Thoughts how/why/when to finally move to Bonds/Fixed Income

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retireearly
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Joined: Tue Mar 14, 2017 1:51 pm

Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by retireearly »

Hello, just my third post, finding this board to be fantastic!! I’m already getting funny comments from the family about being on “boggle-head”..ha!

I have been aggressively investing, both my/wife’s portfolio for the last 15-20 years without ever wanting/investing in bonds/fixed-income. Now hitting our mid-40’s, I’m finally thinking about having a place for bonds and/or fixed-income in our portfolio. I’m thinking of starting at around 5-8% and maybe adding 1% per year, every year. That would bring me from 90 Eq/10 REIT now, to 84 Equity/10 Reit/6 “bond/fixed.” At 50, essentially 80 Eq/10 Reit/10 Bond/fixed; by 70yrs 60/10/30. However, should the market tank, I’ll surely pull it out and buy when things are great for buying.
So, this is what leads me to posting this today!

Background:
Married, we are 44 and file jointly. 2 kids. 200K income, magi around 175. Effective rate about 14-15%. Avg cost of living community.
Emergency/Major expenses: 33k (3-4 mo expenses) but in reality, more like 6 mo of “necessity” expenses. I could add a bit to Emergency each month but instead, continue to add more to roth 401k that would otherwise go in emerg fund.
Debt: Just the mortgage. Home value 400k, 290K loan, 190 remaining at 2.6%. No other debt.

Retire Assets: 1.284M
a) Roth: 355K. b) Tax-Def’d 929K (401k, 403b, 457). (Just did my first ever conversion, converted 6K from ira to Roth ira). Down the road, when it’s tax-efficient, I’d like to continue to pluck away at IRA and convert to Roth, bit by bit. The board has been good in reinforcing my thoughts on this…

529: 39K for two kids. No other investment that is not retirement, only 33K in “emergency.” Moving those to high int savings and tax free muni shortly.


Current Annual Contributions:

Roth IRA*: 11k. I kept our MAGI Low enough this year where we can still contribute. *Probably not much longer and I’ll have to go backdoor route, though wife has large Rollover IRA, so probably no “new” roth money for her, maybe money I would have used to roth to rollover traditional IRA and use that money for the tax hit…possibly)

Roth 401K: 17K (this might drop a bit in future years as we see expenses rising a bit, but maybe not since I'd reduce traditional first...)
Traditional 401K: 10 K.
Matches: 401K 16K


Current Portfolio:

1) 48.5% US (622K total. 158K lg cap, 464K sm/mid). Yes, I know sm/mid heavy!!!

A) Fidelity Sp 500 182K .045 OE. B) Van Small Cap VALUE index 230K, OE .17 (through Tiaa) and C)Vang Sm Cap Index 209K .05 OE.

2) 41.7% INT (216K EM around 16% of total portfolio, or 18% of equities)

A) Fidelity Int Index 71K (FSPNX, .06 OE) B)Van Tot Int Index 129K (VTIAX .11 OE) C) Vang Int Sm Cap (VSS) 117K .13 OE D) VEMAX 167K (van emerging market. .14 OE) and E)EWX 52k (S&P EM sm cap, .65 OE). Note, I wish I didn’t need to have a fund/eft with .65 OE! Not many low cost Int SC, or EM SC.

3) 9.8% Real Estate – 68k Van US Reit (VGSLX), 58k Van Intern REit (VNQI)

Action Item:
A)Reduce US Small (mid) by about 40K next few weeks, moving into Van SP500. I will still be overweight Small in the US because that is my goal. Goal is to get US and INTERNATIONAL to be 50/50 split, too.
B)Reduce US Small by another 75-90K which is about 6-7% of portfolio and move it into bond/fixed-equity.
C) In the coming months, will overweight new money into VEMAX, VSS and VTIAX, while keeping smaller inflow into US small value and some SP500.

Questions:


1)I’d love to hear some thoughts on my overall posts, thoughts on how others handled the progression from equity to bond/fixed, etc.

2 Also, since the bond/Fixed Income category is new for me and I’m sure we will be in a rising Interest Rate for some time (and done with the 30 yr bull), what do the board members think about the below for “non-equity” (safety) world (keeping in mind if/when I see a 15% or greater drop, I will start to rebuy during that period)

I have a few choices below: Any help would be appreciated.

