Bond Portfolio ideas

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DesertInvestor
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Bond Portfolio ideas

Post by DesertInvestor »

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!
livesoft
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Re: Bond Portfolio ideas

Post by livesoft »

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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RetiredCSProf
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Re: Bond Portfolio ideas

Post by RetiredCSProf »

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
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patrick013
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Re: Bond Portfolio ideas

Post by patrick013 »

DesertInvestor 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.

https://www.aaii.com/journal/article/10 ... 3-strategy

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
wetgear
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Re: Bond Portfolio ideas

Post by wetgear »

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.
sfmurph
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Re: Bond Portfolio ideas

Post by sfmurph »

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?
drumboy256
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Re: Bond Portfolio ideas

Post by drumboy256 »

Too much complexity--- plus, queue KlangFool saying "oh that must be nice that you think you're going to work for another 20 years...." :shock:

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
JimInIllinois
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Re: Bond Portfolio ideas

Post by JimInIllinois »

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
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Re: Bond Portfolio ideas

Post by abuss368 »

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!
Any short or intermediate term investment grade bond fund that is low cost and diversified will provide safety and income to a portfolio.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
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DesertInvestor
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Re: Bond Portfolio ideas

Post by DesertInvestor »

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.
I have way more in cash than I need so emergency fund probably needs to be cut down.

ibonds is a good idea, but its such a small amount each year not sure its worth complexity?
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DesertInvestor
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Re: Bond Portfolio ideas

Post by DesertInvestor »

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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DesertInvestor
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Re: Bond Portfolio ideas

Post by DesertInvestor »

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...." :shock:

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.
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?
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Re: Bond Portfolio ideas

Post by retired@50 »

DesertInvestor wrote: Sat May 01, 2021 7:31 pm
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...." :shock:

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.
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?
Yes. The longer the duration of the bond fund, the greater the price swings are when interest rates move.

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,
This is one person's opinion. Nothing more.
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DesertInvestor
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Re: Bond Portfolio ideas

Post by DesertInvestor »

So basically the same as the target date funds?
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retired@50
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Re: Bond Portfolio ideas

Post by retired@50 »

DesertInvestor wrote: Sat May 01, 2021 7:46 pm So basically the same as the target date funds?
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,
This is one person's opinion. Nothing more.
JohnDindex
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Re: Bond Portfolio ideas

Post by JohnDindex »

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
Northern Flicker
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Re: Bond Portfolio ideas

Post by Northern Flicker »

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.
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

Post by Northern Flicker »

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.
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).
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
averagedude
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Re: Bond Portfolio ideas

Post by averagedude »

Which ever that you can stick too is the best choice.
stimulacra
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Re: Bond Portfolio ideas

Post by stimulacra »

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

Post by watchnerd »

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...." :shock:
:wink: :D :beer
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watchnerd
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Re: Bond Portfolio ideas

Post by watchnerd »

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).
Nominal Treasuries, too.

The real yield is the same.
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Northern Flicker
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Re: Bond Portfolio ideas

Post by Northern Flicker »

watchnerd wrote: Sun May 02, 2021 12:21 am
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).
Nominal Treasuries, too.

The real yield is the same.
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.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
chw
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Re: Bond Portfolio ideas

Post by chw »

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.
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Re: Bond Portfolio ideas

Post by watchnerd »

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.
Yes, but we don't know that outcome (which is also why I alternate TIPS and STRIPS in my LMP ladder).

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.
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drumboy256
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Re: Bond Portfolio ideas

Post by drumboy256 »

DesertInvestor wrote: Sat May 01, 2021 7:31 pm
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...." :shock:

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.
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?
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=287627

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.
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Re: Bond Portfolio ideas

Post by watchnerd »

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.
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drumboy256
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Re: Bond Portfolio ideas

Post by drumboy256 »

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.
Sorry, flipped that--- price not yield.... editing that.
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DesertInvestor
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Re: Bond Portfolio ideas

Post by DesertInvestor »

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.
What is the argument for treasuries (intermediate bond fund) vs. total bond fund?
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DesertInvestor
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Re: Bond Portfolio ideas

Post by DesertInvestor »

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.
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.
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DesertInvestor
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Re: Bond Portfolio ideas

Post by DesertInvestor »

watchnerd wrote: Sun May 02, 2021 12:21 am
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).
Nominal Treasuries, too.

