Age in Bonds - Still Recommended?

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bmelikia
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Re: Age in Bonds - Still Recommended?

Post by bmelikia » Sat Sep 15, 2018 12:33 am

I remember when the conversation on here during 2009/2010 was about how 60/40 was a good all weather portfolio- now the discussion is about how unnecessary (or rather minimal) a bond position is/should be in making up ones portfolio-just an observation

Anyone else remember this?
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle

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oldzey
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Re: Age in Bonds - Still Recommended?

Post by oldzey » Sat Sep 15, 2018 12:36 am

Charles Ellis' suggested portfolios by age:
• Under 40 years old -- 100% in stocks
• 40 to 50 years old -- 90% in stocks; 10% in bonds
• 50 to 60 years old -- 80% in stocks; 20% in bonds
• 60 to 70 years old -- 60% in stocks; 40% in bonds
• 70 to 80 years old -- 50% in stocks; 50% in bonds

I'm 50 years old and my AA is currently at 80% equities/20% fixed income.
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

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willthrill81
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Re: Age in Bonds - Still Recommended?

Post by willthrill81 » Sat Sep 15, 2018 12:49 am

oldzey wrote:
Sat Sep 15, 2018 12:36 am
Charles Ellis' suggested portfolios by age:
• Under 40 years old -- 100% in stocks
• 40 to 50 years old -- 90% in stocks; 10% in bonds
• 50 to 60 years old -- 80% in stocks; 20% in bonds
• 60 to 70 years old -- 60% in stocks; 40% in bonds
• 70 to 80 years old -- 50% in stocks; 50% in bonds

I'm 50 years old and my AA is currently at 80% equities/20% fixed income.
That looks reasonable to me.
“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

bargainhuntingking
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Re: Age in Bonds - Still Recommended?

Post by bargainhuntingking » Sat Sep 15, 2018 12:50 am

Wait until your first market correction/recession like the one that occurred in 2008-2009. Age in bonds will suddenly become popular again.

HEDGEFUNDIE
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Re: Age in Bonds - Still Recommended?

Post by HEDGEFUNDIE » Sat Sep 15, 2018 12:54 am

bmelikia wrote:
Sat Sep 15, 2018 12:33 am
I remember when the conversation on here during 2009/2010 was about how 60/40 was a good all weather portfolio- now the discussion is about how unnecessary (or rather minimal) a bond position is/should be in making up ones portfolio-just an observation

Anyone else remember this?
bargainhuntingking wrote:
Sat Sep 15, 2018 12:50 am
Wait until your first market correction/recession like the one that occurred in 2008-2009. Age in bonds will suddenly become popular again.
The real question is, when the next crash comes, will those who have tilted their AA heavy into equities still be left with more than those who were conservative the whole time and missed out on the bull market?

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mrspock
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Re: Age in Bonds - Still Recommended?

Post by mrspock » Sat Sep 15, 2018 4:08 am

HEDGEFUNDIE wrote:
Sat Sep 15, 2018 12:54 am
The real question is, when the next crash comes, will those who have tilted their AA heavy into equities still be left with more than those who were conservative the whole time and missed out on the bull market?
+1... but I would tweak this a bit to: AFTER the next recovery who is left with more. Remember, folks with 60/40 will be able to rebalance more capital into equities at lower prices than those with 80/20.

Of course in theory, those with 80/20 should win in the long run, but some clever Bogleheads might even move to 80/20 if the market were to correct 40%+ ... folks with 80/20 might be a bit more gun shy (moving to 90/10 or more).

student
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Re: Age in Bonds - Still Recommended?

Post by student » Sat Sep 15, 2018 6:09 am

HEDGEFUNDIE wrote:
Fri Sep 14, 2018 5:45 pm
I am kind of stunned by the number of people here who are admitting to holding no bonds. I am one of them, but I never expected there to be so many of us.
I was 90/10 until late 40's.

student
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Re: Age in Bonds - Still Recommended?

Post by student » Sat Sep 15, 2018 6:18 am

oldzey wrote:
Sat Sep 15, 2018 12:36 am
Charles Ellis' suggested portfolios by age:
• Under 40 years old -- 100% in stocks
• 40 to 50 years old -- 90% in stocks; 10% in bonds
• 50 to 60 years old -- 80% in stocks; 20% in bonds
• 60 to 70 years old -- 60% in stocks; 40% in bonds
• 70 to 80 years old -- 50% in stocks; 50% in bonds

I'm 50 years old and my AA is currently at 80% equities/20% fixed income.
This is too risky for me at my age but it is a reasonable suggestion.

rkhusky
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Re: Age in Bonds - Still Recommended?

Post by rkhusky » Sat Sep 15, 2018 6:25 am

There is no right or wrong answer. It is all personal preference and circumstances.

Personally, at the moment I am age+5 in bonds.

I always consider the possibility that the market could drop 50% and not return to even for 10 years.

wilked
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Re: Age in Bonds - Still Recommended?

Post by wilked » Sat Sep 15, 2018 6:32 am

sambb wrote:
Fri Sep 14, 2018 7:11 pm
Often depends

bear market: age in bonds
Bull market: age-20 in bonds, and "im young, i have 30 years, no need for bonds
This

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dogagility
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Re: Age in Bonds - Still Recommended?

Post by dogagility » Sat Sep 15, 2018 7:28 am

mrspock wrote:
Sat Sep 15, 2018 4:08 am
HEDGEFUNDIE wrote:
Sat Sep 15, 2018 12:54 am
The real question is, when the next crash comes, will those who have tilted their AA heavy into equities still be left with more than those who were conservative the whole time and missed out on the bull market?
+1... but I would tweak this a bit to: AFTER the next recovery who is left with more. Remember, folks with 60/40 will be able to rebalance more capital into equities at lower prices than those with 80/20.
Agreed... but maybe even tweak it further still to this: how much money under different scenarios will you have when you need to start large withdrawals?

