Why do I need bonds? (I'm 30)

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TheHouse7
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Why do I need bonds? (I'm 30)

Post by TheHouse7 » Fri Oct 20, 2017 10:05 pm

I found this awesome comment:

Re: Dave Ramsey on Bonds
Quote
Post by CyberBob » Sat Mar 29, 2014 10:08 am

I think Dave's reasoning on limiting bonds in your portfolio is quite suspect. However, in a roundabout way, he essentially arrives at a similar conclusion as Warren Buffett. That is, that volatility isn't the best measure of risk. Inflation loss is a greater risk.

Warren Buffett states it more eloquently:

Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power – after taxes have been paid on nominal gains – in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.

From our definition there flows an important corollary: The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability – the reasoned probability – of that investment causing its owner a loss of purchasing-power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period. And as we will see, a non-fluctuating asset can be laden with risk.

Investments that are denominated in a given currency include money-market funds, bonds, mortgages, bank deposits, and other instruments. Most of these currency-based investments are thought of as “safe.” In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge.

Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as the holders continued to receive timely payments of interest and principal. This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation. From time to time such policies spin out of control.
Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 today to buy what $1 did at that time. Consequently, a tax-free institution would have needed 4.3% interest annually from bond investments over that period to simply maintain its purchasing power. Its managers would have been kidding themselves if they thought of any portion of that interest as “income.”

For tax-paying investors like you and me, the picture has been far worse. During the same 47-year period, continuous rolling of U.S. Treasury bills produced 5.7% annually. That sounds satisfactory. But if an individual investor paid personal income taxes at a rate averaging 25%, this 5.7% return would have yielded nothing in the way of real income. This investor’s visible income tax would have stripped him of 1.4 points of the stated yield, and the invisible inflation tax would have devoured the remaining 4.3 points. It’s noteworthy that the implicit inflation “tax” was more than triple the explicit income tax that our investor probably thought of as his main burden. “In God We Trust” may be imprinted on our currency, but the hand that activates our government’s printing press has been all too human.

High interest rates, of course, can compensate purchasers for the inflation risk they face with currency-based investments – and indeed, rates in the early 1980s did that job nicely. Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label.
Bob

I have not Invested through a bear market, right now I am 80/20 AA from recommendations from this site. Looking for more wisdom as to why I need bonds with 20+years to invest. :beer
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

kosomoto
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Re: Why do I need bonds? (I'm 30)

Post by kosomoto » Fri Oct 20, 2017 10:10 pm

I don't think bonds should ever be used if you know you can psychologically handle a downturn.

But that's not a common opinion.

I plan on having one to two years worth of expenses in CDs during retirement, the rest all equity. That's the closest I will get to bonds.

KlangFool
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Re: Why do I need bonds? (I'm 30)

Post by KlangFool » Fri Oct 20, 2017 10:21 pm

TheHouse7 wrote:
Fri Oct 20, 2017 10:05 pm

I have not Invested through a bear market, right now I am 80/20 AA from recommendations from this site. Looking for more wisdom as to why I need bonds with 20+years to invest. :beer
TheHouse7,

How do you know that you have 20+ years to invest? Who guaranteed that for you?

It could be 5, 10, 15, 20, 25, 30 and so on.

Given that you do not know you have 20+ years to invest, how could you base your AA with that assumption?

We need to know what is unknowable for us. And, do not base our planning on that.

KlangFool

Nate79
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Re: Why do I need bonds? (I'm 30)

Post by Nate79 » Fri Oct 20, 2017 10:25 pm

There are many threads on asset allocation and being 100% stock. Yes, some recommend it and some don't.

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jhfenton
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Re: Why do I need bonds? (I'm 30)

Post by jhfenton » Fri Oct 20, 2017 10:27 pm

I don't think you do if you can handle market crashes, if you understand that the absolute best thing for a young, aggressive saver is for the market to drop so you can invest more at lower prices.

We didn't own any bonds until we reached 45, two years ago. At that point, I decided we were close enough to retirement to start dialing it back.

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stemikger
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Re: Why do I need bonds? (I'm 30)

Post by stemikger » Fri Oct 20, 2017 10:36 pm

At your age, you really don't need bonds. However, as you get older, you need some sort of fixed income when that correction/crash does happen. Think about holding a million dollar portfolio and seeing that go down to $500K a year before retirement. The stock market always comes back, but how many years that will take and when everyone is saying this time it's different will you be able to hold on.

In our history the brave souls who held on were rewarded nicely, but I rather hold a balanced portfolio and sleep at night. I'm not Warren Buffet's wife who more than likely has many millions that will be transferred into the S&P. Let's say he only leaves her $5 million and the market drops in half, at her age, she will still have no worries with 10% in treasuries. Having said that, I'm sure it's much more.

I'll stick with a balanced portfolio because that's what is ingrained in me and at 53, I don't think it is wise to go 90/10 stocks bonds because my risk tolerance is not that high.

Good Luck, you are asking all the right questions.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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spdoublebass
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Re: Why do I need bonds? (I'm 30)

Post by spdoublebass » Sat Oct 21, 2017 12:33 am

I’ll let other people answer your question who are far more qualified to do so.

I wanted to say for me, age 34, I decided on a 90/10 AA. I thought of going 100% stock but decided not to for two reasons:

1. I’m new to this and I wanted to get a feel for how Bonds funds function and react. I can do this much better by owning them.

2. I’m saving as much as I can, if the market were to crash, I would want to buy as much as possible. Having some bonds to rebalance into stocks might help me out.
Resist much, obey little.

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Re: Why do I need bonds? (I'm 30)

Post by Johm221122 » Sat Oct 21, 2017 4:18 am

kosomoto wrote:
Fri Oct 20, 2017 10:10 pm
I don't think bonds should ever be used if you know you can psychologically handle a downturn.

But that's not a common opinion.

I plan on having one to two years worth of expenses in CDs during retirement, the rest all equity. That's the closest I will get to bonds.
Will you be using a 4% withdraw rate?If you are doesn't a long bear market possibly make your plan risky,especially if you live long?
If your using 3% it looks like you have 100% chance of success,but to much risk for me

TheHouse7
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Re: Why do I need bonds? (I'm 30)

Post by TheHouse7 » Sat Oct 21, 2017 5:22 am

KlangFool wrote:
Fri Oct 20, 2017 10:21 pm
TheHouse7 wrote:
Fri Oct 20, 2017 10:05 pm

I have not Invested through a bear market, right now I am 80/20 AA from recommendations from this site. Looking for more wisdom as to why I need bonds with 20+years to invest. :beer
TheHouse7,

How do you know that you have 20+ years to invest? Who guaranteed that for you?

