%) in two individual stocks: Apple (growth) and Verizon (value). They seem to move in different directions, although the growth in Apple has far exceeded the slight drop in Verizon. On Friday, Apple went down and Verizon went up. I've owned both these stocks less than a year.

I have a small allotment in my brokerage account to a dividend index fund (4.6% is in SCHD). Be prepared for horrified responses after that statement! I think it's wise... the tax drag is minimal when you look at my entire portfolio and my yearly spend (I spend the dividends). I'm not posting my entire portfolio in this discussion, though, but in general I'm a good Boglehead.

Those last two suggestions by Bogle would pre-empt the possibility of a three-fund portfolio, although I think they are good suggestions and I personally don't have just three funds.
I am a member of the Bogle forum and follow a lot of the principles taught here. I certainly have done some non-Boglehead things. So you can join me in not being a 3 fund investor. But we are close enough to the key principles to contribute here.
A fool and his money are good for business.
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Re: Eliminating bonds?

Post by Tattarrattat »

Eliminating bonds seems like a response to a big bull market with low bond interest rates. Pretty much the kind of reaction to recent events that is generally not a great idea. Evaluating risk tolerance several times a year is going to be part of that same phenomenon. If you have a forty or more year time horizon, you probably shouldn't be evaluating your risk tolerance more than once every ten years. That's the whole point of staying the course, as well as the observation that accounts of dead people have the best investment results, ie: no changes. At some point, stocks will once again crater and bonds will again have their day in the sun and a lot of people who are all in on stocks now will have a change of heart. Just look at all the gloom and doom posts from the beginning of Covid, March 2020, where plenty of posters completely cashed out of stocks. It's so easy to get caught up in the news. If you think you can hold 100% stocks during a prolonged bear market, by all means, only you know your own psychology and behaviors. I personally would stick with the old-fashioned recommendation (Graham? Bogle?) of never being outside the boundaries of 75/25 to 25/75. So, maybe 75/25 for 20 years, then 50/50 for 20 years and maybe winding down to 30/70 at the end, or or some variant thereof. Or 60/40 fixed forever. Or just put it in a target fund and basically ignore it from then on. The point being that what you're holding remains tolerable no matter what the markets are doing. But again, it comes down to your own emotional resilience.
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Re: Eliminating bonds?

Post by grobertj »

When you're retired like I am, you expect to see some return from fixed income. I got tired of BND and switched to Short Term Corporate Bonds (VCSH). It's not great but at least it's not negative. I can see the advantage of moving to a less volatile stock fund. I currently have 60% stocks and 40% bonds. Based on this discussion, I will evaluate the Value Income Fund with a higher percentage in stock.
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Re: Eliminating bonds?

Post by goodenyou »

I am 52% stocks and 20 % bonds. The rest is in cash. I just sold my paid-off house this week and became a renter, so I have a very large cash position right now. I am not sure we are ready to jump back into the real estate market anytime soon. We are renting at a lot lower cost than home ownership. I am not eliminating bonds, but I have not been adding to bonds. We are instead in more HYSA (Ally @0.5%) and cash-like investments (MM) instead of buying bonds. I have far-exceeded my "number", and I really don't want to risk having to go back into accumulation mode. We could be fine on the stock portion of our portfolio especially for 15 years when we plan to take Social Security @70. We will both have the maximum Social Security at that time. I will buy some more I Bonds but that is a very small portion of the portfolio.
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RobLyons
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Re: Eliminating bonds?

Post by RobLyons »

ruralavalon wrote: Sat May 01, 2021 12:17 pm
RobLyons wrote: Fri Apr 30, 2021 8:37 am Is anyone else ditching or reducing their bond holdings?
No. We are staying with Vanguard Intermediate-term Bond Index Fund (VBILX).



RobLyons wrote: Fri Apr 30, 2021 8:37 amMy reasons include I'm young, have great confidence, many years left to invest, financial stability, and excellent pension.
. . . . .
All of those are good reasons to consider a higher risk asset allocation.

Why are you so confident? What is your age? Did you have substantial investments in 2008? How did you react in that crash?


I'm 40 and plan to invest into my 80s if I'm cognitively able to.

I had investments in 2008. I lost 35% and didn't blink. And last year as things dipped I invested more.
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goodenyou
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Re: Eliminating bonds?

Post by goodenyou »

RobLyons wrote: Sun May 02, 2021 7:06 am
ruralavalon wrote: Sat May 01, 2021 12:17 pm
RobLyons wrote: Fri Apr 30, 2021 8:37 am Is anyone else ditching or reducing their bond holdings?
No. We are staying with Vanguard Intermediate-term Bond Index Fund (VBILX).



RobLyons wrote: Fri Apr 30, 2021 8:37 amMy reasons include I'm young, have great confidence, many years left to invest, financial stability, and excellent pension.
. . . . .
All of those are good reasons to consider a higher risk asset allocation.

Why are you so confident? What is your age? Did you have substantial investments in 2008? How did you react in that crash?


I'm 40 and plan to invest into my 80s if I'm cognitively able to.

I had investments in 2008. I lost 35% and didn't blink. And last year as things dipped I invested more.
Sounds like you are a “take risk on the equities side” investor. Maybe 90% equities 10% cash or 100% equities would be good.
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Re: Eliminating bonds?

Post by Wiggums »

David Jay wrote: Fri Apr 30, 2021 8:56 am I really don’t like the concept of evaluating one’s risk tolerance 2-3 times a year. This opens one up to all kinds of behavioral mis-steps.

I would select an Asset Allocation that I could live with through think-and-thin. When the market slumps. When you lose your job. When interest rates soar. It only changes when life stage changes (i.e. when approaching retirement).
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yoga
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Re: Eliminating bonds?

Post by yoga »

I'm also 40 and switched from 99/1 stocks/cash to 85/15 stocks/bonds and cash in January, then 80/20 this month. Considering either 75/25 or 70/30 a bit later this year. Shooting for early retirement and getting very close to my number. I can't stomach a 50% loss at this point.
SimplicityNow
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Re: Eliminating bonds?

Post by SimplicityNow »

I agree that 2-3 times a year to re-evaluate your risk tolerance is excessive. It seems like market timing to me. At a maximum I would suggest once a year and also review your entire IPS as well. I've done the same exercise many times. The urge gets strong to increase our equity percentage when the market is running hot and stay the course when the market is dropping. At the end of the day, we've only changed it once in the 5 years and it was actually for a future change to our AA so it hadn't taken effect yet.

To answer the question. We have no plans to eliminate bonds in our portfolio. We have a current AA target of 60% equity, 40% fixed income. Our IPS says to rebalance once a year if we are more than 5% from our target AA. Currently we are 63.5%/36.5%. A little more than 20% of our fixed income assets are in bonds. Or about 8% of our total portfolio. Comprised of a mixture of Vanguard Total Bond and TIPS. We are fortunate to have access to several good stable value funds paying from 2 - 4.5% where most of our FI is held. The rest of our fixed income holdings are in high yield savings most of which is paying 1% currently. We could move things around to decrease our bond holdings and increase our stable value and therefore increase our yield but I like the fact that we are diversified across many different positions. We have no need to to tap into the bond funds as an income source during the average duration of the bonds.

Our plan is to hold the bonds forever. Of course we will re-evaluate things in the future, but not too often.
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