What is the Most You Would keep in Fixed Income?

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retireIn2020
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Re: What is the Most You Would keep in Fixed Income?

Post by retireIn2020 »

WhitePuma wrote: Wed Jun 05, 2024 7:12 pm Based on these assumptions:

-Fixed income = bonds, cash, I/EE bonds, CD, HYSA, MM funds
-No pension
-Age 45; retirement in 10 years

Please express the amount as a multiple of annual expenses. So for example, 10x.
If I were a 45 YO, and my retirement target age was 55 years of age. I'd have an AA of 65/35 (Stocks/Fixed), with 2 years expense in a taxable account to cover expense during an unexpected layoff. I'd also wind that down to 50/50 AA by age 55 with much more in my taxable account.
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Florida Orange
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Re: What is the Most You Would keep in Fixed Income?

Post by Florida Orange »

coachd50 wrote: Thu Jun 06, 2024 7:02 pm
Florida Orange wrote: Thu Jun 06, 2024 5:26 pm
... If you had $1B you could put $400M in FI and live very comfortably on the interest without ever having to worry about money or pay attention to the stock market.
I'll take "Things you will only read on bogleheads" for $600 Alex.

I mean a 2% coupon on that $400 million yields more than double the income than the top 0.1% in the USA. So, sure, someone could spring for extra cheese on their burgers :)

Gotta love this site.
I was responding to Normchad's comment that even if he had $1 billion he wouldn't put $400 million in fixed income.
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dogagility
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Re: What is the Most You Would keep in Fixed Income?

Post by dogagility »

Assuming I had a very large portfolio relative to my expected expenses, the most fixed income I would have is enough to cover my expected expenses until I die.

Assuming I had a very small portfolio relative to my expected expenses, I would have no fixed income.
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firebirdparts
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Re: What is the Most You Would keep in Fixed Income?

Post by firebirdparts »

I am okay saying 0% here, but I didn't keep it there long. I started trying to become competent on bonds at about age 50. Timing the past plays a role here. If the market is down 50% when you hit 50 years of age, you'd have a different attitude.
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coachd50
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Re: What is the Most You Would keep in Fixed Income?

Post by coachd50 »

Florida Orange wrote: Fri Jun 07, 2024 10:36 am
coachd50 wrote: Thu Jun 06, 2024 7:02 pm
Florida Orange wrote: Thu Jun 06, 2024 5:26 pm
... If you had $1B you could put $400M in FI and live very comfortably on the interest without ever having to worry about money or pay attention to the stock market.
I'll take "Things you will only read on bogleheads" for $600 Alex.

I mean a 2% coupon on that $400 million yields more than double the income than the top 0.1% in the USA. So, sure, someone could spring for extra cheese on their burgers :)

Gotta love this site.
I was responding to Normchad's comment that even if he had $1 billion he wouldn't put $400 million in fixed income.
Yes, I have read through the thread. The point still stands, the phrasing "You could put $400M in Fixed Income and live very comfortably on the interest"-where the interest income would be north of $8million dollars- is something that probably wouldn't be used in many places.
Grogs
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Re: What is the Most You Would keep in Fixed Income?

Post by Grogs »

WhitePuma wrote: Wed Jun 05, 2024 7:12 pm Based on these assumptions:

-Fixed income = bonds, cash, I/EE bonds, CD, HYSA, MM funds
-No pension
-Age 45; retirement in 10 years

Please express the amount as a multiple of annual expenses. So for example, 10x.
You don't tell us how large your portfolio is, so it's difficult to give a very useful answer. If your portfolio is 50x, then having 25x in fixed might be reasonable. OTOH, if your portfolio is only 5x then obviously you have to have 5x or less in fixed.

At a more abstract level, I like the idea of having about 10x in fixed at retirement. I think that's enough to cover most drawdown scenarios. I wouldn't say 10x is the max though. If I had 50x total, I might not mind having 15x or even 20x in fixed. Maybe the most I would want is enough years to cover the rest of my life, so at 55 probably no more than 40x or so in fixed unless my portfolio was just obscenely bloated. Would be a good problem to have. :beer
Florida Orange
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Re: What is the Most You Would keep in Fixed Income?

