Jack's nuances. [Jack Bogle vs. fixed income, bonds]

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stemikger
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Jack's nuances. [Jack Bogle vs. fixed income, bonds]

Post by stemikger »

How many agree with Jack's nuances. Jack has said for many years use age in bonds as a very rough guide.

Nuance One. Count Social Security as part of your fixed income allocation. I'm still not sure I agree yet. If this is the case, I could probably just stay with a 60/40 for life and never look back.

Nuance Two. Add a separate bond fund that holds more corporate bonds in addition to the Total Bond Index. I definitely don't agree with this and for me it's the first time I disagree with Jack.

For many years Jack promoted a two fund portfolio Total Stock and Total Bond or the Vanguard Balanced Index Fund and start with age in bonds.

I know many here don't agree with Jack when it comes to international, but that topic has been exhausted on these forums.

I would love to know how many agree with Jack's nuances. If not, how many actually agree with a two fund portfolio and/or Balanced Index Fund for life. Or strictly adhere to age-in-bonds and rebalance on their Birthday.

Thanks!
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rmelvey
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Re: Jack's nuances.

Post by rmelvey »

I am not tilting towards corporate bonds because I like the simplicity of TBM and I don't mind having a bias towards high quality FI. However, I do like the idea of counting the PV of defined benefits as a bond. I find this framework useful because I think many retirees could do well replacing some of the bonds with SPIAs and doing the PV calculation is the only way to know what allocation really is.
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Re: Jack's nuances.

Post by nisiprius »

I don't count social security as a bond, and I continue to pigheadedly and stubbornly stay the course in Total Bond.

That means I'm ignoring both the people who urge holding more Treasuries and the people who urge holding more corporates. In snubbing corporates I am taking into account my personal taste for risk in the low-risk part of my portfolio. I am also taking into account the fact that corporate dropped about 10% in 2008-2009 while Total Bond sailed through on close to a straight line. And finally, I'm taking into account very mild concerns about liquidity in bond funds--there seem to be rational reasons for mild concern and corporates are said to be much less liquid than the used to be.
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siamond
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Re: Jack's nuances.

Post by siamond »

Nuance one: mostly yes
=> well, I count both ways in truth, with or without SS, and my rebalancing is based on an AA target without SS because it is simpler to count that way, but my top-level reasoning does include SS (and would include an SPIA if I were to buy one).

Nuance two: mostly yes
=> I settled for VBILX, which is 50/50 treasury/corporate

I do not follow an age-in-bond guideline, I use a fixed-AA and do not plan to change it. And I certainly disagree with the no-International view. And I do some tilting, so no two-fund portfolio for me...

I rebalance based on bands, but you're welcome to send me some cash to invest for my birthday!
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Re: Jack's nuances.

Post by gkaplan »

One: No

Two: No
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Re: Jack's nuances.

Post by longinvest »

siamond wrote: => I settled for VBILX, which is 50/50 treasury/corporate
Interestingly, I went to Morningstar to look at what they call "Volatility Measures", I found the following:

15-Year Trailing Standard Deviation
3.51 -- Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
5.31 -- Vanguard Intermediate-Term Bond Index Fund Admiral Shares (VBILX)

15-Year Trailing Return
4.81 -- Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
5.84 -- Vanguard Intermediate-Term Bond Index Fund Admiral Shares (VBILX)

Personally, I just see the usual volatility/reward trade-off. I think that using either fund is well within the general guidelines of our site.
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Re: Jack's nuances.

Post by knpstr »

1. absolutely... it is just fixed income you are looking for to balance out the "growth" aspect of your portfolio (stocks).

Whether it is rental income, bond interest, or social security payments there are vehicles for income - separate from the stock market.

2. I think is fine if you need more income than treasury securities can provide.
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Re: Jack's nuances.

Post by Call_Me_Op »

stemikger wrote:How many agree with Jack's nuances. Jack has said for many years use age in bonds as a very rough guide.

Nuance One. Count Social Security as part of your fixed income allocation. I'm still not sure I agree yet. If this is the case, I could probably just stay with a 60/40 for life and never look back.
No. I view SS as found money.
stemikger wrote:Nuance Two. Add a separate bond fund that holds more corporate bonds in addition to the Total Bond Index.
No. I take my risk on the equity side. If I feel I need to take more risk, I will increase allocation to equities, where the risk is better rewarded.

As for 2 fund portfolio, that's OK for some but I do not like to concentrate my portfolio in large-cap growth stocks.

On the international question, I think we should start with world market cap and justify deviating therefrom. I just cannot justify placing all of my risk assets in one country when there are over thirty available.
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Re: Jack's nuances.

Post by dkturner »

nisiprius wrote:I don't count social security as a bond, and I continue to pigheadedly and stubbornly stay the course in Total Bond.

