Do bonds make sense if you are more than 10 years from retirement?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Richard1580
Posts: 31
Joined: Fri Aug 25, 2017 7:53 pm

Do bonds make sense if you are more than 10 years from retirement?

Post by Richard1580 » Mon May 21, 2018 6:58 pm

I ran across an article that claimed that over the last 100 years, over any 10-year period, stocks did better than bonds 89 percent of the time. Over 20-year periods, stocks beat bonds every time and never failed to beat inflation:
https://www.cibcwg.com/c/document_libra ... pId=109423

If that is the case, does it make sense to have any money in bonds if you are more than 10-20 years from retirement?

This is purely academic for me - I never held bonds until I was actually retired and decided it was time to start hedging my bets. Now I am about 45% in bonds and cash.

User avatar
whodidntante
Posts: 3715
Joined: Thu Jan 21, 2016 11:11 pm

Re: Do bonds make sense if you are more than 10 years from retirement?

Post by whodidntante » Mon May 21, 2018 7:06 pm

One reason it might make sense is going to the well a bit early than planned. A lot of folks have long bouts of unemployment. Even if you are really, really awesome and everyone agrees and wants to hire you, you might get too sick to work.

Richard1580
Posts: 31
Joined: Fri Aug 25, 2017 7:53 pm

Re: Do bonds make sense if you are more than 10 years from retirement?

Post by Richard1580 » Mon May 21, 2018 7:15 pm

I had not thought of that. Excellent point.

ThrustVectoring
Posts: 423
Joined: Wed Jul 12, 2017 2:51 pm

Re: Do bonds make sense if you are more than 10 years from retirement?

Post by ThrustVectoring » Mon May 21, 2018 7:32 pm

whodidntante wrote:
Mon May 21, 2018 7:06 pm
One reason it might make sense is going to the well a bit early than planned. A lot of folks have long bouts of unemployment. Even if you are really, really awesome and everyone agrees and wants to hire you, you might get too sick to work.
That's an argument for having good disability insurance, not for holding significant amounts of bonds.

jumppilot
Posts: 167
Joined: Wed Jan 12, 2011 12:38 am

Re: Do bonds make sense if you are more than 10 years from retirement?

Post by jumppilot » Mon May 21, 2018 8:00 pm

I went 100% stocks last year after I saw bonds do nothing for me. I’m in my late 30s and plan to be 100% stocks for awhile.

When I get closer to the finish line, I plan to utilize a bucket approach and keep 10 years of expenses (bare minimum plus discretionary spending) in bonds. That’ll work out to about an 80/20 asset allocation.

I’m fortunate to be able to have a high savings rate, and realize I need to take that into account (“human capital”) and not just blindly follow an asset allocation.

At current rates bonds only provide safety. I want nothing to do with them as an accumulator.

User avatar
Tyler Aspect
Posts: 1083
Joined: Mon Mar 20, 2017 10:27 pm
Location: California
Contact:

Re: Do bonds make sense if you are more than 10 years from retirement?

Post by Tyler Aspect » Mon May 21, 2018 8:14 pm

Bonds provide very valuable stability to a portfolio. If you only focus on return but losing sight on risk, that is not a balanced view.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

Richard1580
Posts: 31
Joined: Fri Aug 25, 2017 7:53 pm

Re: Do bonds make sense if you are more than 10 years from retirement?

Post by Richard1580 » Mon May 21, 2018 8:27 pm

Tyler Aspect wrote:
Mon May 21, 2018 8:14 pm
Bonds provide very valuable stability to a portfolio. If you only focus on return but losing sight on risk, that is not a balanced view.
This probably isn't the best time to look at bonds as "stable," but I understand your meaning. :-)

The point is, if your time horizon is 20+ years out, and stocks outperform bonds over an overwhelming percentage when you are looking forward 10+ years, where is the advantage to holding bonds?

If your concern is "stability", then I can see your point. But if your only interest is an endpoint that is 10, 20, 30 or 40 years forward, then "stability" is just a measure of your "pucker factor."

JustinR
Posts: 672
Joined: Tue Apr 27, 2010 11:43 pm

Re: Do bonds make sense if you are more than 10 years from retirement?

Post by JustinR » Mon May 21, 2018 11:19 pm

Richard1580 wrote:
Mon May 21, 2018 8:27 pm
Tyler Aspect wrote:
Mon May 21, 2018 8:14 pm
Bonds provide very valuable stability to a portfolio. If you only focus on return but losing sight on risk, that is not a balanced view.
This probably isn't the best time to look at bonds as "stable," but I understand your meaning. :-)

The point is, if your time horizon is 20+ years out, and stocks outperform bonds over an overwhelming percentage when you are looking forward 10+ years, where is the advantage to holding bonds?

