Do I have to invest in Bonds

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mikejuss
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Re: Do I have to invest in Bonds

Post by mikejuss »

Brianmcg321 wrote: Tue Oct 12, 2021 4:06 pm No, you don’t have to invest in bonds.

I am 100% equities. I will only have money in bonds when I stop accumulating and retire. I look at bonds as money I will be spending in the next few years, not as an investment. I want my money that’s invested to be growing. I will probably hold ten years in bonds when I retire.
How will you be purchasing the ten years of bonds you plan on holding in retirement?
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willthrill81
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Re: Do I have to invest in Bonds

Post by willthrill81 »

No, you do not. Many investors hold something other than bonds for their fixed income component, and some have no fixed income component at all. For young accumulators in particular, I think that this makes good sense as long as they can tolerate the volatility.
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whereskyle
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Re: Do I have to invest in Bonds

Post by whereskyle »

tvubpwcisla wrote: Sat Oct 09, 2021 7:23 am I am building out my three fund portfolio, and can't thank the Boglehead community enough for all of their hard work and help to us investors.

My question is, do I have to invest in Bonds or can I simply do something like the following:

VTSAX - TOTAL STOCK MARKET INDEX FUND - 85%
VTIAX - TOTAL INTERNATIONAL STOCK INDEX FUND - 15%
I thought I was a 100% stock person. Then I thought I was a 10% long term treasury person. Now I just hold total bond. It's nice to hold something that isn't volatile and yet delivers a solid return considering the circumstances in pretty much all market conditions. The promise to deliver a 1.5% yield and to catch up with rising interest rates within a relatively short timeframe is a nice promise for a portfolio ballast.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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willthrill81
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Re: Do I have to invest in Bonds

Post by willthrill81 »

whereskyle wrote: Tue Oct 12, 2021 6:11 pmNow I just hold total bond. It's nice to hold something that isn't volatile and yet delivers a solid return considering the circumstances in pretty much all market conditions.
How well would that approach have worked from 1941-1981, when U.S. bonds returned about -1.6% real?
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
TropikThunder
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Re: Do I have to invest in Bonds

Post by TropikThunder »

abuss368 wrote: Sun Oct 10, 2021 2:51 pm Oh no!!!!! Overseas markets down 35%! Expected to open that much lower here tomorrow!

^ if this concerned you = you need bonds in your portfolio!
If a panic-prone investor is going to panic sell when stocks drop by 50%, how much in bonds would that investor need to not panic? And you can't always count on bonds going up when stocks go down, it depends on why the stocks went down.

20%? An 80/20 portfolio will still drop by 40% if stocks drop by 50%. I think Mr. Panic will still panic at -40%, that's practically half!

40%? A 60/40 portfolio will drop by 30% if stocks drop by 50%. Maybe Mr. Panic can hOdl, maybe he can't. -30% is a lot.

60%? A 40/60 portfolio will only drop by 20% if stocks drop by 50%, so at last here I think Mr. Panic will be ok. I mean -20% isn't that much. But he will in all likelihood have less money than the 80/20 even after the crash.
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Re: Do I have to invest in Bonds

Post by whereskyle »

willthrill81 wrote: Tue Oct 12, 2021 7:13 pm
whereskyle wrote: Tue Oct 12, 2021 6:11 pmNow I just hold total bond. It's nice to hold something that isn't volatile and yet delivers a solid return considering the circumstances in pretty much all market conditions.
How well would that approach have worked from 1941-1981, when U.S. bonds returned about -1.6% real?
And investors ended up with twice the real wealth they would have had if they had put the money under the mattress.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
SantaClaraSurfer
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Re: Do I have to invest in Bonds

Post by SantaClaraSurfer »

I'm neither "panic prone" or any less oriented to returns than the next Boglehead.

I'm just not exclusively oriented towards theoretical returns. I like other things, too.

I don't feel, for example, if the return sequence over my remaining accumulation years favors 100% US Equities, and I remain in a diversified portfolio with US, Int'l and Bonds, that I'll have regrets that I didn't get the theoretical maximum.