It could be 5, 10, 15, 20, 25, 30 and so on.

Given that you do not know you have 20+ years to invest, how could you base your AA with that assumption?

We need to know what is unknowable for us. And, do not base our planning on that.

KlangFool
I'm going to guess that your the most valuable contrarian on the site (please take this as a complement).

I don't know how long I have to invest. I will hold my 20 year term life, disability, health, house, car, and umbrella insurance to make sure that I can provide for my family over the next 20 years. We have a paid off house if you want to see that as a type of bond. Our house is 75% of our net worth.
Last edited by TheHouse7 on Sat Oct 21, 2017 5:31 am, edited 1 time in total.
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

TheHouse7
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Re: Why do I need bonds? (I'm 30)

Post by TheHouse7 » Sat Oct 21, 2017 5:28 am

stemikger wrote:
Fri Oct 20, 2017 10:36 pm
At your age, you really don't need bonds. However, as you get older, you need some sort of fixed income when that correction/crash does happen. Think about holding a million dollar portfolio and seeing that go down to $500K a year before retirement. The stock market always comes back, but how many years that will take and when everyone is saying this time it's different will you be able to hold on.

In our history the brave souls who held on were rewarded nicely, but I rather hold a balanced portfolio and sleep at night. I'm not Warren Buffet's wife who more than likely has many millions that will be transferred into the S&P. Let's say he only leaves her $5 million and the market drops in half, at her age, she will still have no worries with 10% in treasuries. Having said that, I'm sure it's much more.

I'll stick with a balanced portfolio because that's what is ingrained in me and at 53, I don't think it is wise to go 90/10 stocks bonds because my risk tolerance is not that high.

Good Luck, you are asking all the right questions.
I usually forget the perspectives of market analysis and really big investors having a different experience than the little guy. Thank you for your input.

I think the best argument for having bonds is the sleep factor. I can't sleep even when I have a big job opportunity this morning at 9:00a.m. (it is 3AM).
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

tigermilk
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Re: Why do I need bonds? (I'm 30)

Post by tigermilk » Sat Oct 21, 2017 5:37 am

You don't.

I assume you are investing in your retirement each paycheck. The buying power of your future income is greater than bonds.

TheHouse7
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Re: Why do I need bonds? (I'm 30)

Post by TheHouse7 » Sat Oct 21, 2017 5:37 am

jhfenton wrote:
Fri Oct 20, 2017 10:27 pm
I don't think you do if you can handle market crashes, if you understand that the absolute best thing for a young, aggressive saver is for the market to drop so you can invest more at lower prices.

We didn't own any bonds until we reached 45, two years ago. At that point, I decided we were close enough to retirement to start dialing it back.
I'm also having thoughts of adding this type of stipulation to my ISP once I reach my retirement goals. Does the plan change if bonds are at an all time high with interest rates dieing to rise during retirement?
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

TheHouse7
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Re: Why do I need bonds? (I'm 30)

Post by TheHouse7 » Sat Oct 21, 2017 5:44 am

tigermilk wrote:
Sat Oct 21, 2017 5:37 am
You don't.

I assume you are investing in your retirement each paycheck. The buying power of your future income is greater than bonds.
I am investing in my retirement through 401k every pay check. Thank you for mentioning potential earnings as a reason to not need bonds. I use the same reasoning to explain why I should never need bonds if I will only pass my investments on to future generations.
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

rkhusky
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Re: Why do I need bonds? (I'm 30)

Post by rkhusky » Sat Oct 21, 2017 6:28 am

If you are 100% stocks, what is your strategy for adding bonds? Do you start adding when you reach a certain age? Or when your portfolio reaches a certain size? Do you add gradually or make large changes at specific dates or portfolio sizes? Having decided on a strategy, you should write it down to keep yourself honest.

I have found that I have a hard time following a strategy that requires make large abrupt changes, so I am gradually adding bonds over time. I have no problem selling stocks and buying bonds as the market goes up or selling bonds and buying stocks after a market decline. If my strategy called for making a large change at a specific time, I would have trouble following the strategy if the market had had a significant decline and I either had to sell further to achieve my asset allocation or watch the market perform my asset allocation adjustment for me.

tigermilk
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Re: Why do I need bonds? (I'm 30)

Post by tigermilk » Sat Oct 21, 2017 6:58 am

TheHouse7 wrote:
Sat Oct 21, 2017 5:44 am
tigermilk wrote:
Sat Oct 21, 2017 5:37 am
You don't.

I assume you are investing in your retirement each paycheck. The buying power of your future income is greater than bonds.
I am investing in my retirement through 401k every pay check. Thank you for mentioning potential earnings as a reason to not need bonds. I use the same reasoning to explain why I should never need bonds if I will only pass my investments on to future generations.
I didn't own a single bond (well, aside from a paid off house) until last year. I'm 48 now and am about 6% bonds. I'm on a slow roll to more with a target retirement somewhere between 55-57. I've been thinking of moving more equities to bonds merely to protect the big gains of the past year, but even that is a hard sell based on time to retirement, spending habits, opportunity cost of not being in the market, and future pension. My buying power at my current low 2 comma portfolio (house not included) is around 6% (I.e., can throw about $60k cash annually into my funds). For you, I would expect your buying power is in the high double digits making an equity-heavy position even more palatable. I've back tested my portfolio using various equity/bond ratios with rebalancing and my 100/0 until I was 47 was the winner. Of course, history is no indicator of the future.

SCSurf
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Re: Why do I need bonds? (I'm 30)

Post by SCSurf » Sat Oct 21, 2017 7:21 am

I think the main reason to include bonds is because you do not know the future and it diversifies you against unforeseen events. The Japanese stock market has just now regained 50% of its 1989 high so you have no idea what the future will bring.

Now judging by your post it seems that you are young, like risk, and may have a interest in the investing. So here is the technical side of it. You can take on the risk of significant value tilting in your portfolio using bonds. If you are in it for the long hall and want to try for some of the historical higher returns of small, value and even deep value tilts you can offset your risk with high quality bonds. Thus in theory, a 60/40 or 70/30 AA with a heavily tilted stock portfolio combined with high quality bonds should provide a return equivalent of a 100/0 or 80/20 AA while at the same time increasing your Sharpe ratio and decreasing your risk.

