For those retired, what's your plan for non-stock part of your portfolio when interest rates start dropping?

[mallard1]

I don't have a plan on this increasingly likely scenario, and wondering what I might do...Looking for ideas, really. Currently 50% in stock and 50% in various cash equivalents/treasuries and CDs of various durations/moneymarket funds. No bonds currently as I never really saw that they've been strongly negatively correlated to stocks.

[KlangFool]

OP,

I have bond fund. When the interest rate goes down, the bond fund value goes up. I am not smart enough to avoid bond fund. I know that I know nothing.

My plan works all the time. I assumed that I know nothing. I have all three: stock, bond, and cash.

KlangFool

[Sandtrap]

I don't have a plan on this increasingly likely scenario, and wondering what I might do...Looking for ideas, really. Currently 50% in stock and 50% in various cash equivalents/treasuries and CDs of various durations/moneymarket funds. No bonds currently as I never really saw that they've been strongly negatively correlated to stocks.

to op:
If "avoiding volatility" then something on this Fidelity Fixed Rates chart would work well for "some people" since individual portfolios and needs vary.
IE: HYA's, MM, CD ladders (new issue), Treasury ladders (new issue, not funds), Muni, etc, etc.

Fidelity Fixed Rates Chart
https://fixedincome.fidelity.com/ftgw/f ... hest-yield

For myself, at 65/35, the 35% is composed of:
Cash or cash like.
CD and/or Treasury Ladders
VBTLX (Vanguard Total Bond)
% of VBIAX (Vanguard Balanced Index Fund)
(like "Klang", the correlation in VBTLX between fund value and yield works with fluctuating interest rates. Bond fund choices vary greatly for most).

j

[muffins14]

I don't have a plan on this increasingly likely scenario, and wondering what I might do...Looking for ideas, really. Currently 50% in stock and 50% in various cash equivalents/treasuries and CDs of various durations/moneymarket funds. No bonds currently as I never really saw that they've been strongly negatively correlated to stocks.

At some granularity, you don’t want bonds to be strongly negatively correlated to stocks, right? You want it to be somewhat of a low correlation, perhaps, but not strongly negative. CDs and cash are likely not strongly negatively correlated to stocks either.

You want bonds to mostly go up over time, not to mostly go down over time.

[Parkinglotracer]

I wouldn’t pick a fixed income strategy that changes as rates change. No one knows what the future brings. I am 65/35 with some mm funds, ibonds from year 2000, some tsp G fund, and mostly a 5 year treasury ladder. My goal is to pick a fixed income strategy that I can use to stay the course thru the ups and downs. I think Using CDs of various durations is a great idea to navigate the unknown interest rate future.

[clutchied]

I don't have a plan on this increasingly likely scenario, and wondering what I might do...Looking for ideas, really. Currently 50% in stock and 50% in various cash equivalents/treasuries and CDs of various durations/moneymarket funds. No bonds currently as I never really saw that they've been strongly negatively correlated to stocks.

my folks are VERY cash/cd heavy and wil likely be impacted to some degree.

Planning to buy more 50/50 market index / bond funds as they mature if rates aren't over 5%.


This is one of those situations where they've won the game and have stopped playing but having that income stream has helped. It won't make or break them but it will decrease their investment diversity. The bond funds they have largely accomplish the same thing but with more risk.

Locked in some 5 years a year or so back. Will need to take a look in 3-4 years.

[MnD]

I hold the TSP G fund and Dodge and Cox Global Bond in a 2:1 ratio since 2014.
The ah-ha moment was 2011 when 10-year Treasuries went under 2%. I couldn't stomach holding duration/interest risk.
Prior to 2014 I was 2:1 in TSP G and Dodge and Cox income fund and swapped out the latter to D&C Global Bond whent it was introduced in 2014.

I'm very pleased with the performance and the overall low volatility of the blended duration of 2 years.

[retiredjg]

My plan is to keep what I currently have...total bond and another vanilla intermediate term bond fund.

