Bond Portfolio ideas
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Bond Portfolio ideas
Hi guys,
About to rebalance a little bit and still struggling with inflation looming, maybe its not who knows. But had idea of bond portfolio of:
1/3rd total bond market
1/3rd intermediate TIPS
1/3rd cash
or
1/4th total bond market
1/4th putnam stable value in 401k
1/4th intermediate TIPS
1/4th cash
Crazy? Too complicated? Right now I'm about 1/3rd total bond market and 3/4th cash in fixed income.
In my early 40s, plan to work for many more decades. Excluding real estate and business interest, i'm probably 40% fixed income at the moment.
Somehow I feel the need to get more complicated than the 3 fund portfolio in order for me to own anything other than cash right now. Total bond market makes me nervous right now. Ray Dalio doesn't think you should own any bonds at all for instance.
Thanks!
About to rebalance a little bit and still struggling with inflation looming, maybe its not who knows. But had idea of bond portfolio of:
1/3rd total bond market
1/3rd intermediate TIPS
1/3rd cash
or
1/4th total bond market
1/4th putnam stable value in 401k
1/4th intermediate TIPS
1/4th cash
Crazy? Too complicated? Right now I'm about 1/3rd total bond market and 3/4th cash in fixed income.
In my early 40s, plan to work for many more decades. Excluding real estate and business interest, i'm probably 40% fixed income at the moment.
Somehow I feel the need to get more complicated than the 3 fund portfolio in order for me to own anything other than cash right now. Total bond market makes me nervous right now. Ray Dalio doesn't think you should own any bonds at all for instance.
Thanks!
Re: Bond Portfolio ideas
You gotta do what you gotta do. Those ideas are all perfectly fine as are many other ideas. No one can tell you if it will make any difference to you except you yourself.
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Re: Bond Portfolio ideas
I do not understand the BH fascination with TIPS, which represent a very small portion of all bonds. TIPS are for unexpected inflation; it sounds like your concern is with expected inflation.
How will inflation affect you? If retired and relying on income from your bond portfolio (e.g., no pension) then inflation may be a concern.
Why do you include "cash" in your bond AA? To me, a bond portfolio of 1/3 total bond, 1/3 intermediate TIPS, and 1/3 cash is actually:
1/2 total bond
1/2 intermediate TIPS
How will inflation affect you? If retired and relying on income from your bond portfolio (e.g., no pension) then inflation may be a concern.
Why do you include "cash" in your bond AA? To me, a bond portfolio of 1/3 total bond, 1/3 intermediate TIPS, and 1/3 cash is actually:
1/2 total bond
1/2 intermediate TIPS
- patrick013
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Re: Bond Portfolio ideas
https://www.aaii.com/journal/article/10 ... 3-strategyDesertInvestor wrote: ↑Fri Apr 30, 2021 11:53 am
Crazy? Too complicated? Right now I'm about 1/3rd total bond market and 3/4th cash in fixed income.
The above is an aaii approach to retirement which they call
the Level 3 approach. It's a little complicated because
every year you need to make a decision but variations can
be simple like keeping 4 years expenses in a ladder (defensive)
investment especially when entering retirement and certainly
thereafter to negate sequence of returns risk.
Funds needed in the short term should be invested in assets safe
from significant price volatility as well as safe from default.
John Cloonan (author) points out that money market funds, Treasuries
or insured CDs are very good options.
I'm not selling his book but here's a link. A targeted dated ladder
has all the features. CD's, Trsy's, maybe some AAA muni's.
Investing at Level 3
So you would enter retirement with a target dated portion of your bond
AA whether your current AA is bond heavy to avoid current risk or not.
age in bonds, buy-and-hold, 10 year business cycle
Re: Bond Portfolio ideas
Why not have a healthy emergency fund in cash, buy all the available iBonds (starting on Monday they will be paying much better than TIPS) each year and the rest in Total Bond? You're probably too young to go so hard on TIPS, let your equity allocation help protect you from inflation.
Re: Bond Portfolio ideas
I'm also attracted by the idea of a TIPS fund, but I don't think it makes sense for me, far from retirement.
