If you only have 20% in bonds...

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neomutiny06
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If you only have 20% in bonds...

Post by neomutiny06 » Wed Dec 28, 2016 7:18 pm

If you are younger and only have 20% in bonds, which funds would you use? Total Bond Market?

And/or would you pair that with a TIPS fund? I have heard some good arguments for using TIPS, but I am not sure if that applies to a young investor.

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jazman12
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Re: If you only have 20% in bonds...

Post by jazman12 » Wed Dec 28, 2016 7:35 pm

TBM time is on your side!!!

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samsoes
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Re: If you only have 20% in bonds...

Post by samsoes » Wed Dec 28, 2016 7:40 pm

I am 53 and have 20% in bonds. In fact, bought some more today thanks to stock ETF dividend payouts. This was done in Traditional IRA, Roth IRA, and taxable accounts. The bond ETF I use is SCHZ (Schwab US Aggregate Bond ETF, ER 0.04%).
Last edited by samsoes on Wed Dec 28, 2016 7:41 pm, edited 1 time in total.
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arcticpineapplecorp.
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Re: If you only have 20% in bonds...

Post by arcticpineapplecorp. » Wed Dec 28, 2016 7:40 pm

Here's a good post on TIPS by Rick Ferri, entitled, "Tips on TIPS":

https://portfoliosolutions.com/latest-l ... /tips-tips

His take was that 20% of one's fixed income is reasonable (so that means if you want 20% in fixed income (which you're calling bonds), you would put 4% of your portfolio in TIPS and the other 16% would be in TBM (that's "total bond market" or some other bond fund, but that's one that's widely recommended here and elsewhere). The combo of 4% of your portfolio in TIPS and 16% in nominal bonds (TBM or other) equals the 20% you want in fixed income.

Others I believe at bogleheads have perhaps said anywhere from 20%-50% of one's fixed income in TIPS is reasonable. You're paying extra for insurance against inflation. So my understanding is if inflation is sudden and unexpected, TIPS will outperform TBM, but otherwise TBM should do better than TIPS. There is a TIPS fund, and also a short term TIPS fund, so if you research those, make sure you understand the difference between the two. I believe there was just a post within the past day or so about those two TIPS funds at Vanguard (the thrust of that post was whether the TIPS fund is active and the short term TIPS fund is a passive fund).

I think because 4% of your portfolio in TIPS is not likely to make a meaningful difference overall, especially when one is young and has a small amount invested, that could be why it might be more appropriate for older adults...if for no other reason than you'd expect to have more assets when older and the TIPS would provide some inflation protection of your larger fixed income amount which you'd want especially in retirement when inflation and longevity are some of your big concerns which mean preserving the purchasing power of your dollars.

If you're concerned about inflation, have you read about I-Bonds?

I-Bonds are designed to guarantee a real rate of return regardless of inflation. Even in periods of deflation, I-Bonds protect your investment by never losing value and are backed by the U.S. government. I-Bonds are considered to be a long-term investment. These can accrue interest for up to 30 years. I-Bonds have a one year minimum hold time in which the bond cannot be redeemed. In addition, I-Bonds are subject to a 3 month interest penalty if the bond is redeemed within 5 years of the issue date. The purchase limit for I-Bonds is $10,000 per year and must be purchased through http://www.treasurydirect.gov.
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Re: If you only have 20% in bonds...

Post by triceratop » Wed Dec 28, 2016 7:40 pm

I am probably one of the younger investors on this forum(24), and have 10% in bonds. I split my bonds between VCIT [Vanguard Intermediate-Term Corporate Index] and VGIT [Vanguard Intermediate-Term Government Index]. I will stick with this allocation as I increase my bond allocation over the years (probably not another increase for quite some time; tax considerations may shift my allocation too). I was convinced by the reasoning of posters Kevin M and Doc, as well as my reading of Anette Thau's The Bond Book which I recommend.