Stormbringer
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Re: Why do I need bonds? (I'm 30)

Post by Stormbringer » Sat Oct 21, 2017 7:33 am

TheHouse7 wrote:
Fri Oct 20, 2017 10:05 pm
Why do I need bonds? (I'm 30)
You don't. Buffett is of course, correct.

However...there are important differences between most investors and Warren Buffett:
  • Unlike Buffett, most retirees have to sell off their assets over time in retirement, exposing them to a sequence of returns risk. They may need to sell stocks when the market is down. Buffett can ride it out, although even he recommends 10% in short-term bonds to mitigate this risk.
  • Unlike Buffett, many people don't have the mental fortitude to endure a 50% drop in the stock market, particularly when they are close to retirement. They freak out and sell at the bottom.
Bonds act like ballast in your portfolio -- it won't go down as much, but it also won't go up as much. It is all about reducing uncertainty.
"Compound interest is the most powerful force in the universe." - Albert Einstein

Dottie57
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Re: Why do I need bonds? (I'm 30)

Post by Dottie57 » Sat Oct 21, 2017 7:40 am

Mostly agree with poster above me.

Two points.

1. Make sure you have money available for bad tomes. You are not immune. Think of bonds as a 2nd tier emergency fund.
2. Re-balancing to AA during bad stock crash. Buy those cheap stocks .

Edit: pay attention to post below!
Last edited by Dottie57 on Sat Oct 21, 2017 7:46 am, edited 2 times in total.

jmetsrule
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Re: Why do I need bonds? (I'm 30)

Post by jmetsrule » Sat Oct 21, 2017 7:40 am

The answer to these questions, for me, is pretty much always the same: you need to learn how to truly assess risk. To whom or what are you responsible?

Not all jobs are equally safe in downturns--or even in general.
Not all people have 100% health
Not all people have relatives and loved ones who are 100% healthy
Not all people have parents/relatives who can help float them through unemployment
Not all people are able to max out retirement accounts
etc.,etc.,etc.,

Where do you fit? Learn HOW to truly assess your risk situation and then adjust accordingly. Some people simply cannot/refuse to see the risk waiting on the other side of the extra percentage point in equities. They get caught up in the math: "If I go 100% stocks, I can earn approximately X amount more by retirement." That sounds great. But, you could also lose X amount more in a time when you might need that money for real life.

Am I going to be one of the lucky ones who go through life without a catastrophic event? I can't tell you that any more than I can tell you that the market will crash on Monday. But, I need to be as prepared for that as I can be. And that means I am willing to lose out on potentially thousands in growth over the next 25-35 years to be ready for an event that, by the way, I hope to God never actually happens.

We can't tell you to own bonds. You need to tell us if you should own bonds.

Come back to this thread and tell us your answer.

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Re: Why do I need bonds? (I'm 30)

Post by z3r0c00l » Sat Oct 21, 2017 8:17 am

Stock markets have gone to zero and others have peaked and then never regained that high mark. They don't always go up and don't always recover. Now in the first example, going to zero, I doubt bonds would have done much good. But the more moderate examples, such as Japan, show the benefit of international diversification in stocks and holding bonds too. You may be willing to bet your future entirely on one kind of security but many of us are not. Don't assume anything about your future earning power or how invaluable your industry is, that is the kind of pride that comes before the recession layoffs.

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jhfenton
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Re: Why do I need bonds? (I'm 30)

Post by jhfenton » Sat Oct 21, 2017 8:24 am

TheHouse7 wrote:
Sat Oct 21, 2017 5:37 am
jhfenton wrote:
Fri Oct 20, 2017 10:27 pm
I don't think you do if you can handle market crashes, if you understand that the absolute best thing for a young, aggressive saver is for the market to drop so you can invest more at lower prices.

We didn't own any bonds until we reached 45, two years ago. At that point, I decided we were close enough to retirement to start dialing it back.
I'm also having thoughts of adding this type of stipulation to my ISP once I reach my retirement goals. Does the plan change if bonds are at an all time high with interest rates dieing to rise during retirement?
The interest rate risk for bonds, even at current low rates is greatly exaggerated in the minds of many folks. Unless you're holding ultra long-term bonds (e.g., thirty-year zeros), your realistic downside in high-quality bonds is quite limited (single digit percentages) and would be made up by higher yields within a few years.

The short-term volatility risk is much higher for equities. So I think it makes sense, when you realize that you're much closer to retirement than to the start of your career, to start dampening volatility (especially when the valuations in the market are on the high side).

At 30, with a significant income in relation to the size of your portfolio and with a strong stomach (or as in my case, emotional reactions that are the complete opposite of what appear to be the norm), one should be fine with 100% equities.

I would, however, suggest that one not be 100% U.S. equities. In the current environment we're 50/50 with strong tilts to small and emerging markets. And we tilt heavily to small and value in the U.S. (So our 80/20 portfolio is more aggressive than the top-line percentage might imply.)

Soon2BXProgrammer
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Re: Why do I need bonds? (I'm 30)

Post by Soon2BXProgrammer » Sat Oct 21, 2017 8:32 am

I only have 15% in bonds.. I am 33... However my bond portion at 15% represents over a years salary/multiple years worth of contributions.

It is actually a significant amount of "rebalancing power" if the stock market took a serious dump.

Also, it allows me to "take my gains" over the last year or two as both the domestic and international markets have really been hot... and our domestic rally is long in the tooth...

Every month i make sure i have 15% bonds, which normally means i need to sell whichever equities are overweight, and take that gain off of the table...

even if most months i'm taking $1000 dollars off of the table.. that is still real money, that can be used when equities take a real dive...

i am not timing the market, i might be more aggressive in taking money off of the table though then the other way, but in 2008... after everything took a dump the last time... i definitely did rebalance into the nightmare when everyone bailed.

-----------
when my portfolio size was insignificant (in the big picture), it didnt' really matter what i did, it more mattered how much i contributed.

i'd suggest you think about where are you on your journey... are stock market returns (positive or negative) a bigger contributor to your change of balance..

if you think about it from a size of portfolio vs size on contribution vs size of bonds and how much buying power that represents in a bear market....

