Replace BND in my 3 fund portfolio?

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GL0407
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Joined: Mon Dec 16, 2019 6:50 pm

Replace BND in my 3 fund portfolio?

Post by GL0407 »

Hi!
Happy new year to everyone.

I am 35 y.o. And my wife is 30. We have a long term 3 fund portfolio with currently 70% VTI, 15% VXUS and 15% BND.

I have been wanting to add ARKK and ARKG to my fund and basically replace BND.
We are willing to take more risk on our portfolio. Do you think that holding BND at our age is an absolute necessity for a well balanced portfolio?

I’m curious to hear your thoughts.
DS03
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Re: Replace BND in my 3 fund portfolio?

Post by DS03 »

So, you want to replace the conservative portion of your holdings with a managed growth stock ETF that's already posted massive gains in the past year? I personally wouldn't do this for many reasons (big swing in risk, performance chasing, fees, etc.). If you NEED to do something like this why not just replace some of your VTI with this instead and keep the BND intact?
sycamore
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Re: Replace BND in my 3 fund portfolio?

Post by sycamore »

Happy new year, GL0407!

My first thought is that you picked 15% in bonds for a reason, so why change it now? The reasons don't particularlymatter to me, but knowing why you want to change might be important.

My next thought is that deciding on your asset allocation should be a rational decision based on your personal circumstances. Knowing your ages and willingness to take on risk is one thing, but there are other factors - see BH wiki article section on Ability, willingness, and need to take risk. Another good article to read is Risk Tolerance. It's a good idea to decide on an AA that you can stick with for a long time.

100% stocks is quite risky for sure but if you have the ability and tolerance for 100% (see above links) then go for it. Presumably you have at least several decades of life ahead of you, and a secure, well paying job that you can depend on if the stocks go down and stay down.
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Eschew_Obfuscation
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Re: Replace BND in my 3 fund portfolio?

Post by Eschew_Obfuscation »

A few thoughts:
  • I'm about your age and generally I agree with the sentiment to limit your exposure to bonds at the moment due to the risk of inflation and low interest rates minimizing the bond values in the near future.
  • 10% of ARKK is in TSLA. If the TSLA bubble pops (if it is a bubble that is) then this fund will see significant losses. I know ARK has exposure to bitcoin and bitcoin companies, so that is another area of risk that you will be exposing yourself to. I'm not going to say don't do it but just recognize the exposure risks you are taking on.
  • Growth stocks have outperformed value stocks recently. It is hard to know if that will be the case going forward. With a new stimulus coming down the pipe, I'm guessing we will see more folks dumping money into stocks and the exciting growth stocks will see larger allocations of this than the value stocks.
  • Generally speaking, I would be hesitant to switch out the portion of my asset allocation that is conservative with a high risk/high reward asset. On the flip side, you may be a genius for doing this... The future is unknown!!
Best of luck!
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KneePartsPro
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Re: Replace BND in my 3 fund portfolio?

Post by KneePartsPro »

GL0407 wrote: Tue Jan 12, 2021 8:24 am
We are willing to take more risk on our portfolio. Do you think that holding BND at our age is an absolute necessity for a well balanced portfolio?
You are "willing" to take on more risk. Are you saying that you have realized your risk tolerance is higher than your current investment allocation? If so, you should reduce your bond holding and increase your equity holding to match your risk tolerance regardless of your age.
Last edited by KneePartsPro on Wed Jan 13, 2021 9:40 am, edited 1 time in total.
I can tell you almost anything about artificial knees used in knee replacement, and almost nothing about investing.
asif408
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Re: Replace BND in my 3 fund portfolio?

Post by asif408 »

I don't think BND is necessary at your age, but if I was going to replace something for BND that is risky and has a high expected return, the last thing would be ARKK. I would put all of BND in something that has lagged, maybe global energy stocks, EM value, global small cap value or something similar that is diversified and has lagged significantly over the last decade.