A) Vanguard Total Bond Market Idx InstlPls .04 OE Intermediate-Term Bond)

B1, B2 and B3)

BTC US DEBT T06/06/1996 .06 OE (Intermediate-Term Bond)

VANG ST BOND IDX IS (VBITX) 06 OE (Short)

VANG VMMR-FED MMKT (VMFXX) .11 OE

C) FID US BOND IDX PR (FSITX) .05 OE (Intermediate-Term Bond)

D) Other: Vanguard Wellington Admiral OE .16 or possibly TIAA Traditional Annuity - Group Retirement Annuity (4%). However, I don’t know if the annuity is the right avenue, haven’t investigated if this is right at this point in our lives as a “Fixed/bond” type holding…I’d need to investigate.

Thanks everyone!
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.
bloom2708
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by bloom2708 »

I am 46, I can only give you my observations.

You have very good bond selections with low expense ratios. Pick a "Total US Bond" and move some small/mid to bond to get to your X% of bonds.

I read your post and the little voice is saying " take only as much risk as you need to....". I can't say I understand your somewhat extreme tilt to small/mid. It isn't really a tilt, it is a lump tilt.

You are now over $1.2 million. At 100/0, the next 50% decline, you lose $600k. I know how that would make me lose sleep.

I prefer 80/20 as the max at any age except maybe 22-28. Moving to 20% bonds limits your downside to $480k. Less, but still a good chunk. At 46/47, we are 60/40. I know there are a lot of 100/0 proponents. Easier to recommend after an 8 year bull market run. The return of an 80/20 isn't that much lower than 90/10, 100/0.

One goal would to move to more market cap percentages. Keep a small value tilt if that is your stock briar patch. I also prefer more 20-30% international. US companies have a very large international market. Just some ideas.

Will see what the more seasoned b-heads advise. Good luck!
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retireearly
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Joined: Tue Mar 14, 2017 1:51 pm

Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by retireearly »

Thanks for bond thoughts and the great first reply.

When I go 7% or so bond, my equity will “only” be 83% with 10 still in REIT. So, the way I look at it, I’m 17% hedged! However, I am still open to possibly a bit more bond/F-I allocation but don’t see where I’d want to go more than 10% right now. It is really a paradigm shift for me now, so I’m open to some thoughts!!

Yep, the Small Cap “tilt” got much more than I wanted, partly because of fund availability in our various plans. However, after selling 40K small and moving to large, and 80K or so Small and into “future bond/FI”, then it will be much more reasonable. Part of this is I think US large is a bit frothy now, esp. based on CAPE
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.
bloom2708
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by bloom2708 »

But, but, if you "feel" large cap is frothy, then small and mid are also frothy.

If you start typing "I feel....." then, you are going adrift. Nobody knows what the market will do.

You can lead a Boglehead to water...but you can't make them drink... :wink:
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ruralavalon
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by ruralavalon »

retireearly wrote:When I go 7% or so bond, my equity will “only” be 83% with 10 still in REIT. So, the way I look at it, I’m 17% hedged! However, I am still open to possibly a bit more bond/F-I allocation but don’t see where I’d want to go more than 10% right now. It is really a paradigm shift for me now, so I’m open to some thoughts!!
The REIT index fund is a stock fund. So it goes in your equity allocation.

A REIT index fund It does not "hedge" your other equity funds, it does NOT provide the protection a bond fund does. In 2008, Vanguard REIT Index Fund (VGSLX) dropped MUCH more than more broadly diversified stock index funds like total market (VTSAX). Morningstar graph "Growth of $10k", VTSAX vs VGSLX. Please discard the idea that the a REIT holding protects you in a stock market crash.

retireearly wrote:Retire Assets: 1.284M
a) Roth: 355K. b) Tax-Def’d 929K (401k, 403b, 457). (Just did my first ever conversion, converted 6K from ira to Roth ira). Down the road, when it’s tax-efficient, I’d like to continue to pluck away at IRA and convert to Roth, bit by bit. The board has been good in reinforcing my thoughts on this…

529: 39K for two kids. No other investment that is not retirement, only 33K in “emergency.” Moving those to high int savings and tax free muni shortly.

. . . . .

Current Portfolio:

1) 48.5% US (622K total. 158K lg cap, 464K sm/mid). Yes, I know sm/mid heavy!!!

A) Fidelity Sp 500 182K .045 OE. B) Van Small Cap VALUE index 230K, OE .17 (through Tiaa) and C)Vang Sm Cap Index 209K .05 OE.