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zaboomafoozarg
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Re: Why do I need bonds? (I'm 30)

Post by zaboomafoozarg » Sat Oct 21, 2017 8:52 am

As long as you won't sell and will keep buying if your portfolio value drops by 55% (like in 2008-2009) or 80% (like in 1929-1932), then 100% stocks is almost certainly the best return long term strategy during the early- to mid-accumulation phase.

However, if you've never seen any Bogleheads threads from the bottom of the Great Recession, you might want to take a glimpse at what people were posting about then. One particular thread of note might be "How's that 100% equity allocation working out for ya?".

At the bottom, many people who never thought they'd capitulate were doing it or seriously considering it. Or they had started putting new contributions in bonds at the bottom because they realized at that point that they needed some.

So, just something to consider. FWIW, I'm also 80/20 because it gives me a enough money to cover a couple years of living expenses in case things ever get bad (either with the economy or with my health) and I can't find work.

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Re: Why do I need bonds? (I'm 30)

Post by carofe » Sat Oct 21, 2017 9:02 am

Liquidity in the bad times. Having Cash in the bad times has two benefits: it keeps your food on the table, and it gives you the opportunity of your lifetime to buy assets (stock, real estate) at a extremely low price.
US Total Stock Market + Intermediate Term Bond. That's it.

venkman
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Re: Why do I need bonds? (I'm 30)

Post by venkman » Sat Oct 21, 2017 9:42 am

I just want to point out that Berkshire is sitting on $100 billion in cash right now, out of a total market cap of about $465 billion. Presumably because they can't find any attractively-priced companies to acquire.

Apparently, cash can sometimes be the worst thing to invest in, except for everything else. :happy

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Re: Why do I need bonds? (I'm 30)

Post by KlangFool » Sat Oct 21, 2017 10:00 am

TheHouse7 wrote:
Sat Oct 21, 2017 5:22 am
KlangFool wrote:
Fri Oct 20, 2017 10:21 pm
TheHouse7 wrote:
Fri Oct 20, 2017 10:05 pm

I have not Invested through a bear market, right now I am 80/20 AA from recommendations from this site. Looking for more wisdom as to why I need bonds with 20+years to invest. :beer
TheHouse7,

How do you know that you have 20+ years to invest? Who guaranteed that for you?

It could be 5, 10, 15, 20, 25, 30 and so on.

Given that you do not know you have 20+ years to invest, how could you base your AA with that assumption?

We need to know what is unknowable for us. And, do not base our planning on that.

KlangFool
I'm going to guess that your the most valuable contrarian on the site (please take this as a complement).

I don't know how long I have to invest. I will hold my 20 year term life, disability, health, house, car, and umbrella insurance to make sure that I can provide for my family over the next 20 years. We have a paid off house if you want to see that as a type of bond. Our house is 75% of our net worth.
TheHouse7,

If we hit a recession, stock market and housing market drop by 50% and you are unemployed, how long can your family survive?

<<I will hold my 20 year term life, disability, health, house, car, and umbrella insurance to make sure that I can provide for my family over the next 20 years. >>

Which does not protect you from short-term unemployment. In fact, you need money to pay for the insurance or you will lose coverage.

<< We have a paid off house if you want to see that as a type of bond. Our house is 75% of our net worth.>>

It means that you are "House Poor". House is illiquid. You may not be able to sell the house when you need to.

So, your net worth is 75% house that you cannot sell easily. The remaining 25% is 80/20 which can drop 40% in a serious recession. How long can you survive on 25% X 60% = 15% of your net worth plus emergency fund? Is it at least 1 year? 2 years? You may be forced to liquidate everything just to feed your family. The economy may recover after that. But, you will lose everything that you had up that time.

The problem of being in the 30 is that your portfolio is so small as compared to your annual expense. 80/20 versus 60/40 may give you one more month of survival which you may need in the crunch time.

After 30+, over that last 10+ years, I been through many rounds of quarterly and annual laid off. And, I was unemployed for more than 1 year a few times. But, I could "Sleep Well At Night" (SWAN) because I know I could be unemployed for 2 to 5 years and my family would be fed.

Historically, there is at least one US recession every 10 years since 1836. The last recession was 2007/2009. It is almost time for another US recession.

https://en.wikipedia.org/wiki/List_of_r ... ted_States

KlangFool

flyingaway
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Re: Why do I need bonds? (I'm 30)

Post by flyingaway » Sat Oct 21, 2017 10:04 am

If you have a stable job and can tolerate market ups and downs, you don't need bonds at 30.

KlangFool
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Re: Why do I need bonds? (I'm 30)

Post by KlangFool » Sat Oct 21, 2017 10:11 am

flyingaway wrote:
Sat Oct 21, 2017 10:04 am
If you have a stable job and can tolerate market ups and downs, you don't need bonds at 30.
flyingaway,

1) Everybody believes that they have a stable job until they face their first laid off.

2) What job is stable in the face of a serious recession? Even some government could go bankrupt. Even if the job survives the previous recession, it may not survive the next recession.

KlangFool

flyingaway
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Re: Why do I need bonds? (I'm 30)

Post by flyingaway » Sat Oct 21, 2017 10:27 am

:confused
KlangFool wrote:
Sat Oct 21, 2017 10:11 am
flyingaway wrote:
Sat Oct 21, 2017 10:04 am
If you have a stable job and can tolerate market ups and downs, you don't need bonds at 30.
flyingaway,

1) Everybody believes that they have a stable job until they face their first laid off.

2) What job is stable in the face of a serious recession? Even some government could go bankrupt. Even if the job survives the previous recession, it may not survive the next recession.

KlangFool
There must be two bad things to happen for this situation to become unmanageable. A stable job is lost and a deep market crash lasts a few years long. Although such things do happen, I would feel worse to see the market go up and I am in declining bonds in my 30s.

dbr
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Re: Why do I need bonds? (I'm 30)

Post by dbr » Sat Oct 21, 2017 10:40 am

The answer to these bond questions is that no one needs bonds. Also no one needs stocks either, or even to invest at all. What everyone should do is understand as best they can the consequences for them of whether to invest and if so, how.

I guess if a person has to ask about things like this then the answer is to start learning about investments up to the point they can make sense of what they should do.

