Age in Bonds - Still Recommended?

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columbia
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Re: Age in Bonds - Still Recommended?

Post by columbia » Sun Sep 16, 2018 7:37 am

I think it’s a perfectly reasonable choice to follow this glide path; switch to a 30/70 target fund or Wellesley Income around 70 and stay there for the duration.

dogagility
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Re: Age in Bonds - Still Recommended?

Post by dogagility » Sun Sep 16, 2018 7:52 am

bogglizer wrote:
Sat Sep 15, 2018 7:46 pm
TravelforFun wrote:
Fri Sep 14, 2018 6:58 pm
I guess I'm the only one on this forum who doesn't care about AA. I keep 10 years worth of annual expenses in bonds, CDs, money market, and savings, and the rest is in stock regardless of the %.

TravelforFun
This is a classic example of "asking the right question first." Everyone analyzes the case of a portfolio as a fraction of stocks and bonds. They forget to first ask if viewing portfolio elements as fraction is even a good idea in general. Here is a good example of someone who came up with a completely different allocation question, and settled on 10 years of fixed income, not a fraction. We could all be arguing if 10 years is appropriate instead, and never think of fractions.
Bingo... we have a winner!

There are so many disparate answers to a single question on this forum because people view the question differently, have different investment goals, are in different life stages, have adifferent psychology around the potential to see their portfolio decrease in value and being able to stay the course, have different views on the implications of the dreaded "50% decrease" in stock valuations, etc, etc. A person really has to read behind the lines of each post and consider their own views on big picture questions in relationship to the poster's perceived views.

hudson
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Taylor Larimore Recommendation From May 2016

Post by hudson » Sun Sep 16, 2018 8:04 am

I have a simple asset-allocation in retirement:
The money I cannot afford to lose is in fixed-income. The rest is in stock funds.


viewtopic.php?p=2909645#p2909645

bmelikia
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Re: Age in Bonds - Still Recommended?

Post by bmelikia » Sun Sep 16, 2018 9:02 am

HEDGEFUNDIE wrote:
Sat Sep 15, 2018 12:54 am
bmelikia wrote:
Sat Sep 15, 2018 12:33 am
I remember when the conversation on here during 2009/2010 was about how 60/40 was a good all weather portfolio- now the discussion is about how unnecessary (or rather minimal) a bond position is/should be in making up ones portfolio-just an observation

Anyone else remember this?
bargainhuntingking wrote:
Sat Sep 15, 2018 12:50 am
Wait until your first market correction/recession like the one that occurred in 2008-2009. Age in bonds will suddenly become popular again.
The real question is, when the next crash comes, will those who have tilted their AA heavy into equities still be left with more than those who were conservative the whole time and missed out on the bull market?
I don’t see how sticking to ones asset allocation is deemed having “missed out on the bull market”

You’re presenting a very philosophical example because you’ve described a portfolio that was not panic sold during the next downturn - which no one knows when that will happen, nor the severity of it when it does come knocking

So the “real questions” I see are the following:

1) When did this fictitious person start going equity heavy?
2) Will this fictitious person hold and not panic sell during the next downturn?
3) Who will have the greatest likelihood of success over a 20+ year investment period? (most important question)
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle

bmelikia
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Re: Age in Bonds - Still Recommended?

Post by bmelikia » Sun Sep 16, 2018 9:16 am

willthrill81 wrote:
Sat Sep 15, 2018 11:42 am
HEDGEFUNDIE wrote:
Sat Sep 15, 2018 12:54 am
bmelikia wrote:
Sat Sep 15, 2018 12:33 am
I remember when the conversation on here during 2009/2010 was about how 60/40 was a good all weather portfolio- now the discussion is about how unnecessary (or rather minimal) a bond position is/should be in making up ones portfolio-just an observation

Anyone else remember this?
bargainhuntingking wrote:
Sat Sep 15, 2018 12:50 am
Wait until your first market correction/recession like the one that occurred in 2008-2009. Age in bonds will suddenly become popular again.
The real question is, when the next crash comes, will those who have tilted their AA heavy into equities still be left with more than those who were conservative the whole time and missed out on the bull market?
Considering that stocks have roughly quadrupled in the last 9.5 years while bonds have had very meager returns, it would take a market correction on the order of the Great Depression at least for the stock-tilted investor to not come out ahead. And if bonds reacted the same way as they did in the Great Depression (~50% decline), the bond investor would still be behind.
When I look in the rear view mirror I can tell you what’s behind me too. . .

