Age in Bonds - Still Recommended?

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Jacobkg
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Age in Bonds - Still Recommended?

Post by Jacobkg » Fri Sep 14, 2018 9:32 am

I started reading Bogleheads in 2007 and have been following on and off since. Early in that process I decided on my Asset Allocation, which includes the decision to implement the “your age in bonds” rule. I have been dutifully increasing my target bond allocation by 1% for the last decade (I’m now in my thirties).

I feel like over time Age in Bonds is being discussed less and less. Has it fallen out of favor? Should I consider rethinking my strategy? I don’t like to do this often but I figure once a decade isn’t too bad.

What are other accumulators doing?
Last edited by Jacobkg on Fri Sep 14, 2018 10:10 am, edited 1 time in total.

UpperNwGuy
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Re: Age in Bonds - Still Recommended?

Post by UpperNwGuy » Fri Sep 14, 2018 9:34 am

Age in bonds is definitely out of favor. Seriously, why would anybody want more bonds than stocks from age 51 onwards? I would recommend age minus 20 or age minus 15 in bonds.

michaeljc70
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Re: Age in Bonds - Still Recommended?

Post by michaeljc70 » Fri Sep 14, 2018 9:55 am

I've never believed in that. Why would someone 25 years old retiring in 40 years have 25% in bonds? Makes no sense to me.

goblue100
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Re: Age in Bonds - Still Recommended?

Post by goblue100 » Fri Sep 14, 2018 9:56 am

What is your need and ability to take risk? I think that is better measure of your asset allocation than an arbitrary rule of thumb. Take a look at the link below, there is a nice table that shows returns of various equity / bond mixes.

https://www.bogleheads.org/wiki/Financi ... t_the_plan
c. Since many asset classes can rise and fall in value, you must understand your need, willingness, and ability to take investment risk. Since risk and return are directly related, your asset allocation should balance your NEED to take risk with your ABILITY to withstand the ups and downs of the market. NEED can be determined in many different ways. If you are young, you have the benefit of many years of compounding, so in one respect your NEED to take risk is low. On the other hand, your portfolio size is probably small, leaving you with a long way to go to reach your retirement goals. As a result, you could argue that your NEED to take risk is high.[3]
For people closer to retirement, it may be possible to more closely determine NEED. First, estimate approximately how much income you will need annually after retirement. For this example, we’ll assume you need $100,000 per year. Next, look at any pensions or social security benefits that will provide a source of income. If a pension provides $30,000 per year and social security provides an additional $20,000 per year, then your portfolio would need to provide an extra $50,000 each year. To prevent running out of money, you should probably start by withdrawing 4% a year or less with an annual inflation adjustment. To generate $50,000 per year at 4% requires a minimum portfolio size of $1,250,000. How close are you to your goal?
Turning to ABILITY, this relates to your ability to withstand the ups and downs of the market without getting nervous and making changes to your asset allocation. Selling in the face of a decline is about the worst thing you can do. Here is a table offered by author Larry Swedroe,[3][4] based on the 1970s bear market, showing the amount of decline for various stock/bond allocations:
Can't take it with you when you're gone | But I want enough to get there on - Rollin with the flow - Jerry Hayes

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watchnerd
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Re: Age in Bonds - Still Recommended?

Post by watchnerd » Fri Sep 14, 2018 9:59 am

UpperNwGuy wrote:
Fri Sep 14, 2018 9:34 am
Age in bonds is definitely out of favor. Seriously, why would anybody want more bonds than stocks from age 51 onwards? I would recommend age minus 20 or age minus 15 in bonds.
Because if you already have enough money to meet your liabilities, why take the extra equity risk?
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

J295
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Re: Age in Bonds - Still Recommended?

Post by J295 » Fri Sep 14, 2018 10:05 am

Re: Age in Bonds - Still Recommended?
Unread post by UpperNwGuy » Fri Sep 14, 2018 8:34 am

Age in bonds is definitely out of favor. Seriously, why would anybody want more bonds than stocks from age 51 onwards? I would recommend age minus 20 or age minus 15 in bonds.
Can you elaborate?

