How will VBTLX do considering the FED stimulus, low rates and $23T Gov debt

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jdamo
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How will VBTLX do considering the FED stimulus, low rates and $23T Gov debt

Post by jdamo »

This continues to bug me as I sit invested according to my AA w 60% fixed/40% (SP500& small -mid and VTIAX Intl stock index admiral). My wife and I are retired. I have 60% (~age in bonds)of our retirement in VBTLX (total bond index admiral). How will VBTLX (~6 yr duration) do considering the recent FED stimulus and $23T Gov debt going forward? After all, this is 60% of our retirement funds. The FED says rates will stay low well into 2023 and they will tolerate an average of 2% inflation (sometimes higher for longer to average 2%). Even at 2% we lose ~ half our buying power in ~30 yrs...not trivial over a retirement. I just can't see how this will play out okay. Should I do something different with the fixed income part to manage this risk? Increase equities%?

Do others worry about this or just stay the course with VBTLX and hope for the best?
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David Jay
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Re: How will VBTLX do considering the FED stimulus, low rates and $23T Gov debt

Post by David Jay »

You are looking at current yields to Total Bond and projecting out 30 years.

Total Bond may have low yield for 2-3 years, but the economy will recover and bond yields to look more like historic performance. Using the current conditions as a benchmark for the next 30 years is creating unnecessary angst.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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cos
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Re: How will VBTLX do considering the FED stimulus, low rates and $23T Gov debt

Post by cos »

Nobody knows what the markets will do, but if your outlook is ~30 years, then yes, you probably want the majority of your investments allocated to equities. However, you might benefit even more if you stopped looking at your investments altogether. Find an allocation which actually suits you, get out there, and enjoy life.
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btq96r
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Re: How will VBTLX do considering the FED stimulus, low rates and $23T Gov debt

Post by btq96r »

I think people need to start planning as if the bond yields are going to be closer to a 10yr average than a 30yr one. We're just in a funny place with how savings are penalized to fuel growth. Not saying it can't go back, but that's just my gut feeling and why I'm capping bonds to 10%, cash at 5% and the setting equities at 85% of my AA targets.
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jdamo
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Re: How will VBTLX do considering the FED stimulus, low rates and $23T Gov debt

Post by jdamo »

Thank you all for these replies. I will consider them carefully. I will try to tune out.

It's just hard to sit here and wonder what will happen given the Covid, the election and us being retired for only 1.5 yrs. Harder to get used to not having a paycheck/"normal income" after 38 yrs working vs just relying on your portfolio. Even though I feel our 40%stocks/60% bonds is a good asset allocation for us. I have stuck to our IPS and plan and AA so far. I believe in the Bogleheads points and philosophy. The proof is there. I will try to tune out the news and stay the course. But it isn't easy at times! I guess I am really testing our risk tolerance and volatility tolerance for real vs questions ahead of time.

Anyone else wondering about VBTLX or other advice on this vs upcoming inflation and down market for years possibility?
KlangFool
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Re: How will VBTLX do considering the FED stimulus, low rates and $23T Gov debt

Post by KlangFool »

jdamo wrote: Tue Sep 22, 2020 12:31 pm Thank you all for these replies. I will consider them carefully. I will try to tune out.

It's just hard to sit here and wonder what will happen given the Covid, the election and us being retired for only 1.5 yrs. Harder to get used to not having a paycheck/"normal income" after 38 yrs working vs just relying on your portfolio. Even though I feel our 40%stocks/60% bonds is a good asset allocation for us. I have stuck to our IPS and plan and AA so far. I believe in the Bogleheads points and philosophy. The proof is there. I will try to tune out the news and stay the course. But it isn't easy at times! I guess I am really testing our risk tolerance and volatility tolerance for real vs questions ahead of time.

Anyone else wondering about VBTLX or other advice on this vs upcoming inflation and down market for years possibility?
jdamo,


A) What is your portfolio size as compare to your annual expense? 50X? That is the key question.