Some folks don't, but I also consider my "cash" as part of my bonds (and also emergency fund).
I don't have a stable value fund available, but I think that sounds like an interesting option. You say that you're 60/40 stocks/bonds right now, maybe split that 40% into half stable value and half cash?
Some folks don't, but I also consider my "cash" as part of my bonds (and also emergency fund).
I don't have a stable value fund available, but I think that sounds like an interesting option. You say that you're 60/40 stocks/bonds right now, maybe split that 40% into half stable value and half cash?
- drumboy256
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Re: Bond Portfolio ideas
Too much complexity--- plus, queue KlangFool saying "oh that must be nice that you think you're going to work for another 20 years...."
Anyways--- I would go 20% VGLT/FNBGX for LTT and then work on a matrix of 20%-40% bonds at or near retirement. I would keep your portfolio as simple as possible right now.
Anyways--- I would go 20% VGLT/FNBGX for LTT and then work on a matrix of 20%-40% bonds at or near retirement. I would keep your portfolio as simple as possible right now.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson |
20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill
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Re: Bond Portfolio ideas
I can't see any reason to hold cash when you have access to a stable value fund. Stable value has a much higher return (for good funds, today) with no volatility, so basically a free lunch even without FDIC insurance.
See also https://www.bogleheads.org/wiki/Placing ... ed_account
See also https://www.bogleheads.org/wiki/Placing ... ed_account
- abuss368
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Re: Bond Portfolio ideas
Any short or intermediate term investment grade bond fund that is low cost and diversified will provide safety and income to a portfolio.DesertInvestor wrote: ↑Fri Apr 30, 2021 11:53 am Hi guys,
About to rebalance a little bit and still struggling with inflation looming, maybe its not who knows. But had idea of bond portfolio of:
1/3rd total bond market
1/3rd intermediate TIPS
1/3rd cash
or
1/4th total bond market
1/4th putnam stable value in 401k
1/4th intermediate TIPS
1/4th cash
Crazy? Too complicated? Right now I'm about 1/3rd total bond market and 3/4th cash in fixed income.
In my early 40s, plan to work for many more decades. Excluding real estate and business interest, i'm probably 40% fixed income at the moment.
Somehow I feel the need to get more complicated than the 3 fund portfolio in order for me to own anything other than cash right now. Total bond market makes me nervous right now. Ray Dalio doesn't think you should own any bonds at all for instance.
Thanks!
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Bond Portfolio ideas
I have way more in cash than I need so emergency fund probably needs to be cut down.wetgear wrote: ↑Fri Apr 30, 2021 3:59 pm Why not have a healthy emergency fund in cash, buy all the available iBonds (starting on Monday they will be paying much better than TIPS) each year and the rest in Total Bond? You're probably too young to go so hard on TIPS, let your equity allocation help protect you from inflation.
ibonds is a good idea, but its such a small amount each year not sure its worth complexity?
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Re: Bond Portfolio ideas
This is an idea I also had. Put all my bonds in my 401k in stable value and the other half of my non-equity portfolio in cash/ibonds. Just feel like its too easy and I'm missing something? My friend is a boglehead and still feels total bond will outperform over time.
sfmurph wrote: ↑Fri Apr 30, 2021 4:20 pm I'm also attracted by the idea of a TIPS fund, but I don't think it makes sense for me, far from retirement.
Some folks don't, but I also consider my "cash" as part of my bonds (and also emergency fund).
I don't have a stable value fund available, but I think that sounds like an interesting option. You say that you're 60/40 stocks/bonds right now, maybe split that 40% into half stable value and half cash?
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Re: Bond Portfolio ideas
Long term treasuries really seem high risk to me at this point, esp at 20% of my portfolio. would these not be the highest risk if interest rates rise?drumboy256 wrote: ↑Fri Apr 30, 2021 8:15 pm Too much complexity--- plus, queue KlangFool saying "oh that must be nice that you think you're going to work for another 20 years...."
