Question about investing in bonds

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gbezerra
Posts: 20
Joined: Sat Mar 10, 2018 8:17 am

Question about investing in bonds

Post by gbezerra » Tue Jul 31, 2018 8:53 pm

Dear Bogleheads,

I'm following the recommended protocol: bonds percentage = my age, the rest is in stocks. 2/3 of my stocks are US, 1/3 are international.

Here are my questions:
1. Bonds suck right now, investing in them is the same as losing money. Should I completely ignore this fact and focus on the long horizon of 30 years ahead? I would think yes, but I want to double check with the Bogleheads.

2. I put bonds in my tax advantaged accounts, since they tend to be taxed higher. However, because my contributions keep increasing, at this point both my tax advantaged accounts are filled up with bonds, while all of my stocks are in my taxed account. Is that OK? And now that I'm running out of tax-advantaged money, where do I put more bonds?

Thank you in advance. Any help is appreciated.

George.

UpperNwGuy
Posts: 987
Joined: Sun Oct 08, 2017 7:16 pm
Location: Washington DC

Re: Question about investing in bonds

Post by UpperNwGuy » Tue Jul 31, 2018 9:10 pm

1. You will not lose money with bond funds if you hold them for several years.

2. Put municipal bond funds in your taxable account.

Consider reducing bonds from “age in bonds” to “age minus 10 in bonds” or “age minus 20 in bonds.”
Retiree with a pension and a 60/40 taxable portfolio: Total Stock + Total Int'l + Total Bond + Interm Term Tax Exempt.

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vineviz
Posts: 1697
Joined: Tue May 15, 2018 1:55 pm

Re: Question about investing in bonds

Post by vineviz » Tue Jul 31, 2018 9:47 pm

gbezerra wrote:
Tue Jul 31, 2018 8:53 pm
I'm following the recommended protocol: bonds percentage = my age, the rest is in stocks. 2/3 of my stocks are US, 1/3 are international.
The consensus recommendation, if you're using rule of thumb, would "age minus 20" in bonds as an UPPER limit. So, an investor who is 45 should have no more 25% bonds.
gbezerra wrote:
Tue Jul 31, 2018 8:53 pm
Bonds suck right now, investing in them is the same as losing money. Should I completely ignore this fact and focus on the long horizon of 30 years ahead? I would think yes, but I want to double check with the Bogleheads.
First, it's definite a NOT a fact that "bonds suck right now".

But yes, if your allocation says to hold them then you should. Most people here recommend an intermediate term fund, but the most reasonable approach is to hold bonds with a duration that is just less than your investment horizon.
gbezerra wrote:
Tue Jul 31, 2018 8:53 pm
....both my tax advantaged accounts are filled up with bonds, while all of my stocks are in my taxed account. Is that OK?
Yes, that's okay.
gbezerra wrote:
Tue Jul 31, 2018 8:53 pm
And now that I'm running out of tax-advantaged money, where do I put more bonds?
First, you might already have too much in bonds (see "age minus 20" instead of "age in bonds").

Second, holding bonds in a taxable account is fine. Depending on your state and your tax bracket, municipal bonds might have better after-tax returns, but probably an intermediate treasury fund is just fine.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Ron Scott
Posts: 971
Joined: Tue Apr 05, 2016 5:38 am

Re: Question about investing in bonds

Post by Ron Scott » Tue Jul 31, 2018 10:02 pm

If you can live off your bonds for 20 years or more, i.e., if you won't find yourself in a position of having to sell stocks in a downturn, you can invest more aggressively than the adage "your age in bonds" implies. If you can't, don't.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. Preparing for financial challenges is more fruitful than trying to predict them.

gbezerra
Posts: 20
Joined: Sat Mar 10, 2018 8:17 am

Re: Question about investing in bonds

Post by gbezerra » Wed Aug 01, 2018 8:29 pm

UpperNwGuy wrote:
Tue Jul 31, 2018 9:10 pm
1. You will not lose money with bond funds if you hold them for several years.

