Help me resist moving Bond allocation to Cash

[Ret2018]

Greetings,

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.



Cheers

I absolutely understand how you're feeling/thinking. FWIW, we're both nearing retirement in the next 6-12 months. We looked at our investments and felt we had "enough" and did not need to "grow" more, just protect what we have. We sold all our shares in US and international bond funds; re-deployed those dollars to I bonds and a twenty year TIPS ladder; and used the capital losses on the bond funds to cover capital gains elsewhere. That left about 50% of our portfolio in stock funds and 50% backed by the US government.

I sleep better at night knowing that even if/when the stock market crashes, we've got 50% of our assets in inflation protected, relatively secure investments. And I figure if the US Treasury goes belly up, we've got bigger problems to worry about.

Hope you find the solution that's best for you.

[monkeytoad]

I don't think it's possible to meaningfully consider your question, without knowing more specifics, TBH. If your 50/50 is 1B$ each, or 100K$ each, the answer could change 180 degrees.

[HomerJ]

Greetings,

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.

What's interesting is that I think the fixed-income side needs to MORE diversified than the stock side.

I think it's important to duration match your fixed-income assets.

Nothing wrong with cash right now (money-markets). They are still paying around 5%. And you could lose your job, or decide to retire, and so you need some short duration money like cash so that you don't have to worry about huge fluctuations.

I'm close to your age, close to retirement, my asset allocation is currently around 50/50 as well.

I have the fixed-income side divided like so:

• 20% in money-markets (short-term nominal)
• 20% in short-term TIPs bond fund (short-term inflation-protected) - this is in a 401k with no good bond offerings - I'd rather have this in individual TIPs bonds.
• 30% in Total Bond Market (intermediate-term nominal)
• 30% in I-Bonds and intermediate TIPS individual bonds (intermediate term inflation-protected)

I personally would not recommend long-term bonds. I consider the stock side to be the long-term investment. But that's just me.

[Jeepergeo]

Greetings,

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.

Cheers

The future is always uncertain. Perhaps it is time to revisit your personal investment statement and your desired asset allocation and adjust the AA to where you are comfortable with that future uncertainty.

[BigSky777]

Greetings,

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.



Cheers

I absolutely understand how you're feeling/thinking. FWIW, we're both nearing retirement in the next 6-12 months. We looked at our investments and felt we had "enough" and did not need to "grow" more, just protect what we have. We sold all our shares in US and international bond funds; re-deployed those dollars to I bonds and a twenty year TIPS ladder; and used the capital losses on the bond funds to cover capital gains elsewhere. That left about 50% of our portfolio in stock funds and 50% backed by the US government.

I sleep better at night knowing that even if/when the stock market crashes, we've got 50% of our assets in inflation protected, relatively secure investments. And I figure if the US Treasury goes belly up, we've got bigger problems to worry about.

Hope you find the solution that's best for you.

Thank you for the response. I will explore the tips ladder idea.

[BigSky777]

I don't think it's possible to meaningfully consider your question, without knowing more specifics, TBH. If your 50/50 is 1B$ each, or 100K$ each, the answer could change 180 degrees.

2 MM each

[upwind]

I can only share my personal viewpoint; it shouldn’t be considered prudent or optimal investment advice. Good chance you should be advising us.

That said. If essentially everything you have that isn’t in stocks is in open end bond funds and that makes you uncomfortable I don’t think it is unreasonable to change it up. But don’t do it because of what you expect or fear will happen. Do it because you realize you don’t know what will happen and seek flexibility. Personally I wouldn’t move the entire position to cash but who am I to say? But I also wouldn’t hold it all in open end bond funds.

I don’t think of my investments in terms of stocks vs bonds. I think in terms of equities vs non-equities. I deliberately seek diversification in type and term of non-equities. There is a chunk in I bonds, which I don’t really count as bonds. A chunk in intermediate total market and treasury bond funds. Some in individual treasuries and CDs; various lengths but mostly on the shorter end. Then some in MM for immediate access. Hopefully on the whole the result is a flexible resilient portfolio even if unlikely to prove optimal performing.

[Lookingforanswers]

What's interesting is that I think the fixed-income side needs to MORE diversified than the stock side.

I think it's important to duration match your fixed-income assets.

[*]20% in money-markets (short-term nominal)
[*]20% in short-term TIPs bond fund (short-term inflation-protected)
[*]30% in Total Bond Market (intermediate-term nominal)
[*]30% in I-Bonds and intermediate TIPS individual bonds (intermediate term inflation-protected)


I personally would not recommend long-term bonds. I consider the stock side to be the long-term investment. .

This is wise advice, in my opinion.

Over time, I've gotten pretty comfortable with simple equities allocations, but the multiple tradeoffs on the fixed income side have made me comfortable with a bit of diversity here. The events of 2022 made me even more nervous about holding all my fixed income investments in a single intermediate-term bond fund. I had a mix going into 2022 (something like this list above), and was glad I did. My only difference is that I don't buy a lot of individual bonds -- I prefer TIPS funds to TIPS ladders, no matter the duration.