What if the history of the last 9.5 years would have been different?

Who knew the stock market was going to quadruple? What if it had gone the other way just as equally?

I’m 70% stocks/30% bonds so I feel like I have been a significant beneficiary of the recent bull market - but I don’t think that myself, nor anyone with a higher equity position should be praising themselves for a job well done. Be thankful for the gains that the market has provided to this point-but stay humble. . .if you don’t, the market will do it for you
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle

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Sandtrap
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Re: Age in Bonds - Still Recommended?

Post by Sandtrap » Sun Sep 16, 2018 9:22 am

BogleMelon wrote:
Sat Sep 15, 2018 2:54 pm
My asset allocation is related to my financial goals not to my age. The more I get closer to my goal, the more my allocation becomes conservative. Why would I take risk if I don't need to?
+1
Well said.
:D

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Sandtrap
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Re: Taylor Larimore Recommendation From May 2016

Post by Sandtrap » Sun Sep 16, 2018 9:25 am

hudson wrote:
Sun Sep 16, 2018 8:04 am
I have a simple asset-allocation in retirement:
The money I cannot afford to lose is in fixed-income. The rest is in stock funds.


viewtopic.php?p=2909645#p2909645
Outstanding!
Thanks for posting the link.
This is what I adhere to.
j :D

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willthrill81
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Re: Age in Bonds - Still Recommended?

Post by willthrill81 » Sun Sep 16, 2018 9:39 am

bmelikia wrote:
Sun Sep 16, 2018 9:16 am
willthrill81 wrote:
Sat Sep 15, 2018 11:42 am
HEDGEFUNDIE wrote:
Sat Sep 15, 2018 12:54 am
bmelikia wrote:
Sat Sep 15, 2018 12:33 am
I remember when the conversation on here during 2009/2010 was about how 60/40 was a good all weather portfolio- now the discussion is about how unnecessary (or rather minimal) a bond position is/should be in making up ones portfolio-just an observation

Anyone else remember this?
bargainhuntingking wrote:
Sat Sep 15, 2018 12:50 am
Wait until your first market correction/recession like the one that occurred in 2008-2009. Age in bonds will suddenly become popular again.
The real question is, when the next crash comes, will those who have tilted their AA heavy into equities still be left with more than those who were conservative the whole time and missed out on the bull market?
Considering that stocks have roughly quadrupled in the last 9.5 years while bonds have had very meager returns, it would take a market correction on the order of the Great Depression at least for the stock-tilted investor to not come out ahead. And if bonds reacted the same way as they did in the Great Depression (~50% decline), the bond investor would still be behind.
When I look in the rear view mirror I can tell you what’s behind me too. . .

What if the history of the last 9.5 years would have been different?

Who knew the stock market was going to quadruple? What if it had gone the other way just as equally?

I’m 70% stocks/30% bonds so I feel like I have been a significant beneficiary of the recent bull market - but I don’t think that myself, nor anyone with a higher equity position should be praising themselves for a job well done. Be thankful for the gains that the market has provided to this point-but stay humble. . .if you don’t, the market will do it for you
No one knew anything, and the market certainly could have had a much longer road to recovery. But let's not forget either that over long periods of time (>20 years), bonds have been riskier than stocks from the standpoint of simply maintaining buying power (i.e. real dollars). TIPS are a different animal but are not quite the universally guaranteed positive real return instrument that many believe them to be.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

HEDGEFUNDIE
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Re: Age in Bonds - Still Recommended?

Post by HEDGEFUNDIE » Sun Sep 16, 2018 10:53 am

Here’s one way to look at this question objectively. How do the major Target Date Funds set their AAs? After all the audience for these products is the middle-of-the-road investor with average risk tolerance. What do the experts think is an equity exposure necessary to grow in the accumulation phase?

I looked up the following target date fund families; here is the final year that the fund uses 90/10:

Vanguard: 2045
Fidelity Freedom: 2040
Morningstar Moderate: 2040
Blackrock Lifepath: 2045

2040 retirement means the investor is currently in his/her 40s, which means a recommended AA of 100/0 to 90/10 for ~20 years. Remember this is what they consider appropriate for the “average” investor.