2. Put municipal bond funds in your taxable account.

Consider reducing bonds from “age in bonds” to “age minus 10 in bonds” or “age minus 20 in bonds.”
1. Good to know that long term this is still the right thing to do.
2. I currently invest in a total bond fund. Should I get additional municipal bond funds that I can put in my taxable account?

Yes, I could reduce the bond percentage. Graham says 50% bonds, Bogle says bonds=age. It seems like you guys are recommending a more aggressive portfolio. Also, bonds used to do better historically than they are doing now, maybe that's where it's coming from.

gbezerra
Posts: 20
Joined: Sat Mar 10, 2018 8:17 am

Re: Question about investing in bonds

Post by gbezerra » Wed Aug 01, 2018 8:31 pm

Ron Scott wrote:
Tue Jul 31, 2018 10:02 pm
If you can live off your bonds for 20 years or more, i.e., if you won't find yourself in a position of having to sell stocks in a downturn, you can invest more aggressively than the adage "your age in bonds" implies. If you can't, don't.
I definitely cannot live 20 years off of bonds. Maybe 5 years. I'll keep the age strategy then. But should I put bonds in my taxable account? I don't have any other options at this point.

gbezerra
Posts: 20
Joined: Sat Mar 10, 2018 8:17 am

Re: Question about investing in bonds

Post by gbezerra » Wed Aug 01, 2018 8:39 pm

vineviz wrote:
Tue Jul 31, 2018 9:47 pm
gbezerra wrote:
Tue Jul 31, 2018 8:53 pm
I'm following the recommended protocol: bonds percentage = my age, the rest is in stocks. 2/3 of my stocks are US, 1/3 are international.
The consensus recommendation, if you're using rule of thumb, would "age minus 20" in bonds as an UPPER limit. So, an investor who is 45 should have no more 25% bonds.
That sounds more aggressive than the general advice I've read. Is this because the market is doing well right now? Shouldn't allocation be independent of current market?
vineviz wrote:
Tue Jul 31, 2018 9:47 pm
gbezerra wrote:
Tue Jul 31, 2018 8:53 pm
Bonds suck right now, investing in them is the same as losing money. Should I completely ignore this fact and focus on the long horizon of 30 years ahead? I would think yes, but I want to double check with the Bogleheads.
First, it's definite a NOT a fact that "bonds suck right now".

But yes, if your allocation says to hold them then you should. Most people here recommend an intermediate term fund, but the most reasonable approach is to hold bonds with a duration that is just less than your investment horizon.
Not an expert here, but my total bonds Vanguard mutual fund hasn't grown anything this year, definitely less than inflation.

Is there any further material I can read on bonds? (besides the link above of course).
vineviz wrote:
Tue Jul 31, 2018 9:47 pm
gbezerra wrote:
Tue Jul 31, 2018 8:53 pm
....both my tax advantaged accounts are filled up with bonds, while all of my stocks are in my taxed account. Is that OK?
Yes, that's okay.
Good to know!
vineviz wrote:
Tue Jul 31, 2018 9:47 pm
gbezerra wrote:
Tue Jul 31, 2018 8:53 pm
And now that I'm running out of tax-advantaged money, where do I put more bonds?
First, you might already have too much in bonds (see "age minus 20" instead of "age in bonds").

Second, holding bonds in a taxable account is fine. Depending on your state and your tax bracket, municipal bonds might have better after-tax returns, but probably an intermediate treasury fund is just fine.
Got it. Would you then not recommend total bonds, but municipal or treasury bonds instead?