In my consideration of a bond allocation I did not add TIPS because my expected future income is itself a sufficient inflation hedge at this time. As one ages, this changes and a reconsideration may be warranted. The idea behind my allocation is that if you need to rebalance into stocks during an equity crisis, corporate spreads will likely have widened and that is the precise moment you do not wish to sell them. But if you own Total Bond Market this is in effect what you are doing. Owning separate funds for corporates and treasuries allows one to rebalance out of treasuries into stocks while still having exposure to the higher-yielding corporates in Total Bond.

Larry Swedroe goes even further and argues that the default premium is not sufficiently rewarded for investors to consider so he recommends 100% treasuries. I'm not as convinced of this, so I still do wish to diversify.
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Re: If you only have 20% in bonds...

Post by brad.clarkston » Wed Dec 28, 2016 7:43 pm

Not sure if I'm "younger" but I'm doing 20% in the following

10% Total Bond Market ETF (BND) - US Index - ER 0.06%
10% Vanguard Short-Term Infl-Prot Secs ETF (VTIP) - TIP - ER 0.08%

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Re: If you only have 20% in bonds...

Post by investorguy1 » Wed Dec 28, 2016 7:45 pm

There certainly are some argument in favor of tips. However if you only have 20% of your portfolio in bonds then how much would you put in tips? if you put 10% well that is half your bonds so that is a big bet. 5% would be 25% of your bonds which is still a decently sized bet but this will likely not have much impact on your portfolio maybe just lower your returns in the long run. To avoid that you could change to lets say 17% bonds but now were getting really into the weeds here and it seems to be in this case simplicity might be the over riding factor here and you would be well served with total bond market.

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Re: If you only have 20% in bonds...

Post by dbr » Wed Dec 28, 2016 7:45 pm

I understand there is some evidence that the best overall bond choice for a high stock portfolio would be long term treasuries. The risk is not large compared to what is already involved in the stocks.

Otherwise there probably isn't anything there to worry about one way or the other.

Oh, corporates are probably out due to tendency to correlate with stocks, as Larry points out.

TIPS at tiny fractions would seem pointless, but not harmful either.

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Re: If you only have 20% in bonds...

Post by lostdog » Wed Dec 28, 2016 7:48 pm

We use TBM in our IRA. 10%
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Re: If you only have 20% in bonds...

Post by Ron Ronnerson » Wed Dec 28, 2016 9:20 pm

Wife and I are 42. We're 20% bonds and all of it is in total bond market in our Roth IRAs.

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Re: If you only have 20% in bonds...

Post by Yordle » Wed Dec 28, 2016 9:36 pm

dbr wrote:I understand there is some evidence that the best overall bond choice for a high stock portfolio would be long term treasuries. The risk is not large compared to what is already involved in the stocks.

Otherwise there probably isn't anything there to worry about one way or the other.

Oh, corporates are probably out due to tendency to correlate with stocks, as Larry points out.

TIPS at tiny fractions would seem pointless, but not harmful either.


The little bonds I have are all in short term corporates. From my analysis from 1926-2015, for timespans >5 years, corporates have no added risk compared to government, but better returns. As for why short vs total bond market, I've done that analysis too, and there's really no added benefit from having longer maturity bonds (more, not less risk for the proportions you'll see in the average total bond fund).

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Re: If you only have 20% in bonds...

Post by ofcmetz » Fri Dec 30, 2016 2:05 pm

We are 37 and 40 and have 20% in fixed income. We have half in the TIAA Traditional GRSA account and half in a stable value fund as both of these had much higher interest rates than TBM. When/ if interest rates get higher we will go back to having half of fixed income in these funds and half in TBM.
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Re: If you only have 20% in bonds...

Post by remomnyc » Fri Dec 30, 2016 2:15 pm

Not young but currently 20% bonds:

VWEAX (high yield corporate fund)
VAIPX (inflation protected securities)
VBTLX (total bond)
VWIUX (intermediate-term tax exempt fund)

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Re: If you only have 20% in bonds...

Post by Doc » Fri Dec 30, 2016 2:22 pm

dbr wrote:I understand there is some evidence that the best overall bond choice for a high stock portfolio would be long term treasuries. The risk is not large compared to what is already involved in the stocks

Yep.

(And because we may get another Lehman - not TIPS.)