We are 59 and are 110- age in stocks. We started this when we retired six years ago (before that rather aggressive in our portfolio allocations).

So, we are now 51% stocks and in two years will be 49% stocks. Makes sense to us as in retirement we want a smoother financial ride that a lower stock allocations provides (an equity decline of 50 percent would be uncomfortable, but not a game changer with our stock allocation as a 50% equity decline results only is a 25% portfolio decline if all other things are equal).

Of course, the portfolio allocations are only part of the puzzle as we all have different life situations and temperaments.

Jack FFR1846
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Re: Age in Bonds - Still Recommended?

Post by Jack FFR1846 » Fri Sep 14, 2018 10:07 am

It's a starting point and something to easily set up when you have absolutely no idea. When I first looked at what I held (went decades just randomly choosing funds), I was 99% equity at 50 years old. I looked at age in bonds and decided to go age minus 10 as I learned more. Now, I'm 61 and have decided to stick with 50/50 forever.
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CyberBob
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Re: Age in Bonds - Still Recommended?

Post by CyberBob » Fri Sep 14, 2018 10:34 am

I’ve always preferred Bogle’s more general allocation advice from his first book:

Image

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willthrill81
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Re: Age in Bonds - Still Recommended?

Post by willthrill81 » Fri Sep 14, 2018 10:45 am

michaeljc70 wrote:
Fri Sep 14, 2018 9:55 am
I've never believed in that. Why would someone 25 years old retiring in 40 years have 25% in bonds? Makes no sense to me.
I concur.

Actually, apart from an individual investor's risk tolerance, there's no good reason I've heard of yet as to why fixed income is necessary at all for people who are 20+ years from retirement.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

UpperNwGuy
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Re: Age in Bonds - Still Recommended?

Post by UpperNwGuy » Fri Sep 14, 2018 10:47 am

J295 wrote:
Fri Sep 14, 2018 10:05 am
Re: Age in Bonds - Still Recommended?
Unread post by UpperNwGuy » Fri Sep 14, 2018 8:34 am

Age in bonds is definitely out of favor. Seriously, why would anybody want more bonds than stocks from age 51 onwards? I would recommend age minus 20 or age minus 15 in bonds.
Can you elaborate?

We are 59 and are 110- age in stocks. We started this when we retired six years ago (before that rather aggressive in our portfolio allocations).

So, we are now 51% stocks and in two years will be 49% stocks. Makes sense to us as in retirement we want a smoother financial ride that a lower stock allocations provides (an equity decline of 50 percent would be uncomfortable, but not a game changer with our stock allocation as a 50% equity decline results only is a 25% portfolio decline if all other things are equal).

Of course, the portfolio allocations are only part of the puzzle as we all have different life situations and temperaments.
I think you answered your own question. 110 minus age in stocks is the same as age minus 10 in bonds, so you're very close to what I would recommend. I retired in my 60s, but you retired in your 50s, so that probably accounts for the difference.

Thesaints
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Re: Age in Bonds - Still Recommended?

Post by Thesaints » Fri Sep 14, 2018 10:49 am

- age in bonds
- 4% safe withdrawal rate
- saving 20% of one’s income
- one (guess it is the same person as above) will need 80% of their income in retirement

These, and others, are all simple rules of thumb that most people find appealing because they spare them the effort of analyzing and understanding how the system works in general and in their specific case.
They are so appealing that even God, on top of Mount Sinai, chose to give Moses 10 simple rules. He knew that had he given him a few hundreds, actually covering the intricacies of the real world, the golden calf whorshippers would have prevailed.

Some of these rules are flat out wrong. Some, generally the longer lived ones, are somewhat correct for a large fraction of people, yet from time to time they can become temporarily wrong for most.
Last edited by Thesaints on Fri Sep 14, 2018 10:54 am, edited 1 time in total.