[GottaLottaNada]

My Rollover IRA is where I do my trading on market swings. The rest of my Trad IRA and Roth are pretty much fully invested.

When Powell started talking about raising Fed Funds in 2022, I sold half of my QQQ and SMH and emptied my Bond Fund, rising Rates are almost never good for these kinds of assets. I went from about 85/15 to 40% MM. That was aprox $160K that avoided the Bond Washout. I've been happily collecting 5% on Fidelity's FZDXX for the interim.

I buy back into TLT, the Long Treasury ETF every time it dips below $90. The Long Treasuries seem to react favorably to even the "thought" of Lower Rates. I've been nibbling back into QQQ and IWM on the dips also. If the Rate-o-meter does actually fall, I will add to the equity ETF's as needed.

[sailaway]

My plan is to keep what I currently have...total bond and another vanilla intermediate term bond fund.

Ditto. I just don't have the bandwidth to try to guess what is happening next.

[delamer]

I wouldn’t pick a fixed income strategy that changes as rates change. No one knows what the future brings. I am 65/35 with some mm funds, ibonds from year 2000, some tsp G fund, and mostly a 5 year treasury ladder. My goal is to pick a fixed income strategy that I can use to stay the course thru the ups and downs. I think Using CDs of various durations is a great idea to navigate the unknown interest rate future.

Agreed.

Plus retirees who are drawing down their portfolios should have at least a few years of withdrawals in cash equivalents.

And, OP, Treasuries are bonds. But if you are able to hold an individual Treasury to maturity, then its value to you doesn’t fluctuate.

[mhc]

My plan is to stay with my total bond market fund and continue to enjoy my retirement.

[Silverado]

If the rates drop before I retire (year os so) then I will buy more US Bond Intermediate in my 401k as per my current setting. If the rates fall after I retire, I won’t do much of anything unless rebalancing is needed.

I read most of the bond threads and still haven’t seen any arguments that are complete or strong enough to budge me from owning a simple low cost bond fund. A couple respected posters have made me think about the funds which hold pure treasuries vs the wide variety in something like BND, but I not sure if I will make a change or not. Seems likely I will just procrastinate that decision for a long time.

[Django Ii]

The bulk of my retirement years have been in a low rate environment. The past 2 years have been the exception. I'm more likely to cut expenses than to increase risk if my returns are diminished by lower rates. I know not everyone is able to do that, but I can and I thank my lucky stars...

[ruralavalon]

I don't have a plan on this increasingly likely scenario, and wondering what I might do...Looking for ideas, really. Currently 50% in stock and 50% in various cash equivalents/treasuries and CDs of various durations/moneymarket funds. No bonds currently as I never really saw that they've been strongly negatively correlated to stocks.

My plan is not changing, my fixed income is still the 40% bonds (U.S.. Aggregate Bond Index) in Vanguard Balanced Index Fund (VBIAX).

[Exchme]

"When" interest rates start dropping? They already did, at all durations except the shortest term. BND is up over 12% and long bonds are up over 20% since last October. The train left the station while you were deciding what to pack. Accept that you are not going to time the market successfully, pick a reasonable choice like BND or an intermediate treasury or TIPS fund and relax about it.

[AlohaBill]

I will just stand there and do nothing. Maybe I will fly to San Diego and eat fried clams at Pete’s Seafood restaurant.

[bertilak]

Stay the course.
Interest rates will always bounce up and down. I don't plan on chasing them.

[ruralavalon]

"When" interest rates start dropping? They already did, at all durations except the shortest term. BND is up over 12% and long bonds are up over 20% since last October. The train left the station while you were deciding what to pack. Accept that you are not going to time the market successfully, pick a reasonable choice like BND or an intermediate treasury or TIPS fund and relax about it.

"BND is up over 12% and long bonds are up over 20% since last October. The train left the station while you were deciding what to pack."

