Do Bonds have a place if basic expenses are covered by income streams?

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rkhusky
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Re: Do Bonds have a place if basic expenses are covered by income streams?

Post by rkhusky » Mon Jun 19, 2017 2:33 pm

TheTimeLord wrote: Why? You seem to be supposing some razor thin scenario and discounting the possibility of the stocks gains before pulling back in the bear market. Also if as in the scenario you have a 7 digit equity portfolio aren't you likely to be getting at least $15,000-$20,000 a year in dividends you could utilize when you need extra cash?
I seem to have missed the scenario details.

Lynette
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Re: Do Bonds have a place if basic expenses are covered by income streams?

Post by Lynette » Mon Jun 19, 2017 2:35 pm

I don't know where / why I had the idea that I should be 60/40 stocks/bonds. For the bond part I have 50% bonds and 50% stable value fund. My expenses and discretionary spending are covered by SS and pensions. My savings are for medical emergencies and whatever disaster may crop up. I'm much too busy - retired a few months ago at 73 to try to figure out whether I might earn a few more dollars by a different allocation. I'm busy remodeling my house and garden - far more interesting than trying to figure out a better AA which may or may not be better!

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TheTimeLord
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Re: Do Bonds have a place if basic expenses are covered by income streams?

Post by TheTimeLord » Mon Jun 19, 2017 2:45 pm

rkhusky wrote:
TheTimeLord wrote: Why? You seem to be supposing some razor thin scenario and discounting the possibility of the stocks gains before pulling back in the bear market. Also if as in the scenario you have a 7 digit equity portfolio aren't you likely to be getting at least $15,000-$20,000 a year in dividends you could utilize when you need extra cash?
I seem to have missed the scenario details.
They were added later in the thread to make the scenario more specific. I am sure the post was easy to over look.
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spacecadet610
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Re: Do Bonds have a place if basic expenses are covered by income streams?

Post by spacecadet610 » Mon Jun 19, 2017 3:03 pm

I have reached a similar conclusion that once your annual expenses are met by income streams, there is less of a role of fixed income.

Recently found an article I like that relates to this sentiment: https://blog.alphaarchitect.com/2016/06 ... gs.pEvyYIk

Dandy
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Re: Do Bonds have a place if basic expenses are covered by income streams?

Post by Dandy » Mon Jun 19, 2017 11:18 pm

One factor to consider is are income streams always going to be there. I have 2 pensions from large financial companies. I fully expect that at least one will decide to buy out the pension. Just a guess since pensions are unloved by business. As earnings and profit issues emerge pensions are low hanging fruit. State and Federal pensions may also be less reliable than the gold standard they used to be. Rapid inflation could significantly affect non Cola pensions which would create a problem with the adequacy of the income streams. Medical expenses can be a real surprise -- some conditions require whopping one time and ongoing expenses. Our private and public health insurance is mess to say it mildly so coverage and premiums are in play. Long term care is another potential expense bump even with LTC insurance.

So, the above doesn't mean you have to have any fixed income just that you might want to make sure you keep an eye on the portfolio and be ready to change your thinking about fixed income/stability if too many possibilities become realities.

I am blessed with having what I consider more than enough and next year my income streams will cover close to 100% of my needs. My allocation is about 43/57. My goal is to preserve the win for us and our kids not to run up the score. Different strokes for different folks.:sharebeer

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Re: Do Bonds have a place if basic expenses are covered by income streams?

Post by SGM » Tue Jun 20, 2017 4:34 am

There are a variety of reasons to want to preserve a portfolio. When I was in the accumulation phase I saw no reason to have bonds. Now that I am no longer accumulating assets preservation of my portfolio is a goal.

gilgamesh
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Re: Do Bonds have a place if basic expenses are covered by income streams?

Post by gilgamesh » Tue Jun 20, 2017 6:47 am

I think emergency funds and psychological reasons, which are already mentioned, are the two reasons not to have everything in equity in the scenario provided by OP.

Emergency fund is there for unexpected expenses and to cover cost if income stream is compromised, only the former applies in retirement. This amount has to be kept in savings or MM fund...may be short term bond fund is ok in this case.

