Bonds at the core of your portfolio -- regardless of age?

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Should the largest allocation of a portfolio be in cash/bonds regardless of age?

 
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Snowjob
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Bonds at the core of your portfolio -- regardless of age?

Post by Snowjob »

I think it was Buffet who said the first rule of investing was not to lose money. If we take that to heart, shouldnt the largest allocation of a portfolio be in cash/bonds regardless of age?

Some people may say that stocks will outperform over the long haul. That maybe true but past performance is no garuntee of future performance. On the other hand bonds have a safer risk profile than stocks and will always remain higher on the capital structure (not to mention gov't options)
Eric White
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Unable to vote

Post by Eric White »

Snowjob,

I was looking forward to voting, but it looks closed. Can you reopen the poll and set it to not age out?

Thanks!

Cheers,
Eric White
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Snowjob
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Post by Snowjob »

Hmm I have no idea how to do that. I'll try though, be patient =P
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KeithV
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Post by KeithV »

Worked fine for me.
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Doc
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Re: Unable to vote

Post by Doc »

Eric White wrote:Snowjob,

I was looking forward to voting, but it looks closed. Can you reopen the poll and set it to not age out?

Thanks!

Cheers,
Eric White
Did you log in?
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.
Eric White
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Re: Unable to vote

Post by Eric White »

Doc wrote:
Eric White wrote:Snowjob,

I was looking forward to voting, but it looks closed. Can you reopen the poll and set it to not age out?

Thanks!

Cheers,
Eric White
Did you log in?
Forgot to log in. My apologies!
Topic Author
Snowjob
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Post by Snowjob »

damn pretty one sided so far. I have no skin in the game but I was rooting for some debate !
Gekko
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Post by Gekko »

IMO -

Cash+Bonds % = Age
Stocks % = (100 - Age)
chaz
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Post by chaz »

Gekko wrote:IMO -

Cash+Bonds % = Age
Stocks % = (100 - Age)
Looks like a good formula.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
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snodog
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Post by snodog »

I use my wife's age in bonds. She's 3 years younger and I like to live on the edge.
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stratton
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Post by stratton »

I answered "no", but if you need to be 20 or 30% equities to sleep well then do it. However, you probably should increase savings. You probably will have less chance of a bear market blowing up your retirement at the last minute.

Paul
duhmel1
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Post by duhmel1 »

Looks like 90+% of the posters picked the wrong choice over the last decade.
bigH
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Post by bigH »

snodog wrote:I use my wife's age in bonds. She's 3 years younger and I like to live on the edge.
Haha...my wife if 5 years older and I use her age to be more conservative.
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Opponent Process
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Post by Opponent Process »

Other than SS/Medicare, If I had a guaranteed lifetime municipal or other job with a full pension and lifetime health care that covered all of my expenses I would be tempted to put all of my portfolio in bonds/TIPS. Since I don't have this I need to take some equity risk. Being all bonds would be a luxury that many cannot afford.
30/30/20/20 | US/International/Bonds/TIPS | Average Age=37
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FrugalInvestor
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Post by FrugalInvestor »

snodog wrote:I use my wife's age in bonds. She's 3 years younger and I like to live on the edge.
bigH wrote:Haha...my wife if 5 years older and I use her age to be more conservative.
Hehe...my wife is 8 years younger and I split the difference.
Have a plan, stay the course and simplify, but most importantly....Ignore the Noise!
yobria
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Post by yobria »

Does that mean never having a mortgage, which is a negative bond?

Nick
jrobb45
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Post by jrobb45 »

chaz wrote:
Gekko wrote:IMO -

Cash+Bonds % = Age
Stocks % = (100 - Age)
Looks like a good formula.
Looks good to me also. However, about a week ago, I hit a deer and had to go to my State Farm Insurance agents office. He was telling me that now they use 110% - minus your age, for a recommended equity allocation. Must be the "new normal".

best,
jr
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tetractys
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Post by tetractys »

jrobb45 wrote:[My State Farm Insurance agent] was telling me that now they use 110% - minus your age, for a recommended equity allocation. Must be the "new normal".
Or maybe that's to up the risk of your investments in a bid for higher expected returns despite State Farm's outrageous expenses. By any chance did s/he also try to sell you an annuity to place in your Roth IRA? -- Tet
RESISTANCE IS FRUITFUL
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stratton
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Post by stratton »

duhmel1 wrote:Looks like 90+% of the posters picked the wrong choice over the last decade.
So you were in 100% bonds for the last decade?