2) 41.7% INT (216K EM around 16% of total portfolio, or 18% of equities)

A) Fidelity Int Index 71K (FSPNX, .06 OE) B)Van Tot Int Index 129K (VTIAX .11 OE) C) Vang Int Sm Cap (VSS) 117K .13 OE D) VEMAX 167K (van emerging market. .14 OE) and E)EWX 52k (S&P EM sm cap, .65 OE). Note, I wish I didn’t need to have a fund/eft with .65 OE! Not many low cost Int SC, or EM SC.

3) 9.8% Real Estate – 68k Van US Reit (VGSLX), 58k Van Intern REit (VNQI)
I can't understand what funds are in what account, or who owns each account.

So it's not possible to give comments on your overall portfolio, or make specific suggestions about how to rearrange any holdings, or about where and how to buy your new bond allocation.

In general:

1) for small value tilts in domestic stocks I usually suggest simply adding Vanguard Small-Cap Value Index Fund Admiral Shares (VSIAX) to a domestic large-cap or total market fund, forum discussion "Ultimate buy and hold - 8 slices vs 4";

2) for small value tilts in international stocks I usually suggest simply using Vanguard Value Index Fund Admiral Shares (VVIAX) ER 0.08% plus Vanguard FTSE All World Small-Cap Index Fund Investor Shares (VFSVX) ER 0.27%, forum discussion "Ultimate buy and hold - 8 slices vs 4"; and

3) In my opinion at age 44 and wanting to "retire early" 100% equities is very dangerous, as is 90/10 at age 50, and dribbling bonds into your portfolio at the rate of 1% per year is a poor strategy. You haven't mentioned any pension expected. Do either or both of you have a substantial pension coming?

Please see: 1) Graph, "An Efficient Frontier: the power of diversification"; 2) wiki article Bogleheads® investment philosophy, "Never bear too much or too little risk"; and 3) wiki article "Asset allocation".




retireearly wrote:2 Also, since the bond/Fixed Income category is new for me and I’m sure we will be in a rising Interest Rate for some time (and done with the 30 yr bull), what do the board members think about the below for “non-equity” (safety) world (keeping in mind if/when I see a 15% or greater drop, I will start to rebuy during that period)

I have a few choices below: Any help would be appreciated.

A) Vanguard Total Bond Market Idx InstlPls .04 OE Intermediate-Term Bond)

B1, B2 and B3)

BTC US DEBT T06/06/1996 .06 OE (Intermediate-Term Bond)

VANG ST BOND IDX IS (VBITX) 06 OE (Short)

VANG VMMR-FED MMKT (VMFXX) .11 OE

C) FID US BOND IDX PR (FSITX) .05 OE (Intermediate-Term Bond)
In my opinion either of the intermediate-term bond funds (Vanguard Total Bond Market or BTC US DEBT) would be good choices. They are very similar, the indexes they use are almost identical.

I would not base a funds selection decision on expectations about "a rising Interest Rate for some time". Many people have been predicting that since 2009.

The general feeling here is that when rates rise the effect on bond prices will likely be small and temporary, and compensated for by increased dividends from bond funds.

retireearly wrote:D) Other: Vanguard Wellington Admiral OE .16 or possibly TIAA Traditional Annuity - Group Retirement Annuity (4%). However, I don’t know if the annuity is the right avenue, haven’t investigated if this is right at this point in our lives as a “Fixed/bond” type holding…I’d need to investigate.
I suggest looking into a Single Premium Immediate Annuity (SPIA) when you get to retirement age. That is very dependent on interest rates, so delaying the decision to retirement age will likely be better.


Edits to add links.
Last edited by ruralavalon on Mon Apr 24, 2017 5:09 pm, edited 8 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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sunnywindy
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by sunnywindy »

Your strategy is sound regarding how you are moving into bonds, i.e. 1% a year. I'm going to do something similar when I am 50. Go with Vanguard Total Bond Market - it follows the float adjusted version of the Barclays Agg index that the others don't and it will be safer if bond armageddon happens. I am fine with your small cap tilt at this stage, but I would also think about only adding to the S&P500 fund and not the small cap funds to lower the volatility.
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by KlangFool »

retireearly wrote: Retire Assets: 1.284M


Current Annual Contributions:

Roth IRA*: 11k. I kept our MAGI Low enough this year where we can still contribute. *Probably not much longer and I’ll have to go backdoor route, though wife has large Rollover IRA, so probably no “new” roth money for her, maybe money I would have used to roth to rollover traditional IRA and use that money for the tax hit…possibly)

Roth 401K: 17K (this might drop a bit in future years as we see expenses rising a bit, but maybe not since I'd reduce traditional first...)
Traditional 401K: 10 K.
Matches: 401K 16K
retireearly,

1) Your annual savings = 54K

2) Your portfolio = 1.284 million ~ 24 years of annual savings.