Ron Scott
Posts: 971
Joined: Tue Apr 05, 2016 5:38 am

Re: Question about investing in bonds

Post by Ron Scott » Wed Aug 01, 2018 9:17 pm

gbezerra wrote:
Wed Aug 01, 2018 8:31 pm
Ron Scott wrote:
Tue Jul 31, 2018 10:02 pm
If you can live off your bonds for 20 years or more, i.e., if you won't find yourself in a position of having to sell stocks in a downturn, you can invest more aggressively than the adage "your age in bonds" implies. If you can't, don't.
I definitely cannot live 20 years off of bonds. Maybe 5 years. I'll keep the age strategy then. But should I put bonds in my taxable account? I don't have any other options at this point.
Many of us can’t fit all our bonds in tax deferred or tax free accounts. “All things being equal” munis are good bonds for taxable accounts, when you need to reduce federal tax.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. Preparing for financial challenges is more fruitful than trying to predict them.

NestEggLove
Posts: 19
Joined: Thu Jul 05, 2018 9:22 am

Re: Question about investing in bonds

Post by NestEggLove » Wed Aug 01, 2018 10:13 pm

gbezerra wrote:
Wed Aug 01, 2018 8:39 pm
vineviz wrote:
Tue Jul 31, 2018 9:47 pm
gbezerra wrote:
Tue Jul 31, 2018 8:53 pm
I'm following the recommended protocol: bonds percentage = my age, the rest is in stocks. 2/3 of my stocks are US, 1/3 are international.
The consensus recommendation, if you're using rule of thumb, would "age minus 20" in bonds as an UPPER limit. So, an investor who is 45 should have no more 25% bonds.
That sounds more aggressive than the general advice I've read. Is this because the market is doing well right now? Shouldn't allocation be independent of current market?
vineviz wrote:
Tue Jul 31, 2018 9:47 pm
gbezerra wrote:
Tue Jul 31, 2018 8:53 pm
Bonds suck right now, investing in them is the same as losing money. Should I completely ignore this fact and focus on the long horizon of 30 years ahead? I would think yes, but I want to double check with the Bogleheads.
First, it's definite a NOT a fact that "bonds suck right now".

But yes, if your allocation says to hold them then you should. Most people here recommend an intermediate term fund, but the most reasonable approach is to hold bonds with a duration that is just less than your investment horizon.
Not an expert here, but my total bonds Vanguard mutual fund hasn't grown anything this year, definitely less than inflation.

Is there any further material I can read on bonds? (besides the link above of course).
vineviz wrote:
Tue Jul 31, 2018 9:47 pm
gbezerra wrote:
Tue Jul 31, 2018 8:53 pm
....both my tax advantaged accounts are filled up with bonds, while all of my stocks are in my taxed account. Is that OK?
Yes, that's okay.
Good to know!
vineviz wrote:
Tue Jul 31, 2018 9:47 pm
gbezerra wrote:
Tue Jul 31, 2018 8:53 pm
And now that I'm running out of tax-advantaged money, where do I put more bonds?
First, you might already have too much in bonds (see "age minus 20" instead of "age in bonds").

Second, holding bonds in a taxable account is fine. Depending on your state and your tax bracket, municipal bonds might have better after-tax returns, but probably an intermediate treasury fund is just fine.
Got it. Would you then not recommend total bonds, but municipal or treasury bonds instead?
“Age -20” as the high end seems more aggressive than typical advice I’ve read, too

User avatar
vineviz
Posts: 1697
Joined: Tue May 15, 2018 1:55 pm

Re: Question about investing in bonds

Post by vineviz » Thu Aug 02, 2018 8:08 am

gbezerra wrote:
Wed Aug 01, 2018 8:39 pm
vineviz wrote:
Tue Jul 31, 2018 9:47 pm
gbezerra wrote:
Tue Jul 31, 2018 8:53 pm
I'm following the recommended protocol: bonds percentage = my age, the rest is in stocks. 2/3 of my stocks are US, 1/3 are international.
The consensus recommendation, if you're using rule of thumb, would "age minus 20" in bonds as an UPPER limit. So, an investor who is 45 should have no more 25% bonds.
That sounds more aggressive than the general advice I've read. Is this because the market is doing well right now? Shouldn't allocation be independent of current market?
No and yes.