Psychologically seeing 50% disappear, even on a side portfolio not needed for year to year living can be demoralizing....after all that's the only Money with liquidity (SS, Annuity, pension are not).

Then given the optimal risk adjusted reward is 80:20, I would think that's the most one should have in stocks even on a side portfolio they only need for emergencies.

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Re: Do Bonds have a place is basic expenses covered by income streams?

Post by gilgamesh » Tue Jun 20, 2017 7:39 am

TheTimeLord wrote:>........... Second a full genetic health assessment (approximately $25,000) which could greatly influence my health and well being going forward. I already have sort of an example of this in my life today. While many of the people I know won't even do their annual physical, thanks to our income level I now not only do annual physical but have added additional annual testing to monitor my health and especially my heart health. The cost is a couple thousand extra a year but I am using money that people would argue doesn't have any marginal utility in my life. As a result I have made lifestyle changes and have greatly improved my health/quality of life. Additional money makes high quality preventive care a reasonable and rational course of action and one that is rarely affordable if you are just trying to maintain your current lifestyle or believe what is provided by Medicare is comprehensive enough.
What kind of additional annual testing, especially for the heart? I also have a strong family history of heart trouble,...I did an elective stress test and Doppler test, nutrition counseling etc with out of pocket costs...what other tests have you done?

I'll read up on the full genetic health assessment. Hopefully it's not fiction like genetic ancestry tests.

A colleague of mine was offered by his friend a free evaluation with one of these full body imaging when they acquired it for their medical facility, it diagnosed an early rare tumor in his spine, which needed out of state specialty surgery.

With a strong family history, I am not interested in covered procedures whose applicability is evaluated on benefit/cost ratio, I want everything done.

You are absolutely correct....all others depend on treatment that is evaluated on a benefit/cost basis.

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TheTimeLord
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Re: Do Bonds have a place is basic expenses covered by income streams?

Post by TheTimeLord » Tue Jun 20, 2017 9:07 am

gilgamesh wrote:
TheTimeLord wrote:>........... Second a full genetic health assessment (approximately $25,000) which could greatly influence my health and well being going forward. I already have sort of an example of this in my life today. While many of the people I know won't even do their annual physical, thanks to our income level I now not only do annual physical but have added additional annual testing to monitor my health and especially my heart health. The cost is a couple thousand extra a year but I am using money that people would argue doesn't have any marginal utility in my life. As a result I have made lifestyle changes and have greatly improved my health/quality of life. Additional money makes high quality preventive care a reasonable and rational course of action and one that is rarely affordable if you are just trying to maintain your current lifestyle or believe what is provided by Medicare is comprehensive enough.
What kind of additional annual testing, especially for the heart? I also have a strong family history of heart trouble,...I did an elective stress test and Doppler test, nutrition counseling etc with out of pocket costs...what other tests have you done?

I'll read up on the full genetic health assessment. Hopefully it's not fiction like genetic ancestry tests.

A colleague of mine was offered by his friend a free evaluation with one of these full body imaging when they acquired it for their medical facility, it diagnosed an early rare tumor in his spine, which needed out of state specialty surgery.

With a strong family history, I am not interested in covered procedures whose applicability is evaluated on benefit/cost ratio, I want everything done.

You are absolutely correct....all others depend on treatment that is evaluated on a benefit/cost basis.
I haven't had the genetic testing but saw it on CNBC and as described it was very extensive and the full physical included a full body MRI which was described as very effective in identifying tumors and organ fat. Personally, beyond what would be normal for someone in my state of health last year I add a coronary calcium score, stress Echo and an annual visit to a cardiologist in addition to my annual physical. I think preventive healthcare is an area of discretionary spending often overlooked by people and definitely increases the marginal utility of additional funds.
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2015
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Re: Do Bonds have a place is basic expenses covered by income streams?

