The FED tapering in November to finish by 1Q2022. Will you change your 3-Fund Strategy?

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jdamo
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The FED tapering in November to finish by 1Q2022. Will you change your 3-Fund Strategy?

Post by jdamo »

The FED recent minutes increasingly mention continued inflation above target 2% that is longer and not just transatory. They have said they will start tapering the $120B/month purchases of Treasuries and mortgage based securities(started in June 2020) at a pace of reducing $15B/month. This will finish the taper in 8 months or from Nov2021 to June2022 and is faster than previously discussed. Some say even finish taper by 1Q2022. This is faster than the previous "temper tantrum" that had a big drop in the markets. The pandemic and recent stimulus and gov spending are big events that we have not seen such massive gov spending since World War 2.

Action- Should I and how should I if so change my 3-fund Bogle retirement investing strategy? What are you planning to do?

[OT comments removed by admin LadyGeek]

We are retired for 2 yrs now and follow the 3-Fund strategy with 40% stock(VFIAX/VTIAX)/50% bond (VBTLX)& 10% cash asset alloc. The stock is 22% SP500(VFIAX) and 18% Intl major Stock index (VTIAX) We also have a 5 yr+ cash reserve not included above. Current portfolio is 30 yrs at straight liquidation. This has done ok so far but I worry about the impact on the bond portion for the next years as interest rates "adjust". But it may be longer than a few years of increase also?

Should I increase my AA to 50% stock (or even 60% stock AA) since companies can manage their business, thus manage costs and impact of further inflation and still grow? I am seriously thinking of permanently changing my IPS and going at least to 50% stock allocation.
Or, Should I sell 10-20% of the VBTLX and buy the Vanguard Infl Protected Securities Fund (VAIPX) to help diversify against possible inflation?
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by TheDDC »

jdamo wrote: Sun Oct 24, 2021 6:33 pm The FED recent minutes increasingly mention continued inflation above target 2% that is longer and not just transatory. They have said they will start tapering the $120B/month purchases of Treasuries and mortgage based securities(started in June 2020) at a pace of reducing $15B/month. This will finish the taper in 8 months or from Nov2021 to June2022 and is faster than previously discussed. Some say even finish taper by 1Q2022. This is faster than the previous "temper tantrum" that had a big drop in the markets. The pandemic and recent stimulus and gov spending are big events that we have not seen such massive gov spending since World War 2.

Action- Should I and how should I if so change my 3-fund Bogle retirement investing strategy? What are you planning to do?

[OT comments removed by admin LadyGeek]

We are retired for 2 yrs now and follow the 3-Fund strategy with 40% stock(VFIAX/VTIAX)/50% bond (VBTLX)& 10% cash asset alloc. The stock is 22% SP500(VFIAX) and 18% Intl major Stock index (VTIAX) We also have a 5 yr+ cash reserve not included above. Current portfolio is 30 yrs at straight liquidation. This has done ok so far but I worry about the impact on the bond portion for the next years as interest rates "adjust". But it may be longer than a few years of increase also?

Should I increase my AA to 50% stock (or even 60% stock AA) since companies can manage their business, thus manage costs and impact of further inflation and still grow? I am seriously thinking of permanently changing my IPS and going at least to 50% stock allocation.
Or, Should I sell 10-20% of the VBTLX and buy the Vanguard Infl Protected Securities Fund (VAIPX) to help diversify against possible inflation?
I wouldn’t change an AA based on this. None of us would tell you to do this as we don’t react to events in that fashion.

I have maintained a 100/0 AA in my taxable accounts since I first began investing a few years ago. The only reason I have ever sold out of VTSAX has been to soak up some sweet bank bonuses. Within a few years I was back in. However, I sold at a low and with the back bonuses I did a little better than break even. That was the slap in the face I needed to know that you only get killed on a roller coaster if you jump off.

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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by grabiner »

Bond investors already know about the Fed's announced policies, and thus they trade bonds at prices and yields which reflect future expectations. Investors should always expect slightly higher returns from long-term bonds than from short-term bonds, since long-term bond have more risk. Thus, if investors expect rates to rise next year, which will cause long-term bonds to lose value, they will demand significantly higher yields on long-term bonds now; if investors expect rates to fall, long-term yields may be lower than short-term yields. In either case, there is nothing for you to gain by timing the bond market.

You should change your investment strategy if your own personal situation has changed. If you just refinanced an adjustable-rate mortgage to a fixed-rate mortgage, you now have negative inflation risk, so you have less need for TIPS. If you are closer to retirement, your risk tolerance has decreased, so you should hold less stock and more fixed income.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by jdamo »

Thanks for the responses.
I realize the bond markets, short or long, have priced in FED announcements. It seems though we are in uncharted territory, not "normal" bond market time frames of the past where future (anticipated) interest rate moves get priced in. Inflation now is 5-10% depending on what measure you look at and it seems the FED is slow to react to it in my opinion...I'm trying to stick to my IPS but, aren't others worried about this too?

I guess what you are telling me is the same stick to the IPS and stick to the 3-Fund strategy, don't change %stock/%bond and ride it out per Boglehead fashion because investors have already priced this in. However, I don't think we have seen the magnitude of this taper and recent stimulus ever before.
So, are you just sticking with your IPS at current AA?
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by 000 »

My asset allocation already included all the cash and alts I desire to feel comfortable.

Stagflation is the Achilles heel of the three fund portfolio. Including TIPS or alts makes sense to me. Whether or not it makes sense to change course from the three fund because of recent announcements is another question.