Post by Florida Orange »

coachd50 wrote: Fri Jun 07, 2024 2:11 pm
Florida Orange wrote: Fri Jun 07, 2024 10:36 am
coachd50 wrote: Thu Jun 06, 2024 7:02 pm
Florida Orange wrote: Thu Jun 06, 2024 5:26 pm
... If you had $1B you could put $400M in FI and live very comfortably on the interest without ever having to worry about money or pay attention to the stock market.
I'll take "Things you will only read on bogleheads" for $600 Alex.

I mean a 2% coupon on that $400 million yields more than double the income than the top 0.1% in the USA. So, sure, someone could spring for extra cheese on their burgers :)

Gotta love this site.
I was responding to Normchad's comment that even if he had $1 billion he wouldn't put $400 million in fixed income.
Yes, I have read through the thread. The point still stands, the phrasing "You could put $400M in Fixed Income and live very comfortably on the interest"-where the interest income would be north of $8million dollars- is something that probably wouldn't be used in many places.
I'm known for my subtlety.
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Random Musings
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Re: What is the Most You Would keep in Fixed Income?

Post by Random Musings »

From a theoretical standpoint - 80%. OTOH, the most I would hold in equities is 80%.

RM
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TierArtz
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Re: What is the Most You Would keep in Fixed Income?

Post by TierArtz »

For years I vacillated between using 15 or 20-years of expenses not covered by passive income (pension and rent) to determine my FI percentage. Recently, about two/three years before retirement, I've decided to go 65% equity with global weighting, and 35% FI just to eliminate some calculations/false precision. My cash percentage part of FI is about 3.5% with no separate emergency fund.
Circle the Wagons
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Re: What is the Most You Would keep in Fixed Income?

Post by Circle the Wagons »

coachd50 wrote: Thu Jun 06, 2024 9:29 am
Circle the Wagons wrote: Thu Jun 06, 2024 9:18 am
coachd50 wrote: Thu Jun 06, 2024 8:45 am
Florida Orange wrote: Thu Jun 06, 2024 7:17 am
dbr wrote: Thu Jun 06, 2024 6:56 am If I had 100x in assets I might well keep 100x in fixed income.
I've thought about doing this. The problem is that fixed income may not keep up with inflation and you may soon find that you no longer have 100 X annual expenses.
Would that really present a problem? If you have 100 years worth of expenses and it drops by HALF, you have 50 years worth of expenses. Unless you are retiring at 30, is that horrible.

That said, it clearly is not optimal, and one would likely be more secure doing something a bit different. But if one has accumulated 100 years worth of expenses, they are probably ok.
If we took a hard look at 100x+ people who failed, I think we'd find the real dangers are situations like: spendy friends and family, quirky expensive collectable habits, divorce, gambling, etc.

Behavioral stuff that has nothing to do with the thread title.

So it would be smart for such a person to focus time and effort over there if minimizing risk.
Valid. I was placing such things as spendy friends, collectable habits, gambling etc. into the expenses.
Yes, unexpected expenses would hurt a plan based on a certain amount of expenses.
I forgot to mention blood-sucking advisors.
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Re: What is the Most You Would keep in Fixed Income?

Post by Broken Man 1999 »

WhitePuma wrote: Wed Jun 05, 2024 7:12 pm Based on these assumptions:

-Fixed income = bonds, cash, I/EE bonds, CD, HYSA, MM funds
-No pension
-Age 45; retirement in 10 years

Please express the amount as a multiple of annual expenses. So for example, 10x.
-Fixed income = 17.4 (multiple of annual expenses).
-Pension taken in lump-sum in August 2015.
-Age 70 for both of us; I retired 2015 and began distributions from my TIRA. My "retirement" was going from full LTD benefits to a lower amount, allowing me to get my pension. DW retired 2008 and started distributions from her TIRA in 2015, and also began receiving her SS benefits in 2015.

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BirdFood
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Re: What is the Most You Would keep in Fixed Income?

Post by BirdFood »

I've been thinking about this. How much I would keep in fixed income depends heavily on how much I have in proportion to how much it would take to produce a full-retirement income floor. (After taking Social Security into account.)