No this recommendation isn't "because the market is doing well right now", and yes allocation SHOULD "be independent of current market".

Any rule of thumb like "age minus X" is going to be debatable because it is inevitably wrong for many people much of the time. In no small part, this is because the optimal allocation will vary depending on risk tolerance and because FOR EVERYONE the optimal allocation does not change linearly over your lifetime.

That said, the best research on retirement allocation glide paths IMHO has been done by Ibbotson (which was bought by Morningstar in 2015). They've built three "Lifetime Allocation Indexes" which reflect their best evaluation of the target asset allocation for aggressive, moderate, and conservative risk tolerances respectively.

Image

You can see that the target equity allocation doesn't drop linearly over time, but through interpolation you can see the range of target equity allocations for a 37 year old is between 73% (for a conservative investor) and 93% (for an aggressive investor).

A moderate investor at age 37 should have about 87% in stocks and 13% in bonds/cash in their retirement portfolio according to Ibbotson.

As I mentioned earlier, an "age minus X" rule of thumb is never going to give you an entirely accurate allocation, but age minus 15 or age minus 20 is a solid approximation for an investor with moderate risk tolerance who is SAVING for retirement (i.e. between age 20 and age 65).

Someone nearing or in retirement is more likely to need a different allocation, but they are also more likely to have the information they need to make an independent evaluation based on their circumstances. For someone under the age of 55 or 60, "age minus 20" is definitely close enough.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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patrick013
Posts: 2365
Joined: Mon Jul 13, 2015 7:49 pm

Re: Question about investing in bonds

Post by patrick013 » Thu Aug 02, 2018 12:24 pm

gbezerra wrote:
Wed Aug 01, 2018 8:39 pm
Is there any further material I can read on bonds? (besides the link above of course).
Tax-efficient Fund Placement
The above basically says first, put your bonds in a tax-advantaged (retirement)
account preferably t401k and/or tIRA. Put your international equities in a taxable
account when you have a large foreign tax credit normally to apply. Lastly, put
your domestic stocks into the t401k and/or tIRA, then Roth, then in a taxable account.
Your overall return will increase by at least 1% long term and usually more if
you follow the above wiki advice.

Of course some people only have Roth accounts but 401k matches are normally
taxable later. Hopefully there's enough room in there for the bond allocation.
The Roth looks best with a stock allocation and my personal preference would be
to reduce the bond allocation then or put some muni's in taxable rather than watch
bonds take up zero tax Roth space. People in the highest tax bracket often use
muni's in taxable to reach a bond AA while reducing high state taxes at the same
time. Little or no loss of return is observed.

I think the age-in-bonds concept developed when rates were 7 to 8 % on bond
funds. Higher stock AA's increase returns when bonds are in a very low return
secular time frame. The bull market put risk on the positive side so it all worked
out OK then. But it's really a personal choice. What percentage bonds, what
target Beta should the portfolio have, when to rebalance etc.. Maintain a
moderate or aggressive risk portfolio.

Many people stop at a 50-50 allocation when increasing bonds with age. TRSY
heavy bond AA's are supposed to be sold and withdrawn not at a loss when stocks
go down drastically and withdrawals would result in sales at lower stock NAV's for
a year or longer period during one of them recessions or major market correction.
Some use CD ladders as part of the budgeted strategy in retirement also. Spend
those if stocks are down but reinvest CD's if stocks have uptick valuations for
withdrawal so the 50-50 AA is maintained.
age in bonds, buy-and-hold, 10 year business cycle

Dandy
Posts: 5349
Joined: Sun Apr 25, 2010 7:42 pm

Re: Question about investing in bonds

Post by Dandy » Thu Aug 02, 2018 1:02 pm

gbezerra wrote:
Tue Jul 31, 2018 8:53 pm
Dear Bogleheads,

I'm following the recommended protocol: bonds percentage = my age, the rest is in stocks. 2/3 of my stocks are US, 1/3 are international.