The argument here is that you are taking a lot of risk on the equity side and what you want from your FI is to have negative correlation with equities in the event of a stock market crisis. Long Treasuries often have the highest negative correlation in these situations. The extra term risk from long Treasuries is not that important if your high risk equity position is 80 to 90% as dbr said.
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Re: If you only have 20% in bonds...

Post by Yordle » Fri Dec 30, 2016 2:54 pm

Doc wrote:
dbr wrote:I understand there is some evidence that the best overall bond choice for a high stock portfolio would be long term treasuries. The risk is not large compared to what is already involved in the stocks

Yep.

(And because we may get another Lehman - not TIPS.)

The argument here is that you are taking a lot of risk on the equity side and what you want from your FI is to have negative correlation with equities in the event of a stock market crisis. Long Treasuries often have the highest negative correlation in these situations. The extra term risk from long Treasuries is not that important if your high risk equity position is 80 to 90% as dbr said.


History argues for short/intermediate bonds.

See this graph.

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Re: If you only have 20% in bonds...

Post by TSR » Fri Dec 30, 2016 3:09 pm

Do not forget about the value of simplicity. A single diversified, safe bond fund (TBM or something like it) is preferable to more than one fund in my book. I'm at around 25 percent and I follow this strategy in the accounts where I have a choice. In short, I'd say just go with TBM and rest easy at night. The positive or negative effect of pursuing another, more complicated strategy is pretty darn minimal. Good luck!

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Re: If you only have 20% in bonds...

Post by Doc » Fri Dec 30, 2016 3:19 pm

Yordle wrote:History argues for short/intermediate bonds.

It's not about long term return. It's about negative correlation when equities tank. Think in days not in in 90 years.

If you are not going to buy stocks when the market is crashing don't use long Treasuries even with a very high equity position.
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Re: If you only have 20% in bonds...

Post by tigermilk » Fri Dec 30, 2016 3:43 pm

If I were a younger person I would have 0% in bonds, particularly if my balances was low. Your regular contributions provide significant buying power when you first start off. Alas, I'm no longer a younger person, and at 47 just bought my first bonds 2 weeks ago. I'm now about 5% in bonds. My long term outlook with equities served me quite well over the 20+ year window. Bonds didn't make sense back then, but with retirement on the 10 year horizon, they do now.

I do manage my MIL's money, and her bond position is Vanguard's total bond market.

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Re: If you only have 20% in bonds...

Post by Saphomd » Fri Dec 30, 2016 6:08 pm

:happy Early 50's and proud to have both Total Bond Market Index fund and Tips, both in a Roth with Vanguard.

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Re: If you only have 20% in bonds...

Post by dbr » Fri Dec 30, 2016 6:28 pm

Yordle wrote:
Doc wrote:
dbr wrote:I understand there is some evidence that the best overall bond choice for a high stock portfolio would be long term treasuries. The risk is not large compared to what is already involved in the stocks

Yep.

(And because we may get another Lehman - not TIPS.)

The argument here is that you are taking a lot of risk on the equity side and what you want from your FI is to have negative correlation with equities in the event of a stock market crisis. Long Treasuries often have the highest negative correlation in these situations. The extra term risk from long Treasuries is not that important if your high risk equity position is 80 to 90% as dbr said.


History argues for short/intermediate bonds.

See this graph.


Thanks for that data. There may be another analysis somewhere as I know I saw a reference to the long bond result.

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Re: If you only have 20% in bonds...

Post by saltz1979 » Fri Dec 30, 2016 7:31 pm

Doc wrote:
Yordle wrote:History argues for short/intermediate bonds.

It's not about long term return. It's about negative correlation when equities tank. Think in days not in in 90 years.

If you are not going to buy stocks when the market is crashing don't use long Treasuries even with a very high equity position.

Does this include rebalancing? Thanks

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Re: If you only have 20% in bonds...

Post by Tamarind » Fri Dec 30, 2016 10:25 pm

Age 30. 20% in bonds. All TBM. Just keeping it simple. With a long time horizon and relatively high-stock allocation you have less need to worry about inflation.