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vineviz
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Re: Age in Bonds - Still Recommended?

Post by vineviz » Fri Sep 14, 2018 10:50 am

Jacobkg wrote:
Fri Sep 14, 2018 9:32 am
I started reading Bogleheads in 2007 and have been following on and off since. Early in that process I decided on my Asset Allocation, which includes the decision to implement the “your age in bonds” rule. I have been dutifully increasing my target bond allocation by 1% for the last decade (I’m now in my thirties).

I feel like over time Age in Bonds is being discussed less and less. Has it fallen out of favor? Should I consider rethinking my strategy? I don’t like to do this often but I figure once a decade isn’t too bad.

What are other accumulators doing?
If you want a single age-based rule of thumb, I'd say "age minus 20" in bonds is definitely much closer to the mark.

That said, I don't think most accumulators under the age of 40 actually need bonds at all unless they are especially risk-averse. And I don't think many investors should ever get above 60% in bonds either.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

hulburt1
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Re: Age in Bonds - Still Recommended?

Post by hulburt1 » Fri Sep 14, 2018 11:03 am

65 old..I'm 95% in stocks and 5% cash. No SS yet. Will take SS when stock market go's down and I've used up my cash. I'll sleep well until stocks go down 20% cash is gone then I'll take SS. No bonds ever.

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galeno
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Re: Age in Bonds - Still Recommended?

Post by galeno » Fri Sep 14, 2018 11:04 am

We are retired conservative investors living off the 4% rule. We keep our age in FI (fixed income).

We will continue to decrease equity by 1% per year over the next 9 years until age 70 (30/70 port) then we MAY begin to increase equity by 1% per year until death.

If we increase equity % and both die at age 90 our port should be 50/50. If not we die with a 30/70 port which is considered to be the ideal AA for retirees according to the Vanguard Target Retirement fund.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

Jordan4FI
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Re: Age in Bonds - Still Recommended?

Post by Jordan4FI » Fri Sep 14, 2018 11:11 am

As long as your return can support your needs, that is what AA I go for. I will FIRE early (40yrs old), and my put myself in the Vanguard LifeStrategy Fund 40/60, because even a 5% (edit) return average each year would give me just what I need and some left over for fun... and when the 8-12% years come, that is so much extra $$ to re-invest or put aside in another investment vehicle. I would prefer to have a lower steady return, than go for the big 15%+ return at the risk of the big 30%+ drop.. although at 40/60, in a real bad year I could see a heavy hit..

EDIT** and when and if SS is still avail to me in 2046, my SS will be fixed income also, so I will then up my stock %.

2nd EDIT** I will be living in Thailand, where I can always live on less than 10K a year if I really really needed to to wait out a downturn that was lasting a few years...
Last edited by Jordan4FI on Fri Sep 14, 2018 11:18 am, edited 2 times in total.

Thesaints
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Re: Age in Bonds - Still Recommended?

Post by Thesaints » Fri Sep 14, 2018 11:16 am

Is your required average 3% or 7% ? Because, in case you mean returns between 3% and 7%, you are way off what you can reasonably expect from that allocation over such a long time span.

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SquawkIdent
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Re: Age in Bonds - Still Recommended?

Post by SquawkIdent » Fri Sep 14, 2018 11:17 am

CyberBob wrote:
Fri Sep 14, 2018 10:34 am
I’ve always preferred Bogle’s more general allocation advice from his first book:

Image

I wonder what ages he considers "younger" and "older"?

michaeljc70
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Re: Age in Bonds - Still Recommended?

Post by michaeljc70 » Fri Sep 14, 2018 11:21 am

I'm 48 and have 25% in bonds and never plan on going above 25%. I'm not even thrilled with having 25% in bonds. I was thinking to make it more like 15% bonds and 10% CDs. Of course, both are FI which is what I assume we are really talking about.
Last edited by michaeljc70 on Fri Sep 14, 2018 11:22 am, edited 1 time in total.