That's an excellent analogy (or is it a metaphor?), llustrating the folly of trying to time the bond market.

[livesoft]

I'm retired. The non-stock part of our portfolio consists of BND, SPAB (both Total US Bond Market Index ETFs), TIAA traditional, and TIAA Real Estate Account.

It should come as no surprise that we will change nothing when interest rates start dropping. The BND/SPAB will continue be used as a source of money for any buying of equities and a sink for money from selling equities. Folks can call these things "rebalancing" and/or "market timing" if they like.

[retireIn2020]

I will just stand there and do nothing. Maybe I will fly to San Diego and eat fried clams at Pete’s Seafood restaurant.

I'll take a lobster roll

I'm also doing nothing.

[TG2]

I don't have a non-stock part of my portfolio, so...nothing.

[toddthebod]

I don't have a plan on this increasingly likely scenario, and wondering what I might do...Looking for ideas, really. Currently 50% in stock and 50% in various cash equivalents/treasuries and CDs of various durations/moneymarket funds. No bonds currently as I never really saw that they've been strongly negatively correlated to stocks.

Already priced in. Too late to do anything about it.

Also, bonds have never been negatively correlated with stocks, and nobody said they were. They are uncorrelated.

[saveninvest]

"When" interest rates start dropping? They already did, at all durations except the shortest term. BND is up over 12% and long bonds are up over 20% since last October. The train left the station while you were deciding what to pack. Accept that you are not going to time the market successfully, pick a reasonable choice like BND or an intermediate treasury or TIPS fund and relax about it.

"BND is up over 12% and long bonds are up over 20% since last October. The train left the station while you were deciding what to pack."

That's an excellent analogy (or is it a metaphor?), llustrating the folly of trying to time the bond market.

I agree with the general principle but am not sure I see the 12% increase. At least as per Google finance, BND was 69.5 on Oct 22, 2023 and is today at 74.38, which translates into a 7% increase in NAV since then. Does including dividend payments make it 12%?

[rkhusky]

If my bond fund NAV increases sufficiently due to the rate decreases, I may need to rebalance by selling bonds and buying stocks. Unless stocks also increase - then I may do nothing.

[Wiggums]

We are sticking with our intermediate bond fund, treasuries and some cash.

[suemarkp]

"When" interest rates start dropping? They already did, at all durations except the shortest term. BND is up over 12% and long bonds are up over 20% since last October. The train left the station while you were deciding what to pack. Accept that you are not going to time the market successfully, pick a reasonable choice like BND or an intermediate treasury or TIPS fund and relax about it.

"BND is up over 12% and long bonds are up over 20% since last October. The train left the station while you were deciding what to pack."

That's an excellent analogy (or is it a metaphor?), llustrating the folly of trying to time the bond market.

I agree with the general principle but am not sure I see the 12% increase. At least as per Google finance, BND was 69.5 on Oct 22, 2023 and is today at 74.38, which translates into a 7% increase in NAV since then. Does including dividend payments make it 12%?

Portfolio Visualizer says BND returned 10% from October 23 through August 2024. That covers NAV growth and dividends. I'm finally feeling better about the bond funds I bought 3 to 4 years ago. They are rebounding with the drop in rates. I'm glad I didn't need the money 2 to 3 years after buying it which was why I bought a short term bond fund. Would have taken a bad loss if I had to sell any in 2022 or 2023.

[FactualFran]

My plan is to stay the course, which includes having the non-stock part of my portfolio in Treasury debt that will mature in at most one year.

[jebmke]

My plan is to leave it in bond funds where it has been for decades

[HeavyChevy]

Maintain my current bond holdings of 50% FAGIX and 50% VWEAX (retired nearly 4 years)

[saveninvest]

"When" interest rates start dropping? They already did, at all durations except the shortest term. BND is up over 12% and long bonds are up over 20% since last October. The train left the station while you were deciding what to pack. Accept that you are not going to time the market successfully, pick a reasonable choice like BND or an intermediate treasury or TIPS fund and relax about it.