I can see an argument for switching to TIPS if you make your number and want to take cards off the table.

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Re: If you only have 20% in bonds...

Post by Yordle » Fri Dec 30, 2016 11:21 pm

saltz1979 wrote:
Doc wrote:
Yordle wrote:History argues for short/intermediate bonds.

It's not about long term return. It's about negative correlation when equities tank. Think in days not in in 90 years.

If you are not going to buy stocks when the market is crashing don't use long Treasuries even with a very high equity position.

Does this include rebalancing? Thanks


No. I don't think the results will change however.

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Re: If you only have 20% in bonds...

Post by abuss368 » Fri Dec 30, 2016 11:35 pm

No need for TIPS funds at your age or possibly any age. No income from TIPS either. We sold that fund many years ago and consolidated with Total Bond and this has worked very well.

In fact Vanguard recommends a two fund approach - Total Bond and Total International Bond.
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Re: If you only have 20% in bonds...

Post by neomutiny06 » Sat Dec 31, 2016 9:29 am

abuss368 wrote:No need for TIPS funds at your age or possibly any age. No income from TIPS either. We sold that fund many years ago and consolidated with Total Bond and this has worked very well.

In fact Vanguard recommends a two fund approach - Total Bond and Total International Bond.


I'm using 50% of TIPS because of the reasons explained in Bogleheads' Guide To Investing.

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Re: If you only have 20% in bonds...

Post by powermega » Sat Dec 31, 2016 10:37 am

I think TIPS are better for investors who are in retirement, or getting close to retirement. TIPS hedge against losing the real spending power of your investments, which is great when you're actually spending your investments. Younger people with a longer investment horizon should use nominal bonds and have a larger growth (compounding) effect.
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Re: If you only have 20% in bonds...

Post by raven15 » Sat Dec 31, 2016 1:20 pm

triceratop wrote:I am probably one of the younger investors on this forum(24), and have 10% in bonds. I split my bonds between VCIT [Vanguard Intermediate-Term Corporate Index] and VGIT [Vanguard Intermediate-Term Government Index]. I will stick with this allocation as I increase my bond allocation over the years (probably not another increase for quite some time). I was convinced by the reasoning of posters Kevin M and Doc, as well as my reading of Anette Thau's The Bond Book which I recommend.

In my consideration of a bond allocation I did not add TIPS because my expected future income is itself a sufficient inflation hedge at this time. As one ages, this changes and a reconsideration may be warranted. The idea behind my allocation is that if you need to rebalance into stocks during an equity crisis, corporate spreads will likely have widened and that is the precise moment you do not wish to sell them. But if you own Total Bond Market this is in effect what you are doing. Owning separate funds for corporates and treasuries allows one to rebalance out of treasuries into stocks while still having exposure to the higher-yielding corporates in Total Bond.

Larry Swedroe goes even further and argues that the default premium is not sufficiently rewarded for investors to consider so he recommends 100% treasuries. I'm not as convinced of this, so I still do wish to diversify.

Is there a thread with this discussion? I am especially interested in how you decided to include the corporate bonds, as treasuries seem to be a common recommendation.
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Re: If you only have 20% in bonds...

Post by triceratop » Sat Dec 31, 2016 1:36 pm

raven15 wrote:
triceratop wrote:I am probably one of the younger investors on this forum(24), and have 10% in bonds. I split my bonds between VCIT [Vanguard Intermediate-Term Corporate Index] and VGIT [Vanguard Intermediate-Term Government Index]. I will stick with this allocation as I increase my bond allocation over the years (probably not another increase for quite some time). I was convinced by the reasoning of posters Kevin M and Doc, as well as my reading of Anette Thau's The Bond Book which I recommend.

In my consideration of a bond allocation I did not add TIPS because my expected future income is itself a sufficient inflation hedge at this time. As one ages, this changes and a reconsideration may be warranted. The idea behind my allocation is that if you need to rebalance into stocks during an equity crisis, corporate spreads will likely have widened and that is the precise moment you do not wish to sell them. But if you own Total Bond Market this is in effect what you are doing. Owning separate funds for corporates and treasuries allows one to rebalance out of treasuries into stocks while still having exposure to the higher-yielding corporates in Total Bond.