That means I'm ignoring both the people who urge holding more Treasuries and the people who urge holding more corporates. In snubbing corporates I am taking into account my personal taste for risk in the low-risk part of my portfolio. I am also taking into account the fact that corporate dropped about 10% in 2008-2009 while Total Bond sailed through on close to a straight line. And finally, I'm taking into account very mild concerns about liquidity in bond funds--there seem to be rational reasons for mild concern and corporates are said to be much less liquid than the used to be.
Corporate bonds are definitely less liquid than they used to be. There are a lot more of them out there. Bond investing is overwhelmingly dominated by institutions - and institutions need liquidity, so they are increasingly likely to dabble in the Treasuries market, which is also much bigger than it used to be. Shouldn't corporate bonds trade at a substantial premium over Treasuries - like they have since 2008? If one is comfortably living on the interest payments from a high quality corporate bond portfolio of how much concern should the issue of liquidity be? What was the default rate on high quality (A or better) corporate bonds in the 2008-2012 period? How would this compare to the significantly higher yield of the A or better corporate bonds versus Treasuries? I don't know the answers to these questions either but I just think the Treasury thing is a little overhyped.
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Re: Jack's nuances.

Post by Christine_NM »

SS - no I didn't count it. In real life it is a tiny amount per month. I would have been misleading myself to put a PV of $300,000 or so more in stocks instead of bonds just because someday I'd have a small SS benefit. Present value is based on interest rates too, and they are much lower now than when I retired.

Corp bonds - yes I have Bal Index (total), Wellesley (corp), and Limited muni as my main funds. They give me no trouble. It is the small bits that Jack does not particularly recommend that give me all the angst.

From Jack's first book I remember the phrase Bonds - A Treadmill to Nowhere. As opposed to the blindfolded roller coaster ride (my phrase) that is stocks. I think I like bonds more than Jack does although he says he is allocating more to them, 50/50.
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Re: Jack's nuances.

Post by garlandwhizzer »

I tend to agree with both of Jack's nuances.

I think his change in outlook reflects his perception of a changing market, historically low interest rates on high quality bonds for example. In the past high quality bonds provided both security and a positive inflation adjusted yield. There was little to lose with an age in bonds type approach which minimized volatility and still produced very good real returns over the last 30+ year bond bull market, a time when principal appreciation of bond funds added to their yield returns. That bull market is widely perceived to be over. Current intermediate term Treasuries are not likely to produce any significant real inflation-adjusted gains over the next decade in my opinion. They still provide security but no real gain.

Given that situation adding investment grade corporates to an existing TBM or Treasury bond portfolio would be expected to increase long term return of the bond portfolio with a modest increase in risk, a risk/reward tradeoff that both Bogle (and I) believe to be acceptable for those whose risk tolerance allows it. Why not keep invest 100% of bonds in Treasuries you might ask and take all your risk on the equity side? Good question, the standard question, and there is a simple answer. It is not at all clear to Jack and many other experienced market mavens, AQR for example, that US stocks of any stripe, large or small cap, value or growth, are certain to outperform investment grade corporate bonds going forward over the next decade. So it is by no means guaranteed that if you take all your risk in US stocks, you will be rewarded. It is likely in my opinion that high quality corporate bonds will offer higher risk adjusted returns than US stocks over the next decade while Treasuries will offer safety and essentially zero real return. Diversifying into this asset class seems to me entirely rational at this time, whether it was rewarded in the past or not according to backtesting. The eras covered in backtesting were very different conditions from today.

Very recently Jack Bogle has changed his views again, increasing bond holdings especially corporates relative to US stocks. This, I believe, reflects his very guarded view of US equity returns going forward. Although investment grade corporates have more risk than Treasuries they are clearly much less risky than equities of any stripe. Moreover I believe you will get paid to take that risk. With 100% Treasuries going forward you are merely treading water in a safe pool. Jack made a prescient call in 1999 moving from stocks to bonds, another prescient call to hold on to equities at the depths of the 2007-9 collapse, and now may be making yet another prescient call on the future of US equities relative to corporates in terms of Sharpe ratio. Time will tell.

One final note. Bogle does not invest internationally and like many other of his views this one has worked out quite well for him over the past 15 years. Some of his stock pessimism is however due to the fact that on a fundamental analysis basis, US equities look richly valued relative to the rest of the world, especially EM. Just my opinion, but I believe that if you're looking for significant positive real returns going forward your best bet is to diversify significantly in international equity including both EM and DM where I suspect future returns over the next decade to be significantly better than those of a US only equity portfolio. In terms of future results over the next decade, I don't believe it will make much difference whether you choose a US TSM or a US factor-based equity portfolio. Whatever equity risk you take there is unlikely to be richly rewarded as I see it. Equity risk in INTL while more obvious due to recent history is likely to be better rewarded in my view over the next decade than any US only portfolio.