Anyways--- I would go 20% VGLT/FNBGX for LTT and then work on a matrix of 20%-40% bonds at or near retirement. I would keep your portfolio as simple as possible right now.
- retired@50
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Re: Bond Portfolio ideas
Yes. The longer the duration of the bond fund, the greater the price swings are when interest rates move.DesertInvestor wrote: ↑Sat May 01, 2021 7:31 pmLong term treasuries really seem high risk to me at this point, esp at 20% of my portfolio. would these not be the highest risk if interest rates rise?drumboy256 wrote: ↑Fri Apr 30, 2021 8:15 pm Too much complexity--- plus, queue KlangFool saying "oh that must be nice that you think you're going to work for another 20 years...."
Anyways--- I would go 20% VGLT/FNBGX for LTT and then work on a matrix of 20%-40% bonds at or near retirement. I would keep your portfolio as simple as possible right now.
For what it's worth, I use Total Bond and Total International Bond in a 75/25 mix for my bond holdings. No plans to change.
Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Bond Portfolio ideas
So basically the same as the target date funds?
- retired@50
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Re: Bond Portfolio ideas
I suppose, but I'm not using a target date fund.
I purchased the Total International Bond fund near the inception date back in 2013. I asked my Vanguard guy, how much should I buy, he said about 20% would do, so I moved 20% of my Total Bond to the international fund. Since that time it's performed slightly better than Total Bond, so it's grown to 25% of my bond fund holding.
They are really both so boring that I never pay any attention to them. They might move around a little bit in the share price but I couldn't care less. Every month the dividends re-invest and I own a few more shares. It's really mind numbingly boring, which is precisely what I expect from a bond fund.
Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Bond Portfolio ideas
Stocks for inflation, total bond for safety/reserve.
As already smentioned tips are for unexpected inflation.
Inflation appears to already be here in a very big way, IMO
As already smentioned tips are for unexpected inflation.
Inflation appears to already be here in a very big way, IMO
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Re: Bond Portfolio ideas
TIPS have had a high correlation with corporate bonds. As a result, I think it is better to package them with nominal treasuries. I also would probably not hold cash if I had access to a reasonable stable value fund, particularly if not taking credit risk with other assets. Thus, I would hold prefer something like the following to the portfolios described by the OP.
1/3 intermediate treasuries (eg VGIT)
1/3 intermediate TIPS (eg SCHP) or i-bonds
1/3 stable value fund
If any if this is in a taxable account, I would use i-bonds and, if a 20 year holding period is likely, E-bonds for some or all of the allocation.
1/3 intermediate treasuries (eg VGIT)
1/3 intermediate TIPS (eg SCHP) or i-bonds
1/3 stable value fund
If any if this is in a taxable account, I would use i-bonds and, if a 20 year holding period is likely, E-bonds for some or all of the allocation.
Last edited by Northern Flicker on Sat May 01, 2021 8:29 pm, edited 1 time in total.
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Re: Bond Portfolio ideas
Expected inflation is the weighted average of inflation over all possible outcomes, weighted by the probability of each outcome. The market's best estimation of that is priced into nominal bonds. Investors would choose to hold TIPS to protect (relative to nominal bonds) against the risk of inflation being higher than that, which is a legitimate risk. With negative real yields for most TIPS maturities, i-bonds are the only bonds that fully protect against inflation (unless inflation is very low, when nominal treasuries may have a positive real return).RetiredCSProf wrote: ↑Fri Apr 30, 2021 12:13 pm I do not understand the BH fascination with TIPS, which represent a very small portion of all bonds. TIPS are for unexpected inflation; it sounds like your concern is with expected inflation.
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Re: Bond Portfolio ideas
Which ever that you can stick too is the best choice.
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Re: Bond Portfolio ideas
For my bond allocation, I recently transitioned to:
2/3: EDV (Vanguard Extended Duration ETF)
1/3: VIPSX (Vanguard Inflation-Protected Securities Fund Investor Shares)
Wanted less correlation with equities and also wanted some inflation protection. That combo let me sleep at night.