With all the recent inflation talk here and elsewhere and TIPS shunners jumping on the TIPS train I have to wonder if the inflation narrative is currently overbought over the short term. Perhaps we see deflation first making the inflation narrative correct but early.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by jdamo »

grabiner wrote: Sun Oct 24, 2021 6:53 pm Bond investors already know about the Fed's announced policies, and thus they trade bonds at prices and yields which reflect future expectations. Investors should always expect slightly higher returns from long-term bonds than from short-term bonds, since long-term bond have more risk. Thus, if investors expect rates to rise next year, which will cause long-term bonds to lose value, they will demand significantly higher yields on long-term bonds now; if investors expect rates to fall, long-term yields may be lower than short-term yields. In either case, there is nothing for you to gain by timing the bond market.

You should change your investment strategy if your own personal situation has changed. If you just refinanced an adjustable-rate mortgage to a fixed-rate mortgage, you now have negative inflation risk, so you have less need for TIPS. If you are closer to retirement, your risk tolerance has decreased, so you should hold less stock and more fixed income.
Thanks.
I am already in retirement so the current 60% bond alloc. However, I wonder if we are in such a different situation with the tapering and the large gov spending that it will fundamentally change things for a long time...10 or 20 years...essentially the rest of my retirement (hopefully longer though! :wink:) but, hence my question that the fundamental AA should change to include more stock % to perform as expected when I formulated my IPS at retirement given my risk tolerance and need to take risk.

In other words, perhaps I need to take more risk now since fundamentally I may need more future return to counter long term inflation?

Are we ever going to dig out of this massive spending hole like we did last time after WW2 when there were not as much mandatory gov entitlement spending? Again- only investing comments please.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by Gryphon »

It's true inflation was running above normal the first part of this year, but it's settled down the last couple of months. And that was following a year of below normal inflation. It looks to me like the CPI right now is about where it would have been if COVID had not happened and things had continued the way they had been prior to 2020.

So for me personally it's way too soon to be thinking about any IPS changes due to a permanent increase in inflation, as I haven't yet seen that. Those inflation rates are going to have to stick around a lot longer than 6 months to convince me.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by Marseille07 »

I think it's OK to change it when one feels like they made a mistake. IPS should be stable, but it's not a permanent, never-change-till-afterlife kind of thing.

So yes, if you aren't happy with 40/60 then pick something else; but don't change further. Otherwise you're just timing your IPS.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by chipperd »

jdamo wrote: Sun Oct 24, 2021 6:33 pm The FED recent minutes increasingly mention continued inflation above target 2% that is longer and not just transatory. They have said they will start tapering the $120B/month purchases of Treasuries and mortgage based securities(started in June 2020) at a pace of reducing $15B/month. This will finish the taper in 8 months or from Nov2021 to June2022 and is faster than previously discussed. Some say even finish taper by 1Q2022. This is faster than the previous "temper tantrum" that had a big drop in the markets. The pandemic and recent stimulus and gov spending are big events that we have not seen such massive gov spending since World War 2.

Action- Should I and how should I if so change my 3-fund Bogle retirement investing strategy? What are you planning to do?

[OT comments removed by admin LadyGeek]

We are retired for 2 yrs now and follow the 3-Fund strategy with 40% stock(VFIAX/VTIAX)/50% bond (VBTLX)& 10% cash asset alloc. The stock is 22% SP500(VFIAX) and 18% Intl major Stock index (VTIAX) We also have a 5 yr+ cash reserve not included above. Current portfolio is 30 yrs at straight liquidation. This has done ok so far but I worry about the impact on the bond portion for the next years as interest rates "adjust". But it may be longer than a few years of increase also?

Should I increase my AA to 50% stock (or even 60% stock AA) since companies can manage their business, thus manage costs and impact of further inflation and still grow? I am seriously thinking of permanently changing my IPS and going at least to 50% stock allocation.
Or, Should I sell 10-20% of the VBTLX and buy the Vanguard Infl Protected Securities Fund (VAIPX) to help diversify against possible inflation?
So including this 5 yr cash reserve, what are your asset allocation percentages?
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by Karamatsu »

What are you planning to do?
I won't be changing anything in response to the tapering-off. In fact I'm looking forward to bond yields getting back to normal. I imagine the three-fund portfolio has been well-tested through inflationary periods, but if you're concerned, you might consider at least allocating some of that five-year cash reserve to I-Bonds.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by z3r0c00l »

5 years in cash I would put the rest in diversified basket of global stocks or invest that cash so that your overall AA is something like what you describe. 40% stocks, 50% bonds, 10% cash is a good, if rather conservative, AA to have in retirement. I would personally consider 50-60% stocks for my retirement but it is all in a comparable range.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by nisiprius »

I've never strictly followed a three-fund strategy. And I've had an important part of my lower-risk-not-stocks allocation in directly-CPI-linked vehicles for twenty years.

I'm afraid I'm a little bit smug about having bought my first TIPS in 1998 and my first Series I savings bond in 2000. People justly credit Mel Lindauer for calling attention to I bonds in the forum(s), but I had spotted them for myself. I was glad for the confirmation, though.

Both TIPS and I bonds simply required looking at investments that were available with a reasonably clear head. Looking at them in an absolute way based on merits and ones' needs and preferences, rather than restricting ones' self to what investment writers were writing about. Both of them fall in the category of obvious, and obviously-decent investments. Boring. Decent. One can only speculate but I believe they are intentionally ignored by mainstream finance writers, because they are part of the culture of Wall Street, where people can't make any money out of I bonds, and can't make very much out of TIPS.

