Guidance: Bond Choices for Retiree Portfolio

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HappyJack
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Guidance: Bond Choices for Retiree Portfolio

Post by HappyJack » Tue Mar 12, 2019 7:37 am

50/50 AA, retire in 1-2 years.
I have read many threads on bond portfolio allocation., And they all have valid points. Considering TBM, TIPS, Int Treasuries, ST Treasuries. Would appreciate any thoughts on the preferred mix. Considering 100% TBM but didnt know if I need Other diversifcation into more safety. I have read this issue addressed many times, by true professionals (Mr Bernstein, Mr Larrimore, Mr Swedroe) and knowlegeable people on this site, and they differ somewhat. My head is spinning. Thanks.

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midareff
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Re: Guidance: Bond Choices for Retiree Portfolio

Post by midareff » Tue Mar 12, 2019 7:44 am

Any reasonable mix of investment grade intermediate term bonds should work fine. TBM mixes corporates, treasuries, GNMA, etc.

Sconie
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Re: Guidance: Bond Choices for Retiree Portfolio

Post by Sconie » Tue Mar 12, 2019 8:06 am

You may want to consider building yourself a CD ladder as another suitable option.......
I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant. - Alan Greenspan

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ruralavalon
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Re: Guidance: Bond Choices for Retiree Portfolio

Post by ruralavalon » Tue Mar 12, 2019 9:53 am

HappyJack wrote:
Tue Mar 12, 2019 7:37 am
50/50 AA, retire in 1-2 years.
I have read many threads on bond portfolio allocation., And they all have valid points. Considering TBM, TIPS, Int Treasuries, ST Treasuries. Would appreciate any thoughts on the preferred mix. Considering 100% TBM but didnt know if I need Other diversifcation into more safety. I have read this issue addressed many times, by true professionals (Mr Bernstein, Mr Larrimore, Mr Swedroe) and knowlegeable people on this site, and they differ somewhat. My head is spinning. Thanks.
A total bond market index fund, like Vanguard Total Market Index Fund (VBTLX) or the F Fund in the TSP, is fine by itself for the entire bond allocation.

In my opinion the primary purpose of a bond allocation is portfolio safety. Almost any well diversified, low expense, short-term or intermediate-term bond fund will likely do the job.

My own personal preference is Vanguard Intermediate-term Bond Index Fund Admiral Shares (VBILX), it is about 50/50 government/corporate bonds with no Mortgage Backed Securities (MBS).
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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vineviz
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Re: Guidance: Bond Choices for Retiree Portfolio

Post by vineviz » Tue Mar 12, 2019 10:41 am

HappyJack wrote:
Tue Mar 12, 2019 7:37 am
Considering 100% TBM but didnt know if I need Other diversifcation into more safety.
Depending on how far into retirement you are, adding some diversification to TBM might offer some marginal benefits.

But TBM is almost certainly totally adequate for most retirees at a 50/50 allocation.

If anything you might consider replacing some of the TBM with TIPS, such as Schwab US TIPS ETF (SCHP), for a bit more explicit protection against unanticipated inflation.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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BostonBoy
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Re: Guidance: Bond Choices for Retiree Portfolio

Post by BostonBoy » Tue Mar 12, 2019 11:35 am

My allocation is 50/50 since retirement and TBM is my only bond holding.

pward
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Re: Guidance: Bond Choices for Retiree Portfolio

Post by pward » Tue Mar 12, 2019 11:38 am

TBM is fine. Though if you want a bit less risk you could stick to treasuries only. It's very simple to purchase U.S. treasuries directly and cut out the middle man to save on the fund fees as well. But TBM is still highly diversified in it's corporate debt holdings and should do the trick well enough.

Valuethinker
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Re: Guidance: Bond Choices for Retiree Portfolio

Post by Valuethinker » Tue Mar 12, 2019 11:48 am

HappyJack wrote:
Tue Mar 12, 2019 7:37 am
50/50 AA, retire in 1-2 years.
I have read many threads on bond portfolio allocation., And they all have valid points. Considering TBM, TIPS, Int Treasuries, ST Treasuries. Would appreciate any thoughts on the preferred mix. Considering 100% TBM but didnt know if I need Other diversifcation into more safety. I have read this issue addressed many times, by true professionals (Mr Bernstein, Mr Larrimore, Mr Swedroe) and knowlegeable people on this site, and they differ somewhat. My head is spinning. Thanks.
Do not overcomplicate this. That your head is spinning means it is causing anxiety and that is not desirable.

Vanguard Total Bond Market is likely to meet your needs with a bearable amount of risk.

There is a case for TIPS bonds, but one can probably afford to wait until (If?) real yields move higher.