Here are my questions:
1. Bonds suck right now, investing in them is the same as losing money. Should I completely ignore this fact and focus on the long horizon of 30 years ahead? I would think yes, but I want to double check with the Bogleheads.

2. I put bonds in my tax advantaged accounts, since they tend to be taxed higher. However, because my contributions keep increasing, at this point both my tax advantaged accounts are filled up with bonds, while all of my stocks are in my taxed account. Is that OK? And now that I'm running out of tax-advantaged money, where do I put more bonds?
1. Always think fixed income vs bonds to keep yourself open to more options. You should be fine with a good intermediate bond fund. But, rising rates cause a bit of a head wind for bonds/bond funds -- over time that should resolve itself. Don't ignore on line savings, money market funds paying 1.75 to 2% or so or CDs paying a bit more.

2. I always felt that taxable and tax advantaged should have a mix of both fixed income and stocks. Obviously, tax advantaged mostly fixed income and mostly equities in taxable. You can rebalance without incurring a taxable event. Also when you retire and begin taking RMDs you will not be depleting only fixed income - thus creating a potential rising equity allocation since your equity heavy taxable account will likely grow faster.

User avatar
munemaker
Posts: 3463
Joined: Sat Jan 18, 2014 6:14 pm

Re: Question about investing in bonds

Post by munemaker » Thu Aug 02, 2018 1:06 pm

gbezerra wrote:
Tue Jul 31, 2018 8:53 pm

1. Bonds suck right now, investing in them is the same as losing money. Should I completely ignore this fact and focus on the long horizon of 30 years ahead? I would think yes, but I want to double check with the Bogleheads.

George.
As an alternative, consider buying CDs and/or shorter term treasuries at this time instead of investing in bond funds (Google Larry Swedroe's view on CDs).

gbezerra
Posts: 20
Joined: Sat Mar 10, 2018 8:17 am

Re: Question about investing in bonds

Post by gbezerra » Wed Aug 08, 2018 8:11 pm

Dandy wrote:
Thu Aug 02, 2018 1:02 pm
gbezerra wrote:
Tue Jul 31, 2018 8:53 pm
Dear Bogleheads,

I'm following the recommended protocol: bonds percentage = my age, the rest is in stocks. 2/3 of my stocks are US, 1/3 are international.

Here are my questions:
1. Bonds suck right now, investing in them is the same as losing money. Should I completely ignore this fact and focus on the long horizon of 30 years ahead? I would think yes, but I want to double check with the Bogleheads.

2. I put bonds in my tax advantaged accounts, since they tend to be taxed higher. However, because my contributions keep increasing, at this point both my tax advantaged accounts are filled up with bonds, while all of my stocks are in my taxed account. Is that OK? And now that I'm running out of tax-advantaged money, where do I put more bonds?
1. Always think fixed income vs bonds to keep yourself open to more options. You should be fine with a good intermediate bond fund. But, rising rates cause a bit of a head wind for bonds/bond funds -- over time that should resolve itself. Don't ignore on line savings, money market funds paying 1.75 to 2% or so or CDs paying a bit more.

2. I always felt that taxable and tax advantaged should have a mix of both fixed income and stocks. Obviously, tax advantaged mostly fixed income and mostly equities in taxable. You can rebalance without incurring a taxable event. Also when you retire and begin taking RMDs you will not be depleting only fixed income - thus creating a potential rising equity allocation since your equity heavy taxable account will likely grow faster.
Thanks. Those are good suggestions. You have a point there about the taxable vs tax advantaged accounts. Ultimately, the equity part will grow faster, so you'd like to have some of that in your tax-advantaged account.

gbezerra
Posts: 20
Joined: Sat Mar 10, 2018 8:17 am

Re: Question about investing in bonds

Post by gbezerra » Wed Aug 08, 2018 8:15 pm

patrick013 wrote:
Thu Aug 02, 2018 12:24 pm
gbezerra wrote:
Wed Aug 01, 2018 8:39 pm
Is there any further material I can read on bonds? (besides the link above of course).
Tax-efficient Fund Placement
The above basically says first, put your bonds in a tax-advantaged (retirement)
account preferably t401k and/or tIRA. Put your international equities in a taxable
account when you have a large foreign tax credit normally to apply. Lastly, put
your domestic stocks into the t401k and/or tIRA, then Roth, then in a taxable account.
Your overall return will increase by at least 1% long term and usually more if
you follow the above wiki advice.