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Re: Jack's nuances.

Post by itstoomuch »

Count SS. Count SS as part of Bonds...
I was introduced to financial planning with the notions that SS, pensions, and your personal IRA/funds will constitute a retirement triad. Since we don't have a very large pension, we bought deferred annuities to substitute pensions. We added in 2015 a rental from an inheritance to make a 4 legged retirement.
YMMV: 65/68yo. with LTCi, no big debts other than very manageable PLUS. Without the rental, our approximate holdings would be: 33% SS, 40% Pensions ( pension and annuities), and 27% personal IRA. Currently living on SS and small draws.
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Last edited by itstoomuch on Sun Jan 24, 2016 11:43 pm, edited 2 times in total.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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Re: Jack's nuances.

Post by Quark »

nisiprius wrote:I don't count social security as a bond, and I continue to pigheadedly and stubbornly stay the course in Total Bond.

That means I'm ignoring both the people who urge holding more Treasuries and the people who urge holding more corporates. In snubbing corporates I am taking into account my personal taste for risk in the low-risk part of my portfolio. I am also taking into account the fact that corporate dropped about 10% in 2008-2009 while Total Bond sailed through on close to a straight line. And finally, I'm taking into account very mild concerns about liquidity in bond funds--there seem to be rational reasons for mild concern and corporates are said to be much less liquid than the used to be.
It also means you're ignoring the people who urge holding little or no mortgage backed securities. Do those who dislike MBS believe the risks have manifested in the past 20 years and have had a major negative effect on TBM?

Is corporate illiquidity a problem for you? Might you need to liquidate a substantial portion of your bond portfolio quickly in bad times? Do you have an adequate emergency fund or other means of meeting short-term needs?

Compare to Vanguard TBM to Vanguard intermediate corporate. How much of a problem was 2008-2009? Is the subsequent performance difference significant?
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Re: Jack's nuances.

Post by tadamsmar »

stemikger wrote: Nuance One. Count Social Security as part of your fixed income allocation.
I did a quick search and did not find anywhere where he fleshes this proposal out with numbers. So, I will guess how it's done. I guess you would have to take your current bond income and total value, and use that to reverse engineer your SS "bond" total value from your SS income. Then you'd have readjust to age in "bond". I guess you could do this when your bond dividends arrive.

I guess this is what Jack means by simplicity?
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Re: Jack's nuances.

Post by tadamsmar »

But wait. If I just did it on income, them there would he a whopping discontinuity when I started SS. I'd have to figure the value of the entitlement in bond-dollars.

Simplicity just got more complicated.

Did Bogle ever explain how it's done?
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Re: Jack's nuances.

Post by tadamsmar »

But wait. This is not really a nuance. I could have a big impact on a couple's AA.

Also, there is another discontinuity when a spouse dies. One spouse should be taking this into account when figuring the value of this income stream as a bond.

Did Jack say to treat the death of one's spouse as a bond default risk?
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Re: Jack's nuances.

Post by Christine_NM »

It is getting crowded on the head of this pin. The nuances don't matter as much as Jack's advice to set a decent course and stay on it.
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Re: Jack's nuances.

Post by rmelvey »

tadamsmar wrote:
stemikger wrote: Nuance One. Count Social Security as part of your fixed income allocation.
I did a quick search and did not find anywhere where he fleshes this proposal out with numbers. So, I will guess how it's done. I guess you would have to take your current bond income and total value, and use that to reverse engineer your SS "bond" total value from your monthly SS income. They you'd have readjust to age in "bond".

I guess this is what Jack means by simplicity?
The one thing that confuses me is whether or not to treat the SS income as a perpetuity or as a ladder based off of my life expectancy. For purposes of retirement income it would be the former but for legacy purposes it is more like the latter.

If you valued your SS income as a perpetuity $24K of SS income would be worth $1.85M ($24K / 1.31% 30 year tip rate). That would result in many retirees not having any bonds outside of SS...
Last edited by rmelvey on Fri Jan 22, 2016 12:55 pm, edited 2 times in total.
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Re: Jack's nuances.

Post by tadamsmar »

Christine_NM wrote:It is getting crowded on the head of this pin. The nuances don't matter as much as Jack's advice to set a decent course and stay on it.
In other words, ignore Jack.

That's another pillar of wisdom.
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Re: Jack's nuances.

Post by tadamsmar »

rmelvey wrote: If you valued your SS income as a perpetuity $24K of SS income would be worth $1.85M ($24K / 1.31% 30 year tip rate). That would result in many retirees not having any bonds outside of SS...
You betcha. It's not a nuance at all.