2/3: EDV (Vanguard Extended Duration ETF)
1/3: VIPSX (Vanguard Inflation-Protected Securities Fund Investor Shares)
Wanted less correlation with equities and also wanted some inflation protection. That combo let me sleep at night.
Re: Bond Portfolio ideas
drumboy256 wrote: ↑Fri Apr 30, 2021 8:15 pm plus, queue KlangFool saying "oh that must be nice that you think you're going to work for another 20 years...."
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
Re: Bond Portfolio ideas
Nominal Treasuries, too.Northern Flicker wrote: ↑Sat May 01, 2021 8:28 pm With negative real yields for most TIPS maturities, i-bonds are the only bonds that fully protect against inflation (unless inflation is very low, when nominal treasuries may have a positive real return).
The real yield is the same.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
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Re: Bond Portfolio ideas
No, it is not the same. TIPS have a deterministic real yield. The real yield of nominal treasuries is a random variable. The expected real yield of nominal treasuries will match that of TIPS of the same duration, but the actual real yield depends on inflation outcomes. If a 5-year nominal treasury has a nominal yield of 0.9% and the outcome for inflation over the next 5 years is say 0.5% per year, then the 5-yr nominal with have a positive real yield outcome.watchnerd wrote: ↑Sun May 02, 2021 12:21 amNominal Treasuries, too.Northern Flicker wrote: ↑Sat May 01, 2021 8:28 pm With negative real yields for most TIPS maturities, i-bonds are the only bonds that fully protect against inflation (unless inflation is very low, when nominal treasuries may have a positive real return).
The real yield is the same.
Re: Bond Portfolio ideas
What is the yield on that Putnam stable value fund?
I’m personally 60% in my SV fund (yielding 2.6%) until I see yields on Core Bond funds rise above 2.5% for a few quarters. My remaining allocation is split between Ibonds and Hi Yield Corporate.
I’m personally 60% in my SV fund (yielding 2.6%) until I see yields on Core Bond funds rise above 2.5% for a few quarters. My remaining allocation is split between Ibonds and Hi Yield Corporate.
Re: Bond Portfolio ideas
Yes, but we don't know that outcome (which is also why I alternate TIPS and STRIPS in my LMP ladder).Northern Flicker wrote: ↑Sun May 02, 2021 2:55 am The expected real yield of nominal treasuries will match that of TIPS of the same duration, but the actual real yield depends on inflation outcomes.
So at this point in time, all Treasuries <30 YR have expected negative real yields right now.
The point being, you don't get to escape expected negative real yields by buying nominals.
Expected negative real yields is not a TIPS-specific issue.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
- drumboy256
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Re: Bond Portfolio ideas
High risk from the outlook of not gaining yield on them or staying the same? I suppose if you don't have the stomach for daily swings (stop checking the price every day!!!) then I get that logic. The thread that forced me to re-think Bonds was this one from Vineviz: viewtopic.php?t=287627DesertInvestor wrote: ↑Sat May 01, 2021 7:31 pmLong term treasuries really seem high risk to me at this point, esp at 20% of my portfolio. would these not be the highest risk if interest rates rise?drumboy256 wrote: ↑Fri Apr 30, 2021 8:15 pm Too much complexity--- plus, queue KlangFool saying "oh that must be nice that you think you're going to work for another 20 years...."
Anyways--- I would go 20% VGLT/FNBGX for LTT and then work on a matrix of 20%-40% bonds at or near retirement. I would keep your portfolio as simple as possible right now.
I used to be 100% stocks'ish (aside from my mortgage) of which I realized I was missing out on diversification of having Bonds as an asset class that is not cash. That said, LTT as a way to hedge long term against a longer term downturn of which while the day-to-day will swing fairly wildly (I have peaked a bit). Longer term, even when I retire, LTT will be part of my Bond make up because its important to have whole diversity of all bond markets. The worry about interest rates rising is valid however I'm guessing prices will rise as people rush back into bonds because they've been out of style. That said, yield will be interesting to watch.
My comment about working another 20 years stems from the learning I've done about a asset allocation that stands the test of time. End of this year I will be 80/20 of which once I hit retirement I'll shift to 70/30 and leave it on autopilot. Everyone's different of course so do what's best with your tolerance levels and retirement plans.