If I look at my money and conclude that with seventy percent of it in predictable fixed income investments (mostly TIPS), I'd have an income floor that will make me comfortable for my entire retirement, then I'll put seventy percent of it in fixed income.

If I look at my money and conclude that there's no way to create that comfortable floor, but forty percent will give me a bare-bones floor for my entire retirement, I'll put in fifty (because if I'm cutting it that fine I want some margin for error) and hope that the remaining fifty in equities will make up the difference.

If I look at my money and conclude that there is no way to create any sufficient floor for my entire retirement, I'll probably still put fifty percent of it in fixed income, splitting my bets.

If twenty percent of my savings would produce an income floor that is comfortable and beyond, then I'll probably put in, oh, thirty percent, and throw the dice with the remaining seventy percent.
Back Dr
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Re: What is the Most You Would keep in Fixed Income?

Post by Back Dr »

We have enough in FI to cover expenses until our age mid 90s...the rest in equities. SWAN is the way to retire stress free financially theoretically.
Retiree mantra: keep your stock allocation below your risk tolerance and do not kid yourself about your risk tolerance.
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Re: What is the Most You Would keep in Fixed Income?

Post by p1db »

I retired in early 2022 at age 54. I currently have 5+ years of current expenses in fixed income entities (I-Bonds, money market funds and Treasury bills).
I will start taking IRA/401k distributions after 3-5 years and I have already converted some of my IRA/401k stock holdings into TIPS to cover the first few years of expenses beyond the first 5 years. I plan to keep converting stock funds into fixed income regularly such that my IRA/401k distributions always come from fixed income.
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AnnetteLouisan
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Re: What is the Most You Would keep in Fixed Income?

Post by AnnetteLouisan »

I keep around 70 percent in FI, heading to 65 percent. Relatedly: What is the difference in risk factors between fixed income and equity funds? I would argue equities are subject to far more risks as described in the prospectuses.

With treasuries, CDs or other highly rated debt you are virtually guaranteed your principal back plus a fixed rate of interest. Your bankruptcy preference is higher than that of equityholders. Your return is predictable and in some cases guaranteed. Whereas with equity you are subject to many more risks including loss of principal. The price is set with FI and there is very little issue around overpaying, timing the market or buying too high or selling low. There are few surprises w FI unless you don’t hold to maturity. I don’t know why FI gets such a bad rap. Yes you may get richer with equities but you also might lose a lot.
Last edited by AnnetteLouisan on Mon Jun 10, 2024 7:42 pm, edited 2 times in total.
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LilyFleur
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Re: What is the Most You Would keep in Fixed Income?

Post by LilyFleur »

WhitePuma wrote: Wed Jun 05, 2024 7:12 pm Based on these assumptions:

-Fixed income = bonds, cash, I/EE bonds, CD, HYSA, MM funds
-No pension
-Age 45; retirement in 10 years

Please express the amount as a multiple of annual expenses. So for example, 10x.
How much of your retirement income will be provided by your Social Security?
Random Poster
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Re: What is the Most You Would keep in Fixed Income?

Post by Random Poster »

WhitePuma wrote: Wed Jun 05, 2024 7:12 pm Based on these assumptions:

-Fixed income = bonds, cash, I/EE bonds, CD, HYSA, MM funds
-No pension
-Age 45; retirement in 10 years

Please express the amount as a multiple of annual expenses. So for example, 10x.
I’m 47. Retired. Wife is 45.

Our actual annual expenses have averaged around $40,000. Maybe a bit less. Maybe a tad more.

Regardless, for investment calculation purposes, I project annual expenses of $62,500, $75,000, and $93,750.

Conveniently, each of those numbers divide evenly into $1,875,000 (as 30 years, 25 years, and 20 years).

So I’ve decided that $1,875,000 is a good fixed income amount for us.

But I also keep at least $65,000 in a checking account, and another $250,000 in cash for a new car purchase, house expenses, and so on.

I don’t know if it is smart, but everything else goes into equities, and I’m slowly trying to get to a 60/40 allocation (or around there, as I’m currently cash heavy and am trying to get down to the $1,875,000 amount).