Paul
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Snowjob
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Post by Snowjob »

This doesn't mean someones portfolio needs to be 80%+ Bonds for their entire life. What about something like a Wellsley 60% / 40% ?
jrobb45
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Post by jrobb45 »

tetractys wrote:
jrobb45 wrote:[My State Farm Insurance agent] was telling me that now they use 110% - minus your age, for a recommended equity allocation. Must be the "new normal".
Or maybe that's to up the risk of your investments in a bid for higher expected returns despite State Farm's outrageous expenses. By any chance did s/he also try to sell you an annuity to place in your Roth IRA? -- Tet
No he didn't; he knows better.

best,
jr
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Tyrobi
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Re: Bonds at the core of your portfolio -- regardless of age

Post by Tyrobi »

Snowjob wrote:I think it was Buffet who said the first rule of investing was not to lose money. If we take that to heart, shouldnt the largest allocation of a portfolio be in cash/bonds regardless of age?

Some people may say that stocks will outperform over the long haul. That maybe true but past performance is no garuntee of future performance. On the other hand bonds have a safer risk profile than stocks and will always remain higher on the capital structure (not to mention gov't options)
I vote no for my case. Bond remains one of the core asset in my allocation, but not the largest. As Jeremy Siegel explained in Stocks for the Long Run, stocks will remain the best investment for all those seeking steady, long-term gains.

"In the capitalist system, bonds cannot and should not outperform equities over the long run. Bonds are contracts enforceable in courts of law. Equities promise their owners nothing -- stocks are risky investments, involving a high degree of faith in the future. Thus, equities are not inherently "better" than bonds, but we demand a higher return from equities to compensate for their greater risk. If the long-run expected return on bonds were to be higher than the long-run expected return on stocks, assets would be priced so that risk would earn no reward. That is an unsustainable condition. Stocks must remain the best investment for all those seeking steady, longterm gains or our system will come to an end." Peter Bernstein.
dbr
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Post by dbr »

Certainly with respect to real (inflation adjusted) returns, bonds can lose money.
Dude2
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Post by Dude2 »

yobria wrote:Does that mean never having a mortgage, which is a negative bond?

Nick
Indeed, let's keep in mind the complexity of all the other aspects of our portfolios.

As I recall, Larry Swedroe says to look upon a mortgage as a consumable, i.e. no different than throwing money down a drain. It isn't part of the portfolio.
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DartThrower
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Post by DartThrower »

From the 12 pillars of investing....
Pillar 4. Nothing Ventured, Nothing Gained.

It pays to take reasonable interim risks in the search for higher long-term rates of return. The magic of compounding accelerates sharply with even modest increases in annual rate of return. While an investment of $10,000 earning an annual return of +10% grows to a value of $108,000 over 25 years, at +12% the final value is $170,000. The difference of $62,000 is more than six times the initial investment itself.
Stocks are risky; bonds are risky too but in a different way. If I were 25 years old and building a long term portfolio I'd have about 75% in globally diversified stocks. There is no iron clad guarantee that stocks will outperform in the very long run, but Nothing Ventured, Nothing Gained!
Our patience will achieve more than our force. -Edmund Burke
duhmel1
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Post by duhmel1 »

dbr wrote:Certainly with respect to real (inflation adjusted) returns, bonds can lose money.
and .... with respect to real (inflation adjusted) returns, equities can lose more money.
dbr
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Post by dbr »

duhmel1 wrote:
dbr wrote:Certainly with respect to real (inflation adjusted) returns, bonds can lose money.
and .... with respect to real (inflation adjusted) returns, equities can lose more money.
That is absolutely correct. The warning is just to be sure that nominal bonds are not mistakenly regarded as some kind of guarantee in real terms. It can be a little difficult to register just what level of knowledge any particular reader or poster is coming from.
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