Instead, I feel like keeping a diversified portfolio is the best deal going right now with low ERs and solid opportunities coming from buying the haystack and the protection that comes from not isolating my exposure to one category.

Additionally, bonds help me spend money today and tomorrow. I'm mid-career (w kids in college) and I can book a vacation, buy something nice, give money to a worthy cause, pay a huge tuition bill, in part because I know that

a) I've got a solid plan in place if equities take a hit while I'm out enjoying life and getting things done
b) I've got an annual plan that matches some future retirement expenses with bonds I'm purchasing today

And, when it does come time to work less and stop earning money, I know my sequence of returns gauntlet is much smoother, making everything I've noted above much more powerful, especially the ability to simply enjoy what you've saved knowing you've put some basic guardrails in place.

Like I said in a comment above. For everyone committed to maxing out equities, there still has to be a solid equity exit strategy plan in place. The more reliant you are on equities alone, the more important your equity exit plan is to the success of your overall portfolio. And, yes, bonds can help with that.
Last edited by SantaClaraSurfer on Tue Oct 12, 2021 9:14 pm, edited 1 time in total.
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Re: Do I have to invest in Bonds

Post by grabiner »

Ari wrote: Tue Oct 12, 2021 2:45 pm
grabiner wrote: Sun Oct 10, 2021 2:18 pm This is why I don't recommend 100% stock until you have been through a bear market with a stock-heavy portfolio. The cost of holding 80% stock for a few years until the next bear market is much less than the cost of holding 100% stock, pulling out at the bottom, and missing the recovery,
“A few years”? I’ve been waiting for a decade!
Just last year, the market lost 1/3 of its value in two weeks.
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Re: Do I have to invest in Bonds

Post by whereskyle »

TropikThunder wrote: Tue Oct 12, 2021 7:22 pm
abuss368 wrote: Sun Oct 10, 2021 2:51 pm Oh no!!!!! Overseas markets down 35%! Expected to open that much lower here tomorrow!

^ if this concerned you = you need bonds in your portfolio!
If a panic-prone investor is going to panic sell when stocks drop by 50%, how much in bonds would that investor need to not panic? And you can't always count on bonds going up when stocks go down, it depends on why the stocks went down.

20%? An 80/20 portfolio will still drop by 40% if stocks drop by 50%. I think Mr. Panic will still panic at -40%, that's practically half!

40%? A 60/40 portfolio will drop by 30% if stocks drop by 50%. Maybe Mr. Panic can hOdl, maybe he can't. -30% is a lot.

60%? A 40/60 portfolio will only drop by 20% if stocks drop by 50%, so at last here I think Mr. Panic will be ok. I mean -20% isn't that much. But he will in all likelihood have less money than the 80/20 even after the crash.
It doesn't matter what the percentages say when everything is going to hell. What matters is what the real numbers say, and the real numbers on the bonds side won't be nearly as concerning. Investors will look at the real numbers in their bond fund(s) and have reason to keep calm.

Looking at percentages this way is simple backtesting, and it will provide no comfort in a crash. Seeing that your $500k in stocks is now $300k but your $500k in bonds is still $470k brings real comfort. You can literally watch the difference in riskiness play out in real time, and that can help you stay the course.
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Ari
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Re: Do I have to invest in Bonds

Post by Ari »

grabiner wrote: Tue Oct 12, 2021 7:57 pm
Ari wrote: Tue Oct 12, 2021 2:45 pm
grabiner wrote: Sun Oct 10, 2021 2:18 pm This is why I don't recommend 100% stock until you have been through a bear market with a stock-heavy portfolio. The cost of holding 80% stock for a few years until the next bear market is much less than the cost of holding 100% stock, pulling out at the bottom, and missing the recovery,
“A few years”? I’ve been waiting for a decade!
Just last year, the market lost 1/3 of its value in two weeks.
But you said that doesn’t count! Also 2018 didn’t count (not specifically you, but Bogleheads in general told me so at the time).
All in, all the time.
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Re: Do I have to invest in Bonds