Jordan4FI
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Re: Age in Bonds - Still Recommended?

Post by Jordan4FI » Fri Sep 14, 2018 11:22 am

Thesaints wrote:
Fri Sep 14, 2018 11:16 am
Is your required average 3% or 7% ? Because, in case you mean returns between 3% and 7%, you are way off what you can reasonably expect from that allocation over such a long time span.
I made an edit... 5% average would be ok with me. Low cost of living with a large enough portfolio, with a Roth IRA to pop in the future and SS to assist later also (even if it is only 600$ for me) right now it is $480 if I keep adding 0's.. but over time it will rise naturally to maybe about $600-700, that goes a long way in Thailand

Thesaints
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Re: Age in Bonds - Still Recommended?

Post by Thesaints » Fri Sep 14, 2018 11:22 am

It is a qualitative plot. Bogle could have said “if you are older and in the distribution phase invest more in bonds, up to about 50%, than if you are younger and in the accumulation phase, in which case you should invest as little as about 20%.
It would have taken more words and it would have been less clear than that drawing.
Unfortunately, some people mistakes it for a quantitative chart and try to locate the point representting themselves on it.

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patrick013
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Re: Age in Bonds - Still Recommended?

Post by patrick013 » Fri Sep 14, 2018 11:30 am

I'm thinking age-in-bonds stop at 50. But the only time
I would rebalance is when PE's are very high, like 25 to
30ish, and just let the market have it's momentum most
of the time otherwise.

It really depends on personal risk, aggressive AA or not.
Graham said to have 25% in stocks or 25% in bonds as
you decide to be aggressive or conservative.
age in bonds, buy-and-hold, 10 year business cycle

billthecat
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Re: Age in Bonds - Still Recommended?

Post by billthecat » Fri Sep 14, 2018 11:41 am

Here's a chart of bond and cash allocation comparing Schwab's glide path vs age vs age-10 vs age-20.

Image

Generally, it seems like target date funds follow an S curve, more or less. That is, accumulating bonds/cash less than age-10, then quickly ramping up, and tapering off (at 75% in Schwab's case). (I start the chart at 50 because that's what is relevant to me.) See Schwab's slider here.

But, that assumes a person works until 65, and then collects social security (hence the flattening of the blue line at 65).

On the other hand, when I go through Schwab's questionnaire, they recommend moderate risk, or 35% bond & 5% cash. Vanguard recommends 50% bonds (and cash, presumably).

So I think you have to consider your circumstances - if you're retiring early, then you may want a different path.

At the moment, I'm thinking 35% bonds and 5% cash during early retirement, and then only increasing bonds/cash when I hit 65 or so. But my thinking changes frequently!

JW-Retired
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Re: Age in Bonds - Still Recommended?

Post by JW-Retired » Fri Sep 14, 2018 11:54 am

IMO, some bonds make sense since you may need to take serious money from your retirement savings even well before you want to retire. Big personal or general long term emergencies do sometimes happen. It's also very possible that both sorts of emergencies will hit you at the same time. If you lose your job due to a bad recession economy, the last thing you want to do is sell your deeply down stocks. :oops:

But generally, I don't think the age in bonds formula has much use. We have been at 60/40 for many years just because 40% bonds seemed like enough for us to scrape buy on if disaster struck. My 60/40 AA is now about age-35 in bonds.

Polls were allowed here until 2012 or so. You could take a look at the last plot I could find.
http://www.bogleheads.org/forum/viewtop ... 2#p1224012

JW
Retired at Last

markcoop
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Re: Age in Bonds - Still Recommended?

Post by markcoop » Fri Sep 14, 2018 11:58 am

I am 52 and want to generally keep somewhere between 50%-60% in stocks. This to me is my sweet spot for taking advantage of the long term gains of the market but keeping the ship steady. I probably will do this till I retire in about a decade and then go between 40%-50%.