In your case, I wouldn't switch from bonds to cash. I would consider something like a year or two in cash; 3 to 5 years expenses in a short term TIPS fund (like STIP or VTIP) and the rest can stay in your existing intermediate term bond fund.

[BigSky777]

I can only share my personal viewpoint; it shouldn’t be considered prudent or optimal investment advice. Good chance you should be advising us.

That said. If essentially everything you have that isn’t in stocks is in open end bond funds and that makes you uncomfortable I don’t think it is unreasonable to change it up. But don’t do it because of what you expect or fear will happen. Do it because you realize you don’t know what will happen and seek flexibility. Personally I wouldn’t move the entire position to cash but who am I to say? But I also wouldn’t hold it all in open end bond funds.

I don’t think of my investments in terms of stocks vs bonds. I think in terms of equities vs non-equities. I deliberately seek diversification in type and term of non-equities. There is a chunk in I bonds, which I don’t really count as bonds. A chunk in intermediate total market and treasury bond funds. Some in individual treasuries and CDs; various lengths but mostly on the shorter end. Then some in MM for immediate access. Hopefully on the whole the result is a flexible resilient portfolio even if unlikely to prove optimal performing.

Appreciate the response and advice. Happy Thanksgiving!!

[watchnerd]

Greetings,

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.



Cheers

If you're concerned about inflation and interest rates going up again, maybe a short term TIPS fund like VTIP.

[monkeytoad]

I don't think it's possible to meaningfully consider your question, without knowing more specifics, TBH. If your 50/50 is 1B$ each, or 100K$ each, the answer could change 180 degrees.

2 MM each

With a liquid portfolio half of your size, I have a drastically reduced short-term government bond allocation (25%), and the rest in stocks (both ETFs).

[BirdFood]

Another vote for considering a TIPS ladder.

[jimkinny]

Greetings,

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.



Cheers

This is simple re your concern about inflation: Buy TIPS. There will still be interest rate risks but no inflation risks. Use a money market fund for 1-2 years of cash needs, short term TIPS or the actual Treasury notes and for money needed in years 2-5 and a intermediate TIPS or notes fund for money needed in the 6+ years. You still have interest rate risks but my guess is that politicians and the Federal Reserve have learned a lesson about inflation during 2021-2023. You are allowed to have more cash, if that helps you sleep. Or more ST bonds. The reality for me is I am old now, well into retirement. My need, ability and willingness to take risk has changed over the years. My ability to take risk in terms of age is greatly diminished and so is my need to take risk. I got burned in 2008/2009. I wanted to retire at 62 and had 70/30 stocks/bonds and lost half of the 70% in six months. I worked longer. Do not make a rash decision but evaluate your need, ability and willingness to take risks.

[dcabler]

Greetings,

I am 60yo still working with a 50/50 portfolio. My bond allocation is in Fidelity FXNAX. The uncertainty of future inflation, tariffs, etc has me concerned enough that I'm considering moving bond allocation to cash, like FZDXX. I understand long term intermediate bonds beat cash. Trying to stay the course but struggling to do so. Bogleheads, any advice appreciated.

What's interesting is that I think the fixed-income side needs to MORE diversified than the stock side.

I think it's important to duration match your fixed-income assets.

Nothing wrong with cash right now (money-markets). They are still paying around 5%. And you could lose your job, or decide to retire, and so you need some short duration money like cash so that you don't have to worry about huge fluctuations.

I'm close to your age, close to retirement, my asset allocation is currently around 50/50 as well.

I have the fixed-income side divided like so:

• 20% in money-markets (short-term nominal)
• 20% in short-term TIPs bond fund (short-term inflation-protected) - this is in a 401k with no good bond offerings - I'd rather have this in individual TIPs bonds.
• 30% in Total Bond Market (intermediate-term nominal)
• 30% in I-Bonds and intermediate TIPS individual bonds (intermediate term inflation-protected)

I personally would not recommend long-term bonds. I consider the stock side to be the long-term investment. But that's just me.

Depending on your age, the two highlighted statements are contradictory. If you're duration matching your bonds and you have a lot of runway left you're going to have long bonds, whether you're holding individual bonds or duration matching with bond funds.

[BigSky777]

What's interesting is that I think the fixed-income side needs to MORE diversified than the stock side.

I think it's important to duration match your fixed-income assets.

[*]20% in money-markets (short-term nominal)
[*]20% in short-term TIPs bond fund (short-term inflation-protected)
[*]30% in Total Bond Market (intermediate-term nominal)
[*]30% in I-Bonds and intermediate TIPS individual bonds (intermediate term inflation-protected)


I personally would not recommend long-term bonds. I consider the stock side to be the long-term investment. .

This is wise advice, in my opinion.