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Re: Why do I need bonds? (I'm 30)

Post by pkcrafter » Sat Oct 21, 2017 10:51 am

TheHouse:
I have not Invested through a bear market, right now I am 80/20 AA from recommendations from this site. Looking for more wisdom as to why I need bonds with 20+years to invest.
Ask again after you experience a panic crash of 30-50%.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: Why do I need bonds? (I'm 30)

Post by tibbitts » Sat Oct 21, 2017 11:12 am

As I've said before it comes down to whether you believe equities could easily underperform debt for 30, 40, or 50 years. Most people will say that because we have this tiny bit of history in which that hasn't happened, it won't. And most people plan for that much time, even though in reality they might need to spend every dollar of their investments next month or next year, when those equities might be worth half or less of what they are now.

KlangFool
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Re: Why do I need bonds? (I'm 30)

Post by KlangFool » Sat Oct 21, 2017 11:18 am

flyingaway wrote:
Sat Oct 21, 2017 10:27 am
:confused
KlangFool wrote:
Sat Oct 21, 2017 10:11 am
flyingaway wrote:
Sat Oct 21, 2017 10:04 am
If you have a stable job and can tolerate market ups and downs, you don't need bonds at 30.
flyingaway,

1) Everybody believes that they have a stable job until they face their first laid off.

2) What job is stable in the face of a serious recession? Even some government could go bankrupt. Even if the job survives the previous recession, it may not survive the next recession.

KlangFool
There must be two bad things to happen for this situation to become unmanageable. A stable job is lost and a deep market crash lasts a few years long. Although such things do happen, I would feel worse to see the market go up and I am in declining bonds in my 30s.
flyingaway,

<<There must be two bad things to happen for this situation to become unmanageable. A stable job is lost and a deep market crash lasts a few years long.>>

This is called a recession. It happened regularly.

<<Although such things do happen, I would feel worse to see the market go up and I am in declining bonds in my 30s.>

Feeling worse is not as bad as letting your family starve and live on the street. Have you ever talk to some of the homeless people on the street? Many of them used to have a stable job.

KlangFool

TheHouse7
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Re: Why do I need bonds? (I'm 30)

Post by TheHouse7 » Sat Oct 21, 2017 3:24 pm

jmetsrule wrote:
Sat Oct 21, 2017 7:40 am
The answer to these questions, for me, is pretty much always the same: you need to learn how to truly assess risk. To whom or what are you responsible?

Not all jobs are equally safe in downturns--or even in general.
Not all people have 100% health
Not all people have relatives and loved ones who are 100% healthy
Not all people have parents/relatives who can help float them through unemployment
Not all people are able to max out retirement accounts
etc.,etc.,etc.,

Where do you fit? Learn HOW to truly assess your risk situation and then adjust accordingly. Some people simply cannot/refuse to see the risk waiting on the other side of the extra percentage point in equities. They get caught up in the math: "If I go 100% stocks, I can earn approximately X amount more by retirement." That sounds great. But, you could also lose X amount more in a time when you might need that money for real life.

Am I going to be one of the lucky ones who go through life without a catastrophic event? I can't tell you that any more than I can tell you that the market will crash on Monday. But, I need to be as prepared for that as I can be. And that means I am willing to lose out on potentially thousands in growth over the next 25-35 years to be ready for an event that, by the way, I hope to God never actually happens.

We can't tell you to own bonds. You need to tell us if you should own bonds.

Come back to this thread and tell us your answer.
Thanks for a great synopsis! I own bonds for:

Re-balancing in a significant downturn
I do not have a safe job, or a stable job, or a job in a downturn(maybe).
I do not have relatives and loved ones that are 100% healthy.
I do not have parents/relatives to help float me through unemployment. (bonds are secondary to cash/emergency fund)
I am not able to max retirement accounts.
I have been through catastrophic events through my 20's which make me more cautious. :beer
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

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Re: Why do I need bonds? (I'm 30)

Post by Mr.BB » Sat Oct 21, 2017 3:59 pm

I don't see why anyone in their 20's through their mid 30's need bonds; especially if they are looking at another 30 years of working. We are at 70/30. But the if the market takes a 30-40% dive sometime in the next 3-4 years I have no problem using some of those bond holding funds and exchange them into a stock fund.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

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zonto
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Re: Why do I need bonds? (I'm 30)

Post by zonto » Sat Oct 21, 2017 5:29 pm

You may not need bonds, but wouldn't you want them after reviewing ##3 and 5 here: http://www.schwab.com/public/schwab/inv ... principles ?

carofe
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Re: Why do I need bonds? (I'm 30)

Post by carofe » Sat Oct 21, 2017 5:36 pm

zonto wrote:
Sat Oct 21, 2017 5:29 pm
You may not need bonds, but wouldn't you want them after reviewing ##3 and 5 here: http://www.schwab.com/public/schwab/inv ... principles ?


That’s another excellent point. A balanced portfolio can perform better overall than all stock portfolio in a given period that well can be your investment period.
US Total Stock Market + Intermediate Term Bond. That's it.

TheHouse7
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Re: Why do I need bonds? (I'm 30)

Post by TheHouse7 » Sat Oct 21, 2017 5:47 pm

KlangFool wrote:
Sat Oct 21, 2017 10:00 am
TheHouse7 wrote:
Sat Oct 21, 2017 5:22 am
KlangFool wrote:
Fri Oct 20, 2017 10:21 pm
TheHouse7 wrote:
Fri Oct 20, 2017 10:05 pm

I have not Invested through a bear market, right now I am 80/20 AA from recommendations from this site. Looking for more wisdom as to why I need bonds with 20+years to invest. :beer
TheHouse7,

How do you know that you have 20+ years to invest? Who guaranteed that for you?

It could be 5, 10, 15, 20, 25, 30 and so on.

Given that you do not know you have 20+ years to invest, how could you base your AA with that assumption?

We need to know what is unknowable for us. And, do not base our planning on that.

KlangFool
I'm going to guess that your the most valuable contrarian on the site (please take this as a complement).

I don't know how long I have to invest. I will hold my 20 year term life, disability, health, house, car, and umbrella insurance to make sure that I can provide for my family over the next 20 years. We have a paid off house if you want to see that as a type of bond. Our house is 75% of our net worth.
TheHouse7,

If we hit a recession, stock market and housing market drop by 50% and you are unemployed, how long can your family survive?

<<I will hold my 20 year term life, disability, health, house, car, and umbrella insurance to make sure that I can provide for my family over the next 20 years. >>

Which does not protect you from short-term unemployment. In fact, you need money to pay for the insurance or you will lose coverage.