The real yield is the same.
I'm interested in why you choose 15% long treasuries and 10% short tips. As apposed to total bond market ect?
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Re: Bond Portfolio ideas

Post by DesertInvestor »

chw wrote: Sun May 02, 2021 6:54 am 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.
Putnam is yielding 2.6% I believe, gross anyway.

https://www.putnam.com/literature/pdf/D ... 59f06f.pdf
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DesertInvestor
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Re: Bond Portfolio ideas

Post by DesertInvestor »

drumboy256 wrote: Sun May 02, 2021 8:28 am
DesertInvestor wrote: Sat May 01, 2021 7:31 pm
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...." :shock:

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.
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?
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=287627

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.
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.
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Re: Bond Portfolio ideas

Post by DesertInvestor »

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.
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Re: Bond Portfolio ideas

Post by watchnerd »

DesertInvestor wrote: Sun May 02, 2021 12:01 pm
watchnerd wrote: Sun May 02, 2021 12:21 am
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).
Nominal Treasuries, too.

The real yield is the same.
I'm interested in why you choose 15% long treasuries and 10% short tips. As apposed to total bond market ect?
For liability matching purposes and as part of a long-short barbell.

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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DesertInvestor
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Re: Bond Portfolio ideas

Post by DesertInvestor »

Did you go to an advisor to set up the bond ladder? Thinking of doing this for my parents but seems over my head.
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Re: Bond Portfolio ideas

Post by watchnerd »

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.
Nope.

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.
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Re: Bond Portfolio ideas

Post by DesertInvestor »

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.
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Re: Bond Portfolio ideas

Post by chw »

DesertInvestor wrote: Sun May 02, 2021 12:08 pm
chw wrote: Sun May 02, 2021 6:54 am 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.
Putnam is yielding 2.6% I believe, gross anyway.

https://www.putnam.com/literature/pdf/D ... 59f06f.pdf
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?
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Re: Bond Portfolio ideas

Post by ruralavalon »

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!
I don't think that TIPS are useful unless retired or near to retirement, if then.

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:Getting Started
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billthecat
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Re: Bond Portfolio ideas

Post by billthecat »

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.
Mando19
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Re: Bond Portfolio ideas

Post by Mando19 »

For my bond allocation
55% active total bond fund
30% TIPS
15% foreign bond
And buy I-bonds each year.
Northern Flicker
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Re: Bond Portfolio ideas

Post by Northern Flicker »

watchnerd wrote: Sun May 02, 2021 8:16 am
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.
Yes, but we don't know that outcome (which is also why I alternate TIPS and STRIPS in my LMP ladder).

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.
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.
Last edited by Northern Flicker on Sun May 02, 2021 9:35 pm, edited 1 time in total.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
Topic Author
DesertInvestor
Posts: 233
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Re: Bond Portfolio ideas

Post by DesertInvestor »

chw wrote: Sun May 02, 2021 3:21 pm
DesertInvestor wrote: Sun May 02, 2021 12:08 pm
chw wrote: Sun May 02, 2021 6:54 am 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.
Putnam is yielding 2.6% I believe, gross anyway.

https://www.putnam.com/literature/pdf/D ... 59f06f.pdf
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?
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.

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.
Topic Author
DesertInvestor
Posts: 233
Joined: Tue Dec 20, 2016 1:04 pm

Re: Bond Portfolio ideas

Post by DesertInvestor »

Mando19 wrote: Sun May 02, 2021 4:30 pm For my bond allocation
55% active total bond fund
30% TIPS
15% foreign bond
And buy I-bonds each year.
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.
UpperNwGuy
Posts: 5154
Joined: Sun Oct 08, 2017 7:16 pm

Re: Bond Portfolio ideas

Post by UpperNwGuy »

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!
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.
stimulacra
Posts: 937
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Location: Houston

Re: Bond Portfolio ideas

Post by stimulacra »

DesertInvestor wrote: Sun May 02, 2021 11:59 am
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.
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.
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.
RetiredCSProf
Posts: 591
Joined: Tue Feb 28, 2017 4:59 pm

Re: Bond Portfolio ideas

Post by RetiredCSProf »

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.
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).

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.
wetgear
Posts: 110
Joined: Thu Apr 06, 2017 10:14 am

Re: Bond Portfolio ideas

Post by wetgear »

DesertInvestor wrote: Sat May 01, 2021 7:23 pm
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.
I have way more in cash than I need so emergency fund probably needs to be cut down.

ibonds is a good idea, but its such a small amount each year not sure its worth complexity?
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.
Topic Author
DesertInvestor
Posts: 233
Joined: Tue Dec 20, 2016 1:04 pm

Re: Bond Portfolio ideas

Post by DesertInvestor »

You can buy both of them at $10,000 limit per year? So A total of 20,000?
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