Personally, I was 100% equity from my mid-20s to about 50. Now I'm 80/20 overall in anticipation of starting withdrawal in the next 5-10 years. I might increase the fixed income allocation during this time. When the time comes to withdraw money, I'll use the "bucket approach" for allocating money to stock vs fixed income, as someone mentioned above.
Taking "risk" since 1995.

Dandy
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Re: Age in Bonds - Still Recommended?

Post by Dandy » Sat Sep 15, 2018 8:52 am

Age in bonds is a decent starting point. It may have fallen out of favor due to the long equity bull market combined with the historically low interest rates. Both can combine to dull the overall risk of equities. Equities have large risks associated with their potential for large gains. A person in their 50's has maybe 30 or 40 years of investing left but maybe only 10 years of human capital. Taking a huge hit to their portfolio in their 50's might leave them short of time to help bring their portfolio up to their number with the aid of contributions and company matches. Then they will enter the withdrawal phase which will also retard their ability to catch up.

Having a moderate risk by having a higher allocation to low yielding bonds makes people feel they are leaving money on the table. Having equity funds that distribute close to 2% in distributions can also make people feel they are almost like bonds. Having bond funds show negative returns due to a rising interest rate environment also makes people tend to ignore bonds.

Bond funds were never intended to be growth vehicles. They are usually for stability and risk modification of the portfolio with the prospect of modest income. They also provide some ability to buy equities when they drop.

The risk you take is a personal issue which depends a lot on your financial position. Will you have a pension, is your house paid for, is your portfolio at or near your number?, how do you handle risk, your age and when you plan to retire, do you still need growth or is asset preservation more important, etc. Use age in bonds as a starting point and then adjust to your personal situation. Also give some thought to how you might adjust that initial allocation going forward.

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dwickenh
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Re: Age in Bonds - Still Recommended?

Post by dwickenh » Sat Sep 15, 2018 9:06 am

bmelikia wrote:
Sat Sep 15, 2018 12:33 am
I remember when the conversation on here during 2009/2010 was about how 60/40 was a good all weather portfolio- now the discussion is about how unnecessary (or rather minimal) a bond position is/should be in making up ones portfolio-just an observation

Anyone else remember this?
+1, how quickly they forget.........
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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Sandtrap
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Re: Age in Bonds - Still Recommended?

Post by Sandtrap » Sat Sep 15, 2018 9:11 am

goblue100 wrote:
Fri Sep 14, 2018 9:56 am
What is your need and ability to take risk? I think that is better measure of your asset allocation than an arbitrary rule of thumb. Take a look at the link below, there is a nice table that shows returns of various equity / bond mixes.

https://www.bogleheads.org/wiki/Financi ... t_the_plan
c. Since many asset classes can rise and fall in value, you must understand your need, willingness, and ability to take investment risk. Since risk and return are directly related, your asset allocation should balance your NEED to take risk with your ABILITY to withstand the ups and downs of the market. NEED can be determined in many different ways. If you are young, you have the benefit of many years of compounding, so in one respect your NEED to take risk is low. On the other hand, your portfolio size is probably small, leaving you with a long way to go to reach your retirement goals. As a result, you could argue that your NEED to take risk is high.[3]
For people closer to retirement, it may be possible to more closely determine NEED. First, estimate approximately how much income you will need annually after retirement. For this example, we’ll assume you need $100,000 per year. Next, look at any pensions or social security benefits that will provide a source of income. If a pension provides $30,000 per year and social security provides an additional $20,000 per year, then your portfolio would need to provide an extra $50,000 each year. To prevent running out of money, you should probably start by withdrawing 4% a year or less with an annual inflation adjustment. To generate $50,000 per year at 4% requires a minimum portfolio size of $1,250,000. How close are you to your goal?
Turning to ABILITY, this relates to your ability to withstand the ups and downs of the market without getting nervous and making changes to your asset allocation. Selling in the face of a decline is about the worst thing you can do. Here is a table offered by author Larry Swedroe,[3][4] based on the 1970s bear market, showing the amount of decline for various stock/bond allocations:
+1
There are seniors with 100% in equities but have enough "non portfolio" income streams to cover expenses that do very well over the long term. They have an "ability" to take risk.
OTOH, seniors fully reliant on their portfolio for most of their retirement income have more to lose than to gain in times of high volatility. Thus, a more defensive strategy with a greater percentage of fixed assets vs equities.
Like all "rules of thumb", it depends on the individual "thumb". Each situation is unique.
j

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midareff
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Re: Age in Bonds - Still Recommended?

Post by midareff » Sat Sep 15, 2018 9:13 am

dwickenh wrote:
Sat Sep 15, 2018 9:06 am
bmelikia wrote:
Sat Sep 15, 2018 12:33 am
I remember when the conversation on here during 2009/2010 was about how 60/40 was a good all weather portfolio- now the discussion is about how unnecessary (or rather minimal) a bond position is/should be in making up ones portfolio-just an observation

Anyone else remember this?
+1, how quickly they forget.........
Amen.... have been roughly 45/51/4, equities/bonds/cash for the last dozen years or longer. Age 70.5 and 7 years retired. Regret nothing and have all I need. Don't need to add risk or volatility which will surely come like night follows day.

Nowizard
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Re: Age in Bonds - Still Recommended?