Of course some people only have Roth accounts but 401k matches are normally
taxable later. Hopefully there's enough room in there for the bond allocation.
The Roth looks best with a stock allocation and my personal preference would be
to reduce the bond allocation then or put some muni's in taxable rather than watch
bonds take up zero tax Roth space. People in the highest tax bracket often use
muni's in taxable to reach a bond AA while reducing high state taxes at the same
time. Little or no loss of return is observed.

I think the age-in-bonds concept developed when rates were 7 to 8 % on bond
funds. Higher stock AA's increase returns when bonds are in a very low return
secular time frame. The bull market put risk on the positive side so it all worked
out OK then. But it's really a personal choice. What percentage bonds, what
target Beta should the portfolio have, when to rebalance etc.. Maintain a
moderate or aggressive risk portfolio.

Many people stop at a 50-50 allocation when increasing bonds with age. TRSY
heavy bond AA's are supposed to be sold and withdrawn not at a loss when stocks
go down drastically and withdrawals would result in sales at lower stock NAV's for
a year or longer period during one of them recessions or major market correction.
Some use CD ladders as part of the budgeted strategy in retirement also. Spend
those if stocks are down but reinvest CD's if stocks have uptick valuations for
withdrawal so the 50-50 AA is maintained.
Man, you're sharp. Thanks a lot. I feel like I have a lot to learn, starting with the link above. Thank you for your advice.

gbezerra
Posts: 20
Joined: Sat Mar 10, 2018 8:17 am

Re: Question about investing in bonds

Post by gbezerra » Wed Aug 08, 2018 8:19 pm

vineviz wrote:
Thu Aug 02, 2018 8:08 am
gbezerra wrote:
Wed Aug 01, 2018 8:39 pm
vineviz wrote:
Tue Jul 31, 2018 9:47 pm
gbezerra wrote:
Tue Jul 31, 2018 8:53 pm
I'm following the recommended protocol: bonds percentage = my age, the rest is in stocks. 2/3 of my stocks are US, 1/3 are international.
The consensus recommendation, if you're using rule of thumb, would "age minus 20" in bonds as an UPPER limit. So, an investor who is 45 should have no more 25% bonds.
That sounds more aggressive than the general advice I've read. Is this because the market is doing well right now? Shouldn't allocation be independent of current market?
No and yes.

No this recommendation isn't "because the market is doing well right now", and yes allocation SHOULD "be independent of current market".

Any rule of thumb like "age minus X" is going to be debatable because it is inevitably wrong for many people much of the time. In no small part, this is because the optimal allocation will vary depending on risk tolerance and because FOR EVERYONE the optimal allocation does not change linearly over your lifetime.

That said, the best research on retirement allocation glide paths IMHO has been done by Ibbotson (which was bought by Morningstar in 2015). They've built three "Lifetime Allocation Indexes" which reflect their best evaluation of the target asset allocation for aggressive, moderate, and conservative risk tolerances respectively.

Image

You can see that the target equity allocation doesn't drop linearly over time, but through interpolation you can see the range of target equity allocations for a 37 year old is between 73% (for a conservative investor) and 93% (for an aggressive investor).

A moderate investor at age 37 should have about 87% in stocks and 13% in bonds/cash in their retirement portfolio according to Ibbotson.

As I mentioned earlier, an "age minus X" rule of thumb is never going to give you an entirely accurate allocation, but age minus 15 or age minus 20 is a solid approximation for an investor with moderate risk tolerance who is SAVING for retirement (i.e. between age 20 and age 65).