<< We have a paid off house if you want to see that as a type of bond. Our house is 75% of our net worth.>>

It means that you are "House Poor". House is illiquid. You may not be able to sell the house when you need to.

So, your net worth is 75% house that you cannot sell easily. The remaining 25% is 80/20 which can drop 40% in a serious recession. How long can you survive on 25% X 60% = 15% of your net worth plus emergency fund? Is it at least 1 year? 2 years? You may be forced to liquidate everything just to feed your family. The economy may recover after that. But, you will lose everything that you had up that time.

The problem of being in the 30 is that your portfolio is so small as compared to your annual expense. 80/20 versus 60/40 may give you one more month of survival which you may need in the crunch time.

After 30+, over that last 10+ years, I been through many rounds of quarterly and annual laid off. And, I was unemployed for more than 1 year a few times. But, I could "Sleep Well At Night" (SWAN) because I know I could be unemployed for 2 to 5 years and my family would be fed.

Historically, there is at least one US recession every 10 years since 1836. The last recession was 2007/2009. It is almost time for another US recession.

https://en.wikipedia.org/wiki/List_of_r ... ted_States

KlangFool
I figured out the answers! Talk about some tough advise. I thought "house poor" meant you can't afford your monthly expenses with your mortgage payment.

We will last approximately 40 months on 15% of our networth(counting on the 6 month emergency fund).
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

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Lancelot
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Re: Why do I need bonds? (I'm 30)

Post by Lancelot » Sat Oct 21, 2017 6:00 pm

At age 30, the OP probably doesn't need bonds, time is on his side. Just stay the course through the market crashes and he will do well.

But when the OP approaches retirement he may want some bonds or cash. A lot depends on his risk tolerance; how would he feel about being 100% in a Total Market Index fund that has decreased 50% in value? The DOW didn't fully recover from the 1929 crash until 1954.

However, I agree with the OP that inflation is a significant risk and a good argument against bonds :sharebeer

PS- Great Buffett quote, thanks for sharing.
No Where for Very Long...

dbr
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Re: Why do I need bonds? (I'm 30)

Post by dbr » Sat Oct 21, 2017 6:13 pm

Lancelot wrote:
Sat Oct 21, 2017 6:00 pm

However, I agree with the OP that inflation is a significant risk and a good argument against bonds :sharebeer
Strangely enough the only assets available that are explicitly offset for inflation are bonds. There are inflation indexed income streams.

Boglegrappler
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Re: Why do I need bonds? (I'm 30)

Post by Boglegrappler » Sat Oct 21, 2017 6:20 pm

I think most of the advice is pretty good. The real issue, to me, is whether you can stay the course when faced with a sharp downturn. The past years since early 2009 truly do not give you the correct feel for the reality of a crash and crisis. Plus, not every recession has a crash that bounces within two years. From about '68 to summer of '82 the market never got back to its highs of the late 60s early 70s, and then had its crash-recovery in 74-76, but not much momentum from it.

If you are 100% equities, and you are not of truly exceptional constitution, I think you are likely to throw in the towel at some low point, with a very high cost to your long term results. Having some of you assets invested in bonds will lower your chances of reaching that point.

KlangFool
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Re: Why do I need bonds? (I'm 30)

Post by KlangFool » Sat Oct 21, 2017 6:22 pm

TheHouse7 wrote:
Sat Oct 21, 2017 5:47 pm
KlangFool wrote:
Sat Oct 21, 2017 10:00 am
TheHouse7 wrote:
Sat Oct 21, 2017 5:22 am
KlangFool wrote:
Fri Oct 20, 2017 10:21 pm
TheHouse7 wrote:
Fri Oct 20, 2017 10:05 pm

I have not Invested through a bear market, right now I am 80/20 AA from recommendations from this site. Looking for more wisdom as to why I need bonds with 20+years to invest. :beer
TheHouse7,

How do you know that you have 20+ years to invest? Who guaranteed that for you?

It could be 5, 10, 15, 20, 25, 30 and so on.

Given that you do not know you have 20+ years to invest, how could you base your AA with that assumption?

We need to know what is unknowable for us. And, do not base our planning on that.

KlangFool
I'm going to guess that your the most valuable contrarian on the site (please take this as a complement).

I don't know how long I have to invest. I will hold my 20 year term life, disability, health, house, car, and umbrella insurance to make sure that I can provide for my family over the next 20 years. We have a paid off house if you want to see that as a type of bond. Our house is 75% of our net worth.
TheHouse7,

If we hit a recession, stock market and housing market drop by 50% and you are unemployed, how long can your family survive?

<<I will hold my 20 year term life, disability, health, house, car, and umbrella insurance to make sure that I can provide for my family over the next 20 years. >>

Which does not protect you from short-term unemployment. In fact, you need money to pay for the insurance or you will lose coverage.

<< We have a paid off house if you want to see that as a type of bond. Our house is 75% of our net worth.>>

It means that you are "House Poor". House is illiquid. You may not be able to sell the house when you need to.

So, your net worth is 75% house that you cannot sell easily. The remaining 25% is 80/20 which can drop 40% in a serious recession. How long can you survive on 25% X 60% = 15% of your net worth plus emergency fund? Is it at least 1 year? 2 years? You may be forced to liquidate everything just to feed your family. The economy may recover after that. But, you will lose everything that you had up that time.

The problem of being in the 30 is that your portfolio is so small as compared to your annual expense. 80/20 versus 60/40 may give you one more month of survival which you may need in the crunch time.

After 30+, over that last 10+ years, I been through many rounds of quarterly and annual laid off. And, I was unemployed for more than 1 year a few times. But, I could "Sleep Well At Night" (SWAN) because I know I could be unemployed for 2 to 5 years and my family would be fed.

Historically, there is at least one US recession every 10 years since 1836. The last recession was 2007/2009. It is almost time for another US recession.

https://en.wikipedia.org/wiki/List_of_r ... ted_States

KlangFool
I figured out the answers! Talk about some tough advise. I thought "house poor" meant you can't afford your monthly expenses with your mortgage payment.

We will last approximately 40 months on 15% of our networth(counting on the 6 month emergency fund).
TheHouse7,

"House Poor" = most of your net worth is in the house. Since 75% of your net worth is in the house, you qualify for the label.