One interpretation could be that all these funds are crazy and not serving their customers well. But maybe, just maybe, this is the amount and duration of equity exposure that it takes for a successful accumulation phase?

Dandy
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Re: Age in Bonds - Still Recommended?

Post by Dandy » Sun Sep 16, 2018 1:11 pm

I have a simple asset-allocation in retirement:
The money I cannot afford to lose is in fixed-income. The rest is in stock funds.
Nice general thought. There is still some work/debate about how to determine "the money I can't afford to lose".

Wm. Bernstein recommends, for those who have enough, to put 20-25 years worth of draw down needed in "safe" products e.g. individual tips, short term treasuries, CDs etc. (full disclosure I have 20+ years of draw down in fixed income)

I don't see many Bogheads signing up for that level of fixed income. Or that determine fixed income needs first and the rest in equities.

Some are ok with 5 years worth of draw down needs. Figuring any equity correction would be recovered by then? If so, are you living off the fixed income and not rebalancing?

So, for those who follow putting the money you can't afford to lose in fixed income how was that amount determined? and will you rebalance? Is that calculation different in retirement vs the accumulation phase? In retirement Bernstein's method seemed to make sense.

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willthrill81
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Re: Age in Bonds - Still Recommended?

Post by willthrill81 » Sun Sep 16, 2018 1:20 pm

Dandy wrote:
Sun Sep 16, 2018 1:11 pm
I have a simple asset-allocation in retirement:
The money I cannot afford to lose is in fixed-income. The rest is in stock funds.
Nice general thought. There is still some work/debate about how to determine "the money I can't afford to lose".

Wm. Bernstein recommends, for those who have enough, to put 20-25 years worth of draw down needed in "safe" products e.g. individual tips, short term treasuries, CDs etc. (full disclosure I have 20+ years of draw down in fixed income)

I don't see many Bogheads signing up for that level of fixed income. Or that determine fixed income needs first and the rest in equities.

Some are ok with 5 years worth of draw down needs. Figuring any equity correction would be recovered by then? If so, are you living off the fixed income and not rebalancing?

So, for those who follow putting the money you can't afford to lose in fixed income how was that amount determined? and will you rebalance? Is that calculation different in retirement vs the accumulation phase? In retirement Bernstein's method seemed to make sense.
You have hit upon what I see as one of the biggest drawbacks of a bucket strategy: the details, of which there are many. How will you determine how much goes in each bucket? How will you determine how each bucket is allocated? When will you draw from which bucket? How will you replenish the buckets? These are important details, and I believe that most are just 'winging it', which opens the door for all sorts of behavioral problems. Further, unless you're willing to implement a dynamic AA approach, which is arguably a crude form of market timing, there is absolutely no difference between a bucketed strategy and simply maintaining a fixed AA.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

helloeveryone
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Re: Age in Bonds - Still Recommended?

Post by helloeveryone » Sun Sep 16, 2018 1:30 pm

Jordan4FI wrote:
Fri Sep 14, 2018 11:11 am
As long as your return can support your needs, that is what AA I go for. I will FIRE early (40yrs old), and my put myself in the Vanguard LifeStrategy Fund 40/60, because even a 5% (edit) return average each year would give me just what I need and some left over for fun... and when the 8-12% years come, that is so much extra $$ to re-invest or put aside in another investment vehicle. I would prefer to have a lower steady return, than go for the big 15%+ return at the risk of the big 30%+ drop.. although at 40/60, in a real bad year I could see a heavy hit..

EDIT** and when and if SS is still avail to me in 2046, my SS will be fixed income also, so I will then up my stock %.

2nd EDIT** I will be living in Thailand, where I can always live on less than 10K a year if I really really needed to to wait out a downturn that was lasting a few years...
does 8-12% years refer to when the market returns are that high?

Dandy
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Re: Age in Bonds - Still Recommended?