To tell the honest truth I'm not sure why I hold any nominal bonds at all, but I've never wanted to be that far out of the mainstream. I am not saying that TIPS are just plain better or that I hope to score some subtle portfolio improvement through correlations. It's more like: my personal utility function has long included inflation fears. CPI-linked vehicles are more to my taste for any long-term holding. It's not a free lunch, but the downsides are subtle: somewhat more volatility, somewhat less liquidity, a quirky up-10%-then-down-10% jog in 2007 and 2008. Some people are OK with more volatility in corporates in hope of more return, I'm OK with more volatility in TIPS in hope of more inflation protection.

At the moment, if I count (unmarketable) series I savings bonds along with Vanguard Total Bond Market Index Fund, and the Vanguard Inflation-Protected Securities Fund as "fixed income," 70% of my fixed income is directly linked to the CPI index, so it is 70% protected against inflation. Eh. Not bad.

Stocks are what they are. They likely provide inflation protection of some kind, although as Benjamin Graham wrote:
On this point we can be categorical. There is no close time connection between inflationary (or deflationary) conditions and the movement of common-stock earnings and prices.
My risk tolerance is what it is. I have no reason to think it has increased. I don't think most peoples' risk tolerance increases in turbulent times. The idea of taking more risk has never made any sense at all to me.

I don't think there's any certainty at all that we are in for another 1975-85. I think it is a definite mistake to do major tinkering on the basis of "everybody-says" predictions.

I don't think there are any magic answers. If you're worried about inflation, the thing to do is to worry about inflation surprises all the time, and have a reasonable stay-the-course portfolio with an inflation-protection "tilt" all the time. And accept the fact that if high inflation doesn't materialize, you will have a somewhat suboptimal portfolio.

If you are thinking in market-timing terms, it might not seem like now is the best time to add TIPS. But if you feel that you have misjudged your personal risk tolerance for inflation surprises, and you suddenly realize that you want generally prepare for future inflation, then as a long-term investor a sane person could suck it up and say "oh, well, perhaps I'm overpaying but this is the portfolio I want to have for the long-term future." You know. "The best time to plant a tree was 20 years ago. The second best time is now."

Anyway, I think I'm sorta OK and am not planning to make changes. I'm already partially prepared for inflation, and if it never happens and I never "score," I'm fine with that.

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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by muffins14 »

Having a 30x portfolio with 3x in cash and 15x in bonds feels too anti-volatility to me.

Do you really need 3 years of expenses in cash and 15 in bonds?

If inflation is a worry, I’d allocate more to stocks, like a 50/50 portfolio instead of your 40/60
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Post by Taylor Larimore »

jdamo:

Your Three-Fund Strategy has served you well.

Stay the course.

Best wishes
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by KlangFool »

jdamo wrote: Sun Oct 24, 2021 8:25 pm
However, I don't think we have seen the magnitude of this taper and recent stimulus ever before.
jdamo,

If you know this, why do you think folks that are paid millions every year to manage, issue, and buy bond do not know this? And, they do not price this into their decision?

Ditto for folks that are paid millions to buy and sell stock.

It is EXPECTED. Only UNEXPECTED change would change the price.

If you really believe what you are posting, aka, the stock and bond markets are not efficient, then, passive index is not the way to go for you. But, counting your own ability to predict the future is not the way to go. 40% of my portfolio is in the Wellington Fund for this reason. The fund managers are paid millions to manage stock and bond purchases.

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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by BitTooAggressive »

I think a high inflation environment in the United States makes another strong argument for international diversification on your equities side. I am currently 55 US, 45 international and may push it to 50/50. Not sure 5 % either way matters.
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Re: The FED tapering in November to finish by ?. Will you change your 3-Fund Strategy?

Post by bobcat2 »

Thread title -
The FED tapering in November to finish by 1Q2021.
Unless the OP has access to a time machine, the title of this thread cannot possibly be right. :oops:

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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by dbr »

Thinking that your long term investment plan should include dancing a jig to every current short term event and variation is probably a mistake, sometimes a costly one, if not also stressful and time consuming. Long term plans are supposed to be designed around the understanding that stuff is happening all the time.

As far as inflation, I agree with nisi that it is a bit of a mystery why we would not use anything but inflation indexed bonds, and like nisi I guess I concluded that TIPS or I bonds being the only bond just seemed like it was too concentrated, but I am not sure why. We were early buyers of TIPS fund when it came out. So we have ended up with half our bonds in intermediate TIPS for long run, the long run being 30-40-50 years.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by BitTooAggressive »

KlangFool wrote: Mon Oct 25, 2021 8:29 am
jdamo wrote: Sun Oct 24, 2021 8:25 pm
However, I don't think we have seen the magnitude of this taper and recent stimulus ever before.
jdamo,

If you know this, why do you think folks that are paid millions every year to manage, issue, and buy bond do not know this? And, they do not price this into their decision?

Ditto for folks that are paid millions to buy and sell stock.

It is EXPECTED. Only UNEXPECTED change would change the price.

If you really believe what you are posting, aka, the stock and bond markets are not efficient, then, passive index is not the way to go for you. But, counting your own ability to predict the future is not the way to go. 40% of my portfolio is in the Wellington Fund for this reason. The fund managers are paid millions to manage stock and bond purchases.

KlangFool
Some people are paid a lot of money and are not good at their jobs. We have all seen this so I am sure there are countless fund managers that are not very good compared to their peers.

As far as priced into the market yes you are correct, but if you are running a long term bond fund in a world of rising interest rates good luck with trying to make your clients money. I suppose the good ones will lose less money.