For your first paycheck out of college at 22, you put 22% in bonds, and it could be all down hill from there for your bond allocation.

Age in bonds takes on a whole new meaning!

Why does everyone pretend to revere these gurus while ignoring what they actually say?

What Bogleheads actually do is hear something reasonable in what the guru says, and ignore the rest. Such Bogleheads should be revering their own good judgement, while being a bit dubious of their own listening skills.
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Re: Jack's nuances.

Post by rmelvey »

Yes very confusing. Also, reducing spending has the same effect as increased SS. So does that mean that reducing your expenses is like buying a bond that pays real dividends? Just when you think you have it figured out :confused

I think the SS as a bond only makes sense if you are doing a liability matching portfolio. Otherwise it is very confusing.
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Re: Jack's nuances.

Post by Christine_NM »

tadamsmar wrote:
Christine_NM wrote:It is getting crowded on the head of this pin. The nuances don't matter as much as Jack's advice to set a decent course and stay on it.
In other words, ignore Jack.

That's another pillar of wisdom.
tad -

I was referring to the whole thread, not to your posts any more than the others. No need to get sarcastic.
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Re: Jack's nuances.

Post by Northern Flicker »

I've heard that Jack has reduced his equity allocation recently from 60% to 50%, and recommends increasing the credit weighting in one's bond allocation. It isn't clear to me that he would actually recommend an increased risk in one's bond portfolio without more or less commensurately dialing back risk in one's equity portfolio, as might be surmised if the statement about holding more corporate bonds is considered in a vacuum.
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Re: Jack's nuances.

Post by tadamsmar »

On the other hand, it could be considered a nuance.

The Trinity Study implies that your bond allocation in retirement does not matter much (does not impact your success rate much) as long as it's not too high, like > 75%

By that token, at age 70, it does not matter much if you are 70% or 0% bonds.
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Re: Jack's nuances.

Post by tadamsmar »

In my opinion, the Bogle pronouncements in the OP (and a good many others, but not all) reflect an excessive obsession with AA and the behavior of the stock market.

I think that you need to get your retirement nest egg big enough to cover your projected retirement consumption within a margin of safety. After you have done this, domestic/international, corporate bond/total bond does not really matter if you are using broad indexes for divesification. A bond allocation near 100% might be a bad idea unless you have over-saved by 1/3 or so.

The rest could be considered tweaking, it's not a core issue.
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Re: Jack's nuances.

Post by snarlyjack »

When I put together my financial strategy,
I assumed that I would live to age 100.

After sleeping on it for awhile...I said to
myself why don't I just get a 60% stocks/40% bonds fund
(like the balanced index fund) & run with that for the next 80 years.
It has good returns with a low ER.

I think all kind of stuff is going to happen in the next 80 years.
Good times & bad times. I really don't want to worry about
any of it... I just want my money to sit in the fund & compound out.

So my age in bonds is not accurate for my age but I want a
conservative fund that I don't have to worry about. I want to
have a nice life without the worries about what the market is doing...
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Re: Jack's nuances.

Post by SGM »

I have some intermediate muni bond fund, corporate bond fund, total market and a smaller international index fund amount. I certainly listen to Jack. I digest information and recommendations from several sources and then make my own decisions. I value dividends, but don't like the tax drag on dividends. However, since I refuse to keep as much in BRK so that I can be more diversified I have to accept the higher tax drag of dividends in index funds.

Fixed income like SS and other income streams have an influence on how much risk I can take. I don't formally use them in any calculations of AA.
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Re: Jack's nuances. [Jack Bogle vs. fixed income, bonds]

Post by stemikger »

Wow!! Thank you all for such thought-provoking replies. I learn from this forum on so many levels and appreciate your input.

There are so many good replies, it will take me a long time to quote the ones that really made me think!

Steve

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Re: Jack's nuances. [Jack Bogle vs. fixed income, bonds]

Post by Jebediah »

Don't add your SS, and don't subtract your future taxes. Call it a wash.
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Re: Jack's nuances.

Post by FreeAtLast »

longinvest wrote:
siamond wrote: => I settled for VBILX, which is 50/50 treasury/corporate
Interestingly, I went to Morningstar to look at what they call "Volatility Measures", I found the following:

15-Year Trailing Standard Deviation
3.51 -- Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
5.31 -- Vanguard Intermediate-Term Bond Index Fund Admiral Shares (VBILX)

15-Year Trailing Return
4.81 -- Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
5.84 -- Vanguard Intermediate-Term Bond Index Fund Admiral Shares (VBILX)

Personally, I just see the usual volatility/reward trade-off. I think that using either fund is well within the general guidelines of our site.
Like me, I am guessing that many Bogleheads own both of these funds.
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Re: Jack's nuances. [Jack Bogle vs. fixed income, bonds]

Post by asset_chaos »