Post by Dandy » Sun Sep 16, 2018 1:42 pm

You have hit upon what I see as one of the biggest drawbacks of a bucket strategy: the details, of which there are many. How will you determine how much goes in each bucket? How will you determine how each bucket is allocated? When will you draw from which bucket? How will you replenish the buckets? These are important details, and I believe that most are just 'winging it', which opens the door for all sorts of behavioral problems. Further, unless you're willing to implement a dynamic AA approach, which is arguably a crude form of market timing, there is absolutely no difference between a bucketed strategy and simply maintaining a fixed AA.
First I don't have a bucket strategy and I don't think that is what Dr. Bernstein recommends. I agree that the bucket strategy is too complex. Instead of making a top down allocation approach e.g. is 60/40 the right allocation for me? I looked at what draw down dollars do I need each year to support my current lifestyle.

Ok, I'll put 20 years worth of that money in "safe" fixed income and the rest in equities and intermediate fixed income. No movement of money needed. I have a "safe" portfolio and a "risk" portfolio. I determined my overall allocation by primarily determining the minimum "safe" fixed income I needed first.

In my mind there is a difference. My "safe" portfolio is my primary focus. That is the money I can't afford to lose. I will make sure it is properly funded to account for inflation, expense creep, etc. I won't use that money for rebalancing. When it comes to actually withdrawing money for living expense I have and will take some money from the "risk" portfolio when it does well and only from the "safe" portfolio if the "risk" portfolio does poorly.

To me this is what putting the money you can't afford to lose in fixed income really means. I take it to a safer level by even excluding my intermediate fixed income, which is not really that necessary.

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Re: Age in Bonds - Still Recommended?

Post by Dead Man Walking » Sun Sep 16, 2018 1:59 pm

I wonder if the responses would be different if this question were asked in the 1970's.

DMW

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willthrill81
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Re: Age in Bonds - Still Recommended?

Post by willthrill81 » Sun Sep 16, 2018 2:21 pm

Dandy wrote:
Sun Sep 16, 2018 1:42 pm
You have hit upon what I see as one of the biggest drawbacks of a bucket strategy: the details, of which there are many. How will you determine how much goes in each bucket? How will you determine how each bucket is allocated? When will you draw from which bucket? How will you replenish the buckets? These are important details, and I believe that most are just 'winging it', which opens the door for all sorts of behavioral problems. Further, unless you're willing to implement a dynamic AA approach, which is arguably a crude form of market timing, there is absolutely no difference between a bucketed strategy and simply maintaining a fixed AA.
First I don't have a bucket strategy and I don't think that is what Dr. Bernstein recommends. I agree that the bucket strategy is too complex. Instead of making a top down allocation approach e.g. is 60/40 the right allocation for me? I looked at what draw down dollars do I need each year to support my current lifestyle.

Ok, I'll put 20 years worth of that money in "safe" fixed income and the rest in equities and intermediate fixed income. No movement of money needed. I have a "safe" portfolio and a "risk" portfolio. I determined my overall allocation by primarily determining the minimum "safe" fixed income I needed first.

In my mind there is a difference. My "safe" portfolio is my primary focus. That is the money I can't afford to lose. I will make sure it is properly funded to account for inflation, expense creep, etc. I won't use that money for rebalancing. When it comes to actually withdrawing money for living expense I have and will take some money from the "risk" portfolio when it does well and only from the "safe" portfolio if the "risk" portfolio does poorly.

To me this is what putting the money you can't afford to lose in fixed income really means. I take it to a safer level by even excluding my intermediate fixed income, which is not really that necessary.
So you do separate withdrawals from your 'safe' and 'risk' portfolios?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

bmelikia
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Re: Age in Bonds - Still Recommended?

Post by bmelikia » Sun Sep 16, 2018 2:42 pm

willthrill81 wrote:
Sun Sep 16, 2018 9:39 am
bmelikia wrote:
Sun Sep 16, 2018 9:16 am
willthrill81 wrote:
Sat Sep 15, 2018 11:42 am
HEDGEFUNDIE wrote:
Sat Sep 15, 2018 12:54 am
bmelikia wrote:
Sat Sep 15, 2018 12:33 am
I remember when the conversation on here during 2009/2010 was about how 60/40 was a good all weather portfolio- now the discussion is about how unnecessary (or rather minimal) a bond position is/should be in making up ones portfolio-just an observation

Anyone else remember this?
bargainhuntingking wrote:
Sat Sep 15, 2018 12:50 am
Wait until your first market correction/recession like the one that occurred in 2008-2009. Age in bonds will suddenly become popular again.
The real question is, when the next crash comes, will those who have tilted their AA heavy into equities still be left with more than those who were conservative the whole time and missed out on the bull market?
Considering that stocks have roughly quadrupled in the last 9.5 years while bonds have had very meager returns, it would take a market correction on the order of the Great Depression at least for the stock-tilted investor to not come out ahead. And if bonds reacted the same way as they did in the Great Depression (~50% decline), the bond investor would still be behind.
When I look in the rear view mirror I can tell you what’s behind me too. . .