<<Anyone else wondering about VBTLX or other advice on this vs upcoming inflation and down market for years possibility?>>


B) As long as your portfolio is big enough and it beats the inflation rate, why does this matter? Your portfolio will get bigger every year.


KlangFool
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jdamo
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Re: How will VBTLX do considering the FED stimulus, low rates and $23T Gov debt

Post by jdamo »

We have 22 X our annual spend, allowing for federal income taxes to be paid first. In other words factoring up our annual AFIT spend to be a BFIT withdrawal from our traditional IRA. So I would more like to see that at 30X just to be sure. Hopefully the 40% stock allocation helps.

I learned a lesson also on my employer huge oil & gas corp stock I worked for and kept in our 401k....it dropped 50% in value. Now looking back of course, I should have diversified into index funds according to my AA but I believed (and still do) in our company and management approach. The market obviously thinks different. But I am keeping it now since don't need the funds and it should come back.
Dottie57
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Re: How will VBTLX do considering the FED stimulus, low rates and $23T Gov debt

Post by Dottie57 »

OP,

If you are truly worried the save more. It is the best way to have enough.
tomd37
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Re: How will VBTLX do considering the FED stimulus, low rates and $23T Gov debt

Post by tomd37 »

jdamo - I share your grief with company stock. In the late 90s to early 2000s my telecommunication company stock went from a high of $88.00+ to a low of $0.88 and later bankruptcy. Fortunately I was able to reduce my holding somewhat, but I did take a beating. :( One should limit holdings of a company they work for to no more than 10%.
Tom D.
KlangFool
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Re: How will VBTLX do considering the FED stimulus, low rates and $23T Gov debt

Post by KlangFool »

jdamo wrote: Mon Sep 21, 2020 11:29 pm
The FED says rates will stay low well into 2023 and they will tolerate an average of 2% inflation (sometimes higher for longer to average 2%). Even at 2% we lose ~ half our buying power in ~30 yrs..
jdamo,

Let's assume 2% inflation is true and your 40/60 portfolio (30X) returns 3%, why do that matter?

<< Even at 2% we lose ~ half our buying power in ~30 yrs..>>

Who says so? This is simple math. Your portfolio will grow a lot bigger.


KlangFool
KlangFool
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Re: How will VBTLX do considering the FED stimulus, low rates and $23T Gov debt

Post by KlangFool »

jdamo wrote: Tue Sep 22, 2020 1:15 pm We have 22 X our annual spend, allowing for federal income taxes to be paid first. In other words factoring up our annual AFIT spend to be a BFIT withdrawal from our traditional IRA. So I would more like to see that at 30X just to be sure. Hopefully the 40% stock allocation helps.

I learned a lesson also on my employer huge oil & gas corp stock I worked for and kept in our 401k....it dropped 50% in value. Now looking back of course, I should have diversified into index funds according to my AA but I believed (and still do) in our company and management approach. The market obviously thinks different. But I am keeping it now since don't need the funds and it should come back.

My friend worked in Enron for over 22 years. He believed in the company and the management.

<<I believed (and still do) in our company and management approach.>>

This is a sunk cost fallacy.

https://en.wikipedia.org/wiki/Sunk_cost

<<But I am keeping it now since don't need the funds and it should come back.>>

Why do you think it will do better than your portfolio? If it does not, why are you keeping it?


KlangFool
Topic Author
jdamo
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Re: How will VBTLX do considering the FED stimulus, low rates and $23T Gov debt

Post by jdamo »

Klang fool- thanks. I guess I am "forgetting" returns, long term growth and compounding of the portfolio over 20-30 + years!

Thanks for reminding me vs worrying about just one facet of our portfolio! :oops:

I will also think carefully about my company stock and probably sell 10%/yr to get it down to a reasonable % of portfolio. It's too hard for me to sell it all at once while it is down and put it in general allocation since it has done well over the past and pays a good dividend. (I realize the past bias and also the dividend bias possibly dragging down growth in the stock price itself over time).

I appreciate the responses!
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