Larry Swedroe goes even further and argues that the default premium is not sufficiently rewarded for investors to consider so he recommends 100% treasuries. I'm not as convinced of this, so I still do wish to diversify.

Is there a thread with this discussion? I am especially interested in how you decided to include the corporate bonds, as treasuries seem to be a common recommendation.


It was part of the long thread Another Look at corporate bonds
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Re: If you only have 20% in bonds...

Post by abuss368 » Sat Dec 31, 2016 1:50 pm

neomutiny06 wrote:
abuss368 wrote:No need for TIPS funds at your age or possibly any age. No income from TIPS either. We sold that fund many years ago and consolidated with Total Bond and this has worked very well.

In fact Vanguard recommends a two fund approach - Total Bond and Total International Bond.


I'm using 50% of TIPS because of the reasons explained in Bogleheads' Guide To Investing.


There is nothing wrong with that strategy. If the question is do you "need" TIPS, I would say at your age probably not.
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Re: If you only have 20% in bonds...

Post by raven15 » Sat Dec 31, 2016 1:59 pm

triceratop wrote:
raven15 wrote:
triceratop wrote:I am probably one of the younger investors on this forum(24), and have 10% in bonds. I split my bonds between VCIT [Vanguard Intermediate-Term Corporate Index] and VGIT [Vanguard Intermediate-Term Government Index]. I will stick with this allocation as I increase my bond allocation over the years (probably not another increase for quite some time). I was convinced by the reasoning of posters Kevin M and Doc, as well as my reading of Anette Thau's The Bond Book which I recommend.

In my consideration of a bond allocation I did not add TIPS because my expected future income is itself a sufficient inflation hedge at this time. As one ages, this changes and a reconsideration may be warranted. The idea behind my allocation is that if you need to rebalance into stocks during an equity crisis, corporate spreads will likely have widened and that is the precise moment you do not wish to sell them. But if you own Total Bond Market this is in effect what you are doing. Owning separate funds for corporates and treasuries allows one to rebalance out of treasuries into stocks while still having exposure to the higher-yielding corporates in Total Bond.

Larry Swedroe goes even further and argues that the default premium is not sufficiently rewarded for investors to consider so he recommends 100% treasuries. I'm not as convinced of this, so I still do wish to diversify.

Is there a thread with this discussion? I am especially interested in how you decided to include the corporate bonds, as treasuries seem to be a common recommendation.


It was part of the long thread Another Look at corporate bonds

Wow, thanks. That is a long thread. I read The Bond Book but most of what I got from it was sleep. :|
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Re: If you only have 20% in bonds...

Post by Doc » Sat Dec 31, 2016 3:03 pm

raven15 wrote:Wow, thanks. That is a long thread. I read The Bond Book but most of what I got from it was sleep.

I assume you meant Thau's "The Bond Book".

Try Swedroe's "The Only Guide to a Winning Bond Strategy You'll Ever Need: The Way Smart Money Preserves Wealth Today" It's only 200 pages and set in large type with lots of space between lines.
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Re: If you only have 20% in bonds...

Post by jalbert » Sat Dec 31, 2016 4:14 pm

Annual return correlations since 1/1/2006 of treasuries, corporates, and TIPs are interesting. From portfoliovisualizer.com using vaipx for TIPs, vfidx for corporates, vfiux for treasuries:

Corr(vaipx , vfidx) = 0.76
Corr(vaipx , vfiux) = 0.32
Corr(vfidx , vfiux) = -0.29

This is biased by the events of fall 2008, which may add to, or detract from its relevance depending on your perspective, but it potentially is an argument against holding a large allocation to both TIPs and corporates. The combined allocation is something to calculate if holding TIPs and a bond index.

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Re: If you only have 20% in bonds...

Post by Doc » Sat Dec 31, 2016 6:52 pm

jalbert wrote:Annual return correlations since 1/1/2006 of treasuries, corporates, and TIPs are interesting


Can you run using monthly data and maybe shorten the time period to say two years centered around Lehman?