However, and I do understand this is market timing, when we hit what I view as extreme conditions, I drift the stock down. I am currently close to 42% stock and plan to stay there for a while. If the market keeps rising, it will slowly bring my stock allocation back up. Otherwise, I will start adding stock up to a max of 60%. I am comfortable doing this as I think I can afford it and I feel comfortable if the market increases or decreases.
Mark

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galeno
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Re: Age in Bonds - Still Recommended?

Post by galeno » Fri Sep 14, 2018 12:50 pm

I used to think this way. Big motor and small boat. Several retirees I know use 100% equities. One uses an 80/20 port.

Slowly I've adopted the idea that "if you've already won the game why continue to play"? (Bernstein) Also "a retiree should not hold anything near his risk tolerance". (Ferri).
markcoop wrote:
Fri Sep 14, 2018 11:58 am
I am 52 and want to generally keep somewhere between 50%-60% in stocks. This to me is my sweet spot for taking advantage of the long term gains of the market but keeping the ship steady. I probably will do this till I retire in about a decade and then go between 40%-50%.

However, and I do understand this is market timing, when we hit what I view as extreme conditions, I drift the stock down. I am currently close to 42% stock and plan to stay there for a while. If the market keeps rising, it will slowly bring my stock allocation back up. Otherwise, I will start adding stock up to a max of 60%. I am comfortable doing this as I think I can afford it and I feel comfortable if the market increases or decreases.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

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Sheepdog
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Re: Age in Bonds - Still Recommended?

Post by Sheepdog » Fri Sep 14, 2018 12:55 pm

Invest in what makes YOU comfortable, not what makes others comfortable. Age in bonds worked fine for me and my psyche and my retirement funding.
I found hitting singles and walks took me around the bases with less strikeouts..
It's not what you gather, but what you scatter which tells what kind of life you have lived---Helen Walton

hulburt1
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Re: Age in Bonds - Still Recommended?

Post by hulburt1 » Fri Sep 14, 2018 1:55 pm

If you need bond do it. I'm 95% stock funds..5% cash. SS is my bond fund. I do not use % I use cash I want 35000 a year So I have 70000 cash for 2y. I'm65 have 1m+in stocks.

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Re: Age in Bonds - Still Recommended?

Post by sschullo » Fri Sep 14, 2018 2:03 pm

watchnerd wrote:
Fri Sep 14, 2018 9:59 am
UpperNwGuy wrote:
Fri Sep 14, 2018 9:34 am
Age in bonds is definitely out of favor. Seriously, why would anybody want more bonds than stocks from age 51 onwards? I would recommend age minus 20 or age minus 15 in bonds.
Because if you already have enough money to meet your liabilities, why take the extra equity risk?
Also, having some small % in bonds helps younger investors learn about them. Taylor wrote this years ago. I am just a mere conduit!
Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

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Sasquatch
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Re: Age in Bonds - Still Recommended?

Post by Sasquatch » Fri Sep 14, 2018 3:02 pm

galeno wrote:
Fri Sep 14, 2018 12:50 pm
Slowly I've adopted the idea that "if you've already won the game why continue to play"? (Bernstein) Also "a retiree should not hold anything near his risk tolerance". (Ferri).
+1

52y.o. retired. AA 50/35/15

A hourly fee based financial planner ran us through a bunch of questions to get an idea of risk tolerance. We came in at 70% Equities. He came back with 50% equities and said the same thing " I believe you can achieve success with signigicantly less risk"
Last edited by Sasquatch on Fri Sep 14, 2018 3:37 pm, edited 1 time in total.

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Carlos Danger
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Re: Age in Bonds - Still Recommended?

Post by Carlos Danger » Fri Sep 14, 2018 3:27 pm

We have no bonds.

My plan is to see where we are at age 55, and perhaps move heavily into bonds, or perhaps not.

