Bond Fund Philosophy

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
LittlePrince
Posts: 6
Joined: Thu Aug 24, 2017 8:50 pm
Location: NY & Germany

Bond Fund Philosophy

Post by LittlePrince » Wed Sep 06, 2017 4:54 pm

I want to get an idea of the purpose of some of your bond fund(s)/allocations. My first encounter with bonds is to establish some fixed income (particularly for retirees). Another ideaolgy is to keep part of your portfolio in safer investments, much like an big emergency fund to balance the down turns of your equities.

If I have fixed income for example rental properties (all paid in full) how much of my portfolio should be in bonds?

If I have no other fixed income would I allocate enough to cover my expenses, as opposed to just having a percent amount of my portfolio in bonds (during or when planning for retirement)?
" With my mind on my money, And my money on my mind"

User avatar
steve roy
Posts: 1429
Joined: Thu May 13, 2010 5:16 pm

Re: Bond Fund Philosophy

Post by steve roy » Wed Sep 06, 2017 5:00 pm

I wouldn't consider rental properties "fixed income" investments. (For example, I live in Southern California, and if my -- hypothetical -- apartment units were turned into kindling when the San Andreas fault gave a loud belch, no more monthly rent money.)

Bonds are fixed income. Other things, not.

chevca
Posts: 304
Joined: Wed Jul 26, 2017 11:22 am

Re: Bond Fund Philosophy

Post by chevca » Wed Sep 06, 2017 5:01 pm

Personally, I would keep them separate if I was you.

I would call the rentals and income source. Which they are and you're the boss. It's a job.

I would set your portfolio up with whatever AA you're comfortable. Then keep piling extra income into the portfolio.

My take on it anyway.

aristotelian
Posts: 2794
Joined: Wed Jan 11, 2017 8:05 pm

Re: Bond Fund Philosophy

Post by aristotelian » Wed Sep 06, 2017 5:04 pm

Every situation is different. If you want specific advice you should post the full details of your portfolio, expenses, etc.

In general, I would recommend reading Larry Swedroe, Only Winning Guide to Bond Strategy. Very good overview of the different types of bonds and roles they can play in your portfolio.

lack_ey
Posts: 5606
Joined: Wed Nov 19, 2014 11:55 pm

Re: Bond Fund Philosophy

Post by lack_ey » Wed Sep 06, 2017 5:20 pm

I wouldn't read too much into the label of "fixed income." That's just terminology for bonds and related instruments. Real estate is something different.

You should understand all assets including bonds as sources of potential return, cash flows, etc. with different tax treatments, risks, ranges of potential returns over different periods, different behaviors under varying economic and market conditions, and so on.

The reason to allocate into fixed income is to get what's frequently a better return than cash, without the kinds of volatility you see in stocks or let's say precious metals or some other assets. Furthermore, risks in fixed income, especially term risk, are not directionally tied to the same things that can drive losses in let's say stocks or real estate, so the excess return over cash does not just function as a watered-down version of other assets but something actually useful and diversifying. Actually, you can also think of cash as a special case of fixed income that has no term or credit risk (at least under the typical forms like bank accounts under FDIC insurance limits), if that helps.

With all assets consider overall potential return, risks, liquidity, and so on, and match those to what you need and what.

DrGoogle2017
Posts: 287
Joined: Mon Aug 14, 2017 12:31 pm

Re: Bond Fund Philosophy

Post by DrGoogle2017 » Wed Sep 06, 2017 5:57 pm

I treat my rental income as bond. I never had a payment skipped. Only when I want to kick out a tenant and fix the house up to get higher rent.