What if the history of the last 9.5 years would have been different?

Who knew the stock market was going to quadruple? What if it had gone the other way just as equally?

I’m 70% stocks/30% bonds so I feel like I have been a significant beneficiary of the recent bull market - but I don’t think that myself, nor anyone with a higher equity position should be praising themselves for a job well done. Be thankful for the gains that the market has provided to this point-but stay humble. . .if you don’t, the market will do it for you
No one knew anything, and the market certainly could have had a much longer road to recovery. But let's not forget either that over long periods of time (>20 years), bonds have been riskier than stocks from the standpoint of simply maintaining buying power (i.e. real dollars). TIPS are a different animal but are not quite the universally guaranteed positive real return instrument that many believe them to be.
My reason for advocating for the use of bonds was not because I interpret them as being without risk (regardless of that risk being greater than or less than stocks) - I do, however, see them as being an integral part of a diversified portfolio
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle

Snowjob
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Re: Age in Bonds - Still Recommended?

Post by Snowjob » Sun Sep 16, 2018 2:54 pm

Dandy wrote:
Sun Sep 16, 2018 6:58 am
If you lost your job in 2008, your not going all in on equity in 2009.
That happened to me in April of 2008 at age 60. I went from having enough for a nice retirement to not having enough and facing up to a 30 year retirement. Jobs of any kind were not available. When you are 60 most of your job related contacts e.g. former bosses are retired or at this time lost their job. My allocation was a bit less aggressive than 60/40. My pension was tied to a firm that was rumored to be going out of business a la Lehman.

I had a paid off house and no other debts and retiree health insurance. I just started a pension (from the firm rumored to be failing). So, I was luckier than most and I can tell you it was a hellish time despite those advantages. While the equity market recovery was rather quick there was no guarantees that that would occur.

I can't imagine if I didn't have a pension or health insurance, had a mortgage and/or kids at home, or didn't still have a decent portfolio with a decent fixed income allocation. I saw the 2000 "correction" as a buying opportunity but not 2008. Later, in 2009, I started adding to my equities. I saw 2008 as a battle for survival.
I think these stories are both a teaching moment and a valuable reminder for those who are over exposing themselves to equity. Thanks for sharing, glad it all worked out!!

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Re: Age in Bonds - Still Recommended?

Post by Dandy » Sun Sep 16, 2018 6:47 pm

So you do separate withdrawals from your 'safe' and 'risk' portfolios?
I don't have a single account with all "safe' assets and another with all "risk" assets.

My withdrawals now are my RMD. My TIRA is about 20/80 with all the equities and most intermediate bonds tied up in the Balanced Index and Wellesley Income Funds. There is also CDs and short term bond funds. Since the equity market was good I took my 1st RMD proportionately from all funds (they don't touch the CDs). If the equity market had done poorly I would take the whole RMD from short term bond funds and Money Market.

I have "safe" assets in our joint taxable account e.g. Ltd Term Tax exempt and in my wife's Roth e.g. Short Term Investment Grade. So wherever I have investment money I have both "risk" and "safe" assets. I have bank assets which are all "safe".

I just make sure there is enough "safe" money somewhere that it will last 20 years (actually to age 90).

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Re: Age in Bonds - Still Recommended?

Post by BogleBoogie » Sun Sep 16, 2018 6:53 pm

willthrill81 wrote:
Fri Sep 14, 2018 10:45 am
michaeljc70 wrote:
Fri Sep 14, 2018 9:55 am
I've never believed in that. Why would someone 25 years old retiring in 40 years have 25% in bonds? Makes no sense to me.
I concur.

Actually, apart from an individual investor's risk tolerance, there's no good reason I've heard of yet as to why fixed income is necessary at all for people who are 20+ years from retirement.
Here are some posts on why someone would want 25% in bonds...

viewtopic.php?t=238065

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Re: Age in Bonds - Still Recommended?