I think the markets are efficient over time but certainly not perfect in their efficiency and possibly not priced correctly in the short run. . Even if information is perfect human beings ability to interpret will vary. I do not think I am smart enough to benefit from that or figure it out.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by KlangFool »

BitTooAggressive wrote: Mon Oct 25, 2021 8:56 am
KlangFool wrote: Mon Oct 25, 2021 8:29 am
jdamo wrote: Sun Oct 24, 2021 8:25 pm
However, I don't think we have seen the magnitude of this taper and recent stimulus ever before.
jdamo,

If you know this, why do you think folks that are paid millions every year to manage, issue, and buy bond do not know this? And, they do not price this into their decision?

Ditto for folks that are paid millions to buy and sell stock.

It is EXPECTED. Only UNEXPECTED change would change the price.

If you really believe what you are posting, aka, the stock and bond markets are not efficient, then, passive index is not the way to go for you. But, counting your own ability to predict the future is not the way to go. 40% of my portfolio is in the Wellington Fund for this reason. The fund managers are paid millions to manage stock and bond purchases.

KlangFool
Some people are paid a lot of money and are not good at their jobs.
BitTooAggressive,

If the paid professionals are doing a lousy job, why do we think that amateurs like us can do a better job? If I am that good, I would be RICH and Retired at a beach somewhere.

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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by BitTooAggressive »

KlangFool wrote: Mon Oct 25, 2021 9:18 am
BitTooAggressive wrote: Mon Oct 25, 2021 8:56 am
KlangFool wrote: Mon Oct 25, 2021 8:29 am
jdamo wrote: Sun Oct 24, 2021 8:25 pm
However, I don't think we have seen the magnitude of this taper and recent stimulus ever before.
jdamo,

If you know this, why do you think folks that are paid millions every year to manage, issue, and buy bond do not know this? And, they do not price this into their decision?

Ditto for folks that are paid millions to buy and sell stock.

It is EXPECTED. Only UNEXPECTED change would change the price.

If you really believe what you are posting, aka, the stock and bond markets are not efficient, then, passive index is not the way to go for you. But, counting your own ability to predict the future is not the way to go. 40% of my portfolio is in the Wellington Fund for this reason. The fund managers are paid millions to manage stock and bond purchases.

KlangFool
Some people are paid a lot of money and are not good at their jobs.
BitTooAggressive,

If the paid professionals are doing a lousy job, why do we think that amateurs like us can do a better job? If I am that good, I would be RICH and Retired at a beach somewhere.

KlangFool
I suppose I would say that I cannot beat a professional manager for a particular asset class unless we do the index comparison vs active management and I get to be the index.

But if I am in a long term bond fund and I become concerned about duration risk I can adjust to a shorter term duration where an active manager maybe constrained by the type of fund they run.

Just like now it may not be unreasonable to hold half tips so you are at least half right/wrong depending how you want to look at it.
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Re: The FED tapering in November to finish by 1Q2022. Will you change your 3-Fund Strategy?

Post by LadyGeek »

I removed some off-topic comments related to economic policy. As a reminder, see: Non-actionable (Trolling) Topics
If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:
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I also fixed a typo in the thread title "1Q2021" to 1Q2022".
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by KlangFool »

BitTooAggressive wrote: Mon Oct 25, 2021 9:33 am
I suppose I would say that I cannot beat a professional manager for a particular asset class unless we do the index comparison vs active management and I get to be the index.

But if I am in a long term bond fund and I become concerned about duration risk I can adjust to a shorter term duration where an active manager maybe constrained by the type of fund they run.

Just like now it may not be unreasonable to hold half tips so you are at least half right/wrong depending how you want to look at it.
BitTooAggressive,

And, if you go down that path, why not just use the Wellington Fund with 0.16% expense ratio?

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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by BitTooAggressive »

KlangFool wrote: Mon Oct 25, 2021 10:06 am
BitTooAggressive wrote: Mon Oct 25, 2021 9:33 am
I suppose I would say that I cannot beat a professional manager for a particular asset class unless we do the index comparison vs active management and I get to be the index.

But if I am in a long term bond fund and I become concerned about duration risk I can adjust to a shorter term duration where an active manager maybe constrained by the type of fund they run.

Just like now it may not be unreasonable to hold half tips so you are at least half right/wrong depending how you want to look at it.
BitTooAggressive,

And, if you go down that path, why not just use the Wellington Fund with 0.16% expense ratio?

KlangFool
That’s not a bad option at all. I have been considering my portfolio and possibly simplifying it. Right now I hold short term bonds, total stock market, total international, and some small cap funds all vanguard. I hold the us stock market and international as stand alone rather than holding life strategy because of expenses.

Due to the fact I might not live forever at the time of retirement I may simplify to a life strategy and keep short term bond and small cap funds. That way I can have simple rebalancing rules for my wife who is likely to out live me.
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Re: The FED tapering in November to finish by 1Q2022. Will you change your 3-Fund Strategy?

Post by willthrill81 »

I wonder if the OP would be asking these questions if his/her bonds were all in TIPS and/or I bonds.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by Lalamimi »

KlangFool
[/quote]
I suppose I would say that I cannot beat a professional manager for a particular asset class unless we do the index comparison vs active management and I get to be the index.

But if I am in a long term bond fund and I become concerned about duration risk I can adjust to a shorter term duration where an active manager maybe constrained by the type of fund they run.