"BND is up over 12% and long bonds are up over 20% since last October. The train left the station while you were deciding what to pack."

That's an excellent analogy (or is it a metaphor?), llustrating the folly of trying to time the bond market.

I agree with the general principle but am not sure I see the 12% increase. At least as per Google finance, BND was 69.5 on Oct 22, 2023 and is today at 74.38, which translates into a 7% increase in NAV since then. Does including dividend payments make it 12%?

Portfolio Visualizer says BND returned 10% from October 23 through August 2024. That covers NAV growth and dividends. I'm finally feeling better about the bond funds I bought 3 to 4 years ago. They are rebounding with the drop in rates. I'm glad I didn't need the money 2 to 3 years after buying it which was why I bought a short term bond fund. Would have taken a bad loss if I had to sell any in 2022 or 2023.

Yes, agreed (10% seems right given the total interest payments were about 3%). I feel the same way although I have decided to keep 50% of fixed income in VBTLX and the other 50% in CDs, treasuries, and MM funds.

[rich126]

I don't have a plan on this increasingly likely scenario, and wondering what I might do...Looking for ideas, really. Currently 50% in stock and 50% in various cash equivalents/treasuries and CDs of various durations/moneymarket funds. No bonds currently as I never really saw that they've been strongly negatively correlated to stocks.

You can try to lock up money in cds and mygas. Or move to bond funds since lower rates means fund prices will go up for a while.

[tibbitts]

A good part of my TIAA is locked into Traditional for at least 9 years so nothing happening there. I'm trying to decide when to get rid of my .5% (no penalty) and .4% (penalty) I-bonds, since I will be spending as much cash in the next month (mostly for taxes) as I have in them combined. I have to take cash from those or from my money market fund so I'm... undecided.

[dratkinson]

I'm doing nothing.
--Primary bonds are LT national muni, which weren't affected when ST-IT rates increased, so shouldn't be affected when rates decrease.
--I do have ~3yrs of living expenses in shorter-term bonds---had 'em before rates increased---so not too worried if rates decrease.

[J295]

Like many retirees already posting, we continue with the same basic non-stock allocation through the various interest rate environments.

Includes
BND
TIP
Treasury/CD ladder / I-bonds
MM

[Hacksawdave]

Already did a purchase of CA long-term tax-exempt last December, and two rebalancing exchanges in the 401k swapping some VIIIX Institutional Index shares for VBTIX Total Bond Institutional class in March and end of June. No other plans.

[dcabler]

I don't have a plan on this increasingly likely scenario, and wondering what I might do...Looking for ideas, really. Currently 50% in stock and 50% in various cash equivalents/treasuries and CDs of various durations/moneymarket funds. No bonds currently as I never really saw that they've been strongly negatively correlated to stocks.

Already priced in. Too late to do anything about it.

Also, bonds have never been negatively correlated with stocks, and nobody said they were. They are uncorrelated.

Concepts like correlation must be specified over some sampling period. Indeed, over long time periods bonds have been uncorrelated with stocks. Over shorter timespans, however, they have been both positively and negatively correlated.

Cheers.

[Jack FFR1846]

My portfolio is 50/50. US Stock and "Bond and fixed income". The Bond and fixed income includes bond funds, savings bonds, cash. What do I do when rates drop? Nothing. The only time I do anything is when my 5% window gets exceeded. Then I rebalance back to 50/50. Why do I care what the rates are?

[toddthebod]

I don't have a plan on this increasingly likely scenario, and wondering what I might do...Looking for ideas, really. Currently 50% in stock and 50% in various cash equivalents/treasuries and CDs of various durations/moneymarket funds. No bonds currently as I never really saw that they've been strongly negatively correlated to stocks.

Already priced in. Too late to do anything about it.

Also, bonds have never been negatively correlated with stocks, and nobody said they were. They are uncorrelated.