KlangFool

Nate79
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Re: Why do I need bonds? (I'm 30)

Post by Nate79 » Sat Oct 21, 2017 6:27 pm

KlangFool wrote:
Sat Oct 21, 2017 6:22 pm
TheHouse7 wrote:
Sat Oct 21, 2017 5:47 pm
KlangFool wrote:
Sat Oct 21, 2017 10:00 am
TheHouse7 wrote:
Sat Oct 21, 2017 5:22 am
KlangFool wrote:
Fri Oct 20, 2017 10:21 pm


TheHouse7,

How do you know that you have 20+ years to invest? Who guaranteed that for you?

It could be 5, 10, 15, 20, 25, 30 and so on.

Given that you do not know you have 20+ years to invest, how could you base your AA with that assumption?

We need to know what is unknowable for us. And, do not base our planning on that.

KlangFool
I'm going to guess that your the most valuable contrarian on the site (please take this as a complement).

I don't know how long I have to invest. I will hold my 20 year term life, disability, health, house, car, and umbrella insurance to make sure that I can provide for my family over the next 20 years. We have a paid off house if you want to see that as a type of bond. Our house is 75% of our net worth.
TheHouse7,

If we hit a recession, stock market and housing market drop by 50% and you are unemployed, how long can your family survive?

<<I will hold my 20 year term life, disability, health, house, car, and umbrella insurance to make sure that I can provide for my family over the next 20 years. >>

Which does not protect you from short-term unemployment. In fact, you need money to pay for the insurance or you will lose coverage.

<< We have a paid off house if you want to see that as a type of bond. Our house is 75% of our net worth.>>

It means that you are "House Poor". House is illiquid. You may not be able to sell the house when you need to.

So, your net worth is 75% house that you cannot sell easily. The remaining 25% is 80/20 which can drop 40% in a serious recession. How long can you survive on 25% X 60% = 15% of your net worth plus emergency fund? Is it at least 1 year? 2 years? You may be forced to liquidate everything just to feed your family. The economy may recover after that. But, you will lose everything that you had up that time.

The problem of being in the 30 is that your portfolio is so small as compared to your annual expense. 80/20 versus 60/40 may give you one more month of survival which you may need in the crunch time.

After 30+, over that last 10+ years, I been through many rounds of quarterly and annual laid off. And, I was unemployed for more than 1 year a few times. But, I could "Sleep Well At Night" (SWAN) because I know I could be unemployed for 2 to 5 years and my family would be fed.

Historically, there is at least one US recession every 10 years since 1836. The last recession was 2007/2009. It is almost time for another US recession.

https://en.wikipedia.org/wiki/List_of_r ... ted_States

KlangFool
I figured out the answers! Talk about some tough advise. I thought "house poor" meant you can't afford your monthly expenses with your mortgage payment.

We will last approximately 40 months on 15% of our networth(counting on the 6 month emergency fund).
TheHouse7,

"House Poor" = most of your net worth is in the house. Since 75% of your net worth is in the house, you qualify for the label.

KlangFool
That is not the definition of house poor. Net worth in relation to house value has nothing to do with being house poor. House poor is when you can not afford your monthly house cost as a certain percentage of income.

BuyAndHoldOn
Posts: 78
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Re: Why do I need bonds? (I'm 30)

Post by BuyAndHoldOn » Sat Oct 21, 2017 6:41 pm

kosomoto wrote:
Fri Oct 20, 2017 10:10 pm
I don't think bonds should ever be used if you know you can psychologically handle a downturn.

But that's not a common opinion.

I plan on having one to two years worth of expenses in CDs during retirement, the rest all equity. That's the closest I will get to bonds.

*If you can Economically and Psychologically handle a downturn. Loss of employment, increased expenses (or even ordinary ones) would be a real shame during a downturn. Some non-economically sensitive investments are a wise choice for that reason - but everyone's circumstances can be different. I have a well-to-do friend who makes so much money I don't think he'd ever need bonds. He could just live on his savings account till he got another [presumably well paying] job.

Not to lecture --> your point is valid, and I do agree with it.

For the OP - and I am also early 30s: you don't need bonds. I use bonds in my Taxable account for some non-economically sensitive [and accessible] savings, but they aren't something I emphasize from an investment perspective. (Maybe if 10 or 30 year Treasuries start yielding 4% plus, I'll think again).

If you do want to consider bonds as *safe* investments, be sure learn about duration (or even convexity). Bonds can go down in value from a "mark to market" standpoint - and maybe you know [all about] that already.

Boglegrappler wrote:
Sat Oct 21, 2017 6:20 pm
I think most of the advice is pretty good. The real issue, to me, is whether you can stay the course when faced with a sharp downturn. The past years since early 2009 truly do not give you the correct feel for the reality of a crash and crisis. Plus, not every recession has a crash that bounces within two years. From about '68 to summer of '82 the market never got back to its highs of the late 60s early 70s, and then had its crash-recovery in 74-76, but not much momentum from it.

If you are 100% equities, and you are not of truly exceptional constitution, I think you are likely to throw in the towel at some low point, with a very high cost to your long term results. Having some of you assets invested in bonds will lower your chances of reaching that point.
I worry about this [or similar scenarios] also.

KlangFool
Posts: 6983
Joined: Sat Oct 11, 2008 12:35 pm

Re: Why do I need bonds? (I'm 30)

Post by KlangFool » Sat Oct 21, 2017 7:01 pm

Nate79 wrote:
Sat Oct 21, 2017 6:27 pm
KlangFool wrote:
Sat Oct 21, 2017 6:22 pm
TheHouse7 wrote:
Sat Oct 21, 2017 5:47 pm
KlangFool wrote:
Sat Oct 21, 2017 10:00 am
TheHouse7 wrote:
Sat Oct 21, 2017 5:22 am


I'm going to guess that your the most valuable contrarian on the site (please take this as a complement).

I don't know how long I have to invest. I will hold my 20 year term life, disability, health, house, car, and umbrella insurance to make sure that I can provide for my family over the next 20 years. We have a paid off house if you want to see that as a type of bond. Our house is 75% of our net worth.
TheHouse7,

If we hit a recession, stock market and housing market drop by 50% and you are unemployed, how long can your family survive?

<<I will hold my 20 year term life, disability, health, house, car, and umbrella insurance to make sure that I can provide for my family over the next 20 years. >>

Which does not protect you from short-term unemployment. In fact, you need money to pay for the insurance or you will lose coverage.