It's the short term correlation that is likely to be the most significant.
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Re: If you only have 20% in bonds...

Post by jalbert » Sat Dec 31, 2016 7:21 pm

I care more about annual correlation. Liquidity is best provided by cash or short-term instruments, so monthly covariance of bond classes is not as significant to me.

Monthly correlation with equities might be more relevant in terms of diversifying shorter term variance of equities. That is likely to lead one to favor TIPs over credit. Also, in the fall of 2008, vfidx had a bigger tumble than vaipx as one measure of risk.
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Re: If you only have 20% in bonds...

Post by Doc » Sun Jan 01, 2017 9:52 am

jalbert wrote:I care more about annual correlation. Liquidity is best provided by cash or short-term instruments, so monthly covariance of bond classes is not as significant to me.

Monthly correlation with equities might be more relevant in terms of diversifying shorter term variance of equities. That is likely to lead one to favor TIPs over credit. Also, in the fall of 2008, vfidx had a bigger tumble than vaipx as one measure of risk.


"If you only have 20% in bonds" your portfolio's risk and return are dominated by that other 80% and the risk and return of the 20% bonds is much less important than how those bonds correlate with equities.

The need for liquidity is another matter. In that case you are looking at the FI with only that objective not as part of the overall portfolio.

Both things are important but should be treated separately IMNSHO.
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Re: If you only have 20% in bonds...

Post by bayview » Sun Jan 01, 2017 11:28 am

I'm no longer "younger" (I wish), but we have all bonds in Treasuries, with a correspondingly higher allo to stocks, per Larry Swedroe's comments, in our risk portfolio (70/30.)

In our much more conservative matching portfolio (25/75), I'm considering putting part of the fixed portion into F fund (TSP's total bond index fund), with the rest staying in G fund (TSP's unique Treasury fund with no duration risk and so far no inflation risk.) G fund is doing its job in barely beating inflation, and the 25% in US stock index funds is providing some growth, but F/total bond might sweeten the deal a bit.
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Re: If you only have 20% in bonds...

Post by jalbert » Sun Jan 01, 2017 4:16 pm

"If you only have 20% in bonds" your portfolio's risk and return are dominated by that other 80% and the risk and return of the 20% bonds is much less important than how those bonds correlate with equities.

Your responses are leading astray from my original point which was was just that corporate bonds and TIPs have had a high historical sample correlation. I'm not sure that is widely considered when bond allocations are determined.
Last edited by jalbert on Mon Jan 02, 2017 2:44 am, edited 1 time in total.
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Re: If you only have 20% in bonds...

Post by TxAg » Sun Jan 01, 2017 9:50 pm

34/32

0% in bonds

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Re: If you only have 20% in bonds...

Post by rimfire » Mon Jan 02, 2017 11:19 am

65/60

0% in bonds

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Re: If you only have 20% in bonds...

Post by raven15 » Thu Jan 05, 2017 1:36 am

triceratop wrote:
raven15 wrote:
triceratop wrote:I am probably one of the younger investors on this forum(24), and have 10% in bonds. I split my bonds between VCIT [Vanguard Intermediate-Term Corporate Index] and VGIT [Vanguard Intermediate-Term Government Index]. I will stick with this allocation as I increase my bond allocation over the years (probably not another increase for quite some time). I was convinced by the reasoning of posters Kevin M and Doc, as well as my reading of Anette Thau's The Bond Book which I recommend.

In my consideration of a bond allocation I did not add TIPS because my expected future income is itself a sufficient inflation hedge at this time. As one ages, this changes and a reconsideration may be warranted. The idea behind my allocation is that if you need to rebalance into stocks during an equity crisis, corporate spreads will likely have widened and that is the precise moment you do not wish to sell them. But if you own Total Bond Market this is in effect what you are doing. Owning separate funds for corporates and treasuries allows one to rebalance out of treasuries into stocks while still having exposure to the higher-yielding corporates in Total Bond.