Invest in broadly diversified, low cost funds, which are most likely to be index funds, and hold forever is Bogle's advice that is universally true for all investors everywhere. And it's his glorious gift to the world that he created the investment vehicles and environment that permit any investor to follow that advice. The other opinions mentioned in the OP on bonds and international, I consider to be idiosyncrasies of the individual man: personal preferences instead of universally applicable advice; probably not too bad to consider, but not necessary to follow for financial success. I believe that if someone can commit in a meaningful way to maximize diversification, minimize cost and hold forever, they'll probably be a pretty successful long term investor, almost despite the idiosyncrasies of their specific investment details.
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Re: Jack's nuances. [Jack Bogle vs. fixed income, bonds]

Post by tadamsmar »

asset_chaos wrote:I believe that if someone can commit in a meaningful way to maximize diversification, minimize cost and hold forever, they'll probably be a pretty successful long term investor, almost despite the idiosyncrasies of their specific investment details.
And save enough.
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Re: Jack's nuances. [Jack Bogle vs. fixed income, bonds]

Post by dbr »

asset_chaos wrote:Invest in broadly diversified, low cost funds, which are most likely to be index funds, and hold forever is Bogle's advice that is universally true for all investors everywhere. And it's his glorious gift to the world that he created the investment vehicles and environment that permit any investor to follow that advice. The other opinions mentioned in the OP on bonds and international, I consider to be idiosyncrasies of the individual man: personal preferences instead of universally applicable advice; probably not too bad to consider, but not necessary to follow for financial success. I believe that if someone can commit in a meaningful way to maximize diversification, minimize cost and hold forever, they'll probably be a pretty successful long term investor, almost despite the idiosyncrasies of their specific investment details.
+++ The key to these unending debates is exactly to separate the universals from "idiosyncrasies of the individual man." Doing so requires a thoughtful approach to investing.
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Re: Jack's nuances.

Post by stemikger »

snarlyjack wrote:When I put together my financial strategy,
I assumed that I would live to age 100.

After sleeping on it for awhile...I said to
myself why don't I just get a 60% stocks/40% bonds fund
(like the balanced index fund) & run with that for the next 80 years.
It has good returns with a low ER.

I think all kind of stuff is going to happen in the next 80 years.
Good times & bad times. I really don't want to worry about
any of it... I just want my money to sit in the fund & compound out.

So my age in bonds is not accurate for my age but I want a
conservative fund that I don't have to worry about. I want to
have a nice life without the worries about what the market is doing...
+1

Enjoy your life, your plan is a good one. Some may say you should be more aggressive if you are young, but if this is what it takes to stay the course, it's a fine plan.

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Re: Jack's nuances. [Jack Bogle vs. fixed income, bonds]

Post by nedsaid »

stemikger wrote:How many agree with Jack's nuances. Jack has said for many years use age in bonds as a very rough guide.

Nuance One. Count Social Security as part of your fixed income allocation. I'm still not sure I agree yet. If this is the case, I could probably just stay with a 60/40 for life and never look back.

Nuance Two. Add a separate bond fund that holds more corporate bonds in addition to the Total Bond Index. I definitely don't agree with this and for me it's the first time I disagree with Jack.

For many years Jack promoted a two fund portfolio Total Stock and Total Bond or the Vanguard Balanced Index Fund and start with age in bonds.

I know many here don't agree with Jack when it comes to international, but that topic has been exhausted on these forums.

I would love to know how many agree with Jack's nuances. If not, how many actually agree with a two fund portfolio and/or Balanced Index Fund for life. Or strictly adhere to age-in-bonds and rebalance on their Birthday.

Thanks!
John Bogle is an independent thinker and a man of strong opinions. It is like the old joke that when you put two people together that you will get three opinions! With Mr. Bogle, you might get two differing opinions on the same subject! I suppose he was made statements in his career that are at odds with other statements he has made. He is just human. Also statements are made in different contexts. He has a much more flexible mind than people give him credit for.

If he posted with an anonymous user name, I am sure many of the most loyal Bogleheads would be blasting his opinions. Bogle wouldn't be Bogleheaded enough for some here.

Social Security as a bond might tempt people to be too aggressive with their portfolios. Not sure where I am on this one.

Adding a corporate bond fund to the Total Bond Market? I am okay with that one. Yield seems important to him.

Replacing a portion of your Total Stock Market holdings with dividend stocks to increase yield? I am okay with that but I wouldn't do this now. Everyone and his brother is reaching for yield now.

US only investing? Total disagreement. The poor old horse has been beaten to death on this one. No need to flog a dead horse.
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Re: Jack's nuances. [Jack Bogle vs. fixed income, bonds]

Post by stemikger »

nedsaid wrote:
stemikger wrote:How many agree with Jack's nuances. Jack has said for many years use age in bonds as a very rough guide.