Last edited by drumboy256 on Sun May 02, 2021 9:14 am, edited 1 time in total.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson |
20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill
Re: Bond Portfolio ideas
???drumboy256 wrote: ↑Sun May 02, 2021 8:28 am however I'm guessing yields will rise as people rush back into bonds because they've been out of style.
If people buy bonds, causing prices to go up, yields don't rise -- they decline.
Price and yield are inversely related.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
- drumboy256
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Re: Bond Portfolio ideas
Sorry, flipped that--- price not yield.... editing that.watchnerd wrote: ↑Sun May 02, 2021 9:06 am???drumboy256 wrote: ↑Sun May 02, 2021 8:28 am however I'm guessing yields will rise as people rush back into bonds because they've been out of style.
If people buy bonds, causing prices to go up, yields don't rise -- they decline.
Price and yield are inversely related.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson |
20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill
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Re: Bond Portfolio ideas
What is the argument for treasuries (intermediate bond fund) vs. total bond fund?Northern Flicker wrote: ↑Sat May 01, 2021 8:14 pm TIPS have had a high correlation with corporate bonds. As a result, I think it is better to package them with nominal treasuries. I also would probably not hold cash if I had access to a reasonable stable value fund, particularly if not taking credit risk with other assets. Thus, I would hold prefer something like the following to the portfolios described by the OP.
1/3 intermediate treasuries (eg VGIT)
1/3 intermediate TIPS (eg SCHP) or i-bonds
1/3 stable value fund
If any if this is in a taxable account, I would use i-bonds and, if a 20 year holding period is likely, E-bonds for some or all of the allocation.
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Re: Bond Portfolio ideas
That seems like a heck of a lot of interest rate risk to me. I think it would keep me up at night, the talking heads have definitely impacted me with respect to expecting rate rises in the next two years.stimulacra wrote: ↑Sat May 01, 2021 9:57 pm For my bond allocation, I recently transitioned to:
2/3: EDV (Vanguard Extended Duration ETF)
1/3: VIPSX (Vanguard Inflation-Protected Securities Fund Investor Shares)
Wanted less correlation with equities and also wanted some inflation protection. That combo let me sleep at night.
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Re: Bond Portfolio ideas
I'm interested in why you choose 15% long treasuries and 10% short tips. As apposed to total bond market ect?watchnerd wrote: ↑Sun May 02, 2021 12:21 amNominal Treasuries, too.Northern Flicker wrote: ↑Sat May 01, 2021 8:28 pm With negative real yields for most TIPS maturities, i-bonds are the only bonds that fully protect against inflation (unless inflation is very low, when nominal treasuries may have a positive real return).
The real yield is the same.
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Re: Bond Portfolio ideas
Putnam is yielding 2.6% I believe, gross anyway.
https://www.putnam.com/literature/pdf/D ... 59f06f.pdf
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Re: Bond Portfolio ideas
People will rush back in to buy them for yield yes. But won't your existing holdings be significantly reduced to get their? Seems like it will take decades to break even with a 1% rise according to how the math works on bogleheads guide to investing.drumboy256 wrote: ↑Sun May 02, 2021 8:28 amHigh risk from the outlook of not gaining yield on them or staying the same? I suppose if you don't have the stomach for daily swings (stop checking the price every day!!!) then I get that logic. The thread that forced me to re-think Bonds was this one from Vineviz: viewtopic.php?t=287627DesertInvestor wrote: ↑Sat May 01, 2021 7:31 pmLong term treasuries really seem high risk to me at this point, esp at 20% of my portfolio. would these not be the highest risk if interest rates rise?drumboy256 wrote: ↑Fri Apr 30, 2021 8:15 pm Too much complexity--- plus, queue KlangFool saying "oh that must be nice that you think you're going to work for another 20 years...."
Anyways--- I would go 20% VGLT/FNBGX for LTT and then work on a matrix of 20%-40% bonds at or near retirement. I would keep your portfolio as simple as possible right now.