I save/invest based on an extremely conservative assumption that our asset mix (which is growth oriented and has and should continue to outpace the market slightly) will produce only 5% annual returns on average over the next couple of decades. That would obviously be pretty awful. If such a scenario came true, we'd have enough for retirement to be very comfortable, vacation often, etc. on a 3% withdrawl rate, but not enough for me to tolerate the risk of being 100% equities. So I'd go with at least 10 years worth of expenses in bonds (longest negative return period in history for the markets is 10 years IIRC). Probably use something like Wellsley too for a large portion of the portfolio.

If the markets perform typically over the next couple of decades, or if we luck out and they're above average, we'll have more than enough in retirement to just stay 100% equities/aggressive growth strategy and try to build as much wealth as possible until the very end to leave to our kids and (hopefully) grandkids.

I completely understand people that want a significant portion of their portfolio in bonds, but I don't understand "age in bonds" at all. Pick a method of determining the portion of your portfolio you want in bonds that actually makes some sense.

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Re: Age in Bonds - Still Recommended?

Post by billthecat » Fri Sep 14, 2018 3:36 pm

Sasquatch wrote:
Fri Sep 14, 2018 3:02 pm
galeno wrote:
Fri Sep 14, 2018 12:50 pm
Slowly I've adopted the idea that "if you've already won the game why continue to play"? (Bernstein) Also "a retiree should not hold anything near his risk tolerance". (Ferri).
+1

52y.o. retired 50/35/15

A hourly fee based financial planner ran us through a bunch of questions to get an idea of risk tolerance. We came in at 70% Equities. He came back with 50% equities and said the same thing " I believe you can achieve success with signigicantly less risk"
Indeed, I think I have enough now, and I've been playing with just ratcheting down my stock allocation. According to firecalc, I could still handle a 45 year retirement with only 25% stock.

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Re: Age in Bonds - Still Recommended?

Post by MJS » Fri Sep 14, 2018 3:49 pm

The age-in-bonds rule is based on retiring at 65 & dying at 85. If that's not you...
1. Select an asset allocation based on your needs and risk tolerance. https://smartasset.com/investing/asset- ... Z5WV0hFo90
》》》 If you didn't "stay the course" during 2008, ratchet your allocation down one level. During the next severe market downturn, feel free to ratchet up to your preferred allocation.
2. Stay the course.
3. 10 years before retirement, ratchet your allocation down one level.
4. 3-5 years before retirement, ratchet your allocation down another level.
5. 3-5 years after retirement, ratchet your allocation up one level.
6. 10 years after retirement, ratchet your allocation up another level.
7. Stay the course.

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galeno
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Re: Age in Bonds - Still Recommended?

Post by galeno » Fri Sep 14, 2018 5:39 pm

My preferred risk tolerance is 80/20. My wife prefers "age in bonds". We went thru 2 bear markets 1987 and 2000-2002 with 80/20. And the 2008 bear with 60/40. We are now 40/60 and have been for the last several years.
MJS wrote:
Fri Sep 14, 2018 3:49 pm
The age-in-bonds rule is based on retiring at 65 & dying at 85. If that's not you...
1. Select an asset allocation based on your needs and risk tolerance. https://smartasset.com/investing/asset- ... Z5WV0hFo90
》》》 If you didn't "stay the course" during 2008, ratchet your allocation down one level. During the next severe market downturn, feel free to ratchet up to your preferred allocation.
2. Stay the course.
3. 10 years before retirement, ratchet your allocation down one level.
4. 3-5 years before retirement, ratchet your allocation down another level.
5. 3-5 years after retirement, ratchet your allocation up one level.
6. 10 years after retirement, ratchet your allocation up another level.
7. Stay the course.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

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randomizer
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Re: Age in Bonds - Still Recommended?