Nuance One. Count Social Security as part of your fixed income allocation. I'm still not sure I agree yet. If this is the case, I could probably just stay with a 60/40 for life and never look back.

Nuance Two. Add a separate bond fund that holds more corporate bonds in addition to the Total Bond Index. I definitely don't agree with this and for me it's the first time I disagree with Jack.

For many years Jack promoted a two fund portfolio Total Stock and Total Bond or the Vanguard Balanced Index Fund and start with age in bonds.

I know many here don't agree with Jack when it comes to international, but that topic has been exhausted on these forums.

I would love to know how many agree with Jack's nuances. If not, how many actually agree with a two fund portfolio and/or Balanced Index Fund for life. Or strictly adhere to age-in-bonds and rebalance on their Birthday.

Thanks!
John Bogle is an independent thinker and a man of strong opinions. It is like the old joke that when you put two people together that you will get three opinions! With Mr. Bogle, you might get two differing opinions on the same subject! I suppose he was made statements in his career that are at odds with other statements he has made. He is just human. Also statements are made in different contexts. He has a much more flexible mind than people give him credit for.

If he posted with an anonymous user name, I am sure many of the most loyal Bogleheads would be blasting his opinions. Bogle wouldn't be Bogleheaded enough for some here.

Social Security as a bond might tempt people to be too aggressive with their portfolios. Not sure where I am on this one.

Adding a corporate bond fund to the Total Bond Market? I am okay with that one. Yield seems important to him.

Replacing a portion of your Total Stock Market holdings with dividend stocks to increase yield? I am okay with that but I wouldn't do this now. Everyone and his brother is reaching for yield now.

US only investing? Total disagreement. The poor old horse has been beaten to death on this one. No need to flog a dead horse.
All good points Ned. However, I have to disagree about Jack being a mere human. He is the Yoda of investing and his superpowers are many. lol :beer
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Re: Jack's nuances. [Jack Bogle vs. fixed income, bonds]

Post by nedsaid »

My comments aren't meant to diminish John Bogle's legacy or the advice he has given to investors. He will be remembered as one of the investment greats of all time. We owe him a big debt of gratitude.

I remember he was a favorite guest of Louis Rukeyser and Wall $treet Week and in fact made the Wall $treet Week Hall of Fame. He certainly has made mine.

He does say some unexpected and surprising things but this shows that he has an active mind and is always thinking.
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Re: Jack's nuances. [Jack Bogle vs. fixed income, bonds]

Post by midareff »

Quote from Stemiker post,

Nuance One. Count Social Security as part of your fixed income allocation. I'm still not sure I agree yet. If this is the case, I could probably just stay with a 60/40 for life and never look back.

I consider SS, investments and pensions all as different income streams that make up the individuals income in retirement. I believe the portfolio should be allocated for the portfolio's best survival and draw-down generation and other streams should be treated separately.

Nuance Two. Add a separate bond fund that holds more corporate bonds in addition to the Total Bond Index. I definitely don't agree with this and for me it's the first time I disagree with Jack.

I see the higher dividends of corporates as providing a better buffer against interest rate increases. When and if the market drops I'm not looking for an opportunistic rebalance, those days are past for me so I see advantages of corp orates over total bond or treasuries.
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Re: Jack's nuances. [Jack Bogle vs. fixed income, bonds]

Post by tadamsmar »

midareff wrote:Quote from Stemiker post,

Nuance One. Count Social Security as part of your fixed income allocation. I'm still not sure I agree yet. If this is the case, I could probably just stay with a 60/40 for life and never look back.

I consider SS, investments and pensions all as different income streams that make up the individuals income in retirement. I believe the portfolio should be allocated for the portfolio's best survival and draw-down generation and other streams should be treated separately.
Yes! you have to fund your consumption during retirement. You have to compare the funding rate with your investments to figure out if they are adequate. I guess you could convert your estimated funding rate to a negative bond, but nobody that I know of recommends that. SS already is a funding rate, what you have to do is covert your other investments to a funding rate using an acceptably safe factor.
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Re: Jack's nuances.

Post by GoldenFinch »

Christine_NM wrote:It is getting crowded on the head of this pin. The nuances don't matter as much as Jack's advice to set a decent course and stay on it.
I agree with this statement completely. The key is to have a thoughtfully devised plan and stick to it.
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Re: Jack's nuances. [Jack Bogle vs. fixed income, bonds]

Post by jwillis77373 »

Re-balancing into Bonds approaching retirement, to me, is an exit strategy.. and assumes you know enough about Bonds to make the best choice in the retirement scenario your easing into.

I don't think Jack ever meant [one size fits all].