Post by Nowizard » Sat Sep 15, 2018 9:59 am

Have not and will not follow that recommendation and doubt that it is anywhere near a solid one for those who generally support the Boglehead philosophy.

Tim

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Re: Age in Bonds - Still Recommended?

Post by ThePrince » Sat Sep 15, 2018 11:21 am

I want to retire early, so I won’t be following the age in bonds concept.

gmaynardkrebs
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Re: Age in Bonds - Still Recommended?

Post by gmaynardkrebs » Sat Sep 15, 2018 11:37 am

Jacobkg wrote:
Fri Sep 14, 2018 9:32 am
I started reading Bogleheads in 2007 and have been following on and off since. Early in that process I decided on my Asset Allocation, which includes the decision to implement the “your age in bonds” rule. I have been dutifully increasing my target bond allocation by 1% for the last decade (I’m now in my thirties).

I feel like over time Age in Bonds is being discussed less and less. Has it fallen out of favor? Should I consider rethinking my strategy? I don’t like to do this often but I figure once a decade isn’t too bad.

What are other accumulators doing?
Age in bonds has served me well (age 68 now). BH's consensus advice on stocks is too bullish for my taste. Stocks are like keeping a wild animal for a pet. You never know when they will turn on you, but they always will. It's in their nature.

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willthrill81
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Re: Age in Bonds - Still Recommended?

Post by willthrill81 » Sat Sep 15, 2018 11:42 am

HEDGEFUNDIE wrote:
Sat Sep 15, 2018 12:54 am
bmelikia wrote:
Sat Sep 15, 2018 12:33 am
I remember when the conversation on here during 2009/2010 was about how 60/40 was a good all weather portfolio- now the discussion is about how unnecessary (or rather minimal) a bond position is/should be in making up ones portfolio-just an observation

Anyone else remember this?
bargainhuntingking wrote:
Sat Sep 15, 2018 12:50 am
Wait until your first market correction/recession like the one that occurred in 2008-2009. Age in bonds will suddenly become popular again.
The real question is, when the next crash comes, will those who have tilted their AA heavy into equities still be left with more than those who were conservative the whole time and missed out on the bull market?
Considering that stocks have roughly quadrupled in the last 9.5 years while bonds have had very meager returns, it would take a market correction on the order of the Great Depression at least for the stock-tilted investor to not come out ahead. And if bonds reacted the same way as they did in the Great Depression (~50% decline), the bond investor would still be behind.
“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

gmaynardkrebs
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Re: Age in Bonds - Still Recommended?

Post by gmaynardkrebs » Sat Sep 15, 2018 11:45 am

willthrill81 wrote:
Sat Sep 15, 2018 11:42 am
HEDGEFUNDIE wrote:
Sat Sep 15, 2018 12:54 am
bmelikia wrote:
Sat Sep 15, 2018 12:33 am
I remember when the conversation on here during 2009/2010 was about how 60/40 was a good all weather portfolio- now the discussion is about how unnecessary (or rather minimal) a bond position is/should be in making up ones portfolio-just an observation

Anyone else remember this?
bargainhuntingking wrote:
Sat Sep 15, 2018 12:50 am
Wait until your first market correction/recession like the one that occurred in 2008-2009. Age in bonds will suddenly become popular again.
The real question is, when the next crash comes, will those who have tilted their AA heavy into equities still be left with more than those who were conservative the whole time and missed out on the bull market?
Considering that stocks have roughly quadrupled in the last 9.5 years while bonds have had very meager returns, it would take a market correction on the order of the Great Depression at least for the stock-tilted investor to not come out ahead. And if bonds reacted the same way as they did in the Great Depression (~50% decline), the bond investor would still be behind.
Where can you buy stocks at the prices of 9.5 years ago?

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willthrill81
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Re: Age in Bonds - Still Recommended?

Post by willthrill81 » Sat Sep 15, 2018 11:47 am

gmaynardkrebs wrote:
Sat Sep 15, 2018 11:45 am
willthrill81 wrote:
Sat Sep 15, 2018 11:42 am
HEDGEFUNDIE wrote:
Sat Sep 15, 2018 12:54 am
bmelikia wrote:
Sat Sep 15, 2018 12:33 am
I remember when the conversation on here during 2009/2010 was about how 60/40 was a good all weather portfolio- now the discussion is about how unnecessary (or rather minimal) a bond position is/should be in making up ones portfolio-just an observation

Anyone else remember this?
bargainhuntingking wrote:
Sat Sep 15, 2018 12:50 am
Wait until your first market correction/recession like the one that occurred in 2008-2009. Age in bonds will suddenly become popular again.
The real question is, when the next crash comes, will those who have tilted their AA heavy into equities still be left with more than those who were conservative the whole time and missed out on the bull market?
Considering that stocks have roughly quadrupled in the last 9.5 years while bonds have had very meager returns, it would take a market correction on the order of the Great Depression at least for the stock-tilted investor to not come out ahead. And if bonds reacted the same way as they did in the Great Depression (~50% decline), the bond investor would still be behind.
Where can you buy stocks at the prices of 9.5 years ago?
Obviously, you cannot. But the moral of the story is the same as the title of a very popular book: "Triumph of the Optimists."

IMHO, too many have bought into the notion that "stocks are volatile, so you always need a healthy proportion of your portfolio in fixed income." I'm not saying that fixed income doesn't have a place in the toolbox, but it is far from necessary in all situations.
“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

Dandy
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Re: Age in Bonds - Still Recommended?