If you aren't that brave, you could add to VXUS and/or VTI. But not in a million years would I put it in ARKK or ARKG. ARKK & ARKG are risky and have low expected returns precisely because they have done so well recently. If you haven't read the Bogleheads wiki on recency bias you should (or re-read if you have): https://www.bogleheads.org/wiki/Behavioral_pitfalls. Successful investing does not involve following the herd over the cliff, it involves staying away from the herd and going to places the herd is scared to go.

With that said, you could put it all in ARKK & ARKG and come back in a few years and let us know what you learn from the experience. It's only 15% of your portfolio and you've still got a lot of saving years ahead of you, so even if it goes to 0 it probably won't set you back too much. And if you're right you can gloat.
tomsense76
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Re: Replace BND in my 3 fund portfolio?

Post by tomsense76 »

sycamore wrote: Tue Jan 12, 2021 9:14 am Happy new year, GL0407!

My first thought is that you picked 15% in bonds for a reason, so why change it now? The reasons don't particularlymatter to me, but knowing why you want to change might be important.

My next thought is that deciding on your asset allocation should be a rational decision based on your personal circumstances. Knowing your ages and willingness to take on risk is one thing, but there are other factors - see BH wiki article section on Ability, willingness, and need to take risk. Another good article to read is Risk Tolerance. It's a good idea to decide on an AA that you can stick with for a long time.

100% stocks is quite risky for sure but if you have the ability and tolerance for 100% (see above links) then go for it. Presumably you have at least several decades of life ahead of you, and a secure, well paying job that you can depend on if the stocks go down and stay down.
+1 This. In particular why was it 15% and why change it? Not that it shouldn't be changed, but it would be worth revisiting one's IPS and reflecting on why that should change. Right now there are many people on this forum worrying about the market being overvalued. If we go through another drawdown like we saw last March (30%) or more, would you be able to stay the course (100% in equities)? There is no right answer. It is just a question of your risk tolerance (most importantly when the risk materializes).

That said, holding bonds in your 30s is probably not needed. Am also in my 30s though do hold about 10% bonds though I get the sense I'm a bit more conservative than most people our age.

The ARK funds are interesting. There are a few fans here. Would suggest reading a few threads about them. I get the impression they are pretty overweight in TSLA (though I don't recall what these specific ARK funds hold), which the total stock market includes. Also while they had a good run so far the general consensus here is active management tracks the average (if not worse especially after fees) over time. IOW will these funds mean revert in the near future? Just something to consider. So maybe just buy VTI or only use 5% (general consensus for play money) to purchase one ARK fund (dividing it smaller might not be worth the effort).

Just a few thoughts. HTH :beer
burritoLover
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Re: Replace BND in my 3 fund portfolio?

Post by burritoLover »

If these ARK funds crash by 80% in the next few years, would you stick with it and keep buying into it? If so, then a 15% tilt isn't unreasonable. If your first thought is it is extremely unlikely to crash, then you need to avoid concentrating your portfolio.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
raiderjkwong
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Re: Replace BND in my 3 fund portfolio?

Post by raiderjkwong »

I am 54 this year and our AA is 30/70 stock to bonds. When I was 35, I was 100% in equities. I began moving money slowly to bonds when I turned 49.
Robert20
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Re: Replace BND in my 3 fund portfolio?

Post by Robert20 »

burritoLover wrote: Tue Jan 12, 2021 4:27 pm If these ARK funds crash by 80% in the next few years, would you stick with it and keep buying into it? If so, then a 15% tilt isn't unreasonable. If your first thought is it is extremely unlikely to crash, then you need to avoid concentrating your portfolio.
WHY do u think it will crash 80%?.
burritoLover
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Re: Replace BND in my 3 fund portfolio?

