Wiki article link: Asset Allocation
Starboard would like to clarify that this rule needs to be taken in context.Wiki wrote:Bogle recommends "roughly your age in bonds"; for instance, if you are 45, 45% of your portfolio should be in high-quality bonds. Recently, less conservative rules have emerged such as (age - 10) or even (age - 20) in bonds. Investors choosing to use these guidelines should understand why they feel they have the need, ability, and willingness to take on the greater risk inherent in having a higher proportion of equities. All age-based guidelines are predicated on the assumption that an individual's circumstances mirror the general population's. Individuals with different retirement ages (earlier or later), asset levels (those who have saved enough to fund their retirement fully with TIPS, or needs for the money (e.g. college savings) would be well-advised to consider what circumstances make their situation different and adjust their asset allocation accordingly.
Starboard's post (repeated here) links to a Forbes.com transcript of an interview with Jack Bogle. I won't restate the quoted text, but here are the links:Starboard wrote:This is fine, as far as it goes, however Bogle also recommends that people capitalize their SS and Pension (especially if the Defined Benefit Pension (DBP) is Cost of Living Adjusted (COLA)) and that they include this capitalized amount in their bond allocation. I have read this in several of his books and it was also in the transcript for the Steve Forbes interview (shown below).
In my opinion, if folks do not follow the capitalization rule, then they are quoting Bogle on the "age in bonds" rule out of context.
As an aside, in my particular case, I'm 64, retired, collecting SS and a DBP that will be COLA adjusted after I reach 65. My allocation is all over the map depending on how my SS and DBP are counted: If I do not include cash in my holdings (another problem of across the board comparisons) I am 41/59 Equity to Fixed. If I add in cash these shift to 39/57/4 or 39/61 if cash is folded into Fixed. Now, if I capitalize my SS and Pension and keep cash folded in with Fixed, the number shifts a large amount to 21/79.
Perhaps this should be a forum thread topic, but it has been in the past and still seems like the issue of capitalizing SS and Pension (if available) is consistently overlooked. In some ways it does make sense to exclude capitalizing these things for younger investors, who may have no reliable numbers for either option -- but for folks in the 55+ vintage class, it is a serious problems of apples to oranges comparisons.
It seems like an edit to the Wiki may be in order, so that Bogle's "Age in Bonds" rule is shown in the context he intended.
- Transcript: John Bogle Page 7 of 13 - Forbes.com - "Age Equals Bonds"
- Transcript: John Bogle Page 8 of 13 - Forbes.com - "Portfolio Allocation"
- Transcript: John Bogle Page 9 of 13 - Forbes.com - continuation, note Bogle's statement about holding equities.
There is no forum consensus on the role of fixed income in a portfolio (Wiki article link: Fixed income). Is this is a similar discussion from a different perspective (the wiki stands as-is), or, should "age in bonds" be clarified to provide guidance as Starboard suggests?
Comments / questions / concerns are welcome.