Just like now it may not be unreasonable to hold half tips so you are at least half right/wrong depending how you want to look at it.
[/quote]

I am new to bonds and having trouble identifying Short term bonds. How does one do this on Fidelity? We currently hold ISHARES CORE US AGGREGATE BOND ETF, VANGUARD BD INDEX FDS TOTAL BND MRKT, FIDELITY U.S. BOND INDEX FUND, and have added FIDELITY INFLAT-PROT BD INDEX FUND, and VANGUARD SCOTTSDALE FDS LONG TERM TREAS, SCHWAB STRATEGIC TR US TIPS ETF for longer terms. AA is 57% domestic funds/7% foreign/24% bonds and TIPs/12% cash.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by dbr »

Lalamimi wrote: Mon Oct 25, 2021 12:17 pm

I am new to bonds and having trouble identifying Short term bonds. How does one do this on Fidelity? We currently hold ISHARES CORE US AGGREGATE BOND ETF, VANGUARD BD INDEX FDS TOTAL BND MRKT, FIDELITY U.S. BOND INDEX FUND, and have added FIDELITY INFLAT-PROT BD INDEX FUND, and VANGUARD SCOTTSDALE FDS LONG TERM TREAS, SCHWAB STRATEGIC TR US TIPS ETF for longer terms. AA is 57% domestic funds/7% foreign/24% bonds and TIPs/12% cash.
You want to find a data sheet for the fund and look at the average duration, which will be a number in years.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by Lalamimi »

dbr wrote: Mon Oct 25, 2021 12:38 pm
Lalamimi wrote: Mon Oct 25, 2021 12:17 pm

I am new to bonds and having trouble identifying Short term bonds. How does one do this on Fidelity? We currently hold ISHARES CORE US AGGREGATE BOND ETF, VANGUARD BD INDEX FDS TOTAL BND MRKT, FIDELITY U.S. BOND INDEX FUND, and have added FIDELITY INFLAT-PROT BD INDEX FUND, and VANGUARD SCOTTSDALE FDS LONG TERM TREAS, SCHWAB STRATEGIC TR US TIPS ETF for longer terms. AA is 57% domestic funds/7% foreign/24% bonds and TIPs/12% cash.
You want to find a data sheet for the fund and look at the average duration, which will be a number in years.
I realize this, but where to start? look at every bond fund offered??
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by dbr »

Lalamimi wrote: Mon Oct 25, 2021 12:45 pm
dbr wrote: Mon Oct 25, 2021 12:38 pm
Lalamimi wrote: Mon Oct 25, 2021 12:17 pm

I am new to bonds and having trouble identifying Short term bonds. How does one do this on Fidelity? We currently hold ISHARES CORE US AGGREGATE BOND ETF, VANGUARD BD INDEX FDS TOTAL BND MRKT, FIDELITY U.S. BOND INDEX FUND, and have added FIDELITY INFLAT-PROT BD INDEX FUND, and VANGUARD SCOTTSDALE FDS LONG TERM TREAS, SCHWAB STRATEGIC TR US TIPS ETF for longer terms. AA is 57% domestic funds/7% foreign/24% bonds and TIPs/12% cash.
You want to find a data sheet for the fund and look at the average duration, which will be a number in years.
I realize this, but where to start? look at every bond fund offered??
If you hold your accounts at Vanguard you can look through the list here: https://investor.vanguard.com/mutual-fu ... nd-returns

Vanguard labels their bonds short, intermediate, and long.

At Fidelity here is a list (selected for duration 1-3 years and under 1 year: https://fundresearch.fidelity.com/fund- ... geDuration

You don't have to look at all the funds from all the companies to find something that will work.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by Lalamimi »

dbr wrote: Mon Oct 25, 2021 12:54 pm
Lalamimi wrote: Mon Oct 25, 2021 12:45 pm
dbr wrote: Mon Oct 25, 2021 12:38 pm
Lalamimi wrote: Mon Oct 25, 2021 12:17 pm

I am new to bonds and having trouble identifying Short term bonds. How does one do this on Fidelity? We currently hold ISHARES CORE US AGGREGATE BOND ETF, VANGUARD BD INDEX FDS TOTAL BND MRKT, FIDELITY U.S. BOND INDEX FUND, and have added FIDELITY INFLAT-PROT BD INDEX FUND, and VANGUARD SCOTTSDALE FDS LONG TERM TREAS, SCHWAB STRATEGIC TR US TIPS ETF for longer terms. AA is 57% domestic funds/7% foreign/24% bonds and TIPs/12% cash.
You want to find a data sheet for the fund and look at the average duration, which will be a number in years.
I realize this, but where to start? look at every bond fund offered??
If you hold your accounts at Vanguard you can look through the list here: https://investor.vanguard.com/mutual-fu ... nd-returns

Vanguard labels their bonds short, intermediate, and long.

At Fidelity here is a list (selected for duration 1-3 years and under 1 year: https://fundresearch.fidelity.com/fund- ... geDuration

You don't have to look at all the funds from all the companies to find something that will work.
Got it! Thanks very much! I just found VANGUARD SHORT-TERM BOND INDEX FUND, it might be promising.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by jdamo »

nisiprius wrote: Mon Oct 25, 2021 7:58 am I've never strictly followed a three-fund strategy. And I've had an important part of my lower-risk-not-stocks allocation in directly-CPI-linked vehicles for twenty years.

I'm afraid I'm a little bit smug about having bought my first TIPS in 1998 and my first Series I savings bond in 2000. People justly credit Mel Lindauer for calling attention to I bonds in the forum(s), but I had spotted them for myself. I was glad for the confirmation, though.

Both TIPS and I bonds simply required looking at investments that were available with a reasonably clear head. Looking at them in an absolute way based on merits and ones' needs and preferences, rather than restricting ones' self to what investment writers were writing about. Both of them fall in the category of obvious, and obviously-decent investments. Boring. Decent. One can only speculate but I believe they are intentionally ignored by mainstream finance writers, because they are part of the culture of Wall Street, where people can't make any money out of I bonds, and can't make very much out of TIPS.