But even that amount might be too much, because I figure that we will probably always get at least $20,000 in annual dividends, so even if our annual expenses soared, pulling $62,500 from fixed income would still give us too much income, so my calculations are likely a bit conservative.
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Lawrence of Suburbia
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Re: What is the Most You Would keep in Fixed Income?

Post by Lawrence of Suburbia »

... whatever VTHRX has me in.
74% VTHRX/8% DODWX/12% TIAA Traditional/6% SWVXX
coachd50
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Re: What is the Most You Would keep in Fixed Income?

Post by coachd50 »

AnnetteLouisan wrote: Mon Jun 10, 2024 7:20 pm I keep around 70 percent in FI, heading to 65 percent. Relatedly: What is the difference in risk factors between fixed income and equity funds? I would argue equities are subject to far more risks as described in the prospectuses.

With treasuries, CDs or other highly rated debt you are virtually guaranteed your principal back plus a fixed rate of interest. Your bankruptcy preference is higher than that of equityholders. Your return is predictable and in some cases guaranteed. Whereas with equity you are subject to many more risks including loss of principal. The price is set with FI and there is very little issue around overpaying, timing the market or buying too high or selling low. There are few surprises w FI unless you don’t hold to maturity. I don’t know why FI gets such a bad rap. Yes you may get richer with equities but you also might lose a lot.
I think the bad rap comes from individuals who didn't properly match their personal financial needs to their investments. For example, individuals who "needed" (or wanted) the features of a savings account but invested in an intermediate bond fund.

The other negative is fixed income's REAL return as opposed to nominal.
Steven F
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Re: What is the Most You Would keep in Fixed Income?

Post by Steven F »

I think 2 to 3 times your living expenses is about right.
@
You want to keep a stable income stream for living expenses. And then you want extra for unexpected expenses, home, car, repair or unexpected health costs. If you don't spend it all in a year reinvest the excess in more fixed income. To calculate the actual amount of money that must be in the fixed income account Take annual fixed income you want a nd divide it by the average yield of the bond or stockdividend fund you are interested in.

The next question I see if what the ratio of bonds to stocks. Bonds typically pay out monthly, Stock didvidens quarterly. So It might be best to have 50% in bonds and 50% in a stock dividend ETF or mutual fund. Any excess dividends at the end of the year can be reinvested into more bond income, or more stock dividend income, or invested in growth income fund like a total market ETF.

Many people only think of investing is for retirement. But most people should also work in parallel to build up a taxable income account with retirement account. While you are working the taxable account earnings would just be reinvested. The account will probably be 100% in bonds at first and would gradually shift as the account gets close to 1X living expenses and the and then start increasing stock dividend income. However if there is a major disruption in your life, like unemployment, medical disability stop the reinvestments in the taxable income account and tap into the fixed income stream. When you're back at work restart the reinvestments.

Why a stock dividend fund? The earning are the dividend yield plus any stock capital gains In a good dividend fund the stock capital gains will in good companies increase at about the long term average inflation rate of about 3%. The capital gains adjustment will typically lag the the actual inflation rate by a few years. And of course occationally the capital gains will be faster than inflation. So if you unexpenedly need more income than the yield provides you could sell some shares to copensate. Stocks have more risk than bonds but less risk than a growth fund with with little to no yield.
Last edited by Steven F on Wed Jun 12, 2024 3:24 pm, edited 2 times in total.
solarcub
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Re: What is the Most You Would keep in Fixed Income?

Post by solarcub »

I just can’t stomach the idea of more than 10x, but right now I don’t know what my x will be, so I just do 70/30.
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FoundingFather
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Re: What is the Most You Would keep in Fixed Income?

Post by FoundingFather »

I am 80/20, still ~25 years from retirement. My situation is so different from yours that I don't mean to give you any advice, just to reflect on my own preferences. I plan to keep 80/20 throughout both accumulation stage and retirement, and hope for my fixed income to hit 10x expenses, give or take. Assuming that social security exists for us, I would probably cap fixed income at 10-20x expenses, though whether it is 10 or 20 will depend a lot on how reluable our spending and budget in retirement are. As I said, still a long ways away.

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