Post by willthrill81 »

whereskyle wrote: Tue Oct 12, 2021 7:55 pm
willthrill81 wrote: Tue Oct 12, 2021 7:13 pm
whereskyle wrote: Tue Oct 12, 2021 6:11 pmNow I just hold total bond. It's nice to hold something that isn't volatile and yet delivers a solid return considering the circumstances in pretty much all market conditions.
How well would that approach have worked from 1941-1981, when U.S. bonds returned about -1.6% real?
And investors ended up with twice the real wealth they would have had if they had put the money under the mattress.
Certainly bonds did better than physical cash. But a 100% bond allocation over that period would have resulted in the inflation-adjusted value nearly halved (cumulative -46% return for intermediate-term Treasuries). If just 20% had been allocated to stocks, the inflation-adjusted value would have slightly risen over that period (cumulative +13% return).

History is very clear that 0/100 bonds carry significant risk. It's just not in the form of the day-to-day volatility that far too many focus on to the exclusion of much more pertinent risks.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: Do I have to invest in Bonds

Post by LilyFleur »

willthrill81 wrote: Wed Oct 13, 2021 11:16 am
whereskyle wrote: Tue Oct 12, 2021 7:55 pm
willthrill81 wrote: Tue Oct 12, 2021 7:13 pm
whereskyle wrote: Tue Oct 12, 2021 6:11 pmNow I just hold total bond. It's nice to hold something that isn't volatile and yet delivers a solid return considering the circumstances in pretty much all market conditions.
How well would that approach have worked from 1941-1981, when U.S. bonds returned about -1.6% real?
And investors ended up with twice the real wealth they would have had if they had put the money under the mattress.
Certainly bonds did better than physical cash. But a 100% bond allocation over that period would have resulted in the inflation-adjusted value nearly halved (cumulative -46% return for intermediate-term Treasuries). If just 20% had been allocated to stocks, the inflation-adjusted value would have slightly risen over that period (cumulative +13% return).

History is very clear that 0/100 bonds carry significant risk. It's just not in the form of the day-to-day volatility that far too many focus on to the exclusion of much more pertinent risks.
This.
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Re: Do I have to invest in Bonds

Post by mikejuss »

willthrill81 wrote: Wed Oct 13, 2021 11:16 amCertainly bonds did better than physical cash. But a 100% bond allocation over that period would have resulted in the inflation-adjusted value nearly halved (cumulative -46% return for intermediate-term Treasuries). If just 20% had been allocated to stocks, the inflation-adjusted value would have slightly risen over that period (cumulative +13% return).

History is very clear that 0/100 bonds carry significant risk. It's just not in the form of the day-to-day volatility that far too many focus on to the exclusion of much more pertinent risks.
Who here is proposing holding a portfolio of only bonds?
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willthrill81
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Re: Do I have to invest in Bonds

Post by willthrill81 »

mikejuss wrote: Wed Oct 13, 2021 11:22 am
willthrill81 wrote: Wed Oct 13, 2021 11:16 amCertainly bonds did better than physical cash. But a 100% bond allocation over that period would have resulted in the inflation-adjusted value nearly halved (cumulative -46% return for intermediate-term Treasuries). If just 20% had been allocated to stocks, the inflation-adjusted value would have slightly risen over that period (cumulative +13% return).

History is very clear that 0/100 bonds carry significant risk. It's just not in the form of the day-to-day volatility that far too many focus on to the exclusion of much more pertinent risks.
Who here is proposing holding a portfolio of only bonds?
whereskyle said precisely that above. I've also seen a handful of posts by others in recent days saying the same thing.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: Do I have to invest in Bonds

Post by DB2 »

Brianmcg321 wrote: Tue Oct 12, 2021 4:06 pm No, you don’t have to invest in bonds.

I am 100% equities. I will only have money in bonds when I stop accumulating and retire. I look at bonds as money I will be spending in the next few years, not as an investment. I want my money that’s invested to be growing. I will probably hold ten years in bonds when I retire.
What if there is a 2008-type crash or 10 year bear right before you retire? How do you go from 100% stock to ten years of bonds in such a short period of time without taking such a hit? A glide path seems more reasonable.