To tell the honest truth I'm not sure why I hold any nominal bonds at all, but I've never wanted to be that far out of the mainstream. I am not saying that TIPS are just plain better or that I hope to score some subtle portfolio improvement through correlations. It's more like: my personal utility function has long included inflation fears. CPI-linked vehicles are more to my taste for any long-term holding. It's not a free lunch, but the downsides are subtle: somewhat more volatility, somewhat less liquidity, a quirky up-10%-then-down-10% jog in 2007 and 2008. Some people are OK with more volatility in corporates in hope of more return, I'm OK with more volatility in TIPS in hope of more inflation protection.

At the moment, if I count (unmarketable) series I savings bonds along with Vanguard Total Bond Market Index Fund, and the Vanguard Inflation-Protected Securities Fund as "fixed income," 70% of my fixed income is directly linked to the CPI index, so it is 70% protected against inflation. Eh. Not bad.

Stocks are what they are. They likely provide inflation protection of some kind, although as Benjamin Graham wrote:
On this point we can be categorical. There is no close time connection between inflationary (or deflationary) conditions and the movement of common-stock earnings and prices.
My risk tolerance is what it is. I have no reason to think it has increased. I don't think most peoples' risk tolerance increases in turbulent times. The idea of taking more risk has never made any sense at all to me.

I don't think there's any certainty at all that we are in for another 1975-85. I think it is a definite mistake to do major tinkering on the basis of "everybody-says" predictions.

I don't think there are any magic answers. If you're worried about inflation, the thing to do is to worry about inflation surprises all the time, and have a reasonable stay-the-course portfolio with an inflation-protection "tilt" all the time. And accept the fact that if high inflation doesn't materialize, you will have a somewhat suboptimal portfolio.

If you are thinking in market-timing terms, it might not seem like now is the best time to add TIPS. But if you feel that you have misjudged your personal risk tolerance for inflation surprises, and you suddenly realize that you want generally prepare for future inflation, then as a long-term investor a sane person could suck it up and say "oh, well, perhaps I'm overpaying but this is the portfolio I want to have for the long-term future." You know. "The best time to plant a tree was 20 years ago. The second best time is now."

Anyway, I think I'm sorta OK and am not planning to make changes. I'm already partially prepared for inflation, and if it never happens and I never "score," I'm fine with that.

Image
nsiprius- Thanks for this thoughtful response. I think I need to consider TIPS in some %
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Re: The FED tapering in November to finish by 1Q2022 (corrected!)?. Will you change your 3-Fund Strategy?

Post by jdamo »

bobcat2 wrote: Mon Oct 25, 2021 8:44 am Thread title -
The FED tapering in November to finish by 1Q2021.
Unless the OP has access to a time machine, the title of this thread cannot possibly be right. :oops:

BobK
Oops ...yes I meant 1Q2022!!! I can't seem to find the edit option or button on the forum!
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by 3CT_Paddler »

Gryphon wrote: Sun Oct 24, 2021 11:58 pm It's true inflation was running above normal the first part of this year, but it's settled down the last couple of months. And that was following a year of below normal inflation. It looks to me like the CPI right now is about where it would have been if COVID had not happened and things had continued the way they had been prior to 2020.

So for me personally it's way too soon to be thinking about any IPS changes due to a permanent increase in inflation, as I haven't yet seen that. Those inflation rates are going to have to stick around a lot longer than 6 months to convince me.
Prior to the pandemic CPI was around 2%, followed by around 1% and now at a consistent 5% with some signs it is increasing higher.
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Re: The FED tapering in November to finish by 1Q2022. Will you change your 3-Fund Strategy?

Post by jdamo »

I want to thank all the above replies for their input. Lots of good comments and thoughts here!

This seems a fundamental question to most Boglehead investors if following the 3-fund, whether to stick with 3-fund or change part of the bond portion with some TIPS mutual fund due to more (!) inflation coming up. It's hard not to be concerned about this.

dbr- Good point not to change the IPS due to many variations in economics that happen over the longer term, but this seems like a "bigger shift to continue forward". (??-my thoughts)

Klangfool- I know lots of smart folks/the intelligent market are pricing in current knowledge and outlook in bonds and stocks...good points again. So maybe I shouldn't change.

Taylor Larimore- I definitely hear you and the advice to "stay the course"......I have so far.....probably will after reading all this and it sinks in. Plus the 3-fund is simple and easy to rebalance and understand!

Sandtrap- what are your thoughts?

Many thanks to the forum! It's great to have this forum to ask these questions from folks with more experience and particularly the author of the book, "The Bogleheads Guide to Investing"!!! (which I refer to!)
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by secondopinion »

KlangFool wrote: Mon Oct 25, 2021 9:18 am If the paid professionals are doing a lousy job, why do we think that amateurs like us can do a better job? If I am that good, I would be RICH and Retired at a beach somewhere.

KlangFool
The job is to match my portfolio to take the risks I can afford, and reduce those risks that I cannot take as much. I can do a better job of this than a professional where their strategies are for the masses and/or their paycheck (thus disregarding my desires).

Good self-management of the portfolio does not equal retirement at a beach. Just like you trust Wellington (or the other, I cannot remember) to do the right thing; I trust my own management with some of my money.

Realism and humility are the two largest factors of investing, especially if you are doing active management.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by KlangFool »

secondopinion wrote: Mon Oct 25, 2021 8:12 pm
KlangFool wrote: Mon Oct 25, 2021 9:18 am If the paid professionals are doing a lousy job, why do we think that amateurs like us can do a better job? If I am that good, I would be RICH and Retired at a beach somewhere.

KlangFool
The job is to match my portfolio to take the risks I can afford, and reduce those risks that I cannot take as much. I can do a better job of this than a professional where their strategies are for the masses and/or their paycheck (thus disregarding my desires).
secondopinion,

This is NOT the topic of this thread.