3) You are at the mid-40s and hope to retire in 10 years to 20 years.

4) At 100/0, if the market drops 50% and does not recover, you will lose 600K ~ 12 years worth of annual savings. You do not have the time (years) to take this kind of risk. You do not have the ability to take this kind of risk.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Dottie57
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by Dottie57 »

KlangFool wrote:
retireearly wrote: Retire Assets: 1.284M


Current Annual Contributions:

Roth IRA*: 11k. I kept our MAGI Low enough this year where we can still contribute. *Probably not much longer and I’ll have to go backdoor route, though wife has large Rollover IRA, so probably no “new” roth money for her, maybe money I would have used to roth to rollover traditional IRA and use that money for the tax hit…possibly)

Roth 401K: 17K (this might drop a bit in future years as we see expenses rising a bit, but maybe not since I'd reduce traditional first...)
Traditional 401K: 10 K.
Matches: 401K 16K
retireearly,

1) Your annual savings = 54K

2) Your portfolio = 1.284 million ~ 24 years of annual savings.

3) You are at the mid-40s and hope to retire in 10 years to 20 years.

4) At 100/0, if the market drops 50% and does not recover, you will lose 600K ~ 12 years worth of annual savings. You do not have the time (years) to take this kind of risk. You do not have the ability to take this kind of risk.

KlangFool
I agree with Klangfool. Op should figure out the minimum needed for expenses and if after losing 50% you can't generate your minmum, you need more bonds.
Dandy
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by Dandy »

What is usually a difficult thing to do when you are a successful, aggressive investor is to know when not to be aggressive. Decades of riding the ups and downs of the market and the thrill of investing when markets are down and watching your "gamble" pay off is great. Often overlooked is the value of your human capital that allows you to pay the rent and still invest during this time.

For most retirement is a game changer that has many obvious and subtle challenges. No longer is there a nice salary or bonus, no 401k match, Social Security and maybe a pension to provide an income floor that usually needs some meaningful withdrawals to maintain the life style. What is the goal when in retirement? Aggressive growth? Asset preservation? How much risk can you take? should you take? How will your life style be affected by a 50% drop in equities? What if the recovery from that drop takes years? If you need significant withdrawals to support your life style are you going to take them and invest in equities while they are depressed? If so, how will that feel after doing it for 3 years? It may feel a lot different when your human capital is minimum wage.

So, I would give some thought to if the aggressive investing got you to a great place as you approach retirement, is the wisest course of action to preserve the win or run up the score? So to me the time to move more to fixed income is 5 years or so before retirement. Just before and just after retirement seem to be the years at most risk, assuming you retire in the age 60 to 65 year timeframe. Later, depending on your actual retirement expenses and the size of your portfolio more aggressive investing might be less of a concern.
aristotelian
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by aristotelian »

For what it's worth, I was 90/10 until this year at Age 42. Recently rebalanced when the Dow hit 21K and paid off our mortgage and shifted to 70/25. The way I see it, I have less need to take risk and more incentive toward capital preservation than I used to. I haven't won the game yet, but I have a clearer path to getting there. That path would be much bumpier if there is a market event in the next few years, and I am starting to get to the age that I might not have time to rebound from a major event. Definitely not a bad time to increase your bond allocation from a market timing perspective as well as an age and risk perspective.

Should be easy to do in your 401K given your options, as well as IRA's. Just figure how much you want and put it in Vanguard Total Bond.
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retireearly
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by retireearly »

Thanks to everyone that took the time to reply to my post(s). I had a busy work week and home activities, so after a lot of reading, thinking and analyzing, I decided to make the jump to bonds! The quick summary is I went 15% bonds and now have 84.5/15.5 Equity/Bond. Equity 50/50 US/INT. EM 16.25% of overall portfolio. I added my new AA below including current holdings.