In addition, if going 100% equities, I would only do it via global market cap. I would really want some sort of hedge as going 100% Total U.S. Stock market so late into life seems risky, but that's me.
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Brianmcg321
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Re: Do I have to invest in Bonds

Post by Brianmcg321 »

DB2 wrote: Wed Oct 13, 2021 12:42 pm
Brianmcg321 wrote: Tue Oct 12, 2021 4:06 pm No, you don’t have to invest in bonds.

I am 100% equities. I will only have money in bonds when I stop accumulating and retire. I look at bonds as money I will be spending in the next few years, not as an investment. I want my money that’s invested to be growing. I will probably hold ten years in bonds when I retire.
What if there is a 2008-type crash or 10 year bear right before you retire? How do you go from 100% stock to ten years of bonds in such a short period of time without taking such a hit? A glide path seems more reasonable.

In addition, if going 100% equities, I would only do it via global market cap. I would really want some sort of hedge as going 100% Total U.S. Stock market so late into life seems risky, but that's me.
I’ve ran the numbers. From 2000-2010 and at my current savings rate I will have $2mil in my account. My house will be paid off and my daughter will have graduated college. I have no worries.

A 60/40 balanced index would only get me about 300k more in my account. But I would doubt that number given current interest rates. A lot to find in a bag on the street, but over the next 40 years a mere afterthought. As the next bull market will surpass that amount fairly quickly.
Last edited by Brianmcg321 on Wed Oct 13, 2021 12:58 pm, edited 4 times in total.
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whereskyle
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Re: Do I have to invest in Bonds

Post by whereskyle »

willthrill81 wrote: Wed Oct 13, 2021 11:16 am
whereskyle wrote: Tue Oct 12, 2021 7:55 pm
willthrill81 wrote: Tue Oct 12, 2021 7:13 pm
whereskyle wrote: Tue Oct 12, 2021 6:11 pmNow I just hold total bond. It's nice to hold something that isn't volatile and yet delivers a solid return considering the circumstances in pretty much all market conditions.
How well would that approach have worked from 1941-1981, when U.S. bonds returned about -1.6% real?
And investors ended up with twice the real wealth they would have had if they had put the money under the mattress.
Certainly bonds did better than physical cash. But a 100% bond allocation over that period would have resulted in the inflation-adjusted value nearly halved (cumulative -46% return for intermediate-term Treasuries). If just 20% had been allocated to stocks, the inflation-adjusted value would have slightly risen over that period (cumulative +13% return).

History is very clear that 0/100 bonds carry significant risk. It's just not in the form of the day-to-day volatility that far too many focus on to the exclusion of much more pertinent risks.
Certainly by suggesting that OP consider holding some amount in bonds I am not suggesting that OP consider 100% bonds. I think it's a bit of magic we should embrace that bonds and stocks typically work well together. They each have their advantages and they each contribute to a rational, diversified portfolio.

I'm not just picking which one I like more! If I had to pick one, it would be stocks. But once I add stocks, I feel like it's reasonable to add some bonds as well.
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whereskyle
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Re: Do I have to invest in Bonds

Post by whereskyle »

willthrill81 wrote: Wed Oct 13, 2021 11:25 am
mikejuss wrote: Wed Oct 13, 2021 11:22 am
willthrill81 wrote: Wed Oct 13, 2021 11:16 amCertainly bonds did better than physical cash. But a 100% bond allocation over that period would have resulted in the inflation-adjusted value nearly halved (cumulative -46% return for intermediate-term Treasuries). If just 20% had been allocated to stocks, the inflation-adjusted value would have slightly risen over that period (cumulative +13% return).

History is very clear that 0/100 bonds carry significant risk. It's just not in the form of the day-to-day volatility that far too many focus on to the exclusion of much more pertinent risks.
Who here is proposing holding a portfolio of only bonds?
whereskyle said precisely that above. I've also seen a handful of posts by others in recent days saying the same thing.
I said I just hold total bond instead of no bonds or extended duration treasuries. I did not mean to suggest that I hold no stocks!
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willthrill81
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Re: Do I have to invest in Bonds

Post by willthrill81 »

whereskyle wrote: Wed Oct 13, 2021 12:49 pm
willthrill81 wrote: Wed Oct 13, 2021 11:25 am
mikejuss wrote: Wed Oct 13, 2021 11:22 am
willthrill81 wrote: Wed Oct 13, 2021 11:16 amCertainly bonds did better than physical cash. But a 100% bond allocation over that period would have resulted in the inflation-adjusted value nearly halved (cumulative -46% return for intermediate-term Treasuries). If just 20% had been allocated to stocks, the inflation-adjusted value would have slightly risen over that period (cumulative +13% return).