It is about "market timing" and active management of the stock and bond. Are you good at that? I know I am not.

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Re: The FED tapering in November to finish by 1Q2022. Will you change your 3-Fund Strategy?

Post by tibbitts »

My general inclination is that no matter how much logic I apply, by the time I realize I should change something and get around to actually changing it, it's too late, and changing it becomes worse than doing nothing.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by secondopinion »

KlangFool wrote: Mon Oct 25, 2021 8:29 pm
secondopinion wrote: Mon Oct 25, 2021 8:12 pm
KlangFool wrote: Mon Oct 25, 2021 9:18 am If the paid professionals are doing a lousy job, why do we think that amateurs like us can do a better job? If I am that good, I would be RICH and Retired at a beach somewhere.

KlangFool
The job is to match my portfolio to take the risks I can afford, and reduce those risks that I cannot take as much. I can do a better job of this than a professional where their strategies are for the masses and/or their paycheck (thus disregarding my desires).
secondopinion,

This is NOT the topic of this thread.

It is about "market timing" and active management of the stock and bond. Are you good at that? I know I am not.

KlangFool
The thread is about changing the allocation based on some event, according to the presence of some possible risk factor. That is, the "FED tapering finishing risk". The root question is whether it is worth taking more of this risk, less of it, or do nothing? If this sounds ridiculous, maybe it is.

To the OP, I doubt the present information or the risk of their actions is worth changing anything. Generally, it is best to do nothing.

To the other points, it really depends on what one calls "active management".

Realistic assessments of risks for returns based on dynamic market conditions and the adjusting of the portfolio based on those assessments is the keystone of active management. Market timing (buying/selling at the right times) does not show up once in this statement; that is because they are two entirely different concepts. I think there is a misunderstanding between active management and market timing amongst people here.

One might trust Vanguard to do active management; I trust myself to do it. What is best for one might not be for others. As long as the managers are using sound practices, it is going to be the endless tug and war as to what is the best choice.

In short, my previous post was tangential and missed the point of the original question. To the comment of professionals versus amateurs (which was my tangent), one will need to make a sound judgment as to what they will do. Every decision is an active one, even if that is holding the total stock market another day.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: The FED tapering in November to finish by 1Q2022. Will you change your 3-Fund Strategy?

Post by wolf359 »

jdamo wrote: Sun Oct 24, 2021 6:33 pm The FED recent minutes increasingly mention continued inflation above target 2% that is longer and not just transatory. They have said they will start tapering the $120B/month purchases of Treasuries and mortgage based securities(started in June 2020) at a pace of reducing $15B/month. This will finish the taper in 8 months or from Nov2021 to June2022 and is faster than previously discussed. Some say even finish taper by 1Q2022. This is faster than the previous "temper tantrum" that had a big drop in the markets. The pandemic and recent stimulus and gov spending are big events that we have not seen such massive gov spending since World War 2.

Action- Should I and how should I if so change my 3-fund Bogle retirement investing strategy? What are you planning to do?

[OT comments removed by admin LadyGeek]

We are retired for 2 yrs now and follow the 3-Fund strategy with 40% stock(VFIAX/VTIAX)/50% bond (VBTLX)& 10% cash asset alloc. The stock is 22% SP500(VFIAX) and 18% Intl major Stock index (VTIAX) We also have a 5 yr+ cash reserve not included above. Current portfolio is 30 yrs at straight liquidation. This has done ok so far but I worry about the impact on the bond portion for the next years as interest rates "adjust". But it may be longer than a few years of increase also?

Should I increase my AA to 50% stock (or even 60% stock AA) since companies can manage their business, thus manage costs and impact of further inflation and still grow? I am seriously thinking of permanently changing my IPS and going at least to 50% stock allocation.
Or, Should I sell 10-20% of the VBTLX and buy the Vanguard Infl Protected Securities Fund (VAIPX) to help diversify against possible inflation?
Do you have an investment policy statement? If not, you should create one.

This should include your reasoning for why you selected the asset allocation to fixed income and equities. The main reason for adjusting this allocation is to adjust risk (volatility). More bonds/cash/fixed income decreases the volatility of your portfolio. If you need less volatility in order to seek greater returns, then increase the amount of equities.

Whenever you are tempted to adjust your asset allocation for tactical reasons, go back to your iPS and determine if your risk tolerance has changed. You have no need to adjust the asset allocation unless you need to adjust risk.

The intent of your high fixed income position is to allow you to ride out market disruptions. Changes in administration, politics, global pandemics, even major wars are all things that could cause those market disruptions. We can't predict these events. We also can't predict the effect these events have on the stock market.

Let's use the COVID crash as a recent (trying to stay non-political) example.

There are people on this board who predicted in February 2020 that COVID was going to have a major disruption on the stock market, and actually acted on this information, getting out before the March crash. But nobody was advocating only a month later that people should buy back in. Generally, it was only the people who had an asset allocation that they could live with who took the lumps, then held through the crash, and were still invested through the ride up. There are still market timers who got out, missed the rise, and may still be sitting in cash.

You shouldn't change your asset allocation to time the market. You should change your asset allocation only when you need to adjust your risk tolerance.
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Re: The FED tapering in November to finish by 1Q2022. Will you change your 3-Fund Strategy?

Post by invest4 »

wolf359 wrote: Tue Oct 26, 2021 9:28 am Let's use the COVID crash as a recent (trying to stay non-political) example.

There are people on this board who predicted in February 2020 that COVID was going to have a major disruption on the stock market, and actually acted on this information, getting out before the March crash. But nobody was advocating only a month later that people should buy back in. Generally, it was only the people who had an asset allocation that they could live with who took the lumps, then held through the crash, and were still invested through the ride up. There are still market timers who got out, missed the rise, and may still be sitting in cash.