Post by Dandy » Sat Sep 15, 2018 12:09 pm

People often make decisions based on their wealth. e.g. general life style, purchasing a vacation home, buying cars, etc. Those with very high equity allocations, especially retirees who rely heavily on their portfolio, can easily be fooled into thinking their current portfolio level (aka wealth) is more secure than it really is. A long equity bull market just tends to add a bit of a false sense of security.

A nasty and somewhat prolonged "correction" can become a real wake up call especially if you haven't experienced it at all or in retirement.

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whodidntante
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Re: Age in Bonds - Still Recommended?

Post by whodidntante » Sat Sep 15, 2018 12:11 pm

I would personally feel silly having 40% of my money in fixed income as I'm still needing growth. The real return just isn't there. If high quality bonds had an expected return of 4% real, I would have more fixed income. I doubt I will ever have 40% of my money in fixed income, but we'll see. And I don't fault those who do it because they are terrified of stock market risk, or because they can't stand a deep drawdown. That's just not me, though.

gmaynardkrebs
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Re: Age in Bonds - Still Recommended?

Post by gmaynardkrebs » Sat Sep 15, 2018 12:21 pm

willthrill81 wrote:
Sat Sep 15, 2018 11:47 am
gmaynardkrebs wrote:
Sat Sep 15, 2018 11:45 am
willthrill81 wrote:
Sat Sep 15, 2018 11:42 am
HEDGEFUNDIE wrote:
Sat Sep 15, 2018 12:54 am
bmelikia wrote:
Sat Sep 15, 2018 12:33 am
I remember when the conversation on here during 2009/2010 was about how 60/40 was a good all weather portfolio- now the discussion is about how unnecessary (or rather minimal) a bond position is/should be in making up ones portfolio-just an observation

Anyone else remember this?
bargainhuntingking wrote:
Sat Sep 15, 2018 12:50 am
Wait until your first market correction/recession like the one that occurred in 2008-2009. Age in bonds will suddenly become popular again.
The real question is, when the next crash comes, will those who have tilted their AA heavy into equities still be left with more than those who were conservative the whole time and missed out on the bull market?
Considering that stocks have roughly quadrupled in the last 9.5 years while bonds have had very meager returns, it would take a market correction on the order of the Great Depression at least for the stock-tilted investor to not come out ahead. And if bonds reacted the same way as they did in the Great Depression (~50% decline), the bond investor would still be behind.
Where can you buy stocks at the prices of 9.5 years ago?
Obviously, you cannot. But the moral of the story is the same as the title of a very popular book: "Triumph of the Optimists."

IMHO, too many have bought into the notion that "stocks are volatile, so you always need a healthy proportion of your portfolio in fixed income." I'm not saying that fixed income doesn't have a place in the toolbox, but it is far from necessary in all situations.
Optimists say "volatility." The less optimistic say "go down and stay down."

gmaynardkrebs
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Re: Age in Bonds - Still Recommended?

Post by gmaynardkrebs » Sat Sep 15, 2018 12:28 pm

whodidntante wrote:
Sat Sep 15, 2018 12:11 pm
I would personally feel silly having 40% of my money in fixed income as I'm still needing growth. The real return just isn't there. If high quality bonds had an expected return of 4% real, I would have more fixed income. I doubt I will ever have 40% of my money in fixed income, but we'll see. And I don't fault those who do it because they are terrified of stock market risk, or because they can't stand a deep drawdown. That's just not me, though.
I don't think you have to be "terrified" or "can't stand" to want a higher bond allocation.

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Re: Age in Bonds - Still Recommended?

Post by GuineaPig » Sat Sep 15, 2018 12:52 pm

Often, we see percentages listed as being definitive for people in different age brackets or with different risk tolerances. And yet, it isn't all about age and risk tolerance: the amount you are worth is relevant (if you have more than you could ever need, there's no reason to take risk); your anticipated future income matters (if you know that even in a downturn you won't lose work or if you have very high income potential, you can take more risk); your anticipated expenses matter (how many children you have, whether you'll pay for private schools, whether you have a large mortgage, etc.); and so forth.

There is no simple recipe, even though many of us wish there were. My family has decent assets which we could not replenish easily if we were all in stocks, because our jobs just don't pay a ton -- it'd take many many years to recover. Furthermore, in a real depression, our jobs would likely disappear or we'd have to get much lower-paying jobs. And in 10 years, we'll have to spend on our children's college expenses and we plan to support them such that they graduate without major debt. This means that we are more conservative than many on this board who are at our age.

Now, if I made doctor or lawyer money, I'd feel differently -- I'd know that I could build assets at a faster pace and pay for my children's education out of current income. Or, if our assets were lower, I'd worry less because there'd be less to lose. And if our assets were a lot higher, I'd worry less, but choose to be even more conservative, because there'd be little to gain by taking risk.

So instead off looking for a one-size fits all rule, instead figure out your own situation.

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Re: Age in Bonds - Still Recommended?

Post by willthrill81 » Sat Sep 15, 2018 1:28 pm

gmaynardkrebs wrote:
Sat Sep 15, 2018 12:21 pm
willthrill81 wrote:
Sat Sep 15, 2018 11:47 am
gmaynardkrebs wrote:
Sat Sep 15, 2018 11:45 am
willthrill81 wrote:
Sat Sep 15, 2018 11:42 am
HEDGEFUNDIE wrote:
Sat Sep 15, 2018 12:54 am




The real question is, when the next crash comes, will those who have tilted their AA heavy into equities still be left with more than those who were conservative the whole time and missed out on the bull market?
Considering that stocks have roughly quadrupled in the last 9.5 years while bonds have had very meager returns, it would take a market correction on the order of the Great Depression at least for the stock-tilted investor to not come out ahead. And if bonds reacted the same way as they did in the Great Depression (~50% decline), the bond investor would still be behind.
Where can you buy stocks at the prices of 9.5 years ago?
Obviously, you cannot. But the moral of the story is the same as the title of a very popular book: "Triumph of the Optimists."