Post by bluerafters » Sun Sep 16, 2018 7:06 pm

Having just read this entire thread I'm going to take a long walk and think about this. I really do love the discussions on this board.

The only thing two things I know for certain is that there will be another downturn, at some point, and that I don't know enough, ever, so I have to keep learning. At that point, I would very much like to have the assets to take advantage of said downturn, read: buying opportunity. If I have to sacrifice some returns of my assets to set this up? I'm comfortable playing a longer game at 41. I'm 60/40 at this point having just reallocated my 401k to more bonds. I'm very happy with the returns I've made of the last 8 years.

But. I have zero idea how you would be comfortable, today, at 90/10, 80/20??

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Taylor Larimore
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Re: Age in Bonds - Still Recommended?

Post by Taylor Larimore » Sun Sep 16, 2018 7:28 pm

HEDGEFUNDIE wrote:
Fri Sep 14, 2018 5:45 pm
I am kind of stunned by the number of people here who are admitting to holding no bonds. I am one of them, but I never expected there to be so many of us.
HEDGEFUNDIE:

We have been in a long-term bull market for stocks when many of us wish we held 100% stocks.

After suffering during a long-term bear market many of us wish we held 100% bonds.

I suggest structuring a long-term personal investment plan--then stay-the-course.

Use this Vanguard Investment Questionnaire for help.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Age in Bonds - Still Recommended?

Post by HEDGEFUNDIE » Sun Sep 16, 2018 7:29 pm

Taylor Larimore wrote:
Sun Sep 16, 2018 7:28 pm
HEDGEFUNDIE wrote:
Fri Sep 14, 2018 5:45 pm
I am kind of stunned by the number of people here who are admitting to holding no bonds. I am one of them, but I never expected there to be so many of us.
HEDGEFUNDIE:

We have been in a long-term bull market for stocks when many of us wish we held 100% stocks.

After suffering during a long-term bear market many of us wish we held 100% bonds.

I suggest structuring a long-term personal investment plan--then stay-the-course.

Use this Vanguard Investment Questionnaire for help.

Best wishes.
Taylor
Thanks Taylor, as I mentioned in the other thread, I plan to be 100/0 until I hit decumulation, at which point I’ll switch over to 50/50. Staying the course is key to my plan, we are in complete agreement on that.

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Re: Age in Bonds - Still Recommended?

Post by nasrullah » Sun Sep 16, 2018 7:36 pm

TravelforFun wrote:
Fri Sep 14, 2018 6:58 pm
I guess I'm the only one on this forum who doesn't care about AA. I keep 10 years worth of annual expenses in bonds, CDs, money market, and savings, and the rest is in stock regardless of the %.
The 10 year number is my exact target as well. Using 75/25 until I get there and then will be all equities.
"We have a lot to do, and very little time, so we must work slowly." Liviu Ciulei | | Thanks vineviz (https://www.bogleheads.org/forum/memberlist.php?mode=viewprofile&u=134698) for the quote.

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Re: Age in Bonds - Still Recommended?

Post by Taylor Larimore » Sun Sep 16, 2018 7:44 pm

HEDGEFUNDIE and nasrullah:

I think it is dangerous to maintain a 100% stock allocation right up to the day you retire. What happens if we have a bad bear market the year before retiring? Answer: There goes your retirement. :(

It is no accident that ALL target funds decrease their stock allocations before their target retirement dates.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Age in Bonds - Still Recommended?

Post by HEDGEFUNDIE » Sun Sep 16, 2018 7:49 pm

Taylor Larimore wrote:
Sun Sep 16, 2018 7:44 pm
HEDGEFUNDIE and nasrullah:

I think it is dangerous to maintain a 100% stock allocation right up to the day you retire. What happens if we have a bad bear market the year before retiring? Answer: There goes your retirement. :(

It is no accident that ALL target funds decrease their stock allocations before their target retirement dates.

Best wishes.
Taylor
My circumstances inform my plan. If we don’t have a bad bear market in the next ten years I will be able to early retire at the end of those ten years at age 42.

If we do hit a bear market at any point before then I’ll just keep working. I’ll have another 20 years after that to hit my number.

BogleBoogie
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Re: Age in Bonds - Still Recommended?