History is very clear that 0/100 bonds carry significant risk. It's just not in the form of the day-to-day volatility that far too many focus on to the exclusion of much more pertinent risks.
Who here is proposing holding a portfolio of only bonds?
whereskyle said precisely that above. I've also seen a handful of posts by others in recent days saying the same thing.
I said I just hold total bond instead of no bonds or extended duration treasuries. I did not mean to suggest that I hold no stocks!
Thank you for clarifying that.
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Re: Do I have to invest in Bonds

Post by aristotelian »

diabelli wrote: Sun Oct 10, 2021 2:38 pm Main problem I've had incorporating bonds is that I don't want to own them in a taxable account. So I could relegate them all to a retirement account but then I can't touch the proceeds for a couple of decades -- which is sort of incompatible with my whole motive for investing (financial independence at an age earlier than typical retirement). For these reasons I've been keeping the non-stocks portion of my portfolio in a combination of cash + some newfangled unmentionables which I'm hoping will prove to be an inflation hedge (vs going poof out of existence but hey -- it's my concern that cash could effectively do the same via devaluation).

In a nutshell I'd say equities + cash is a decent combo for someone not interested in bonds, and also gives you some dry powder to take advantage of short term panicky fluctuations in the market etc.
At any time you could sell stocks in taxable, then sell bonds and buy stocks in your retirement accounts. If your overall preference is to reduce risk, the inability to access retirement accounts should not be a reason keeping you from holding bonds. My 401k is about 70% bonds and is my primary account for rebalancing when there is a big change in the market.
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Re: Do I have to invest in Bonds

Post by tomsense76 »

No despite all the discussion about bonds here. There are plenty of people that held 100% stock all the way to retirement. Only downshifting once they planned to leave or at least get much closer.

While there are arguments that behaviorally it might help to have some bonds to rebalance into stocks, arguably it may be helpful to have an allocation where one doesn't need to do anything during a downturn. Often it is when doing things that problems arise. 100% stock may help you not do anything. Though so might a TDF.
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Re: Do I have to invest in Bonds

Post by Candor »

No, but you will need to change your signature.
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Re: Do I have to invest in Bonds

Post by etfan »

There is an opportunity cost to holding any amount of bonds. If the next 20 years go by and stocks keep going up with zero dips, I know the 100% equities people will do a lot better than me.

That's a price I pay for the same reasons I may choose to purchase any type of insurance.
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Re: Do I have to invest in Bonds

Post by Sandtrap »

tvubpwcisla wrote: Sat Oct 09, 2021 7:23 am I am building out my three fund portfolio, and can't thank the Boglehead community enough for all of their hard work and help to us investors.

My question is, do I have to invest in Bonds or can I simply do something like the following:

VTSAX - TOTAL STOCK MARKET INDEX FUND - 85%
VTIAX - TOTAL INTERNATIONAL STOCK INDEX FUND - 15%
One of the purposes of (in this case) a bond index fund, is to relatively stable floor or "safe haven" to balance the volatility of the equity holdings. How "you" choose to create this "fixed" vs "equity" portion of your portfolio, or whether you need it at all, is entirely up to you.
How each person establishes this "fixed" portion is unique.
Whether through: bonds or bond like, cash or cash like, paid for R/E income property, SS, Treasuries, high yield accounts, cd's, SPIA, etc.

The important question is: What works for "you"?

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Re: Do I have to invest in Bonds

Post by pascalwager »

I invest in Bill Sharpe's World Bond/Stock (WBS) Portfolio. I didn't specifically choose the bonds, they're just part of the world market bond/stock proxy.