IMHO, too many have bought into the notion that "stocks are volatile, so you always need a healthy proportion of your portfolio in fixed income." I'm not saying that fixed income doesn't have a place in the toolbox, but it is far from necessary in all situations.
Optimists say "volatility." The less optimistic say "go down and stay down."
Will a 20-40% allocation to bonds be adequate to thwart the effects of this?
“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

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Re: Age in Bonds - Still Recommended?

Post by gmaynardkrebs » Sat Sep 15, 2018 1:48 pm

willthrill81 wrote:
Sat Sep 15, 2018 1:28 pm
gmaynardkrebs wrote:
Sat Sep 15, 2018 12:21 pm
willthrill81 wrote:
Sat Sep 15, 2018 11:47 am
gmaynardkrebs wrote:
Sat Sep 15, 2018 11:45 am
willthrill81 wrote:
Sat Sep 15, 2018 11:42 am


Considering that stocks have roughly quadrupled in the last 9.5 years while bonds have had very meager returns, it would take a market correction on the order of the Great Depression at least for the stock-tilted investor to not come out ahead. And if bonds reacted the same way as they did in the Great Depression (~50% decline), the bond investor would still be behind.
Where can you buy stocks at the prices of 9.5 years ago?
Obviously, you cannot. But the moral of the story is the same as the title of a very popular book: "Triumph of the Optimists."

IMHO, too many have bought into the notion that "stocks are volatile, so you always need a healthy proportion of your portfolio in fixed income." I'm not saying that fixed income doesn't have a place in the toolbox, but it is far from necessary in all situations.
Optimists say "volatility." The less optimistic say "go down and stay down."
Will a 20-40% allocation to bonds be adequate to thwart the effects of this?
Taking that as a rhetorical question, I would say probably not. However, 40% is getting warm. I told my late 20s kids to keep it at 60%s/40b%,. One has taken my advice, and the other is 90/10. I think they'll both do fine, but the 60/40 will have an easier time sticking to her plan.

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willthrill81
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Re: Age in Bonds - Still Recommended?

Post by willthrill81 » Sat Sep 15, 2018 2:03 pm

gmaynardkrebs wrote:
Sat Sep 15, 2018 1:48 pm
willthrill81 wrote:
Sat Sep 15, 2018 1:28 pm
gmaynardkrebs wrote:
Sat Sep 15, 2018 12:21 pm
willthrill81 wrote:
Sat Sep 15, 2018 11:47 am
gmaynardkrebs wrote:
Sat Sep 15, 2018 11:45 am
Where can you buy stocks at the prices of 9.5 years ago?
Obviously, you cannot. But the moral of the story is the same as the title of a very popular book: "Triumph of the Optimists."

IMHO, too many have bought into the notion that "stocks are volatile, so you always need a healthy proportion of your portfolio in fixed income." I'm not saying that fixed income doesn't have a place in the toolbox, but it is far from necessary in all situations.
Optimists say "volatility." The less optimistic say "go down and stay down."
Will a 20-40% allocation to bonds be adequate to thwart the effects of this?
Taking that as a rhetorical question, I would say probably not. However, 40% is getting warm. I told my late 20s kids to keep it at 60%s/40b%,. One has taken my advice, and the other is 90/10. I think they'll both do fine, but the 60/40 will have an easier time sticking to her plan.
So you're not in favor of 'age in bonds' either?
“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

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midareff
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Re: Age in Bonds - Still Recommended?

Post by midareff » Sat Sep 15, 2018 2:33 pm

LOL, the things that make no sense leading up to and at the time that a record longevity for a bull market has been set will make sense soon enough.

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Re: Age in Bonds - Still Recommended?

Post by gmaynardkrebs » Sat Sep 15, 2018 2:38 pm

willthrill81 wrote:
Sat Sep 15, 2018 2:03 pm
gmaynardkrebs wrote:
Sat Sep 15, 2018 1:48 pm
willthrill81 wrote:
Sat Sep 15, 2018 1:28 pm
gmaynardkrebs wrote:
Sat Sep 15, 2018 12:21 pm
willthrill81 wrote:
Sat Sep 15, 2018 11:47 am


Obviously, you cannot. But the moral of the story is the same as the title of a very popular book: "Triumph of the Optimists."

IMHO, too many have bought into the notion that "stocks are volatile, so you always need a healthy proportion of your portfolio in fixed income." I'm not saying that fixed income doesn't have a place in the toolbox, but it is far from necessary in all situations.
Optimists say "volatility." The less optimistic say "go down and stay down."
Will a 20-40% allocation to bonds be adequate to thwart the effects of this?
Taking that as a rhetorical question, I would say probably not. However, 40% is getting warm. I told my late 20s kids to keep it at 60%s/40b%,. One has taken my advice, and the other is 90/10. I think they'll both do fine, but the 60/40 will have an easier time sticking to her plan.
So you're not in favor of 'age in bonds' either?
I recommended 60/40 to my "kids" because I think equity valuations are excessive now. If the market really tanked, which it won't, I'd recommend higher. I see you have a beautiful child in your picture. For her, I'd probably be at 100% equities, not only due to her young age, but because it's all gravy to her, as Pop would be funding it.

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Re: Age in Bonds - Still Recommended?

