Bonds - Throw it all on the table!!!

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BigJohn
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Re: Bonds - Throw it all on the table!!!

Post by BigJohn »

I’ve almost finished my move from 100% treasury/corporate bond index fund to a 50/50 split of that and TIPS. Maybe just in time before inflation kicks up? Who knows but I’m comfortable with the inflation insurance and higher percentage of US government debt.

The combination of high stock valuations and ultra low interest rates is certainly a conundrum. Easy to see why some people panic and make extreme changes like junk bonds, high dividend stocks and alternatives in the search for yield. With this planned change complete, my plan is to go back into turtle mode, ignore the noise and just stay the course.
hudson
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Re: Bonds - Throw it all on the table!!!

Post by hudson »

BigJohn,
What kind of TIPS did you get? Funds, ETFs, individual?
BigJohn
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Re: Bonds - Throw it all on the table!!!

Post by BigJohn »

hudson wrote: Thu Sep 17, 2020 5:46 pm BigJohn,
What kind of TIPS did you get? Funds, ETFs, individual?
Vanguard mutual funds. I understand the potential benefits from a ladder of individual TIPS but one on my retirement investment principles is simplicity to account for the inevitable mental decline we all experience. So I choose not to bother with the complexity of building and maintaining a ladder.
Robot Monster
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Location: New York

Re: Bonds - Throw it all on the table!!!

Post by Robot Monster »

Added the 4% in 10yr TIPS today (from auction)

%'s are of overall allocation
Intermediate term treasury -- 4%
Short term treasury -- 9%
Vanguard TIPS fund -- 9%
30yr TIPS, 10yr TIPS, 5yr TIPS -- 4% each
Vanguard Ultra Short -- 1.5%
CDs, iBonds -- 2.5%

Sum total 38%
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
hudson
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Joined: Fri Apr 06, 2007 9:15 am

Re: Bonds - Throw it all on the table!!!

Post by hudson »

BigJohn wrote: Thu Sep 17, 2020 5:52 pm
hudson wrote: Thu Sep 17, 2020 5:46 pm BigJohn,
What kind of TIPS did you get? Funds, ETFs, individual?
Vanguard mutual funds. I understand the potential benefits from a ladder of individual TIPS but one on my retirement investment principles is simplicity to account for the inevitable mental decline we all experience. So I choose not to bother with the complexity of building and maintaining a ladder.
BigJohn,
I think that I'll make a move to inflation protect products in a few years.
I'm thinking about several options....
1. Dumping the funds into Vanguard Intermediate TIPS and PIMCO's LTPZ.... 15+ Year US TIPS Index ETF. Vineviz recommended that for a 75 year old to match durations.
2. Do the above and buy individual TIPS at my convenience....from funds to individual TIPS.
3. Just buy Vanguard Intermediate TIPS fund and forget it...as you did.
4. Go all out and buy individual TIPS to match my duration....maybe 20-25 years.

I plan to make this move in about 2024. Until then, I'm listening and learning.

I probably should research mental decline and make allowances. That discussion would be an interesting stand alone discussion.
I've seen an older family member that obviously lost some mental capabilities, but with investments and money management he was sharp until the end. In another case, the older family member turned over all finances to a trusted son years before the end.
UpperNwGuy
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Re: Bonds - Throw it all on the table!!!

Post by UpperNwGuy »

I have a home-grown three-fund bond portfolio: 42% intermediate-term treasury, 33% intermediate-term municipal, and 25% intermediate-term corporate. I'm mostly happy with with this home-grown mix of funds, but I can't help but noticing that the bonds I am ignoring, mortgage-backed securities, so often disparaged by Larry Swedroe and other members of this forum, are performing better than all of the above in recent months.
Robot Monster
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Location: New York

Re: Bonds - Throw it all on the table!!!

Post by Robot Monster »

hudson wrote: Thu Sep 17, 2020 6:21 pm 1. Dumping the funds into Vanguard Intermediate TIPS and PIMCO's LTPZ.... 15+ Year US TIPS Index ETF. Vineviz recommended that for a 75 year old to match durations.
From Vineviz, "With yields as low as they are, the higher expenses of LTPZ means sacrificing 10% to 15% of the TIPS expected return to expenses: not ideal, IMHO."
Source
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
BigJohn
Posts: 1895
Joined: Wed Apr 02, 2014 11:27 pm

Re: Bonds - Throw it all on the table!!!