User avatar
Sandtrap
Posts: 1635
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳

Re: Bond Fund Philosophy

Post by Sandtrap » Wed Sep 06, 2017 9:56 pm

As a retired real estate investor I consider real estate income and investments to be outside of my investment portfolio, bond or otherwise. That compartmentalization works well as a conservative approach where none is dependent on the other, no commingling of funds/assets/etc. And, where each must prosper.
The former is a business where a percentage of that income grows the investment portfolio, or further increases R/E holdings.d
I hope this is helpful.
j
Not a financial expert - just a retired businessman hacking out of a sand trap -- again.

dwickenh
Posts: 715
Joined: Sun Jan 04, 2015 9:45 pm
Location: Illinois

Re: Bond Fund Philosophy

Post by dwickenh » Wed Sep 06, 2017 10:13 pm

Sandtrap wrote:
Wed Sep 06, 2017 9:56 pm
As a retired real estate investor I consider real estate income and investments to be outside of my investment portfolio, bond or otherwise. That compartmentalization works well as a conservative approach where none is dependent on the other, no commingling of funds/assets/etc. And, where each must prosper.
The former is a business where a percentage of that income grows the investment portfolio, or further increases R/E holdings.d
I hope this is helpful.
j
Glad to see a post Sandtrap, had not seen one in a while. Hope all is well with you and your family.

Best wishes,

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

User avatar
Taylor Larimore
Advisory Board
Posts: 25953
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: Bond Fund Philosophy

Post by Taylor Larimore » Wed Sep 06, 2017 10:43 pm

Bond Fund Philosophy
LittlePrince:

I am in retirement. My "Bond Fund Philosophy" is simple:

Money that I cannot afford to lose is in cash and bonds (Vanguard Total Bond Market Index Fund).

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

dbr
Posts: 23282
Joined: Sun Mar 04, 2007 9:50 am

Re: Bond Fund Philosophy

Post by dbr » Thu Sep 07, 2017 8:17 am

And, of course, fixed income is neither income nor fixed.

User avatar
Sandtrap
Posts: 1635
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳

Re: Bond Fund Philosophy

Post by Sandtrap » Thu Sep 07, 2017 2:35 pm

dwickenh wrote:
Wed Sep 06, 2017 10:13 pm
Sandtrap wrote:
Wed Sep 06, 2017 9:56 pm
As a retired real estate investor I consider real estate income and investments to be outside of my investment portfolio, bond or otherwise. That compartmentalization works well as a conservative approach where none is dependent on the other, no commingling of funds/assets/etc. And, where each must prosper.
The former is a business where a percentage of that income grows the investment portfolio, or further increases R/E holdings.d
I hope this is helpful.
j
Glad to see a post Sandtrap, had not seen one in a while. Hope all is well with you and your family.

Best wishes,

Dan
Thanks Dan.
Appreciate the thoughtfulness.
J
Not a financial expert - just a retired businessman hacking out of a sand trap -- again.

User avatar
Sandtrap
Posts: 1635
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳

Re: Bond Fund Philosophy

Post by Sandtrap » Thu Sep 07, 2017 2:37 pm

Taylor Larimore wrote:
Wed Sep 06, 2017 10:43 pm
Bond Fund Philosophy
LittlePrince:

I am in retirement. My "Bond Fund Philosophy" is simple:

Money that I cannot afford to lose is in cash and bonds (Vanguard Total Bond Market Index Fund).

Best wishes.
Taylor
Priceless advice taken to heart.
Have done the same.
Vanguard Total Bond Index Fund.
Thanks for the help.
j
Not a financial expert - just a retired businessman hacking out of a sand trap -- again.

User avatar
oldcomputerguy
Posts: 1786
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods

Re: Bond Fund Philosophy

Post by oldcomputerguy » Thu Sep 07, 2017 2:43 pm

I would not treat real estate holdings as "fixed income" for portfolio purposes, for one reason: you can't rebalance into or out of them. Treat them as an income stream, like your job or Social Security. You should have a portion of your investment portfolio in bonds or bond funds.
Anybody know why there's a 20-pound frozen turkey up in the light grid?

AlbertEinstein
Posts: 5
Joined: Mon Sep 11, 2017 7:55 am

Re: Bond Fund Philosophy

Post by AlbertEinstein » Mon Sep 11, 2017 9:36 am

Taylor Larimore wrote:
Wed Sep 06, 2017 10:43 pm
Bond Fund Philosophy
LittlePrince:

I am in retirement. My "Bond Fund Philosophy" is simple:

Money that I cannot afford to lose is in cash and bonds (Vanguard Total Bond Market Index Fund).