Post by randomizer » Fri Sep 14, 2018 5:43 pm

It still gets recommended, but usually as a starting point for considering need, willingness and ability to take risk, and to introduce the idea of a guide path. Personally, I'm moving towards something like age-minus-20.
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Re: Age in Bonds - Still Recommended?

Post by HEDGEFUNDIE » Fri Sep 14, 2018 5:45 pm

I am kind of stunned by the number of people here who are admitting to holding no bonds. I am one of them, but I never expected there to be so many of us.

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Re: Age in Bonds - Still Recommended?

Post by epoxyresin » Fri Sep 14, 2018 5:53 pm

Like many things that Bogleheads love to argue about, your exact amount of bonds won't prevent you from achieving your goals as long as you have an adequate savings rate and don't panic sell during a recession.

"Age in bonds" is a rule of thumb that will work fine for most people. "Age in bonds minus 10" and "Age in bonds minus 20" also will work fine for most people. "50 percent bonds and 50 percent stocks" will also work fine for most people, as well "1/3 bonds, 1/3 domestic stocks and 1/3 international stocks". What I'm really trying to say is that your exact asset allocation isn't what determines whether you have to eat cat food in your old age.

What does matter? Savings rate, as previously mentioned is probably most important, followed (at some distance) by having some significant money in the stock market for a significant amount of time (including staying-the-course and not panic-selling, which a lot of people find that having bonds helps them to do).

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Re: Age in Bonds - Still Recommended?

Post by MathWizard » Fri Sep 14, 2018 5:55 pm

HEDGEFUNDIE wrote:
Fri Sep 14, 2018 5:45 pm
I am kind of stunned by the number of people here who are admitting to holding no bonds. I am one of them, but I never expected there to be so many of us.
I had too talk my wife into investing in the stock market. (For her IRAs, she wanted to
do CDs). After she saw my 100% stock gains, she went all in as well.

Approaching 60, my wife asked when we were going to move some into bonds, so
we moved some in. Surprisingly, I went to 50/50 and she went to 80/20,
so who's the riverboat gambler now?

likegarden
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Re: Age in Bonds - Still Recommended?

Post by likegarden » Fri Sep 14, 2018 6:02 pm

I follow the guidance given by Mr. Bogle years ago to consider in asset allocation a pension you might have. I have Social Security and a pension, both approximately same amount, and have 50/50 in stock funds / bonds, age is 78.

nervouscorps
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Re: Age in Bonds - Still Recommended?

Post by nervouscorps » Fri Sep 14, 2018 6:08 pm

I'm 40, wife 47, we are 2/3 stocks 1/3 bonds which I like. I'll probably scale back to 50-50 in say, 10 years and probably hold there for quite some time.

TravelforFun
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Re: Age in Bonds - Still Recommended?

Post by TravelforFun » Fri Sep 14, 2018 6:58 pm

I guess I'm the only one on this forum who doesn't care about AA. I keep 10 years worth of annual expenses in bonds, CDs, money market, and savings, and the rest is in stock regardless of the %.

TravelforFun

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joe8d
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Re: Age in Bonds - Still Recommended?

Post by joe8d » Fri Sep 14, 2018 7:01 pm

TravelforFun wrote:
Fri Sep 14, 2018 6:58 pm
I guess I'm the only one on this forum who doesn't care about AA. I keep 10 years worth of annual expenses in bonds, CDs, money market, and savings, and the rest is in stock regardless of the %.

TravelforFun
:thumbsup. That would be ( and is for me) the position to be at and in retirement.
All the Best, | Joe

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galeno
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Re: Age in Bonds - Still Recommended?

Post by galeno » Fri Sep 14, 2018 7:10 pm

So if you use the 4% rule then 60/40. 3% rule 70/30.

We keep 15 years of living expenses in FI and use the 4% rule so 40/60.
joe8d wrote:
Fri Sep 14, 2018 7:01 pm
TravelforFun wrote:
Fri Sep 14, 2018 6:58 pm
I guess I'm the only one on this forum who doesn't care about AA. I keep 10 years worth of annual expenses in bonds, CDs, money market, and savings, and the rest is in stock regardless of the %.