Post by BogleBoogie » Sun Sep 16, 2018 9:00 pm

HEDGEFUNDIE wrote:
Sun Sep 16, 2018 7:49 pm
Taylor Larimore wrote:
Sun Sep 16, 2018 7:44 pm
HEDGEFUNDIE and nasrullah:

I think it is dangerous to maintain a 100% stock allocation right up to the day you retire. What happens if we have a bad bear market the year before retiring? Answer: There goes your retirement. :(

It is no accident that ALL target funds decrease their stock allocations before their target retirement dates.

Best wishes.
Taylor
My circumstances inform my plan. If we don’t have a bad bear market in the next ten years I will be able to early retire at the end of those ten years at age 42.

If we do hit a bear market at any point before then I’ll just keep working. I’ll have another 20 years after that to hit my number.
Do you like your work? I ask because you are taking on significant risk and at the market's mercy to dictate the possibility of having to work another 20 years - T W E N T Y A D D I T I O N A L Y E A R S!? I agree with staying the course but in my humble opinion, your course should be re-evaluated.

HEDGEFUNDIE
Posts: 629
Joined: Sun Oct 22, 2017 2:06 pm

Re: Age in Bonds - Still Recommended?

Post by HEDGEFUNDIE » Sun Sep 16, 2018 9:05 pm

BogleBoogie wrote:
Sun Sep 16, 2018 9:00 pm
HEDGEFUNDIE wrote:
Sun Sep 16, 2018 7:49 pm
Taylor Larimore wrote:
Sun Sep 16, 2018 7:44 pm
HEDGEFUNDIE and nasrullah:

I think it is dangerous to maintain a 100% stock allocation right up to the day you retire. What happens if we have a bad bear market the year before retiring? Answer: There goes your retirement. :(

It is no accident that ALL target funds decrease their stock allocations before their target retirement dates.

Best wishes.
Taylor
My circumstances inform my plan. If we don’t have a bad bear market in the next ten years I will be able to early retire at the end of those ten years at age 42.

If we do hit a bear market at any point before then I’ll just keep working. I’ll have another 20 years after that to hit my number.
Do you like your work? I ask because you are taking on significant risk and at the market's mercy to dictate the possibility of having to work another 20 years - T W E N T Y A D D I T I O N A L Y E A R S!? I agree with staying the course but in my humble opinion, your course should be re-evaluated.
Well let me put it this way. If I had told you that I am 32 and 100% invested in Vanguard Target Retirement 2050, would you even bat an eye? That’s functionally what my plan is.

As for my work, I have spent 10 years building my skills in my field and switching companies to find a great working environment, which I finally found this year. So yes I would not mind working until “normal” retirement.

EDIT: now that I think about it, my plan is actually more bogleheadish than the target date fund would allow. If we did hit a bear market at the tail end of my 10 year timeframe, the target date fund would ramp up my bonds regardless. It would be forcing me to sell stocks low and move into bonds, exactly the opposite of staying-the-course.

Jordan4FI
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Location: Honduras

Re: Age in Bonds - Still Recommended?

Post by Jordan4FI » Mon Sep 17, 2018 4:45 pm

helloeveryone wrote:
Sun Sep 16, 2018 1:30 pm
Jordan4FI wrote:
Fri Sep 14, 2018 11:11 am
As long as your return can support your needs, that is what AA I go for. I will FIRE early (40yrs old), and my put myself in the Vanguard LifeStrategy Fund 40/60, because even a 5% (edit) return average each year would give me just what I need and some left over for fun... and when the 8-12% years come, that is so much extra $$ to re-invest or put aside in another investment vehicle. I would prefer to have a lower steady return, than go for the big 15%+ return at the risk of the big 30%+ drop.. although at 40/60, in a real bad year I could see a heavy hit..

EDIT** and when and if SS is still avail to me in 2046, my SS will be fixed income also, so I will then up my stock %.

2nd EDIT** I will be living in Thailand, where I can always live on less than 10K a year if I really really needed to to wait out a downturn that was lasting a few years...
does 8-12% years refer to when the market returns are that high?
Yes, when years are good at 8%+ that will be well over my needed income to survive. I also am not 100% sure about the 40/60 at age 40, I may stop at 60/40 (age 46) for a while until I am a little older. Maybe go 60/40 till age 55, then 40/60 from then on...