If your concern is "stability", then I can see your point. But if your only interest is an endpoint that is 10, 20, 30 or 40 years forward, then "stability" is just a measure of your "pucker factor."
You don't know if you'll be laid off during a bear market.

visualguy
Posts: 649
Joined: Thu Jan 30, 2014 1:32 am

Re: Do bonds make sense if you are more than 10 years from retirement?

Post by visualguy » Mon May 21, 2018 11:23 pm

Richard1580 wrote:
Mon May 21, 2018 6:58 pm
I ran across an article that claimed that over the last 100 years, over any 10-year period, stocks did better than bonds 89 percent of the time. Over 20-year periods, stocks beat bonds every time and never failed to beat inflation:
https://www.cibcwg.com/c/document_libra ... pId=109423

If that is the case, does it make sense to have any money in bonds if you are more than 10-20 years from retirement?
Who knows... The next few decades may be different from the last 100 years. This article uses US stock market returns. What if you look at non-US markets? Is the US market really likely to do as well in the future as it did in the past? You have to remember that it was an aberration in the past, and the world is changing.

I'm not saying that bonds are the answer, but putting everything in the stock market is somewhat risky - you can't rule out poor performance over many years.

corey407woc
Posts: 9
Joined: Fri Dec 29, 2017 2:25 am

Re: Do bonds make sense if you are more than 10 years from retirement?

Post by corey407woc » Mon May 21, 2018 11:38 pm

JustinR wrote:
Mon May 21, 2018 11:19 pm
Richard1580 wrote:
Mon May 21, 2018 8:27 pm
Tyler Aspect wrote:
Mon May 21, 2018 8:14 pm
Bonds provide very valuable stability to a portfolio. If you only focus on return but losing sight on risk, that is not a balanced view.
This probably isn't the best time to look at bonds as "stable," but I understand your meaning. :-)

The point is, if your time horizon is 20+ years out, and stocks outperform bonds over an overwhelming percentage when you are looking forward 10+ years, where is the advantage to holding bonds?

If your concern is "stability", then I can see your point. But if your only interest is an endpoint that is 10, 20, 30 or 40 years forward, then "stability" is just a measure of your "pucker factor."
You don't know if you'll be laid off during a bear market.
Isn't that what your FU Fund/ Emergency Fund is for? 6-24 Months of expenses to have insurance in case of a layoff or a bear market

User avatar
alpine_boglehead
Posts: 210
Joined: Fri Feb 17, 2017 9:51 am
Location: Austria

Re: Do bonds make sense if you are more than 10 years from retirement?

Post by alpine_boglehead » Mon May 21, 2018 11:52 pm

No one seems to like bonds after a long bull market and with interest rates rising.

I'll quote Taylor Larimore here
stocks let us eat well, bonds let us sleep well
Not everyone, even when more than 10 years from retirement, can sleep well with 100% stocks.

Bonds also add diversification, and theoretically that gives you a better risk-adjusted return. Some here think that you should have no more than 75% stocks whatever your situation, and I tend to agree with them. (e.g. Benjamin Graham also recommends allocations between 25/75 and 75/25).

User avatar
willthrill81
Posts: 5016
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Do bonds make sense if you are more than 10 years from retirement?

Post by willthrill81 » Mon May 21, 2018 11:54 pm

corey407woc wrote:
Mon May 21, 2018 11:38 pm
JustinR wrote:
Mon May 21, 2018 11:19 pm
Richard1580 wrote:
Mon May 21, 2018 8:27 pm
Tyler Aspect wrote:
Mon May 21, 2018 8:14 pm
Bonds provide very valuable stability to a portfolio. If you only focus on return but losing sight on risk, that is not a balanced view.
This probably isn't the best time to look at bonds as "stable," but I understand your meaning. :-)

The point is, if your time horizon is 20+ years out, and stocks outperform bonds over an overwhelming percentage when you are looking forward 10+ years, where is the advantage to holding bonds?

If your concern is "stability", then I can see your point. But if your only interest is an endpoint that is 10, 20, 30 or 40 years forward, then "stability" is just a measure of your "pucker factor."
You don't know if you'll be laid off during a bear market.
Isn't that what your FU Fund/ Emergency Fund is for? 6-24 Months of expenses to have insurance in case of a layoff or a bear market
To the extent that the future resembles the past, the likelihood that you'll be unemployed for longer than a year is very slim, and people often forget about unemployment benefits, which are definitely more than nothing.

If someone really was concerned about this and wanted to adjust their portfolio accordingly, then it would make a lot more sense to place a specific dollar amount (e.g. 1 year's expenses) in bonds rather than an arbitrary percentage. The 'percentage of portfolio in bonds' folks seem to do that more to reduce their portfolio's volatility than for any other reason.

Mathematically, it's difficult to argue that a 100% stock portfolio until the decade prior to retirement would not have resulted in a higher portfolio balance far more often than not. But if you can't emotionally deal with the ensuing volatility, it's a moot point.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Post Reply