TravelforFun
:thumbsup. That would be ( and is for me) the position to be at and in retirement.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

sambb
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Re: Age in Bonds - Still Recommended?

Post by sambb » Fri Sep 14, 2018 7:11 pm

Often depends

bear market: age in bonds
Bull market: age-20 in bonds, and "im young, i have 30 years, no need for bonds

TravelforFun
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Re: Age in Bonds - Still Recommended?

Post by TravelforFun » Fri Sep 14, 2018 7:20 pm

galeno wrote:
Fri Sep 14, 2018 7:10 pm
So if you use the 4% rule then 60/40. 3% rule 70/30.

We keep 15 years of living expenses in FI and use the 4% rule so 40/60.
joe8d wrote:
Fri Sep 14, 2018 7:01 pm
TravelforFun wrote:
Fri Sep 14, 2018 6:58 pm
I guess I'm the only one on this forum who doesn't care about AA. I keep 10 years worth of annual expenses in bonds, CDs, money market, and savings, and the rest is in stock regardless of the %.

TravelforFun
:thumbsup. That would be ( and is for me) the position to be at and in retirement.
Not always true. Someone who has $2 million and annual expenses of $50K, then 10 years worth of annual expenses would make their AA 75/25.

TravelforFun

HEDGEFUNDIE
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Re: Age in Bonds - Still Recommended?

Post by HEDGEFUNDIE » Fri Sep 14, 2018 7:22 pm

sambb wrote:
Fri Sep 14, 2018 7:11 pm
Often depends

bear market: age in bonds
Bull market: age-20 in bonds, and "im young, i have 30 years, no need for bonds
How did you guess?? :beer

Thesaints
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Re: Age in Bonds - Still Recommended?

Post by Thesaints » Fri Sep 14, 2018 7:25 pm

galeno wrote:
Fri Sep 14, 2018 7:10 pm
So if you use the 4% rule then 60/40. 3% rule 70/30.
You mean that if you draw less from your portfolio, you should set it to a higher expected return and volatility ??

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galeno
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Re: Age in Bonds - Still Recommended?

Post by galeno » Fri Sep 14, 2018 8:10 pm

No. I just did simple arithmetic for the poster who said he doesn't pay attention to equity percentage. That's all.
Thesaints wrote:
Fri Sep 14, 2018 7:25 pm
You mean that if you draw less from your portfolio, you should set it to a higher expected return and volatility ??
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

Jacobkg
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Re: Age in Bonds - Still Recommended?

Post by Jacobkg » Sat Sep 15, 2018 12:04 am

Thanks to everyone who responded. It seems that the feeling in this thread is that someone in their thirties should not have >30% bonds.

It’s certainly tempting to consider increasing stock allocation with the current bulk market though I would be concerned about performance chasing.

Maybe what I will do is keep my allocation fixed for a few years until I reach age - 10 in bonds.

Cheers

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Jazztonight
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Re: Age in Bonds - Still Recommended?

Post by Jazztonight » Sat Sep 15, 2018 12:19 am

I liked the concept of Age in Bonds when I was trying to figure out a comfortable allocation.

What I realized was that I’m fiscally conservative and don’t want a lot of risk—I worked too hard to earn, save, and invest this money.

When I hit 40/60 I realized it was a sweet spot for me. That was 12 years ago.

As I like to say, I don’t sleep well at night, but it’s not because of my asset allocation.
"What does not destroy me, makes me stronger." Nietzsche

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stemikger
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Re: Age in Bonds - Still Recommended?

Post by stemikger » Sat Sep 15, 2018 12:25 am

Jack has often said it was never meant to be gospel but a starting point to get people to think about asset allocation. In the updated version of the Little Book of Common Sense Investing Jack seems to favor the classic 60/40 balanced index fund as a good compromise between risk and reward.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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