Concepts like correlation must be specified over some sampling period. Indeed, over long time periods bonds have been uncorrelated with stocks. Over shorter timespans, however, they have been both positively and negatively correlated.

Cheers.

No they haven't.

[Rocinante Rider]

When interest rates start dropping (or rising), I do the same thing that I do when my broad market index funds start dropping (or rising): Nothing. I just maintain my chosen asset allocation by rebalancing if the percentages drift beyond my rebalance bands.

[FellsGuy]

My Rollover IRA is where I do my trading on market swings. The rest of my Trad IRA and Roth are pretty much fully invested.

When Powell started talking about raising Fed Funds in 2022, I sold half of my QQQ and SMH and emptied my Bond Fund, rising Rates are almost never good for these kinds of assets. I went from about 85/15 to 40% MM. That was aprox $160K that avoided the Bond Washout. I've been happily collecting 5% on Fidelity's FZDXX for the interim.

I buy back into TLT, the Long Treasury ETF every time it dips below $90. The Long Treasuries seem to react favorably to even the "thought" of Lower Rates. I've been nibbling back into QQQ and IWM on the dips also. If the Rate-o-meter does actually fall, I will add to the equity ETF's as needed.

That’s a lot of market timing and you seem very very certain how do you know these things? And why would you hang around a forum of buy and hold index fund investors if you’re a market timing trader? I don’t mean that as a criticism just wondering if I’m completely missing the point of your post or not understanding it?

[statman]

In my opinion,retirees who no longer have earned (and thus inflation-sensitive) income should concentrate on income flow, not on the market value of the investments that produce that income. It clarifies our discussion to focus on income. That argues for long-term bonds - I use VWLUX (Vanguard Long-Term Tax-Exempt) due to our tax bracket. I am indifferent to the market value, as I don't intend to sell. Note that for someone in the accumulation phase VWIUX (intermediate term) would be the usual recommendation. We have a ladder of Ibonds (the 1998-2001s, paying 3% to 3.6% real) to be sold 2025-2031 (when the last mature) providing $70,000 to $80,000 per year added income. Individual TIPS maturing 2032-2033 provide the same for these years. 2033 is my wife's age 92 (I'll be gone by then). Thereafter our son will begin selling from our stock and muni bond funds,
in which we have enough capital to support my wife for many years.

We hold only 30% equities - you can read the Morningstar article "How Rising Interest Rates Affect Your Retirement Plan" (February 23, 2024) for the
claim (substantiated elsewhere) that the highest safe withdrawal rates over both short and long periods correspond to between 20% and 40% equities. Thus, 30% equities fits our emphasis on income flow. Bequests would demand higher equity weighting, but we have provided that by large gifts before death and a Roth IRA (equity-heavy) that passes to our children on my death.

[Cah]

I don't have a plan on this increasingly likely scenario, and wondering what I might do...Looking for ideas, really. Currently 50% in stock and 50% in various cash equivalents/treasuries and CDs of various durations/moneymarket funds. No bonds currently as I never really saw that they've been strongly negatively correlated to stocks.
[/quote
I haven't heard of any rate changes. There has been a slight decrease in the mortgage rates. Dividend payments are at decade highs for bond funds. There hasn't been a better time to own bonds in a decade unless you are selling your principle that you purchased years ago.

[Mayacallie]

My overall portfolio is 80/20. The fixed income (20%) is subdivided into 5 year treasury ladder 60%, VTEB 10%, VTES 5%, SCTXX 25%. As the treasuries mature, I will reinvest into VTEB and VTES at a 2 to 1 ratio. My treasury ladder averages a little under 5% for the total 5 year term.

[nisiprius]

This can't be said too often: we do not know what interest rates will do.

Not any interest rates. Not the short-term rates set by the Fed, although that's what gets the most ink. And certainly not the intermediate-term rates that matter for owners of "core" bond funds like the Vanguard Total Bond Market Index Fund, which are only loosely coupled to short-term rates.