Post by 2015 » Tue Jun 20, 2017 10:22 am

jebmke wrote:
TheTimeLord wrote:
jebmke wrote:I know quite a few retirees with pensions and social security that more than cover their expenses who hold bond funds and/or CDs so there must be.
Not saying there isn't, just would like to understand the different perspectives and rationales on why or why not so I can see what best fits the way I approach investing. While they would be older now I would guess many retirees who were either effected by the Great Depression or have a parent who passed that experience along find tremendous solace in having significant amounts of fixed income assets even if studies suggest they aren't needed. You might have the same characteristic with people who grew up in families where the primary wager earner had difficulty finding steady employment or was quite a spend thrift causing the family to repeatedly go without for significant periods of time.
I would guess that they don't think about it too much - it is more a matter of liking some assurance that a portion of their funds are stable. Most retirees I know are pretty busy with family (especially grandchildren), volunteer and other activities. Many of them with full coverage of expenses (pension etc) are former government, teachers, ex-military. Frankly, I doubt they spend much time thinking about their investments. Maybe that is a luxury of having low/zero residual expenses - not having to think about it as much.
Describes my parents exactly, with guaranteed income and considerable wealth left over. My father is 86, still very active, and both parents are still travelling all over the country in their motor home. They would consider it a waste of time to even think about AA changes, risk tolerance, or reading threads such as this one.

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Re: Do Bonds have a place if basic expenses are covered by income streams?

Post by knpstr » Tue Jun 20, 2017 10:33 am

TheTimeLord wrote:If SS, pension and/or annuities will cover your basic living expenses in retirement so that you would only need to tap your portfolio for some travel, new roofs or emergencies is there a reason to hold bonds at that point?
I'm sure people could have reasons, but bonds wouldn't be required.
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gilgamesh
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Re: Do Bonds have a place is basic expenses covered by income streams?

Post by gilgamesh » Tue Jun 20, 2017 10:36 am

TheTimeLord wrote:
gilgamesh wrote:
TheTimeLord wrote:>........... Second a full genetic health assessment (approximately $25,000) which could greatly influence my health and well being going forward. I already have sort of an example of this in my life today. While many of the people I know won't even do their annual physical, thanks to our income level I now not only do annual physical but have added additional annual testing to monitor my health and especially my heart health. The cost is a couple thousand extra a year but I am using money that people would argue doesn't have any marginal utility in my life. As a result I have made lifestyle changes and have greatly improved my health/quality of life. Additional money makes high quality preventive care a reasonable and rational course of action and one that is rarely affordable if you are just trying to maintain your current lifestyle or believe what is provided by Medicare is comprehensive enough.
What kind of additional annual testing, especially for the heart? I also have a strong family history of heart trouble,...I did an elective stress test and Doppler test, nutrition counseling etc with out of pocket costs...what other tests have you done?

I'll read up on the full genetic health assessment. Hopefully it's not fiction like genetic ancestry tests.

A colleague of mine was offered by his friend a free evaluation with one of these full body imaging when they acquired it for their medical facility, it diagnosed an early rare tumor in his spine, which needed out of state specialty surgery.

With a strong family history, I am not interested in covered procedures whose applicability is evaluated on benefit/cost ratio, I want everything done.

You are absolutely correct....all others depend on treatment that is evaluated on a benefit/cost basis.
I haven't had the genetic testing but saw it on CNBC and as described it was very extensive and the full physical included a full body MRI which was described as very effective in identifying tumors and organ fat. Personally, beyond what would be normal for someone in my state of health last year I add a coronary calcium score, stress Echo and an annual visit to a cardiologist in addition to my annual physical. I think preventive healthcare is an area of discretionary spending often overlooked by people and definitely increases the marginal utility of additional funds.
Thank you and I 100% agree with you...I'm a car nut, from other people's perspective wasted and am wasting a lot of money on cars...at age 70 if my nest egg of the side portfolio grew huge, I see utility in enjoying a Bentley :P

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Re: Do Bonds have a place if basic expenses are covered by income streams?

Post by ruralavalon » Tue Jun 20, 2017 12:53 pm

TheTimeLord wrote:If SS, pension and/or annuities will cover your basic living expenses in retirement so that you would only need to tap your portfolio for some travel, new roofs or emergencies is there a reason to hold bonds at that point?
With no concern about retirement living expenses, then why not the Warren Buffet idea for a portfolio of 90% in a S&P 500 index fund and 10% in a short-term treasury bond fund?
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Re: Do Bonds have a place if basic expenses are covered by income streams?