<< We have a paid off house if you want to see that as a type of bond. Our house is 75% of our net worth.>>

It means that you are "House Poor". House is illiquid. You may not be able to sell the house when you need to.

So, your net worth is 75% house that you cannot sell easily. The remaining 25% is 80/20 which can drop 40% in a serious recession. How long can you survive on 25% X 60% = 15% of your net worth plus emergency fund? Is it at least 1 year? 2 years? You may be forced to liquidate everything just to feed your family. The economy may recover after that. But, you will lose everything that you had up that time.

The problem of being in the 30 is that your portfolio is so small as compared to your annual expense. 80/20 versus 60/40 may give you one more month of survival which you may need in the crunch time.

After 30+, over that last 10+ years, I been through many rounds of quarterly and annual laid off. And, I was unemployed for more than 1 year a few times. But, I could "Sleep Well At Night" (SWAN) because I know I could be unemployed for 2 to 5 years and my family would be fed.

Historically, there is at least one US recession every 10 years since 1836. The last recession was 2007/2009. It is almost time for another US recession.

https://en.wikipedia.org/wiki/List_of_r ... ted_States

KlangFool
I figured out the answers! Talk about some tough advise. I thought "house poor" meant you can't afford your monthly expenses with your mortgage payment.

We will last approximately 40 months on 15% of our networth(counting on the 6 month emergency fund).
TheHouse7,

"House Poor" = most of your net worth is in the house. Since 75% of your net worth is in the house, you qualify for the label.

KlangFool
That is not the definition of house poor. Net worth in relation to house value has nothing to do with being house poor. House poor is when you can not afford your monthly house cost as a certain percentage of income.
Nate79,

That is your definition. I do not have to accept your definition. Vice versa, you do not have to accept mine. OP can choose whatever definition that is most useful to him.

<<House poor is when you can not afford your monthly house cost as a certain percentage of income.>

Which was totally useless in Telecom Bust and 2008/2009 recession when many of my peers lost their jobs.

KlangFool

Big Dog
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Re: Why do I need bonds? (I'm 30)

Post by Big Dog » Sat Oct 21, 2017 7:07 pm

never had any bonds until I hit early 60's....slept well at night thru the '87 crash and every one since. Of course, what I missed out on was the opportunity to rebalance and tax loss harvest during the downturns.
Net worth in relation to house value has nothing to do with being house poor.
Agreed. House value can be close to zero (net of debt) and one can still be house poor. And THAT was a big problem during the last downturn.

fwiw -- house poor:
A house poor is a situation that describes a person who spends a large proportion of his or her total income on home ownership, including mortgage payments, property taxes, maintenance and utilities. House poor individuals are short of cash for discretionary items and tend to have trouble meeting other financial obligations like vehicle payments.
Read more: House Poor http://www.investopedia.com/terms/h/hou ... z4wBui7VoC

TheHouse7
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Re: Why do I need bonds? (I'm 30)

Post by TheHouse7 » Sat Oct 21, 2017 8:55 pm

Big Dog wrote:
Sat Oct 21, 2017 7:07 pm
never had any bonds until I hit early 60's....slept well at night thru the '87 crash and every one since. Of course, what I missed out on was the opportunity to rebalance and tax loss harvest during the downturns.
Net worth in relation to house value has nothing to do with being house poor.
Agreed. House value can be close to zero (net of debt) and one can still be house poor. And THAT was a big problem during the last downturn.

fwiw -- house poor:
A house poor is a situation that describes a person who spends a large proportion of his or her total income on home ownership, including mortgage payments, property taxes, maintenance and utilities. House poor individuals are short of cash for discretionary items and tend to have trouble meeting other financial obligations like vehicle payments.
Read more: House Poor http://www.investopedia.com/terms/h/hou ... z4wBui7VoC
I pay $3,000 in taxes/insurance per year with no mortgage at all. :confused

I'm getting really confused, if I'm "house poor" should I hold more bonds/cash/tips? How is this actionable? Kinda seems like slander. :?
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

darrvao777
Posts: 46
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Re: Why do I need bonds? (I'm 30)

Post by darrvao777 » Sat Oct 21, 2017 9:10 pm

I agree with the others, you don't need them.

I've heard of others using a bucket method where they have an emergency fund, they have buckets of cash or cash-like instruments they think they'll need over a period of time (1 year, 3 years, 5 years depending on how nervous/conservative you are) and the rest they funnel into 100% equities.

I myself am the same age as you and have 33% in bonds. It's probably not the right decision mathematically. But for now, I make a lot, I save a lot, I spend little, and I am hoping for a long 30+ year career. Even if it's not the most aggressive / optimized asset allocation, my portfolio should get me to the finish line with plenty of breathing room.

TheHouse7
Posts: 204
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Re: Why do I need bonds? (I'm 30)

Post by TheHouse7 » Sat Oct 21, 2017 9:20 pm

darrvao777 wrote:
Sat Oct 21, 2017 9:10 pm
I agree with the others, you don't need them.

I've heard of others using a bucket method where they have an emergency fund, they have buckets of cash or cash-like instruments they think they'll need over a period of time (1 year, 3 years, 5 years depending on how nervous/conservative you are) and the rest they funnel into 100% equities.

I myself am the same age as you and have 33% in bonds. It's probably not the right decision mathematically. But for now, I make a lot, I save a lot, I spend little, and I am hoping for a long 30+ year career. Even if it's not the most aggressive / optimized asset allocation, my portfolio should get me to the finish line with plenty of breathing room.
Thank you for speaking up, I think if I could convince myself that I'm going to get to the finish line I wouldn't take so much risk (80/20). :)
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

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Re: Why do I need bonds? (I'm 30)

Post by CyclingDuo » Sat Oct 21, 2017 9:45 pm

TheHouse7 wrote:
Fri Oct 20, 2017 10:05 pm
I have not Invested through a bear market, right now I am 80/20 AA from recommendations from this site. Looking for more wisdom as to why I need bonds with 20+years to invest. :beer
Past performance is no guarantee of future performance, but the past 200+ years in the US Market haven't been too bad.

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You absolutely want to hear the opinions of the Bond King by listening to the video interview in this link:

https://www.vanityfair.com/news/2017/10 ... ond-market

He is currently recommending to be "light on bonds".

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