Assuming Social Security will be around for everyone, and at the same allocation is a [big] assumption and needs tailoring as retirement age limits and 'effective' means testing also ease into place.

For the most part I think Jack's SS as a bond statements were an encouragement to hold more equity than you normally would, trying to subtly point out holding a lot in Bonds is risky in and of itself.. very risky.

The type and quality of the Bond also matters, i.e. holding a Bond, or a Bond fund, and corporate vs treasuries vs municipal.. its a very complicated landscape and depends on your ability to manage that complex beast.. and your tax situation.

In Jack's case he has chosen I believe more high grade corporate bonds (for now).. treasuries looks suspect for the moment, as china has problems so they might have.. china holds a lot of treasuries... and irrespective of oil prices and the feds interest rates, treasuries appear potentially entangled in a lot of issues. That might be the case in 5,10, 20 years.. or it may not. I think Jack was just looking for a safe stable place for himself and his family for [now].

So I guess I disagree with the assumptions that the [Jack nuances] were meant for an audience greater than [one person].

Not a lot is said or talked about in the context of [exit strategies] though people often ask for comment or advice about the subject. Partially I think its because everyone is different.. and any hard fast rules.. will change depending on the person and years in which they retire.. too fast.. to come up with general guidelines that will [stick].
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Re: Jack's nuances. [Jack Bogle vs. fixed income, bonds]

Post by midareff »

tadamsmar wrote:
midareff wrote:Quote from Stemiker post,

Nuance One. Count Social Security as part of your fixed income allocation. I'm still not sure I agree yet. If this is the case, I could probably just stay with a 60/40 for life and never look back.

I consider SS, investments and pensions all as different income streams that make up the individuals income in retirement. I believe the portfolio should be allocated for the portfolio's best survival and draw-down generation and other streams should be treated separately.
Yes! you have to fund your consumption during retirement. You have to compare the funding rate with your investments to figure out if they are adequate. I guess you could convert your estimated funding rate to a negative bond, but nobody that I know of recommends that. SS already is a funding rate, what you have to do is covert your other investments to a funding rate using an acceptably safe factor.
It is that simple and (not an endorsement) Fidelity has a very detailed planner as do several others. You can ever do it yourself with excel. Unfortunately, there are many unknowns in retirement planning from the longer run inflation rate to your own longevity, not to mention market and world economic performance and events. Stay thirsty my friends.
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Re: Jack's nuances. [Jack Bogle vs. fixed income, bonds]

Post by stemikger »

jwillis77373 wrote:Re-balancing into Bonds approaching retirement, to me, is an exit strategy.. and assumes you know enough about Bonds to make the best choice in the retirement scenario your easing into.

I don't think Jack ever meant [one size fits all].

Assuming Social Security will be around for everyone, and at the same allocation is a [big] assumption and needs tailoring as retirement age limits and 'effective' means testing also ease into place.

For the most part I think Jack's SS as a bond statements were an encouragement to hold more equity than you normally would, trying to subtly point out holding a lot in Bonds is risky in and of itself.. very risky.

The type and quality of the Bond also matters, i.e. holding a Bond, or a Bond fund, and corporate vs treasuries vs municipal.. its a very complicated landscape and depends on your ability to manage that complex beast.. and your tax situation.

In Jack's case he has chosen I believe more high grade corporate bonds (for now).. treasuries looks suspect for the moment, as china has problems so they might have.. china holds a lot of treasuries... and irrespective of oil prices and the feds interest rates, treasuries appear potentially entangled in a lot of issues. That might be the case in 5,10, 20 years.. or it may not. I think Jack was just looking for a safe stable place for himself and his family for [now].

So I guess I disagree with the assumptions that the [Jack nuances] were meant for an audience greater than [one person].

Not a lot is said or talked about in the context of [exit strategies] though people often ask for comment or advice about the subject. Partially I think its because everyone is different.. and any hard fast rules.. will change depending on the person and years in which they retire.. too fast.. to come up with general guidelines that will [stick].
Thanks jwillis77373! This was a lot to digest, and a little discouraging because I'm the type that loves simplicity and would just love to pick a Balanced Index Fund and stay the course. I do not hold taxable investments and everything is in my 401K. What do you think of Warren Buffett's advice for the average person. He wrote in his 2013 Berkshire Letter to Shareholders that the average person (no matter what their age) should hold enough in cash to feel secure and put the rest in an index fund that buys America. His choice for his wife is the Vanguard 500 Index.

If bonds are no longer a safe haven, do we just take the risk in an all stock portfolio with a cash buffer?

Thanks, for taking the time to reply.

Steve G.
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Re: Jack's nuances. [Jack Bogle vs. fixed income, bonds]

Post by jwillis77373 »

I think you could do worse than a Balanced fund, hold individual stocks and cash for example. But sooner or later you will execute an exit strategy, even if its merely to exit this mortal coil and leave everything to family. In which case a step up in cost basis may be your last executive action on their behalf.