Thanks to all the great posts and thoughts. It help push me to what I already knew I should be doing at this point in our lives. Some comments to each of you and sorry if I missed anyone:


Bloom – Thanks for advice on bond/allocation and thoughts on Bonds.
Ruralavalon – thanks for thought on REIT on factoring it into my AA. In my opinion either of the intermediate-term bond funds (Vanguard Total Bond Market or BTC US DEBT) would be good choices. They are very similar, the indexes they use are almost identical.
Klang – I hope to retire in about 11-12 years, my wife probably about 15-16. Your post helped me view things from retirement POV, and not an investor POV, which was a good thing. Dottie, too!
Sunnywindy I agree, after finally moving bonds into my AA (15.5%), my goal will be just 1% addition each year and I agree, I like my Small Cap tilt!
Dandy – good thoughts on preserving the win or running up the score. I like the analogy and it helped my decision to finally move to bonds now at 44 and make it a part moving fwd with steady increase as we age!
Aristole – Your post was dead on in my feelings and the reason I ended up finding this board. The nagging feeling I have had since reading Irrational Exuberance was really just me getting to that age where the analytical side realized I needed to be in bonds/fixed right now…



US 501K 38.5% portfolio
A) 229K Fid SP500 in 401ks (FXSIX & FUSVX - .035 & .045 OE)
B) 233K Vang Small Cap Value Index in TIAA/403b .17 OE
C) 25K Vanguard Small Cap Value (VSIAX. .07) Roth.

Breakdown: 304K Sm/Mid, 197K lg

INT 504K 38.7% portfolio
A) 133K Van Total Int Index VTIAX (Roth and Rollover IRA .11OE )
B) 27K Fidelity Total Int Index FSPNX (401K .06OE
C) 119K Van Int Small Cap VSS ( Roth and Rollover IRA .13OE)
D) 173K Van Emer Market Vemax .14 OE(163K rollover IRA, 10K roth)
E) 52K EM Small Cap - EWX (S&P EM SC .65OE). *Would love to see a EM Small cap from Van one day and not them using VSS to capture part of EM Small Cap.

Breakdown: About 40% of Int is in EM. That is about 16.25% of overall port. I see the most value in EM and Int overall right now, so I will probably slightly overweight both compared to US going fwd but won't get too far away from 50/50.

REIT 504K 7.4% portfolio – 97K 7.4% (50/50 split with Vanguard US and INT – VGSLX and VNQI)
Bond – 201K 15.4% Vang Total Bond Index VBMPX .04

Thanks!
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.
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ruralavalon
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by ruralavalon »

retireearly wrote:Thanks to everyone that took the time to reply to my post(s). I had a busy work week and home activities, so after a lot of reading, thinking and analyzing, I decided to make the jump to bonds! The quick summary is I went 15% bonds and now have 84.5/15.5 Equity/Bond. Equity 50/50 US/INT. EM 16.25% of overall portfolio. I added my new AA below including current holdings.
.. . . .
US 501K 38.5% portfolio
A) 229K Fid SP500 in 401ks (FXSIX & FUSVX - .035 & .045 OE)
B) 233K Vang Small Cap Value Index in TIAA/403b .17 OE
C) 25K Vanguard Small Cap Value (VSIAX. .07) Roth.

Breakdown: 304K Sm/Mid, 197K lg
You have about 53% of domestic stocks. in a small-cap value fund. I suggest around 1/4 to 1/3 of domestic stocks in a small-cap value fund. Rick Ferri, "Winning with Small Value Stocks".

retireearly wrote:INT 504K 38.7% portfolio
A) 133K Van Total Int Index VTIAX (Roth and Rollover IRA .11OE )
B) 27K Fidelity Total Int Index FSPNX (401K .06OE
C) 119K Van Int Small Cap VSS ( Roth and Rollover IRA .13OE)
D) 173K Van Emer Market Vemax .14 OE(163K rollover IRA, 10K roth)
E) 52K EM Small Cap - EWX (S&P EM SC .65OE). *Would love to see a EM Small cap from Van one day and not them using VSS to capture part of EM Small Cap.

Breakdown: About 40% of Int is in EM. That is about 16.25% of overall port. I see the most value in EM and Int overall right now, so I will probably slightly overweight both compared to US going fwd but won't get too far away from 50/50.
Why so much in emerging markets? By market weight its only about 1/5 of the investable international stock market. Why do you think you have more information than ther rest of the investors in the stock market?

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6).

Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.

retireearly wrote:REIT 504K 7.4% portfolio – 97K 7.4% (50/50 split with Vanguard US and INT – VGSLX and VNQI)
Bond – 201K 15.4% Vang Total Bond Index VBMPX .04
At age 44 15% in bonds is too aggressive in my opinion, unless you have a substantial pension coming. You haven't mentioned any pension expected. Do either or both of you have a substantial pension coming?

At age 44 my suggestion would be around 30% in bonds. This is expected to substantially reduce volatility (risk), with only a relatively slight decrease in return. Graph, "An Efficient Frontier: the power of diversification".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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retireearly
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by retireearly »

Hello,

1) Ideally, I want about 30-40% of my US in SC value. It is higher (53%) than I want right now since in order to move to bonds, I had to sell my small cap blend. I will slowly bring that back in line to where I want to get to but you are correct and very observant!

2)I've read the same Van paper's and the last one I read was the 2014 and according to that, the sweet spot for maximizing AA/diversification was about 35%. However, I still believe 50% is correct since international equities now account for more than 50% of total global equities. Regarding EM, I extremely comfortable in my AA % being so "high" since EM are 25% of the world's market cap. I think most people are terrible underweight in EM,esp. many educated investors.

https://www.vanguard.com/pdf/ISGGEB.pdf

Most important, valuations are much better compared to US and if/when there is a reversion to the mean. Just look at some of the Price/Books and P/E. SP500 PE of 21, Fwd PE 20 and P/B of 2.74. Van Em Market (vemax) has a p/e of 14.5m FP/E of 12.75 and P/B of 1.53! EWX has P/B of 1.3!!! Right now, EM CAPE Rations are nearly 1/2 of US.

The two above paragraphs lead me to believe that I want to be 50/50 US and INT, and AM comfortable with EM being nearly 20% of my equity holding (and 42% of the international overall).


3)I definitely realize that even though I just moved from 0 to nearly 16% in bonds, that at the age of 44, I'm still most likely holding a smaller % in bonds than most. It took a lot to get to me to make the leap I did, so I have more thinking to do! Has the board ever done a poll where there was a "bogle Collective Average" of what people hold at various ages? I would love to see what the collective avg is for every 5 year and AA!


Thank you!




ruralavalon wrote:
retireearly wrote:Thanks to everyone that took the time to reply to my post(s). I had a busy work week and home activities, so after a lot of reading, thinking and analyzing, I decided to make the jump to bonds! The quick summary is I went 15% bonds and now have 84.5/15.5 Equity/Bond. Equity 50/50 US/INT. EM 16.25% of overall portfolio. I added my new AA below including current holdings.
.. . . .
US 501K 38.5% portfolio
A) 229K Fid SP500 in 401ks (FXSIX & FUSVX - .035 & .045 OE)
B) 233K Vang Small Cap Value Index in TIAA/403b .17 OE
C) 25K Vanguard Small Cap Value (VSIAX. .07) Roth.

Breakdown: 304K Sm/Mid, 197K lg
You have about 53% of domestic stocks. in a small-cap value fund. I suggest around 1/4 to 1/3 of domestic stocks in a small-cap value fund. Rick Ferri, "Winning with Small Value Stocks".

retireearly wrote:INT 504K 38.7% portfolio
A) 133K Van Total Int Index VTIAX (Roth and Rollover IRA .11OE )
B) 27K Fidelity Total Int Index FSPNX (401K .06OE
C) 119K Van Int Small Cap VSS ( Roth and Rollover IRA .13OE)
D) 173K Van Emer Market Vemax .14 OE(163K rollover IRA, 10K roth)
E) 52K EM Small Cap - EWX (S&P EM SC .65OE). *Would love to see a EM Small cap from Van one day and not them using VSS to capture part of EM Small Cap.

Breakdown: About 40% of Int is in EM. That is about 16.25% of overall port. I see the most value in EM and Int overall right now, so I will probably slightly overweight both compared to US going fwd but won't get too far away from 50/50.
Why so much in emerging markets? By market weight its only about 1/5 of the investable international stock market. Why do you think you have more information than ther rest of the investors in the stock market?

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6).

Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.

retireearly wrote:REIT 504K 7.4% portfolio – 97K 7.4% (50/50 split with Vanguard US and INT – VGSLX and VNQI)
Bond – 201K 15.4% Vang Total Bond Index VBMPX .04
At age 44 15% in bonds is too aggressive in my opinion, unless you have a substantial pension coming. You haven't mentioned any pension expected. Do either or both of you have a substantial pension coming?