Over time, I've gotten pretty comfortable with simple equities allocations, but the multiple tradeoffs on the fixed income side have made me comfortable with a bit of diversity here. The events of 2022 made me even more nervous about holding all my fixed income investments in a single intermediate-term bond fund. I had a mix going into 2022 (something like this list above), and was glad I did. My only difference is that I don't buy a lot of individual bonds -- I prefer TIPS funds to TIPS ladders, no matter the duration.

In your case, I wouldn't switch from bonds to cash. I would consider something like a year or two in cash; 3 to 5 years expenses in a short term TIPS fund (like STIP or VTIP) and the rest can stay in your existing intermediate term bond fund.

May I ask why you prefer the tips funds over tips ladder?

[jimkinny]

I think it does pretty much the same thing and is just easier. Some prefer to know at a certain date, their bond will mature and they can use it for the next year.
With a money market, ST TIPS and IT TIPS, I do not care if in my ST tips fund is down a bit when I take some money out. I think many folks got burnt by the interest rate hikes of 2022 and 2023 and the inflation of those years. There is no problem with a ladder, it may be better, for me I do not want top bother and it is not all that hard.

[Lookingforanswers]

The OP asked: May I ask why you prefer the tips funds over tips ladder?


There are countless posts here about this, pros and cons. My personal reasons on why I like a bond fund, including when I buy TIPS:


1. It's simpler. Paying pros a tiny fee to manage a basket of TIPS is worth it to me.

2. Tax reporting. I don't have enough room in my retirement accounts to hold all the bonds I want to own, so I hold some TIPS in taxable accounts. I find dealing with the tax reporting of individual bonds more complex than holding bonds in ETFs, so in my opinion holding a bond ETF is aligned with the Bogleheads philosophy of "keep things simple."

3. Duration risk. I focus a lot on tracking the overall duration of my bond and cash holdings. One way to think about risk is the quality of the bond issuer (government vs treasury vs govt agency vs municipal issuer). But a really big way to think about risk is looking at your duration -- the more duration risk you accept, the more the current value of your holdings will be impacted by interest rate changes.

When I've put together "sandbox" versions of a TIPS ladder I might build, the duration tends to get much longer than I'm comfortable with when I stretch it out to multiple years. Yes, I know the point of the ladder is that eventually the bonds will be redeemed at face value, and if you wait until they mature you'll be OK. But you're still taking duration risk if you build a 20- or 30-year bond ladder and you need to take withdrawals earlier than you planned. Or if you need to stay calm when interest rates spike. So, I limit my duration risk by not holding any bond funds with a duration over 6 or 7. (Instead of taking duration risk, I'd rather take risk in equities, so I lean a bit harder into stocks than other might, but not by an extreme amount)

4. Experience with the way my brain reacts to interest rate fluctuations. A key to a personal investment strategy is making sure you can live with it. I've been watching myself react to interest rate changes for a number of years now and I find that I'm OK with watching my interim-term bond funds drop in value as long as I'm holding a reasonable cushion in cash and short-term TIPS fund, which react in different ways to the combination of interest rate changes and inflation changes. I know this is the reason that many people advocate to hold a TIPS ladder -- but, again, the duration of a long ladder makes me nervous. In the middle of a short-term mess, I can look at the short-, medium- and long-term returns of my holdings, and I think a mix of short-term TIPS funds and Interim bond funds seems OK.

[HomerJ]

I would consider something like a year or two in cash; 3 to 5 years expenses in a short term TIPS fund (like STIP or VTIP) and the rest can stay in your existing intermediate term bond fund.

I think that's good advice for anyone close to retirement.

[HomerJ]

What's interesting is that I think the fixed-income side needs to MORE diversified than the stock side.

I think it's important to duration match your fixed-income assets.

Nothing wrong with cash right now (money-markets). They are still paying around 5%. And you could lose your job, or decide to retire, and so you need some short duration money like cash so that you don't have to worry about huge fluctuations.

I'm close to your age, close to retirement, my asset allocation is currently around 50/50 as well.

I have the fixed-income side divided like so:

• 20% in money-markets (short-term nominal)
• 20% in short-term TIPs bond fund (short-term inflation-protected) - this is in a 401k with no good bond offerings - I'd rather have this in individual TIPs bonds.
• 30% in Total Bond Market (intermediate-term nominal)
• 30% in I-Bonds and intermediate TIPS individual bonds (intermediate term inflation-protected)

I personally would not recommend long-term bonds. I consider the stock side to be the long-term investment. But that's just me.

Depending on your age, the two highlighted statements are contradictory. If you're duration matching your bonds and you have a lot of runway left you're going to have long bonds, whether you're holding individual bonds or duration matching with bond funds.

Well, I tried to explain it in the very next sentence. Stocks are long-term investments in my mind.

Short-term cash/bonds for short-term spending needs right after I retire, if stocks aren't doing well.
Intermediate-term cash/bonds for intermediate-term spending needs later on after I retire, if stocks aren't doing well.
I expect, by the time long-term spending needs show up, stocks will have done well.

I could be wrong, but that's why I don't see much need for long-term bonds.