Post by willthrill81 » Sat Sep 15, 2018 2:49 pm

gmaynardkrebs wrote:
Sat Sep 15, 2018 2:38 pm
I see you have a beautiful child in your picture. For her, I'd probably be at 100% equities, not only due to her young age, but because it's all gravy to her, as Pop would be funding it.
Truth be told, she'll probably inherit the majority of what we're saving and not need to save any at all for her own retirement, though I will certainly recommend highly that she do so. I'm really hoping that we'll be able to create some serious generational wealth and beat the odds to maintain it for more than 2-3 generations.
“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

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Re: Age in Bonds - Still Recommended?

Post by visualguy » Sat Sep 15, 2018 2:51 pm

willthrill81 wrote:
Sat Sep 15, 2018 1:28 pm
Will a 20-40% allocation to bonds be adequate to thwart the effects of this?
60/40 will reduce the effects when compared to 100/0 in many cases... However, there are also all the gains that you potentially missed before the market fell 50%, so who knows.

I don't like having all or most savings in the stock market because it could indeed go down a lot and stay down for too long, and the potential volatility isn't fun either. Bonds don't make much sense to me, however. I prefer to diversify to something that still makes money which is direct real estate (yes, it requires some work, but it's worth it to me.)

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Re: Age in Bonds - Still Recommended?

Post by BogleMelon » Sat Sep 15, 2018 2:54 pm

My asset allocation is related to my financial goals not to my age. The more I get closer to my goal, the more my allocation becomes conservative. Why would I take risk if I don't need to?
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Re: Age in Bonds - Still Recommended?

Post by sambb » Sat Sep 15, 2018 2:56 pm

bmelikia wrote:
Sat Sep 15, 2018 12:33 am
I remember when the conversation on here during 2009/2010 was about how 60/40 was a good all weather portfolio- now the discussion is about how unnecessary (or rather minimal) a bond position is/should be in making up ones portfolio-just an observation

Anyone else remember this?
yes i remember.

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Re: Age in Bonds - Still Recommended?

Post by animule » Sat Sep 15, 2018 2:59 pm

We're ten years into a bull market that has made people forget about the financial crisis of 2008. Stock gains have been fueled by free money (effectively 0% interest rates) by the federal government for an unprecedented length of time. Check out the chart below:

https://www.macrotrends.net/2015/fed-fu ... ical-chart

When I got my MBA in Finance in the mid-1990s, nobody at that time could have contemplated that interest rates would be 0%. And nobody ever said that interest rates could actually go NEGATIVE as they have in some parts of Asia and Europe. Nobody thought that this was even a remote possibility, but here we are.

It is easy to forget when you are living in the midst of a decade-long bull market in stocks that we really are living in unprecedented financial times. Nobody has ever seen interest rates stay low for such a long period. It is easy to get lulled into a sense of complacency.

If interest rates continue to rise as quickly as they have been recently, there is a good chance that bonds will get killed in the short run, but maybe an even better chance that stocks will get annihilated too. I would be very reluctant to abandon financial lessons learned over decades (like those covered in "The Intelligent Investor" by Benjamin Graham) that advocate having no less than 25% and no more than 75% in stocks.

I have a feeling we are going to all have to re-learn these lessons, maybe sooner than later.

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Re: Age in Bonds - Still Recommended?

Post by hudson » Sat Sep 15, 2018 3:11 pm

A few random thoughts...that've probably already been said....lots of great advice.
Age in bonds is a great starting point. Consider reading Swedroe, Larimore, Ferri, and W. Bernstein...but you probably already have.
There are lots of brave souls out there since the market is doing well. (I used to be a brave soul.)
I think it's a great idea for anyone to have a safe pile of bond like investments that are AAA/AA rated. This would be a pile big enough that if your stocks dropped 50% or more you would be OK.
I have no problem with 0% stocks especially if you have several legs on your retirement stool.
Stocks seem to be making free money...but you already know that stocks are risky.
What others do is interesting, but what you should do should fit you and your needs.
Last edited by hudson on Sat Sep 15, 2018 3:38 pm, edited 1 time in total.

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Re: Age in Bonds - Still Recommended?

Post by sergeant » Sat Sep 15, 2018 3:27 pm

We have 20+ years of expenses in FI. We have 20+ years expenses in equities. We are about 50/50 at 55 years of age. My pension provides 3X our expenses. DW's income provides 1.5X expenses. She retires next year and her pension will provide 1x expenses. I don't feel the need to take more risk since it isn't required. I think that we have won the game.


Age in bonds is a good starting point to figure your own risk tolerance.
Lincoln 3 EOW!

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Re: Age in Bonds - Still Recommended?

Post by willthrill81 » Sat Sep 15, 2018 3:39 pm

sergeant wrote:
Sat Sep 15, 2018 3:27 pm
We have 20+ years of expenses in FI. We have 20+ years expenses in equities. We are about 50/50 at 55 years of age. My pension provides 3X our expenses. DW's income provides 1.5X expenses. She retires next year and her pension will provide 1x expenses. I don't feel the need to take more risk since it isn't required. I think that we have won the game.
Considering that your pension more than covers your expenses, you don't appear to need a retirement portfolio at all. You could put it all in just about any asset class you wanted and be just fine.

Most of us are not that fortunate.
“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

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Re: Age in Bonds - Still Recommended?

Post by sergeant » Sat Sep 15, 2018 4:21 pm

willthrill81 wrote:
Sat Sep 15, 2018 3:39 pm
sergeant wrote:
Sat Sep 15, 2018 3:27 pm
We have 20+ years of expenses in FI. We have 20+ years expenses in equities. We are about 50/50 at 55 years of age. My pension provides 3X our expenses. DW's income provides 1.5X expenses. She retires next year and her pension will provide 1x expenses. I don't feel the need to take more risk since it isn't required. I think that we have won the game.
Considering that your pension more than covers your expenses, you don't appear to need a retirement portfolio at all. You could put it all in just about any asset class you wanted and be just fine.