Larry Swedroe goes even further and argues that the default premium is not sufficiently rewarded for investors to consider so he recommends 100% treasuries. I'm not as convinced of this, so I still do wish to diversify.

Is there a thread with this discussion? I am especially interested in how you decided to include the corporate bonds, as treasuries seem to be a common recommendation.


It was part of the long thread Another Look at corporate bonds

Thanks again for pointing that out. Ironically by the end of the thread I decided that the High Yield Tax Exempt fund VWAHX was actually what I wanted. There seem to be several points in its favor:
-AMT keeps out most of the riffraff
-The name keeps out most of the rest of the riffraff
-It seems to be historically similar in risk to Intermediate Term Investment Grade, and even has a lowest maximum loss
-However returns are similar to most intermediate term funds
-does not take up useful tax advantaged space
-represents a completely different asset class, relative to corporate stocks/bonds and US government bonds
-Has the lowest historic correlation with treasury bonds of the ten or so funds I examined

If I'm gonna take credit and call risk, this seems like the best option. Apparently this is the bond fund I have been looking for.
It's Time. Adding Interest.

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raven15
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Re: If you only have 20% in bonds...

Post by raven15 » Thu Jan 05, 2017 1:48 am

Here is my late answer to this thread. Bonds supposedly serve three functions: 1) safety, 2) rebalancing, 3) income. As such I would do an equal split between
1) Series I savings bonds. The safest bonds out there. Great for safety. Good for skyrocketing interest rates or inflation.
2) Medium to long term treasury bonds. Volatile, but poorly correlated with stocks. Great for rebalancing. Good for falling interest rates or inflation.
3) High-ish quality high-ish yield municipal bonds. Relatively high income. Good for flat or predictable interest rates (as an example, VWAHX or VWLTX depending on situation).
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neomutiny06
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Re: If you only have 20% in bonds...

Post by neomutiny06 » Thu Jan 05, 2017 8:03 am

raven15 wrote:Here is my late answer to this thread. Bonds supposedly serve three functions: 1) safety, 2) rebalancing, 3) income. As such I would do an equal split between
1) Series I savings bonds. The safest bonds out there. Great for safety. Good for skyrocketing interest rates or inflation.
2) Medium to long term treasury bonds. Volatile, but poorly correlated with stocks. Great for rebalancing. Good for falling interest rates or inflation.
3) High-ish quality high-ish yield municipal bonds. Relatively high income. Good for flat or predictable interest rates (as an example, VWAHX or VWLTX depending on situation).


This is a nice mix imo for any age.

SnowSkier
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Re: If you only have 20% in bonds...

Post by SnowSkier » Fri Jan 06, 2017 12:05 am

neomutiny06 wrote:If you are younger and only have 20% in bonds, which funds would you use? Total Bond Market?

And/or would you pair that with a TIPS fund? I have heard some good arguments for using TIPS, but I am not sure if that applies to a young investor.


In this situation, I'd personally be comfortable using Total Bond Market (VBTLX), which happens to be available in my 401k, for the entire 20%. In my opinion, it's "good enough", and doesn't necessarily need to be perfect or overly optimized.

But what I'm actually doing is 30% fixed income, with 10% in Total Bond Market and 20% in CD's that are paying 3% plus some I Bonds.

I also second the recommendation above for Larry Swedroe's book "The Only Guide to a Winning Bond Strategy". See Chapter 12, "Summary", for a summary of the winning strategy. From everything I've seen from Larry on bogleheads, articles, and books; he doesn't recommend using Total Bond Market, and identifies more optimal approaches.

I don't have time to go find the articles or posts right now, but one of the funds I've I've seen Larry recommend is VFIUX = VFITX = Vanguard Intermediate Term Treasury Fund. If you search on (Swedroe VFITX), you'll find an interesting article titled "Vanguard Bond Funds Are Not All Created Equal".

I've also seen Robert T recommend an ETF similar to VFIUX: IEI = iShares 3-7 Year Treasury Bond ETF.

Just some ideas to investigate. I'd recommend reading Larry Swedroe, Robert T ( viewtopic.php?t=7353&highlight=collective ), and William Bernstein (Rational Expectations book).

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