At age 44 my suggestion would be around 30% in bonds. This is expected to substantially reduce volatility (risk), with only a relatively slight decrease in return. Graph, "An Efficient Frontier: the power of diversification".
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.
harvestbook
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by harvestbook »

I am about 15 percent bonds but I hold more cash than most (twice as much cash as bonds). I am 54 and figure to be accumulating heavily for at least a decade, so I am willing to accept the risk of a market drop because I will still be buying during and through the downturn. I'm about 50 percent international, with equal tilts toward small and value in both US and international, and about 11 percent emerging. So my thinking is pretty similar to yours even though my portfolio is smaller and I am older than you. I know it horrifies the typical BHer but I sleep well at night.

Frankly, hanging out on the forum scared me into buying more bonds! I used to be less than 10 percent and it didn't bother me at all, until I started reading about how scary a strategy that is. So I don't know if ignorance is bliss or information is terrifying. But I work in a creative field and earn royalties so I neither have a specific retirement date nor a specific expected income in the future, so I just save aggressively and live frugally. I'd rather be free now than hope to be free in 20 years when I don't feel like doing anything, and my financial plan already includes both the best and the worst. Good luck.
I'm not smart enough to know, and I can't afford to guess.
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patrick013
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by patrick013 »

A few thoughts...
retireearly wrote: 1) Ideally, I want about 30-40% of my US in SC value.
I like to weight MC-SC a bit more than market weight but yours
is definitely aggressive. Considering high PE's for MC and SC lately
any reversion is likely to be downward. I'd cut the percentage down
a bit to a level more permanent.
retireearly wrote: However, I still believe 50% is correct since international equities now account for more than 50% of total global equities.
Once again, a very aggressive valuation. Is international a value trap ? A
recession in one country negates a bull market in another. Result an average
return. The S&P 500 contains quite a bit of overseas developed market
business so a separate allocation to EM index can provide excellent combined
international exposure, developed and emerging market. Not a recommendation
as my Intl is 0%, but overall 10-20% Intl would be less risk for a large portfolio.
retireearly wrote: 3)I definitely realize that even though I just moved from 0 to nearly 16% in bonds, that at the age of 44, I'm still most likely holding a smaller % in bonds than most. It took a lot to get to me to make the leap I did, so I have more thinking to do! Has the board ever done a poll where there was a "bogle Collective Average" of what people hold at various ages? I would love to see what the collective avg is for every 5 year and AA!
Age-in-Bonds is an old concept. Most hold a slightly less percentage in
bonds but not that much less. Age-in-Bonds minus 10 is one such formula.

Here's some good bond ETF's :
VGIT - VG Intermediate Govt Bonds
VCIT - VG Intermediate Corp Bonds
BIV - VG Intermediate Bond Index (combines Corp and TRSY)

Placing stocks and bonds in the proper place will add to your return :
Tax-efficient Fund Placement
age in bonds, buy-and-hold, 10 year business cycle
inbox788
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by inbox788 »

aristotelian wrote:For what it's worth, I was 90/10 until this year at Age 42. Recently rebalanced when the Dow hit 21K and paid off our mortgage and shifted to 70/25. The way I see it, I have less need to take risk and more incentive toward capital preservation than I used to. I haven't won the game yet, but I have a clearer path to getting there. That path would be much bumpier if there is a market event in the next few years, and I am starting to get to the age that I might not have time to rebound from a major event. Definitely not a bad time to increase your bond allocation from a market timing perspective as well as an age and risk perspective.

Should be easy to do in your 401K given your options, as well as IRA's. Just figure how much you want and put it in Vanguard Total Bond.
I'm an aggressive investor, but as I'm getting older, I realized I was too invested in equities. I couldn't stand doing a big rebalance, so I did it a bit at a time, which luckily turned out ok, since the market has been on an upward trajectory. I realized it was senseless to buy equities only to rebalance, so I stopped buying equities in my 401k and put 100% to bonds. And because of growing equities, that alone wasn't enough to rebalance. Over a course of 2-3 year, I did 2-3% and occasionally 5% mini-rebalances. Went from < 10% bonds to 30% bonds, which helps me sleep much better.
dergon
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by dergon »

inbox788 wrote:
aristotelian wrote:For what it's worth, I was 90/10 until this year at Age 42. Recently rebalanced when the Dow hit 21K and paid off our mortgage and shifted to 70/25. The way I see it, I have less need to take risk and more incentive toward capital preservation than I used to. I haven't won the game yet, but I have a clearer path to getting there. That path would be much bumpier if there is a market event in the next few years, and I am starting to get to the age that I might not have time to rebound from a major event. Definitely not a bad time to increase your bond allocation from a market timing perspective as well as an age and risk perspective.