Most of us are not that fortunate.
You are correct, and like you we anticipate our two children will have a nice inheritance. I spoke with both of them in regards to our AA and they were fine with my current AA.
The big unknown is how our pensions will do. Mine is about 88% funded, DW's about 86% funded. Many of my retired friends have no real savings and spend 100% of their monthly pension warrant. I sleep better at night knowing our pensions could take a huge hit and we would still be fine.
Lincoln 3 EOW!

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burt
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Re: Age in Bonds - Still Recommended?

Post by burt » Sat Sep 15, 2018 5:55 pm

I sense some bravado with these high stock allocations.

If I was young with $30k in a 401k, yes I would take risk.
If I was wealthy with a 1% withdrawal rate, yes I would take risk.
If I had a fat pension combined with SS that provided 125% of expenses, yes I would take risk.

I am none of the above. I will not risk my Wednesday meatloaf meal at the local diner.
Age in bonds makes perfect sense for the majority of the population.

burt

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Re: Age in Bonds - Still Recommended?

Post by gmaynardkrebs » Sat Sep 15, 2018 6:01 pm

sergeant wrote:
Sat Sep 15, 2018 4:21 pm
willthrill81 wrote:
Sat Sep 15, 2018 3:39 pm
sergeant wrote:
Sat Sep 15, 2018 3:27 pm
We have 20+ years of expenses in FI. We have 20+ years expenses in equities. We are about 50/50 at 55 years of age. My pension provides 3X our expenses. DW's income provides 1.5X expenses. She retires next year and her pension will provide 1x expenses. I don't feel the need to take more risk since it isn't required. I think that we have won the game.
Considering that your pension more than covers your expenses, you don't appear to need a retirement portfolio at all. You could put it all in just about any asset class you wanted and be just fine.

Most of us are not that fortunate.
You are correct, and like you we anticipate our two children will have a nice inheritance. I spoke with both of them in regards to our AA and they were fine with my current AA.
The big unknown is how our pensions will do. Mine is about 88% funded, DW's about 86% funded. Many of my retired friends have no real savings and spend 100% of their monthly pension warrant. I sleep better at night knowing our pensions could take a huge hit and we would still be fine.
But, are the plans really 88% and 86% funded? It's almost impossible to know in many cases, because state and local governments governments are notoriously underestimating pension debt, by using unrealistic return assumptions. Officially, states and municipalities report that they are 72% funded; however, the real rate is probably closer to 45%, according to some experts. The Pension Research Council has quite a bit of information on this you might want to look into.

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Re: Age in Bonds - Still Recommended?

Post by Snowjob » Sat Sep 15, 2018 6:35 pm

Sometimes I read these comments and think I lived through a different recession 10 years ago than other posters.

When your business grinds to a halt and everyone is being let go, when friends and family members have lost jobs and cant find work but still have mortgages and children to take care of. That is when you wish you had some bonds. Something. Anything.

Will having 30% bonds mute your returns as a 30 something accumulator? Sure. But if we go through another crisis and YOU end up being one of those statistics that is under employed / unemployed for several years trying to regain your footing your going to be very happy you were drawing off bonds and not being forced to sell stocks to cover your bills.

I like Ben Graham's rule - never be more than 75% allocated to stocks never be less than 25%. I think that's a fair boundary. As a young(er) person I've been around 80/20 -> 75/25 for most of my working life. I will likely keep this allocation until 5 years before my expected retirement at which I'll evaluate options to become more conservative, perhaps 60/40 or there about's until social security kicks in. After that, I'll probably drift back up to 70/75 Equity range.

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Re: Age in Bonds - Still Recommended?

Post by bogglizer » Sat Sep 15, 2018 7:46 pm

TravelforFun wrote:
Fri Sep 14, 2018 6:58 pm
I guess I'm the only one on this forum who doesn't care about AA. I keep 10 years worth of annual expenses in bonds, CDs, money market, and savings, and the rest is in stock regardless of the %.

TravelforFun
This is a classic example of "asking the right question first." Everyone analyzes the case of a portfolio as a fraction of stocks and bonds. They forget to first ask if viewing portfolio elements as fraction is even a good idea in general. Here is a good example of someone who came up with a completely different allocation question, and settled on 10 years of fixed income, not a fraction. We could all be arguing if 10 years is appropriate instead, and never think of fractions.

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Re: Age in Bonds - Still Recommended?

Post by HEDGEFUNDIE » Sat Sep 15, 2018 8:03 pm

bogglizer wrote:
Sat Sep 15, 2018 7:46 pm
TravelforFun wrote:
Fri Sep 14, 2018 6:58 pm
I guess I'm the only one on this forum who doesn't care about AA. I keep 10 years worth of annual expenses in bonds, CDs, money market, and savings, and the rest is in stock regardless of the %.

TravelforFun
This is a classic example of "asking the right question first." Everyone analyzes the case of a portfolio as a fraction of stocks and bonds. They forget to first ask if viewing portfolio elements as fraction is even a good idea in general. Here is a good example of someone who came up with a completely different allocation question, and settled on 10 years of fixed income, not a fraction. We could all be arguing if 10 years is appropriate instead, and never think of fractions.
So the purpose of bonds is to serve as emergency funds?

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Re: Age in Bonds - Still Recommended?