Post by BigJohn »

hudson wrote: Thu Sep 17, 2020 6:21 pm I probably should research mental decline and make allowances. That discussion would be an interesting stand alone discussion.
I've seen an older family member that obviously lost some mental capabilities, but with investments and money management he was sharp until the end. In another case, the older family member turned over all finances to a trusted son years before the end.
Hudson, a few comments. Both of those are actually best case scenarios in my mind. The first question is will you recognize the decline before you do something problematic, some don't. Even if you recognize it, the next question is will you proactively ask for help or will you be too proud or too embarrassed, many are. Once you pass those two hurdles, you still need someone you can really trust and who has the knowledge and disposition to manage the complexity.

Obviously I hope these circumstances don't happen to me but in my role as a facilitator for an Alzheimer's caregiver support group, i know they happen to more than a few. I also recognize that simplicity is not a guarantee that I will never do anything imprudent but it helps. So, when it comes to decisions between simplicity and potentially more optimized options with slightly higher return, I gladly accept the simple solution without regret.

Best of luck on your decisions :sharebeer
hudson
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Joined: Fri Apr 06, 2007 9:15 am

Re: Bonds - Throw it all on the table!!!

Post by hudson »

BigJohn wrote: Thu Sep 17, 2020 11:29 pm
hudson wrote: Thu Sep 17, 2020 6:21 pm I probably should research mental decline and make allowances. That discussion would be an interesting stand alone discussion.
I've seen an older family member that obviously lost some mental capabilities, but with investments and money management he was sharp until the end. In another case, the older family member turned over all finances to a trusted son years before the end.
Hudson, a few comments. Both of those are actually best case scenarios in my mind. The first question is will you recognize the decline before you do something problematic, some don't. Even if you recognize it, the next question is will you proactively ask for help or will you be too proud or too embarrassed, many are. Once you pass those two hurdles, you still need someone you can really trust and who has the knowledge and disposition to manage the complexity.

Obviously I hope these circumstances don't happen to me but in my role as a facilitator for an Alzheimer's caregiver support group, i know they happen to more than a few. I also recognize that simplicity is not a guarantee that I will never do anything imprudent but it helps. So, when it comes to decisions between simplicity and potentially more optimized options with slightly higher return, I gladly accept the simple solution without regret.

Best of luck on your decisions :sharebeer
Thanks BigJohn! I need to take a hard look.
Valuethinker
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Joined: Fri May 11, 2007 11:07 am

Re: Bonds - Throw it all on the table!!!

Post by Valuethinker »

BigJohn wrote: Thu Sep 17, 2020 5:20 pm I’ve almost finished my move from 100% treasury/corporate bond index fund to a 50/50 split of that and TIPS. Maybe just in time before inflation kicks up? Who knows but I’m comfortable with the inflation insurance and higher percentage of US government debt.

The combination of high stock valuations and ultra low interest rates is certainly a conundrum. Easy to see why some people panic and make extreme changes like junk bonds, high dividend stocks and alternatives in the search for yield. With this planned change complete, my plan is to go back into turtle mode, ignore the noise and just stay the course.
I think the empirical data supports this as the most efficient portfolio on a risk-return basis.

I associate a strategy in my mind w poster vineviz, of holding Long Treasuries (greater than 15 year maturities) along with TIPS as a 2-way bet in the case of higher inflation or deflation and lower interest rates (Long Treasuries are a better hedge than all Treasuries in that case).

I find that too racy, to recommend it.
hudson
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Re: Bonds - Throw it all on the table!!!

Post by hudson »

Robot Monster wrote: Thu Sep 17, 2020 9:29 pm
hudson wrote: Thu Sep 17, 2020 6:21 pm 1. Dumping the funds into Vanguard Intermediate TIPS and PIMCO's LTPZ.... 15+ Year US TIPS Index ETF. Vineviz recommended that for a 75 year old to match durations.
From Vineviz, "With yields as low as they are, the higher expenses of LTPZ means sacrificing 10% to 15% of the TIPS expected return to expenses: not ideal, IMHO."
Source
Thanks Robot Monster! I read the source and bookmarked it. Useful info.
Therefore the optimal choice is buying individual TIPS. I agree. Funds/ETFs therefore are sub-optimal.
I have a few years to decide.
Is optimal always the best choice?
BigJohn
Posts: 1895
Joined: Wed Apr 02, 2014 11:27 pm

Re: Bonds - Throw it all on the table!!!