Warrens advice for the average person was [figure out if you are an investor who will spend time learning and researching the market or not] [if you are not you could do worse than put your money in a low cost index fund]. Which I think everyone on this forum generally agrees with.

But assuming your referring to the advice to his estate executors on his widows behalf, I have written my opinions about this in many other threads. And Jack has chimed in on this subject too.

My opinion keeps changing, but currently its that [that too] was meant for a limited audience. Let's "guess" he is leaving her 20 million dollars, he advised a 90/10 split between equity and short-term treasuries. That's 18 million in a low cost index fund and 2 million in short-term treasuries. Even at 3 percent a year that would bring 60,000 per year without touching principal, a hefty sum. And then there is Social Security and Medicare, so its a rather comfortable position to be in... in the near term. Under worse circumstances the treasuries could be liquidated until they are generating a fair rate of return even at a loss generating tax benefits.

There are lessons in the strategy, but the actual numbers are probably meaningless for the rest of us. We won't have the means and will modulate our exit strategy more to suit our individual needs.

The central theme however is the same, hold more equity than bonds until ready to liquidate.

[Bonds as a Safe haven]

I don't really think that was ever the case, and recently I've begun to believe Bonds are a lot riskier than most people think. To me Bonds are a short-term stock with a lot of obfuscation and additional complexity. They propose you can't loose your principal.. that is unless the issuer "defaults".. which they do.. they propose that the grading system is perfect and unbiased.. unless the system is not perfect, and is biased. Bonds are not that much different than a Mortgage.. and in kind similar to collateralized debt instruments that recently brought us to the brink of disaster when they were manipulated.

Bonds of all types currently scare me.

I think its a bad time to be in the Bond market, just as it was a bad time to be in real estate in 2008. That doesn't mean it will be that way forever, just now. Jack and Warren however don't have much choice as they need an exit strategy [now] for their particular plans. But they are whistling past the graveyard rather quickly (at low percentages).. and picking the one bond type that isn't really "graded" its basically got history on its side.. even though it was recently "downgraded". But that doesn't mean its [safe].
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Re: Jack's nuances. [Jack Bogle vs. fixed income, bonds]

Post by stemikger »

jwillis77373 wrote:I think you could do worse than a Balanced fund, hold individual stocks and cash for example. But sooner or later you will execute an exit strategy, even if its merely to exit this mortal coil and leave everything to family. In which case a step up in cost basis may be your last executive action on their behalf.

Warrens advice for the average person was [figure out if you are an investor who will spend time learning and researching the market or not] [if you are not you could do worse than put your money in a low cost index fund]. Which I think everyone on this forum generally agrees with.

But assuming your referring to the advice to his estate executors on his widows behalf, I have written my opinions about this in many other threads. And Jack has chimed in on this subject too.

My opinion keeps changing, but currently its that [that too] was meant for a limited audience. Let's "guess" he is leaving her 20 million dollars, he advised a 90/10 split between equity and short-term treasuries. That's 18 million in a low cost index fund and 2 million in short-term treasuries. Even at 3 percent a year that would bring 60,000 per year without touching principal, a hefty sum. And then there is Social Security and Medicare, so its a rather comfortable position to be in... in the near term. Under worse circumstances the treasuries could be liquidated until they are generating a fair rate of return even at a loss generating tax benefits.

There are lessons in the strategy, but the actual numbers are probably meaningless for the rest of us. We won't have the means and will modulate our exit strategy more to suit our individual needs.

The central theme however is the same, hold more equity than bonds until ready to liquidate.

[Bonds as a Safe haven]

I don't really think that was ever the case, and recently I've begun to believe Bonds are a lot riskier than most people think. To me Bonds are a short-term stock with a lot of obfuscation and additional complexity. They propose you can't loose your principal.. that is unless the issuer "defaults".. which they do.. they propose that the grading system is perfect and unbiased.. unless the system is not perfect, and is biased. Bonds are not that much different than a Mortgage.. and in kind similar to collateralized debt instruments that recently brought us to the brink of disaster when they were manipulated.

Bonds of all types currently scare me.

I think its a bad time to be in the Bond market, just as it was a bad time to be in real estate in 2008. That doesn't mean it will be that way forever, just now. Jack and Warren however don't have much choice as they need an exit strategy [now] for their particular plans. But they are whistling past the graveyard rather quickly (at low percentages).. and picking the one bond type that isn't really "graded" its basically got history on its side.. even though it was recently "downgraded". But that doesn't mean its [safe].
Thanks! I think I'll stick with my 65/35 stock bond split two fund portfolio for now and hope things work out.
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