Someone nearing or in retirement is more likely to need a different allocation, but they are also more likely to have the information they need to make an independent evaluation based on their circumstances. For someone under the age of 55 or 60, "age minus 20" is definitely close enough.
Thanks! Nothing speaks like data. Now I get your point. I think I am being conservative. I might be a bit risk averse, I guess, but I'm trying to protect myself against the natural bias of putting my assets on what is currently doing better (i.e., buy when the price is high). I think the data really helps to evaluate my position.

gbezerra
Posts: 20
Joined: Sat Mar 10, 2018 8:17 am

Re: Question about investing in bonds

Post by gbezerra » Wed Aug 08, 2018 8:20 pm

munemaker wrote:
Thu Aug 02, 2018 1:06 pm
gbezerra wrote:
Tue Jul 31, 2018 8:53 pm

1. Bonds suck right now, investing in them is the same as losing money. Should I completely ignore this fact and focus on the long horizon of 30 years ahead? I would think yes, but I want to double check with the Bogleheads.

George.
As an alternative, consider buying CDs and/or shorter term treasuries at this time instead of investing in bond funds (Google Larry Swedroe's view on CDs).
True, I definitely need to learn more about CD's. Starting with Larry Swedroe. Thanks.

User avatar
patrick013
Posts: 2365
Joined: Mon Jul 13, 2015 7:49 pm

Re: Question about investing in bonds

Post by patrick013 » Thu Aug 09, 2018 12:41 pm

gbezerra wrote:
Wed Aug 08, 2018 8:15 pm
patrick013 wrote:
Thu Aug 02, 2018 12:24 pm
gbezerra wrote:
Wed Aug 01, 2018 8:39 pm
Is there any further material I can read on bonds? (besides the link above of course).
Tax-efficient Fund Placement
The above basically says first, put your bonds in a tax-advantaged (retirement)
account preferably t401k and/or tIRA. Put your international equities in a taxable
account when you have a large foreign tax credit normally to apply. Lastly, put
your domestic stocks into the t401k and/or tIRA, then Roth, then in a taxable account.
Your overall return will increase by at least 1% long term and usually more if
you follow the above wiki advice.

Of course some people only have Roth accounts but 401k matches are normally
taxable later. Hopefully there's enough room in there for the bond allocation.
The Roth looks best with a stock allocation and my personal preference would be
to reduce the bond allocation then or put some muni's in taxable rather than watch
bonds take up zero tax Roth space. People in the highest tax bracket often use
muni's in taxable to reach a bond AA while reducing high state taxes at the same
time. Little or no loss of return is observed.

I think the age-in-bonds concept developed when rates were 7 to 8 % on bond
funds. Higher stock AA's increase returns when bonds are in a very low return
secular time frame. The bull market put risk on the positive side so it all worked
out OK then. But it's really a personal choice. What percentage bonds, what
target Beta should the portfolio have, when to rebalance etc.. Maintain a
moderate or aggressive risk portfolio.

Many people stop at a 50-50 allocation when increasing bonds with age. TRSY
heavy bond AA's are supposed to be sold and withdrawn not at a loss when stocks
go down drastically and withdrawals would result in sales at lower stock NAV's for
a year or longer period during one of them recessions or major market correction.
Some use CD ladders as part of the budgeted strategy in retirement also. Spend
those if stocks are down but reinvest CD's if stocks have uptick valuations for
withdrawal so the 50-50 AA is maintained.
Man, you're sharp. Thanks a lot. I feel like I have a lot to learn, starting with the link above. Thank you for your advice.
When I say aggressive I mean 75% stocks - more risk and possible return
Moderate at 50% stocks - for anybody
Conservative at 25% stocks - have the money just want to spend it.

Thanks for the response. :sharebeer
age in bonds, buy-and-hold, 10 year business cycle

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