Post by BigJohn »

hudson wrote: Fri Sep 18, 2020 4:56 am Is optimal always the best choice?
The really tough question is what parameters are important to you around which you should optimize. Some worry about unexpected inflation and buy TIPS as insurance, some don't. Some worry about sequence of return risk in early retirement, some don't. Are you optimizing for maximum return or minimum volatility? It's a long list of things you can optimize around and many are mutually exclusive so you can't have it all. This makes it a very personal choice with no right answer. My approach was to make a prioritized list, design a plan that focused on the top 2 or 3 and then be at peace with not worrying about the rest.
Nowizard
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Re: Bonds - Throw it all on the table!!!

Post by Nowizard »

In retirement and focusing on preservation of principal, plus inflation. Total Bond Index and Short-term Corporate Bond Index comprise approximately 60% of our portfolio, Wellington bond allocation another 4%. Do not consider any investment as fixed income, just focus on the totals relative to expenditures after SS and a small pension. Am in RMD phase with wife. No plans to change allocation from approximately 34/65 though could take more risk. All bonds are in retirement accounts. A few IBonds from the past that represent less than 1% of assets. Am ignoring all the questions about bond risks, inflation, low interest rates and feel that part of the concerns are overblown, part are real for those depending on bond income for current expenditures, part is exaggerated by the recent high returns on bond funds which have many focusing on bonds as much for return as safety.

Tim
hudson
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Re: Bonds - Throw it all on the table!!!

Post by hudson »

BigJohn wrote: Fri Sep 18, 2020 6:09 am
hudson wrote: Fri Sep 18, 2020 4:56 am Is optimal always the best choice?
The really tough question is what parameters are important to you around which you should optimize. Some worry about unexpected inflation and buy TIPS as insurance, some don't. Some worry about sequence of return risk in early retirement, some don't. Are you optimizing for maximum return or minimum volatility? It's a long list of things you can optimize around and many are mutually exclusive so you can't have it all. This makes it a very personal choice with no right answer. My approach was to make a prioritized list, design a plan that focused on the top 2 or 3 and then be at peace with not worrying about the rest.
I agree with above...underlined!
It's really nice to think through a plan, execute it, and share as appropriate.
Robot Monster
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Location: New York

Re: Bonds - Throw it all on the table!!!

Post by Robot Monster »

hudson wrote: Fri Sep 18, 2020 4:56 am
Robot Monster wrote: Thu Sep 17, 2020 9:29 pm
hudson wrote: Thu Sep 17, 2020 6:21 pm 1. Dumping the funds into Vanguard Intermediate TIPS and PIMCO's LTPZ.... 15+ Year US TIPS Index ETF. Vineviz recommended that for a 75 year old to match durations.
From Vineviz, "With yields as low as they are, the higher expenses of LTPZ means sacrificing 10% to 15% of the TIPS expected return to expenses: not ideal, IMHO."
Source
Thanks Robot Monster! I read the source and bookmarked it. Useful info.
Therefore the optimal choice is buying individual TIPS. I agree. Funds/ETFs therefore are sub-optimal.
I have a few years to decide.
Is optimal always the best choice?
Oh, I couldn't tell you optimal from Shinola. Luckily, Vineviz swooped in to save the day and gave me a recommendation of a mixture of both individual TIPS, and the Vanguard Inflation-Protected Securities Fund Admiral Shares (VAIPX).

I will make one comment about the difference between the two TIPS varieties. Individual TIPS duration is always getting shorter. A 10yr TIPS, for all intents and purposes, turns into a 9yr TIPS a year later. Unlike we ordinary humans, who get older each year, TIPS, like Benjamin Button, get younger and younger. TIPS funds are a different beast altogether, maybe something like a (benevolent) vampire whose maturity stays constant and who never ages--superpowers you pay for in the expense ratio.
"Happiness comes from being connected in the right ways to: other people, your work, something larger than yourself."
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