I used to be 100% stocks'ish (aside from my mortgage) of which I realized I was missing out on diversification of having Bonds as an asset class that is not cash. That said, LTT as a way to hedge long term against a longer term downturn of which while the day-to-day will swing fairly wildly (I have peaked a bit). Longer term, even when I retire, LTT will be part of my Bond make up because its important to have whole diversity of all bond markets. The worry about interest rates rising is valid however I'm guessing prices will rise as people rush back into bonds because they've been out of style. That said, yield will be interesting to watch.
My comment about working another 20 years stems from the learning I've done about a asset allocation that stands the test of time. End of this year I will be 80/20 of which once I hit retirement I'll shift to 70/30 and leave it on autopilot. Everyone's different of course so do what's best with your tolerance levels and retirement plans.
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Re: Bond Portfolio ideas
Just reading up on ibonds as well. Doesn't seem tax efficient as its 100% taxable at federal level upon redemption. I guess its better than online savings account and should be looked at with regards to emergency fund allocation and other cash ect. But when I think taxable, I think municipal bonds and confused why one would choose ibonds from tax perspective.
Stocks for me I get, bonds remain over my head.
Stocks for me I get, bonds remain over my head.
Re: Bond Portfolio ideas
For liability matching purposes and as part of a long-short barbell.DesertInvestor wrote: ↑Sun May 02, 2021 12:01 pmI'm interested in why you choose 15% long treasuries and 10% short tips. As apposed to total bond market ect?watchnerd wrote: ↑Sun May 02, 2021 12:21 amNominal Treasuries, too.Northern Flicker wrote: ↑Sat May 01, 2021 8:28 pm With negative real yields for most TIPS maturities, i-bonds are the only bonds that fully protect against inflation (unless inflation is very low, when nominal treasuries may have a positive real return).
The real yield is the same.
But this is getting re-configured as planned retirement is now only 4 years away.
The LTT mutual fund position is getting unwound, with the money getting allocated to individual long TIPS and STRIPS in a non-rolling ladder that makes up the LMP, which covers from age 59.5 - 67 in my rollover IRA.
After the January/May and July/November 2021 and 2023 10 YR TIPS auctions, the LMP ladder will be complete.
The short TIPS is now locked with 5 years of living expenses to cover age 55 - 59.5. It needs no further contributions.
Starting in June, 2021, new bond contributions will go to BNDW as part of the Risk Portfolio, complementing VT as part of the total world stock / bond portfolio.
The net result will be a declining equity glide path.
Last edited by watchnerd on Sun May 02, 2021 1:08 pm, edited 2 times in total.
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Re: Bond Portfolio ideas
Did you go to an advisor to set up the bond ladder? Thinking of doing this for my parents but seems over my head.
Re: Bond Portfolio ideas
Nope.DesertInvestor wrote: ↑Sun May 02, 2021 1:06 pm Did you go to an advisor to set up the bond ladder? Thinking of doing this for my parents but seems over my head.
They're pretty simple to set up if you've ever owned individual bonds or set up a CD ladder before.
Vanguard brokerage site even has a bond ladder tool.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
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Re: Bond Portfolio ideas
I have not, but I will look into it. Thanks!
they are recently retired and most living expenses paid for by social security, but may be better way to set up 50-50 portfolio in retirement compared to total bond market.
they are recently retired and most living expenses paid for by social security, but may be better way to set up 50-50 portfolio in retirement compared to total bond market.
Re: Bond Portfolio ideas
IMO, that SV fund could an excellent holding for the majority of your core bond allocation until yields on total bond index funds rise above 2.5% for a few quarters. SV could lose principal, but generally they are considered a cash like investment. With a 2.6% yield, what’s not to like?DesertInvestor wrote: ↑Sun May 02, 2021 12:08 pmPutnam is yielding 2.6% I believe, gross anyway.
https://www.putnam.com/literature/pdf/D ... 59f06f.pdf
- ruralavalon
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Re: Bond Portfolio ideas
I don't think that TIPS are useful unless retired or near to retirement, if then.DesertInvestor wrote: ↑Fri Apr 30, 2021 11:53 am Hi guys,
About to rebalance a little bit and still struggling with inflation looming, maybe its not who knows. But had idea of bond portfolio of:
1/3rd total bond market
1/3rd intermediate TIPS
1/3rd cash
or
1/4th total bond market
1/4th putnam stable value in 401k
1/4th intermediate TIPS
1/4th cash
Crazy? Too complicated? Right now I'm about 1/3rd total bond market and 3/4th cash in fixed income.