Even if you had a bug in the Fed's conference room, you still wouldn't know what intermediate rates are going to do. In case you weren't paying attention, from May 16th, 2022 to January 13th, 2023, the 3-month T-bill rate went from 1.03% to 4.62%, but the 10-year rate went from 2.88% to 3.51%. In other words, the short-term rate rose over 3.5% but the intermediate-term rate rose less than a percent. The reason why investors watch the yield curve is that it does not all move up and down in lockstep.

There are all sorts of confident predictions, expressed as near-certainties. For example, the word "when" in this thread title. In real life, interest rate forecasts have turned out to be bad jokes. In 2009, a forum poster wrote:

Interest rates can only go up, why go intermediate in bonds?

I see the total bond fund and intermediate treasuries recommended a lot on here. I know people don't like to market time but interest rates are currently zero and whether rates rise in 2010 or 2011 or 2015, eventually they will rise and intermediate term bonds will get hit.

So isn't it wise to go short in this environment where rates can only go up?

They didn't go up for thirteen years, and if mathwhiz followed his own advice, he forewent far more return waiting for 2022 than he would have lost in 2022 if he'd stayed the course.

My plan is to stay the course, and accept what the markets give me.

There are so many moving parts. If intermediate term rates fall, my portfolio will get a temporary boost, followed by a longer-term decline. But meanwhile, rate cuts will probably boost stocks. So taken all together, it won't be an unmitigated disaster. And probably won't be any worse than jumping around trying to dodge bullets and dodging into them instead.

[aristotelian]

It's probably a good idea to have at least some portion in TIPS or inflation protected bond fund. Other than that, all the options are subject to the similar risks and have similar expected return.

[nisiprius]

P.S. As another example of "nobody knows," before about 2014 it was considered literally impossible for a central bank to set an interest rate below zero. Yet it happened in Europe.

[dcabler]

I don't have a plan on this increasingly likely scenario, and wondering what I might do...Looking for ideas, really. Currently 50% in stock and 50% in various cash equivalents/treasuries and CDs of various durations/moneymarket funds. No bonds currently as I never really saw that they've been strongly negatively correlated to stocks.

Already priced in. Too late to do anything about it.

Also, bonds have never been negatively correlated with stocks, and nobody said they were. They are uncorrelated.

Concepts like correlation must be specified over some sampling period. Indeed, over long time periods bonds have been uncorrelated with stocks. Over shorter timespans, however, they have been both positively and negatively correlated.

Cheers.

No they haven't.

viewtopic.php?p=7589555#p7589555

Cheers.

[toddthebod]

I don't have a plan on this increasingly likely scenario, and wondering what I might do...Looking for ideas, really. Currently 50% in stock and 50% in various cash equivalents/treasuries and CDs of various durations/moneymarket funds. No bonds currently as I never really saw that they've been strongly negatively correlated to stocks.

Already priced in. Too late to do anything about it.

Also, bonds have never been negatively correlated with stocks, and nobody said they were. They are uncorrelated.

Concepts like correlation must be specified over some sampling period. Indeed, over long time periods bonds have been uncorrelated with stocks. Over shorter timespans, however, they have been both positively and negatively correlated.

Cheers.

No they haven't.

viewtopic.php?p=7589555#p7589555

Cheers.

The extremes are still only about 0.2-0.3. That's effectively uncorrelated.

Plus the correlation over any period less than the duration is meaningless.

Plus correlations of rolling returns is just bad math. The data points are not independent.

[SchruteB&B]

That’s a lot of market timing and you seem very very certain how do you know these things? And why would you hang around a forum of buy and hold index fund investors if you’re a market timing trader? I don’t mean that as a criticism just wondering if I’m completely missing the point of your post or not understanding it?

I wonder this too. Kind of like posting on a diet and exercise forum about how you love to lay on the couch and eat chocolate cake and you don’t gain a pound!