Post by burritoLover »

Robert20 wrote: Tue Jan 12, 2021 8:21 pm
burritoLover wrote: Tue Jan 12, 2021 4:27 pm If these ARK funds crash by 80% in the next few years, would you stick with it and keep buying into it? If so, then a 15% tilt isn't unreasonable. If your first thought is it is extremely unlikely to crash, then you need to avoid concentrating your portfolio.
WHY do u think it will crash 80%?.
Concentrated in one sector and some of those funds have relatively smaller number of stocks, have to be prepared for the possibility of large losses.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
Robert20
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Re: Replace BND in my 3 fund portfolio?

Post by Robert20 »

burritoLover wrote: Tue Jan 12, 2021 9:23 pm
Robert20 wrote: Tue Jan 12, 2021 8:21 pm
burritoLover wrote: Tue Jan 12, 2021 4:27 pm If these ARK funds crash by 80% in the next few years, would you stick with it and keep buying into it? If so, then a 15% tilt isn't unreasonable. If your first thought is it is extremely unlikely to crash, then you need to avoid concentrating your portfolio.
WHY do u think it will crash 80%?.
Concentrated in one sector and some of those funds have relatively smaller number of stocks, have to be prepared for the possibility of large losses.
ARK ETFs not concentrated in one SECTOR.. Those stocks cut across many sectors..
burritoLover
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Re: Replace BND in my 3 fund portfolio?

Post by burritoLover »

Robert20 wrote: Tue Jan 12, 2021 11:11 pm
burritoLover wrote: Tue Jan 12, 2021 9:23 pm
Robert20 wrote: Tue Jan 12, 2021 8:21 pm
burritoLover wrote: Tue Jan 12, 2021 4:27 pm If these ARK funds crash by 80% in the next few years, would you stick with it and keep buying into it? If so, then a 15% tilt isn't unreasonable. If your first thought is it is extremely unlikely to crash, then you need to avoid concentrating your portfolio.
WHY do u think it will crash 80%?.
Concentrated in one sector and some of those funds have relatively smaller number of stocks, have to be prepared for the possibility of large losses.
ARK ETFs not concentrated in one SECTOR.. Those stocks cut across many sectors..
You’re right - didn’t realize some of them are a bit more diversified. Still highly concentrated in growth stocks. 80% isn’t out of the question.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
marshall
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Re: Replace BND in my 3 fund portfolio?

Post by marshall »

I lived through the Dotcom Crash and was around 30 years old when it happened. I remember loading up in a Janus fund that was highly concentrated in technology stocks at the time. Fortunately, I was very early in the accumulation phase. However, it was still very painful to go through that loss.

https://www.investopedia.com/terms/d/dotcom-bubble.asp
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ruralavalon
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Re: Replace BND in my 3 fund portfolio?

Post by ruralavalon »

Happy New Year :) .

GL0407 wrote: Tue Jan 12, 2021 8:24 am Hi!
Happy new year to everyone.

I am 35 y.o. And my wife is 30. We have a long term 3 fund portfolio with currently 70% VTI, 15% VXUS and 15% BND.

I have been wanting to add ARKK and ARKG to my fund and basically replace BND.
We are willing to take more risk on our portfolio. Do you think that holding BND at our age is an absolute necessity for a well balanced portfolio?

I’m curious to hear your thoughts.
First of all 15% in bonds is not a high bond allocation at ages 35 and 30.

Moving the low risk portion of your portfolio to high risk is a very bad idea in my opinion.

If you are dissatisfied with 15% in Vanguard Total Bond Market ETF (BND) SEC Yield 1.12% then you could consider other low risk bond funds like Vanguard Long-Term Treasury ETF (VGLT) SEC Yield 1.57%.

If you are willing to have higher risk you could just shift part of your bond allocation to Vanguard Total Stock Market ETF (VTI) ER 0.03%.

ARK Innovation ETF (ARKK) ER 0.75% and ARK Genomic Revolution ETF (ARKG) ER 0.75% are much higher risk with much higher expense ratios, and lower SEC Yield.
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