Post by bogglizer » Sat Sep 15, 2018 8:44 pm

HEDGEFUNDIE wrote:
Sat Sep 15, 2018 8:03 pm
bogglizer wrote:
Sat Sep 15, 2018 7:46 pm
TravelforFun wrote:
Fri Sep 14, 2018 6:58 pm
I guess I'm the only one on this forum who doesn't care about AA. I keep 10 years worth of annual expenses in bonds, CDs, money market, and savings, and the rest is in stock regardless of the %.

TravelforFun
This is a classic example of "asking the right question first." Everyone analyzes the case of a portfolio as a fraction of stocks and bonds. They forget to first ask if viewing portfolio elements as fraction is even a good idea in general. Here is a good example of someone who came up with a completely different allocation question, and settled on 10 years of fixed income, not a fraction. We could all be arguing if 10 years is appropriate instead, and never think of fractions.
So the purpose of bonds is to serve as emergency funds?
I wasn't expressing an opinion of which philosophy was preferred.

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Re: Age in Bonds - Still Recommended?

Post by HEDGEFUNDIE » Sat Sep 15, 2018 8:54 pm

bogglizer wrote:
Sat Sep 15, 2018 8:44 pm
HEDGEFUNDIE wrote:
Sat Sep 15, 2018 8:03 pm
bogglizer wrote:
Sat Sep 15, 2018 7:46 pm
TravelforFun wrote:
Fri Sep 14, 2018 6:58 pm
I guess I'm the only one on this forum who doesn't care about AA. I keep 10 years worth of annual expenses in bonds, CDs, money market, and savings, and the rest is in stock regardless of the %.

TravelforFun
This is a classic example of "asking the right question first." Everyone analyzes the case of a portfolio as a fraction of stocks and bonds. They forget to first ask if viewing portfolio elements as fraction is even a good idea in general. Here is a good example of someone who came up with a completely different allocation question, and settled on 10 years of fixed income, not a fraction. We could all be arguing if 10 years is appropriate instead, and never think of fractions.
So the purpose of bonds is to serve as emergency funds?
I wasn't expressing an opinion of which philosophy was preferred.
It’s an interesting idea, I admit, using your bond allocation as an extended emergency fund with X times annual expenses as the key metric.

Although given the responses on the “what’s your luxury” thread, I suspect this would lead to miserly BHs having 90/10 AAs well into retirement!

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Re: Age in Bonds - Still Recommended?

Post by willthrill81 » Sat Sep 15, 2018 9:36 pm

Snowjob wrote:
Sat Sep 15, 2018 6:35 pm
Sometimes I read these comments and think I lived through a different recession 10 years ago than other posters.

When your business grinds to a halt and everyone is being let go, when friends and family members have lost jobs and cant find work but still have mortgages and children to take care of. That is when you wish you had some bonds. Something. Anything.
The recession and the resulting recovery did indeed elicit very different reactions. Some lost their job and didn't get another for well over a year. Some didn't skip a beat. And there were a lot of folks in the middle. I personally didn't have any family or close friends lose their job throughout the incident.

Some decided that bonds were the answer to stocks' volatility. Others, observing the fairly quick recovery to stocks, saw it as a buying opportunity.
“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

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Re: Age in Bonds - Still Recommended?

Post by Snowjob » Sun Sep 16, 2018 12:05 am

willthrill81 wrote:
Sat Sep 15, 2018 9:36 pm
Snowjob wrote:
Sat Sep 15, 2018 6:35 pm
Sometimes I read these comments and think I lived through a different recession 10 years ago than other posters.

When your business grinds to a halt and everyone is being let go, when friends and family members have lost jobs and cant find work but still have mortgages and children to take care of. That is when you wish you had some bonds. Something. Anything.
The recession and the resulting recovery did indeed elicit very different reactions. Some lost their job and didn't get another for well over a year. Some didn't skip a beat. And there were a lot of folks in the middle. I personally didn't have any family or close friends lose their job throughout the incident.

Some decided that bonds were the answer to stocks' volatility. Others, observing the fairly quick recovery to stocks, saw it as a buying opportunity.
That's just it -- the spread of experiences / outcomes is significant. If you lost your job in 2008, your not going all in on equity in 2009. With regards to deciding that bonds are the solution to volatility or that stocks are good buy since the recovery has been quick - both of those statements seem to be a response to the event that has already happened. In essence your late to the game. Good thing for the OP he is head of any sort of recession / depression right now. With 70/30 allocation or there about's I would expect he is prepared in advance to weather almost any storm, opportunistically re-balance, and likely sleep better than most of his 100/0 peers.

To each their own, I may not have won the game yet, but I've got quite a lead and there is no reason I should gamble it away.

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Re: Age in Bonds - Still Recommended?

Post by Dandy » Sun Sep 16, 2018 6:58 am

If you lost your job in 2008, your not going all in on equity in 2009.
That happened to me in April of 2008 at age 60. I went from having enough for a nice retirement to not having enough and facing up to a 30 year retirement. Jobs of any kind were not available. When you are 60 most of your job related contacts e.g. former bosses are retired or at this time lost their job. My allocation was a bit less aggressive than 60/40. My pension was tied to a firm that was rumored to be going out of business a la Lehman.

I had a paid off house and no other debts and retiree health insurance. I just started a pension (from the firm rumored to be failing). So, I was luckier than most and I can tell you it was a hellish time despite those advantages. While the equity market recovery was rather quick there was no guarantees that that would occur.

I can't imagine if I didn't have a pension or health insurance, had a mortgage and/or kids at home, or didn't still have a decent portfolio with a decent fixed income allocation. I saw the 2000 "correction" as a buying opportunity but not 2008. Later, in 2009, I started adding to my equities. I saw 2008 as a battle for survival.

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