Best wishes.
Taylor
I'm just curious. You're about 93 years old (congrats on making it that far and doing so much with those 93 years). Let's assume you have $1M in your portfolio and your yearly expenses are $50K. Given your life expectancy versus that of a 65 year old retiree, you can afford to lose - as a percentage of your portfolio - much more than the hypothetical 65 year old. I'm assuming the 65 year old can't return to the workforce (I'm also making that assumption for you). The point is that formulas that calculate the percentage of bonds you hold in a portfolio as a function of age are flawed as is the blanket statement that one hold in bonds & cash what one cannot afford to lose. While nothing is certain, such advice should also reflect one's life expectancy - not only in terms of population statistics, but also in terms of one's personal health and family health history. So, to return to my curiosity - how much of your portfolio can you not afford to lose?

User avatar
Taylor Larimore
Advisory Board
Posts: 25953
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Answer to question

Post by Taylor Larimore » Mon Sep 11, 2017 10:06 am

How much of your portfolio can you not afford to lose?
AlbertEinstein:

I have income from a government pension, social security, two annuities and book royalties which is more than necessary to support my lifestyle. I could afford to lose my entire portfolio.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Kitty Telltales
Posts: 123
Joined: Thu Mar 17, 2016 8:36 am
Location: Europe sometimes Florida

Re: Answer to question

Post by Kitty Telltales » Tue Sep 12, 2017 6:49 am

Taylor Larimore wrote:
Mon Sep 11, 2017 10:06 am
How much of your portfolio can you not afford to lose?
AlbertEinstein:

I have income from a government pension, social security, two annuities and book royalties which is more than necessary to support my lifestyle. I could afford to lose my entire portfolio.

Best wishes.
Taylor
Just totally thrilled to see you write today Taylor, post Irma. Hopefully you, your family and dear friends are all safe, sound and haven't lost too much, materially. Events such as these really put into perspective what's actually important or necessary.

User avatar
Taylor Larimore
Advisory Board
Posts: 25953
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: Bond Fund Philosophy

Post by Taylor Larimore » Tue Sep 12, 2017 9:09 am

Kitty:

Prior to Irma's arrival, Taffy and I moved from our Miami water-front condo to a safe inland Comfort Suites motel where I am typing this. We are returning to our home in a few hours. I understand that we will have electricity but no Comcast cable. This means I'll not be able to read or post on this forum until the cable is reconnected. :(

You are right: "Events such as these really put into perspective what's actually important or necessary."

Thank you for your concern.

Best wishes.
Taylor
Last edited by Taylor Larimore on Tue Sep 12, 2017 9:10 am, edited 1 time in total.
"Simplicity is the master key to financial success." -- Jack Bogle

swimfin
Posts: 25
Joined: Sat Nov 12, 2016 2:14 pm

Re: Bond Fund Philosophy

Post by swimfin » Tue Sep 12, 2017 9:10 am

Consider your real estate as a separate allocation from your stocks and bonds.

A stock/bond allocation is two numbers, like 60/40 or 80/20.

A real estate/stock/bond allocation is three numbers, like 20/50/30 where the "20" is real estate. You determine your own comfort level.

User avatar
EyeYield
Posts: 548
Joined: Tue Sep 18, 2012 6:43 pm
Location: Extremistan

Re: Bond Fund Philosophy

Post by EyeYield » Tue Sep 19, 2017 9:05 am

Taylor Larimore wrote:
Tue Sep 12, 2017 9:09 am
Kitty:

Prior to Irma's arrival, Taffy and I moved from our Miami water-front condo to a safe inland Comfort Suites motel where I am typing this. We are returning to our home in a few hours. I understand that we will have electricity but no Comcast cable. This means I'll not be able to read or post on this forum until the cable is reconnected. :(

You are right: "Events such as these really put into perspective what's actually important or necessary."

Thank you for your concern.

Best wishes.
Taylor
I just realized that there's been something missing from the forum lately (the voice of reason) and searched for your last post.
Hope all is getting back to normal for you and that you'll be posting again soon.
Best,
"The stock market is a giant distraction from the business of investing." - Jack Bogle

Post Reply