Should be easy to do in your 401K given your options, as well as IRA's. Just figure how much you want and put it in Vanguard Total Bond.


I'm an aggressive investor, but as I'm getting older, I realized I was too invested in equities. I couldn't stand doing a big rebalance, so I did it a bit at a time, which luckily turned out ok, since the market has been on an upward trajectory. I realized it was senseless to buy equities only to rebalance, so I stopped buying equities in my 401k and put 100% to bonds. And because of growing equities, that alone wasn't enough to rebalance. Over a course of 2-3 year, I did 2-3% and occasionally 5% mini-rebalances. Went from < 10% bonds to 30% bonds, which helps me sleep much better.
Hi all. This is exactly the topic I came to find guidance on today.

I just turned 50 and am 96/4. I've always been a comfortable aggressive investor but now feel too far out on the allocation limb.

I'm just readying to move a good chunk of FSTVX and swap it for FSITX. (I've actually been perseverating on this for a few months but finally got far enough along in the decision making process to start seeking out materials to help cement my confirmation bias that it's the right move ... and I found it :) )


That change will get me to 91/9. Then hopefully, as long as I don't waver, I'll try to reallocate another 5% year end, then move to 2% per year until I get to 70/30 ... roughly at 57.


I'm fortunate to have a job where many people are able to continue to work into their 70s at varying degrees of part time if they desire. If it all went horribly wrong I could stop working today and make a go of it ... I wouldn't be living on a yacht in the Virgin Islands but ...

Anyway. Nice discussion in this thread. Very helpful to me.
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ruralavalon
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by ruralavalon »

retireearly wrote:3)I definitely realize that even though I just moved from 0 to nearly 16% in bonds, that at the age of 44, I'm still most likely holding a smaller % in bonds than most. It took a lot to get to me to make the leap I did, so I have more thinking to do! Has the board ever done a poll where there was a "bogle Collective Average" of what people hold at various ages? I would love to see what the collective avg is for every 5 year
I don't believe there has ever been a "poll" on the subject of what the average Boglehead holds in bonds at various ages.

Somewhat similar to a poll have been threads asking what bond allocation responding members have, and regressions done based on the responses. Forum discussion, Has the Asset Allocation of Bogleheads changed?, "% Stocks vs Age", from 2007, 2011, 2012 & 2015. As you can see responses vary quite a bit. At age 44 typical seems to be about 70/30 stocks/bonds. An allocation of 70/30 would be expected to substantially reduce volatility (risk), with only a relatively slight decrease in return. Graph, "An Efficient Frontier: the power of diversification".

Please see the wiki articles Bogleheads® investment philosophy, "Never bear too much or too little risk", and "Asset allocation".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
dergon
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by dergon »

FSTVX for FSITX done.

I am now 91/9 for allocation. Hope to continue my plan as above.

As always thank to the whole community for helping me to clarify my thought process.
bloom2708
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by bloom2708 »

dergon wrote:FSTVX for FSITX done.

I am now 91/9 for allocation. Hope to continue my plan as above.

As always thank to the whole community for helping me to clarify my thought process.
Baby steps. Good work.

Next I would look at the extra risk you are taking within the 91% stock portion. The 91% is one kind of risk. The makeup/concentration in your stock funds is another. I would only do one of them.
dergon
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Re: Thoughts how/why/when to finally move to Bonds/Fixed Income

Post by dergon »

bloom2708 wrote:
dergon wrote:FSTVX for FSITX done.

I am now 91/9 for allocation. Hope to continue my plan as above.

As always thank to the whole community for helping me to clarify my thought process.
Baby steps. Good work.

Next I would look at the extra risk you are taking within the 91% stock portion. The 91% is one kind of risk. The makeup/concentration in your stock funds is another. I would only do one of them.
That part is less stressful to me. I've been moving toward a more global stock portfolio from a marked US contenctration over the last couple of years. I am also looking to increase my REIT percentages (which have drifted downward due to failure to re-balance with new monies going to equities only)
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