2015
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Re: Guidance: Bond Choices for Retiree Portfolio

Post by 2015 » Tue Mar 12, 2019 12:14 pm

I've liability matched some income needs in CD's. The rest of my risky portfolio bond allocation is in Total Bond simply because if my heading is spinning today over all of the choices it will be spinning again tomorrow when the answers change (and the answers will change, simply because financial bloggers gotta eat and post while keeping your head spinning).

I didn't retire to spend my precious allotment of time on this earth pouring over a spreadsheet or staring at a screen forever chasing performance, yield, or safety.

pascalwager
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Re: Guidance: Bond Choices for Retiree Portfolio

Post by pascalwager » Tue Mar 12, 2019 8:04 pm

My bond allocation is based on Larry Swedroe's bond book.

I'm retired and all of my "bonds" are in money market funds (mainly Treasury). Bond fund yields are presently too low (for me) to take interest rate risk. If yields rise, then I will probably move largely into a short-term Treasury bond fund.

I have a pension, so unlike most retirees, I don't need to maximize bond yields; but other retirees may need to go as high as five-years maturity if/when yields rise. I would personally never use TBM without barbelling it with a shorter term fund to bring the overall maturity down to five years (or current sweet spot) or less.

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Wiggums
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Re: Guidance: Bond Choices for Retiree Portfolio

Post by Wiggums » Tue Mar 12, 2019 8:13 pm

All the responses that you have received are complete reasonable.

I do like both Vanguard Intermediate-term Bond Index Fund Admiral Shares (VBILX) and TBM.

Good luck to you.

RetiredCSProf
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Re: Guidance: Bond Choices for Retiree Portfolio

Post by RetiredCSProf » Tue Mar 12, 2019 8:36 pm

My head spins, too, with the choices. I have enough invested in my TRowe tIRA to receive annual advisory consultations. Their current advice on a 50/50 portfolio includes investing in seven different bond funds (%age of portfolio):

17% in investment grade
12% in conservative fixed income (short-term and/or short-duration TIPS)
10% in international (mix of developed and EM)
4% in high-yield
4% in Long Duration Treasury
3% in "unconstrained" (global) bonds

They advise investing in international bonds as a hedge against domestic inflation; however, a total bond fund is likely to include international; as well as a mix of duration and yields. TRowe does not offer a low-fee index total bond fund.

averagedude
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Re: Guidance: Bond Choices for Retiree Portfolio

Post by averagedude » Tue Mar 12, 2019 9:10 pm

I hear you Happy Jack. Determining a bond portfolio can cause more anxiety than a stock portfolio for someone in or near retirement. I would suggest not to do CD ladders unless you are real risk averse, and instead do bond funds. CD ladders are more work, more complex, more decisions, and are not a good fit if you should experience cognitive decline. I know someone that is in poor health and their CD's need to be renewed, but are unable to do this because they are in the hospital. They can become messy after many years, because sometimes you may do a 18 month, or a different term because of chasing better rates. Any bond allocation that the mentioned portfolio gurus suggest are reasonable. 100% total bond is a good choice, especially if you have a high stock allocation, because they typically perform well when the stock market has a major decline. If inflation worry's cause you to lose any sleep at all, I would suggest a heavy dose of TIPS. As both of us know, we could easily create 100 different percentages for a bond portfolio. Choose one and stick with it, unless inflation rears its ugly head. Then I would suggest TIPS, but my crystal ball say's that isn't going to happen, but it is a bit cloudy.

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Phineas J. Whoopee
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Re: Guidance: Bond Choices for Retiree Portfolio

Post by Phineas J. Whoopee » Wed Mar 13, 2019 7:44 pm

Valuethinker wrote:
Tue Mar 12, 2019 11:48 am
HappyJack wrote:
Tue Mar 12, 2019 7:37 am
50/50 AA, retire in 1-2 years.
I have read many threads on bond portfolio allocation., And they all have valid points. Considering TBM, TIPS, Int Treasuries, ST Treasuries. Would appreciate any thoughts on the preferred mix. Considering 100% TBM but didnt know if I need Other diversifcation into more safety. I have read this issue addressed many times, by true professionals (Mr Bernstein, Mr Larrimore, Mr Swedroe) and knowlegeable people on this site, and they differ somewhat. My head is spinning. Thanks.
Do not overcomplicate this. That your head is spinning means it is causing anxiety and that is not desirable.

Vanguard Total Bond Market is likely to meet your needs with a bearable amount of risk.

There is a case for TIPS bonds, but one can probably afford to wait until (If?) real yields move higher.
What is today's real yield on nominal Treasuries?

PJW

50/50
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Re: Guidance: Bond Choices for Retiree Portfolio

Post by 50/50 » Thu Mar 14, 2019 10:11 am

I use a combination of Vanguard TBM (VBTLX) and a 5 year CD ladder. Average maturity of the fund is about 8 years, average maturity of the ladder is 2.5 years so they compliment each other. I have looked at other funds to use with the ladder but keep coming back to TBM.

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