And as a retiree, I also own a side-order of TIPS. I did choose those--for inflation protection.
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Re: Do I have to invest in Bonds

Post by tibbitts »

Brianmcg321 wrote: Wed Oct 13, 2021 12:45 pm I’ve ran the numbers. From 2000-2010 and at my current savings rate I will have $2mil in my account.
I'm not sure how you can say "will" have a certain amount (at least, I presume.)
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Re: Do I have to invest in Bonds

Post by TheDDC »

tvubpwcisla wrote: Sat Oct 09, 2021 7:23 am I am building out my three fund portfolio, and can't thank the Boglehead community enough for all of their hard work and help to us investors.

My question is, do I have to invest in Bonds or can I simply do something like the following:

VTSAX - TOTAL STOCK MARKET INDEX FUND - 85%
VTIAX - TOTAL INTERNATIONAL STOCK INDEX FUND - 15%
I do not invest in bonds. They are losers compared to investing in good growth stock mutual funds like the two you referenced.

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Re: Do I have to invest in Bonds

Post by Jaymover »

windaar wrote: Sat Oct 09, 2021 7:45 am In March 2020 many stock-heavy posters here sold at the bottom and then agonized over getting back in after equities climbed back up. What would you do if your whole portfolio was going south, and it lost, say, 40%? Fixed can give a cushion here as we determine realistic risk assessment and set a realistic AA.
Having agonised over my stock/ bond ratio a couple of years ago I settled on a fairly aggressive stock allocation of about 130 minus age (at 52 years old) with a fairly generous emergency cash fund and the rest in bonds. I was stressed early last year but held on because I felt that at least I had a big pile of cash and bonds if all else collapses. Of course, as the share market seems to go up and up of late and I keep thinking "should be more aggressive" and then regret not being 140 minus age.

I have found that being less aggressively invested than perhaps you think you should be psychologically helps during a downturn. You almost want the market to crash again so you can fantasize about "rebalancing in the dip". I wouldn't be able to have that feeling if I was say 100 percent stocks as the market went down.

You have to remember that even if an extra 10 percent stocks may have given you an extra 5% yield over the last year, this is not typical and is probably future returns brought forward. On average an extra 10 percent stock allocation may only give you an extra 1 percent per annum over a 10 year period .

The best approach rather than using a minus age rule is to work out a target goal (amount at what age) and then invest your money with an expected return to achieve that goal. Passive investing sites have calculators to help do this. Generally I think that we are all going to have to accept a bit more risk going forward than perhaps previous generations had to accept, but then again those folks probably worked in more dangerous jobs and faced more risk in other areas.
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Re: Do I have to invest in Bonds

Post by Jaymover »

tvubpwcisla wrote: Sat Oct 09, 2021 7:23 am I am building out my three fund portfolio, and can't thank the Boglehead community enough for all of their hard work and help to us investors.

My question is, do I have to invest in Bonds or can I simply do something like the following:

VTSAX - TOTAL STOCK MARKET INDEX FUND - 85%
VTIAX - TOTAL INTERNATIONAL STOCK INDEX FUND - 15%
There are also a few good recent papers by Vanguard about Bonds. If you are patient then bond yields tend to go up, a bit like how you have to be patient with your stocks after a crash. If your horizon is 10+ years then all will be okay, otherwise you are market timing.

https://www.vanguardinvestor.co.uk/arti ... rates-rise
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Brianmcg321
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Re: Do I have to invest in Bonds

Post by Brianmcg321 »

tibbitts wrote: Thu Oct 14, 2021 9:40 pm
Brianmcg321 wrote: Wed Oct 13, 2021 12:45 pm I’ve ran the numbers. From 2000-2010 and at my current savings rate I will have $2mil in my account.
I'm not sure how you can say "will" have a certain amount (at least, I presume.)
If we have another lost decade as was presented to me. 2000-2010 was the best assumption I could make using portfoliovisualizer.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
Atretes1
Posts: 23
Joined: Sat Sep 05, 2015 11:21 pm

Re: Do I have to invest in Bonds

Post by Atretes1 »

I am 100% stocks. I Have been through every up and down since 08/09. I will be 100% stocks for a while myself. I'm 45.
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