Age in Bond Vs Target date funds

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sina
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Joined: Mon May 20, 2019 10:55 am

Age in Bond Vs Target date funds

Post by sina » Thu May 23, 2019 11:03 am

So according to the information on the BH site, the rough percentage of bonds to own is your age. Well when I look at the target date funds that Vanguard has, its significantly lower. Target Date 2045 for example only has 10% worth of bonds in it.

So i'm confused, which methodology does one follow, age in bonds or what these target dates have? I am also 33 by the way.

lukestuckenhymer
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Re: Age in Bond Vs Target date funds

Post by lukestuckenhymer » Thu May 23, 2019 11:18 am

There is no set methodology. You can see their glide path here:
https://www.bogleheads.org/wiki/Vanguar ... ment_funds

Age in bonds is a bit too conservative for most people. Some people modify it to be Age -10 or Age -20 in bonds.

michaeljmroger
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Re: Age in Bond Vs Target date funds

Post by michaeljmroger » Thu May 23, 2019 11:19 am

I just commented in another similar thread about this. I for one consider the target-date fund allocations way too aggressive, but other people seem fine with it. It really depends on your needs and risk tolerance I guess.

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Phineas J. Whoopee
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Re: Age in Bond Vs Target date funds

Post by Phineas J. Whoopee » Thu May 23, 2019 11:31 am

Age in bonds is a very simple heuristic. It's meant for people who want a mixed portfolio of stocks and bonds but have no idea the proportions to choose. It's a starting point, to be deviated from if, upon reflection, it makes sense for an individual to do so.

Common advice here with respect to the target date funds is first decide the proportions you want and can stick with, then choose a target date fund close to those proportions. Vanguard's LifeStrategy funds are another, relatively static choice (except when they change them).

Additionally I'd like to point out that Bogleheads and Vanguard don't completely follow each other, nor should one expect them to. Bogleheads is about a philosophy, not about Vanguard.

PJW

pward
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Re: Age in Bond Vs Target date funds

Post by pward » Thu May 23, 2019 11:32 am

Target date funds are a bit too concentrated to stock volatility for my tastes and I am very skeptical that stocks can continue to go up at the rates they have since the early 80s (of which everyone is assuming will continue infinitely into the future). But everyone is different. Can you handle a gut wrenching stock drop without it negatively effecting your day to day life? How sure are you that stocks will continue to go up at their current historic rate? Those are the two questions you need to ask.

Topic Author
sina
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Re: Age in Bond Vs Target date funds

Post by sina » Thu May 23, 2019 11:36 am

That's fair, especially given how late the business cycle is, I wouldn't be surprised to see a gut-wrenching fall in the stock market.

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Phineas J. Whoopee
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Re: Age in Bond Vs Target date funds

Post by Phineas J. Whoopee » Thu May 23, 2019 11:39 am

pward wrote:
Thu May 23, 2019 11:32 am
Target date funds are a bit too concentrated to stock volatility for my tastes and I am very skeptical that stocks can continue to go up at the rates they have since the early 80s (of which everyone is assuming will continue infinitely into the future). But everyone is different. Can you handle a gut wrenching stock drop without it negatively effecting your day to day life? How sure are you that stocks will continue to go up at their current historic rate? Those are the two questions you need to ask.
This poster does not speak for me.

PJW

pward
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Re: Age in Bond Vs Target date funds

Post by pward » Thu May 23, 2019 11:41 am

Phineas J. Whoopee wrote:
Thu May 23, 2019 11:39 am
pward wrote:
Thu May 23, 2019 11:32 am
Target date funds are a bit too concentrated to stock volatility for my tastes and I am very skeptical that stocks can continue to go up at the rates they have since the early 80s (of which everyone is assuming will continue infinitely into the future). But everyone is different. Can you handle a gut wrenching stock drop without it negatively effecting your day to day life? How sure are you that stocks will continue to go up at their current historic rate? Those are the two questions you need to ask.
This poster does not speak for me.

PJW
"Everyone" was indeed a bit presumptuous on my part. But it is the common expectation put out in the industry at least that stocks will continue to return ~10% per year forever.

alex_686
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Re: Age in Bond Vs Target date funds

Post by alex_686 » Thu May 23, 2019 11:43 am

To extend abit, Bogleheads really simplifies investment theory to what a layperson can easily understand. Age in bonds, as others have mentioned, is a very simple rule of thumb. There is no theory behind it.

On the other hand, target date funds actually hire people to figure out the right answer- for a generic slightly risk adverse person.

So neither? The correct answer is to spend a good chunk of change to build a custom AS that matches your life span, goals, and risk tolerance. Or you could just save that money and invest it.

So no right answer? Honestly the impact of age vs target date will be small for the long haul.

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sina
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Re: Age in Bond Vs Target date funds

Post by sina » Thu May 23, 2019 12:05 pm

Thank you all. This was informative.

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