In my early 40s, plan to work for many more decades. Excluding real estate and business interest, i'm probably 40% fixed income at the moment.
Somehow I feel the need to get more complicated than the 3 fund portfolio in order for me to own anything other than cash right now. Total bond market makes me nervous right now. Ray Dalio doesn't think you should own any bonds at all for instance.
Thanks!
A Stable Value Fund paying a good rate is useful to augment a total bond fund, in my opinion.
In my opinion 40% fixed income is within the range of what is reasonable. Asset allocation is a very personal decision which must be based on your own individual ability, willingness and need to take risk.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
- billthecat
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Re: Bond Portfolio ideas
My target fixed income is age minus 11, with 7/8 in total bond and 1/8 in cash, HYS, I bonds, etc.
We cannot direct the winds but we can adjust our sails • It's later than you think • Ack! Thbbft!
Re: Bond Portfolio ideas
For my bond allocation
55% active total bond fund
30% TIPS
15% foreign bond
And buy I-bonds each year.
55% active total bond fund
30% TIPS
15% foreign bond
And buy I-bonds each year.
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Re: Bond Portfolio ideas
Yes. I said as much. The point you were responding to was my comment that with negative real yields, TIPS have no chance of matching inflation, but nominals do have that chance if inflation outcomes turn out to be very low.watchnerd wrote: ↑Sun May 02, 2021 8:16 amYes, but we don't know that outcome (which is also why I alternate TIPS and STRIPS in my LMP ladder).Northern Flicker wrote: ↑Sun May 02, 2021 2:55 am The expected real yield of nominal treasuries will match that of TIPS of the same duration, but the actual real yield depends on inflation outcomes.
So at this point in time, all Treasuries <30 YR have expected negative real yields right now.
The point being, you don't get to escape expected negative real yields by buying nominals.
Expected negative real yields is not a TIPS-specific issue.
Last edited by Northern Flicker on Sun May 02, 2021 9:35 pm, edited 1 time in total.
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Re: Bond Portfolio ideas
That’s what I was thinking, I think I just need the confidence of somebody else saying it as well. At this point I’m trying to decide whether my 401(k) will be 50% stable value and 50% total bond or just 100% stable value.chw wrote: ↑Sun May 02, 2021 3:21 pmIMO, that SV fund could an excellent holding for the majority of your core bond allocation until yields on total bond index funds rise above 2.5% for a few quarters. SV could lose principal, but generally they are considered a cash like investment. With a 2.6% yield, what’s not to like?DesertInvestor wrote: ↑Sun May 02, 2021 12:08 pmPutnam is yielding 2.6% I believe, gross anyway.
https://www.putnam.com/literature/pdf/D ... 59f06f.pdf
Despite what everyone says, intermediate to long term bonds right now at current yields just not convincing. The argument at 20% should be in long-term bonds is just not making any sense to me.
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Re: Bond Portfolio ideas
Given the taxation of iBonds, How do you see this working in your portfolio? Is this just a bridge the gap between Social Security or additional income when you are in a lower bracket down the road? I guess it’s better than cash.
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Re: Bond Portfolio ideas
I have all my fixed income in intermediate-term bonds, as has been true for my entire investing life. I'm investing for the longer-term, so I ignore all the financial news about short-term changes to interest rates and inflation. I think bogleheads as a group scare easily and are prone to market timing with their fixed income investments.DesertInvestor wrote: ↑Fri Apr 30, 2021 11:53 am Hi guys,
About to rebalance a little bit and still struggling with inflation looming, maybe its not who knows. But had idea of bond portfolio of:
1/3rd total bond market
1/3rd intermediate TIPS
1/3rd cash
or
1/4th total bond market
1/4th putnam stable value in 401k
1/4th intermediate TIPS
1/4th cash
Crazy? Too complicated? Right now I'm about 1/3rd total bond market and 3/4th cash in fixed income.