Post by Index Fan » Tue Jun 20, 2017 1:07 pm

I have a pension that covers my living expenses but still maintain an AA of 50/50. I'm not interested in the market whipsawing my net worth in a big way.
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TheTimeLord
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Re: Do Bonds have a place if basic expenses are covered by income streams?

Post by TheTimeLord » Tue Jun 20, 2017 1:36 pm

ruralavalon wrote:
TheTimeLord wrote:If SS, pension and/or annuities will cover your basic living expenses in retirement so that you would only need to tap your portfolio for some travel, new roofs or emergencies is there a reason to hold bonds at that point?
With no concern about retirement living expenses, then why not the Warren Buffet idea for a portfolio of 90% in a S&P 500 index fund and 10% in a short-term treasury bond fund?
I think in practical terms we are really talking about anything from 70/30 to 100/0, so sure that should work.
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Re: Do Bonds have a place if basic expenses are covered by income streams?

Post by sport » Tue Jun 20, 2017 2:33 pm

TheTimeLord wrote:
ruralavalon wrote:
TheTimeLord wrote:If SS, pension and/or annuities will cover your basic living expenses in retirement so that you would only need to tap your portfolio for some travel, new roofs or emergencies is there a reason to hold bonds at that point?
With no concern about retirement living expenses, then why not the Warren Buffet idea for a portfolio of 90% in a S&P 500 index fund and 10% in a short-term treasury bond fund?
I think in practical terms we are really talking about anything from 70/30 to 100/0, so sure that should work.
When I am wealthy as Mr. Buffet, I will definitely consider that 90/10 allocation.

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TheTimeLord
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Re: Do Bonds have a place if basic expenses are covered by income streams?

Post by TheTimeLord » Tue Jun 20, 2017 2:40 pm

sport wrote:
TheTimeLord wrote:
ruralavalon wrote:
TheTimeLord wrote:If SS, pension and/or annuities will cover your basic living expenses in retirement so that you would only need to tap your portfolio for some travel, new roofs or emergencies is there a reason to hold bonds at that point?
With no concern about retirement living expenses, then why not the Warren Buffet idea for a portfolio of 90% in a S&P 500 index fund and 10% in a short-term treasury bond fund?
I think in practical terms we are really talking about anything from 70/30 to 100/0, so sure that should work.
When I am wealthy as Mr. Buffet, I will definitely consider that 90/10 allocation.
I don't think you need to be as rich as Buffet for it to be solid advice.
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Dandy
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Re: Do Bonds have a place if basic expenses are covered by income streams?

Post by Dandy » Tue Jun 20, 2017 3:21 pm

About Buffet. As I recall that is the portfolio he left for his wife vs one that he recommends for most people. I'm sure he will leave enough money that she will never have a problem no matter what the market does. That isn't the case for most of us.

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Re: Do Bonds have a place if basic expenses are covered by income streams?

Post by ruralavalon » Tue Jun 20, 2017 3:37 pm

Dandy wrote:About Buffet. As I recall that is the portfolio he left for his wife vs one that he recommends for most people. I'm sure he will leave enough money that she will never have a problem no matter what the market does. That isn't the case for most of us.
I don't use the Buffett 90/10 idea, because I have only Social Security but don't have any pension or annuity to cover retirement living expenses. However TimeLord (the OP) asked "If SS, pension and/or annuities will cover your basic living expenses in retirement . . . . ?"
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Re: Do Bonds have a place if basic expenses are covered by income streams?

Post by Dandy » Tue Jun 20, 2017 3:44 pm

However TimeLord (the OP) asked "If SS, pension and/or annuities will cover your basic living expenses in retirement . . . . ?"
Good point. I wasn't really addressing your post although it seemed to. I recall hearing Buffet's 90/10 batted around as if that was a general recommendation vs it was targeted for a specific person/circumstance. He is so well regarded I don't want people to think that 90/10 was what the "greatest investor ever" recommends for the masses. If he did my bad -- and in fact Buffet bad.

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