You shouldn't change your asset allocation to time the market. You should change your asset allocation only when you need to adjust your risk tolerance.
This. There will always be times we've "never seen before"...and we will still not know the future.

If you feel you must take action, please do so with your eyes wide open.
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jdamo
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Re: The FED tapering in November to finish by 1Q2022. Will you change your 3-Fund Strategy?

Post by jdamo »

wolf359 wrote: Tue Oct 26, 2021 9:28 am
jdamo wrote: Sun Oct 24, 2021 6:33 pm The FED recent minutes increasingly mention continued inflation above target 2% that is longer and not just transatory. They have said they will start tapering the $120B/month purchases of Treasuries and mortgage based securities(started in June 2020) at a pace of reducing $15B/month. This will finish the taper in 8 months or from Nov2021 to June2022 and is faster than previously discussed. Some say even finish taper by 1Q2022. This is faster than the previous "temper tantrum" that had a big drop in the markets. The pandemic and recent stimulus and gov spending are big events that we have not seen such massive gov spending since World War 2.

Action- Should I and how should I if so change my 3-fund Bogle retirement investing strategy? What are you planning to do?

[OT comments removed by admin LadyGeek]

We are retired for 2 yrs now and follow the 3-Fund strategy with 40% stock(VFIAX/VTIAX)/50% bond (VBTLX)& 10% cash asset alloc. The stock is 22% SP500(VFIAX) and 18% Intl major Stock index (VTIAX) We also have a 5 yr+ cash reserve not included above. Current portfolio is 30 yrs at straight liquidation. This has done ok so far but I worry about the impact on the bond portion for the next years as interest rates "adjust". But it may be longer than a few years of increase also?

Should I increase my AA to 50% stock (or even 60% stock AA) since companies can manage their business, thus manage costs and impact of further inflation and still grow? I am seriously thinking of permanently changing my IPS and going at least to 50% stock allocation.
Or, Should I sell 10-20% of the VBTLX and buy the Vanguard Infl Protected Securities Fund (VAIPX) to help diversify against possible inflation?
Do you have an investment policy statement? If not, you should create one.

This should include your reasoning for why you selected the asset allocation to fixed income and equities. The main reason for adjusting this allocation is to adjust risk (volatility). More bonds/cash/fixed income decreases the volatility of your portfolio. If you need less volatility in order to seek greater returns, then increase the amount of equities.

Whenever you are tempted to adjust your asset allocation for tactical reasons, go back to your iPS and determine if your risk tolerance has changed. You have no need to adjust the asset allocation unless you need to adjust risk.

The intent of your high fixed income position is to allow you to ride out market disruptions. Changes in administration, politics, global pandemics, even major wars are all things that could cause those market disruptions. We can't predict these events. We also can't predict the effect these events have on the stock market.

Let's use the COVID crash as a recent (trying to stay non-political) example.

There are people on this board who predicted in February 2020 that COVID was going to have a major disruption on the stock market, and actually acted on this information, getting out before the March crash. But nobody was advocating only a month later that people should buy back in. Generally, it was only the people who had an asset allocation that they could live with who took the lumps, then held through the crash, and were still invested through the ride up. There are still market timers who got out, missed the rise, and may still be sitting in cash.

You shouldn't change your asset allocation to time the market. You should change your asset allocation only when you need to adjust your risk tolerance.
Thanks...I have an IPS and the bond % is for ballast and to have a counter correlated investment vs equities.
You are right...I am re-evaluating my risk tolerance for longer term...may go to an AA of 50%stock/50% bond vs current 40% stock/60%bond and cash.
But after this discussion I am going to think on that more.
Thanks for the support to all!
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Re: The FED tapering in November to finish by 1Q2022. Will you change your 3-Fund Strategy?

Post by UpperNwGuy »

jdamo wrote: Sun Oct 24, 2021 6:33 pm Action- Should I and how should I if so change my 3-fund Bogle retirement investing strategy? What are you planning to do?
I will be making no changes to my strategy. My strategy was designed for all circumstances. I don't adjust it for valuation changes, interest rate changes, inflation prediction changes, etc.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by Gryphon »

3CT_Paddler wrote: Mon Oct 25, 2021 7:36 pm Prior to the pandemic CPI was around 2%, followed by around 1% and now at a consistent 5% with some signs it is increasing higher.
No, it isn't a consistent 5%, not really. The CPI increased 3.3% from February to June, but then it was up only 0.4% in July, 0.21% in August and 0.27% in September. The inflation numbers comparing the current CPI to 12 months ago have been running around 5% - 6% but that's because they're still including the increases from this spring. If the CPI continues to increase at the rate it has the last couple months, by next summer the YOY values will be back down in the 2 to 3% range.
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Re: The FED tapering in November to finish by 1Q2021. Will you change your 3-Fund Strategy?

Post by BolderBoy »

Marseille07 wrote: Mon Oct 25, 2021 12:20 amSo yes, if you aren't happy with 40/60 then pick something else; but don't change further. Otherwise you're just timing your IPS.
+1.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
manuvns
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Re: The FED tapering in November to finish by 1Q2022. Will you change your 3-Fund Strategy?

Post by manuvns »

look at what happened in 2013

How long did the Fed Taper in 2013?
10-month
That goes for not only the market rebound after the “tantrum” but the 10-month period that included the actual Fed tapering activity. In the 10-month tapering period, from mid-December 2013 to the end of October 2014, the S&P 500 rose 11.5%, according to CFRA Research.
Thanks!
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