In my early 40s, plan to work for many more decades. Excluding real estate and business interest, i'm probably 40% fixed income at the moment.
Somehow I feel the need to get more complicated than the 3 fund portfolio in order for me to own anything other than cash right now. Total bond market makes me nervous right now. Ray Dalio doesn't think you should own any bonds at all for instance.
Thanks!
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Re: Bond Portfolio ideas
If interest rates rise, I'll be buying more EDV to keep my allocations balanced. Interest rates will rise but lowering rates or keeping them lower for longer seems to be the lever that's used more often. If and when interest rates rise, it won't be forever. Again, my main rationale for extended duration is to have an asset that's as uncorrelated to equities as possible. I'm counting on equities and my savings rate to grow the portfolio.DesertInvestor wrote: ↑Sun May 02, 2021 11:59 amThat seems like a heck of a lot of interest rate risk to me. I think it would keep me up at night, the talking heads have definitely impacted me with respect to expecting rate rises in the next two years.stimulacra wrote: ↑Sat May 01, 2021 9:57 pm For my bond allocation, I recently transitioned to:
2/3: EDV (Vanguard Extended Duration ETF)
1/3: VIPSX (Vanguard Inflation-Protected Securities Fund Investor Shares)
Wanted less correlation with equities and also wanted some inflation protection. That combo let me sleep at night.
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Re: Bond Portfolio ideas
The OP expressed concern about inflation risk; interest rate risk is different. For example, cash loses to inflation risk but protects against interest rate risk. Floating-rate bonds are less sensitive (than traditional bonds) to interest rate risk, but are more sensitive to credit risk. There is no fixed-income instrument that protects against all risks (rising inflation, interest rate, falling yields, credit risk, regional risk).stimulacra wrote: ↑Sun May 02, 2021 11:37 pm If interest rates rise, I'll be buying more EDV to keep my allocations balanced. Interest rates will rise but lowering rates or keeping them lower for longer seems to be the lever that's used more often. If and when interest rates rise, it won't be forever. Again, my main rationale for extended duration is to have an asset that's as uncorrelated to equities as possible. I'm counting on equities and my savings rate to grow the portfolio.
Last year, I read through multiple BH threads in search of some consensus on the BH philosophy for constructing a fixed-income portfolio (pre- or post-retirement). I found no agreement on anything, other than that some portion of fixed-income should be held in a "total bond fund"; although none of the bond funds suggested were "total" in the same sense as a total equity fund; e.g., none were multi-sector bond funds and some excluded mortgage-debt securities.
For an investor who is two decades away from retirement, the best protection against rising inflation and interest rate risk is to keep working and saving.
Re: Bond Portfolio ideas
It does add some complexity but I personally think Treasury Direct is pretty easy to navigate so it's not significant complexity IMO. iBonds and EE Bonds both have some features you won't find in other investments (differed fed tax and no state tax) and they have attractive rates (EE bonds @ >20 years) in comparison to what else can be currently purchased so I find them to be an important part of a diversified fixed income portion of my AA. If you have the means and the room in your fixed income portion of your AA I think buying the max of each yearly usually makes sense.DesertInvestor wrote: ↑Sat May 01, 2021 7:23 pmI have way more in cash than I need so emergency fund probably needs to be cut down.wetgear wrote: ↑Fri Apr 30, 2021 3:59 pm Why not have a healthy emergency fund in cash, buy all the available iBonds (starting on Monday they will be paying much better than TIPS) each year and the rest in Total Bond? You're probably too young to go so hard on TIPS, let your equity allocation help protect you from inflation.
ibonds is a good idea, but its such a small amount each year not sure its worth complexity?
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Re: Bond Portfolio ideas
You can buy both of them at $10,000 limit per year? So A total of 20,000?