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aj76er
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Location: Portland, OR

Re: Age in Bonds - Still Recommended?

Post by aj76er » Wed Sep 19, 2018 1:38 pm

HEDGEFUNDIE wrote:
Sun Sep 16, 2018 9:05 pm
BogleBoogie wrote:
Sun Sep 16, 2018 9:00 pm
HEDGEFUNDIE wrote:
Sun Sep 16, 2018 7:49 pm
Taylor Larimore wrote:
Sun Sep 16, 2018 7:44 pm
HEDGEFUNDIE and nasrullah:

I think it is dangerous to maintain a 100% stock allocation right up to the day you retire. What happens if we have a bad bear market the year before retiring? Answer: There goes your retirement. :(

It is no accident that ALL target funds decrease their stock allocations before their target retirement dates.

Best wishes.
Taylor
My circumstances inform my plan. If we don’t have a bad bear market in the next ten years I will be able to early retire at the end of those ten years at age 42.

If we do hit a bear market at any point before then I’ll just keep working. I’ll have another 20 years after that to hit my number.
Do you like your work? I ask because you are taking on significant risk and at the market's mercy to dictate the possibility of having to work another 20 years - T W E N T Y A D D I T I O N A L Y E A R S!? I agree with staying the course but in my humble opinion, your course should be re-evaluated.
Well let me put it this way. If I had told you that I am 32 and 100% invested in Vanguard Target Retirement 2050, would you even bat an eye? That’s functionally what my plan is.

As for my work, I have spent 10 years building my skills in my field and switching companies to find a great working environment, which I finally found this year. So yes I would not mind working until “normal” retirement.

EDIT: now that I think about it, my plan is actually more bogleheadish than the target date fund would allow. If we did hit a bear market at the tail end of my 10 year timeframe, the target date fund would ramp up my bonds regardless. It would be forcing me to sell stocks low and move into bonds, exactly the opposite of staying-the-course.
Workplaces can turn toxic very quickly. Projects can change or be cancelled, new mgmt can take over, etc. It can also get much harder to find a job as one gets older. Your present situation sounds great, but these are just things to keep in mind.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

JustinR
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Joined: Tue Apr 27, 2010 11:43 pm

Re: Age in Bonds - Still Recommended?

Post by JustinR » Wed Sep 19, 2018 11:24 pm

HEDGEFUNDIE wrote:
Sun Sep 16, 2018 7:49 pm
Taylor Larimore wrote:
Sun Sep 16, 2018 7:44 pm
HEDGEFUNDIE and nasrullah:

I think it is dangerous to maintain a 100% stock allocation right up to the day you retire. What happens if we have a bad bear market the year before retiring? Answer: There goes your retirement. :(

It is no accident that ALL target funds decrease their stock allocations before their target retirement dates.

Best wishes.
Taylor
My circumstances inform my plan. If we don’t have a bad bear market in the next ten years I will be able to early retire at the end of those ten years at age 42.

If we do hit a bear market at any point before then I’ll just keep working. I’ll have another 20 years after that to hit my number.
We hit a bear market next year, stocks drop 75% for the forseeable future. You lose your job because the economy is dead. What's your plan?

The way you're answering these questions makes it seem like you think your foolproof 100% equity "I'll keep working in a bear market" plan is new and not something everyone has already considered sometime in their investing career for the same reasons. It's way more likely that you're missing something.
Last edited by JustinR on Wed Sep 19, 2018 11:27 pm, edited 1 time in total.

HEDGEFUNDIE
Posts: 629
Joined: Sun Oct 22, 2017 2:06 pm

Re: Age in Bonds - Still Recommended?

Post by HEDGEFUNDIE » Wed Sep 19, 2018 11:25 pm

JustinR wrote:
Wed Sep 19, 2018 11:24 pm
HEDGEFUNDIE wrote:
Sun Sep 16, 2018 7:49 pm
Taylor Larimore wrote:
Sun Sep 16, 2018 7:44 pm
HEDGEFUNDIE and nasrullah:

I think it is dangerous to maintain a 100% stock allocation right up to the day you retire. What happens if we have a bad bear market the year before retiring? Answer: There goes your retirement. :(

It is no accident that ALL target funds decrease their stock allocations before their target retirement dates.

Best wishes.
Taylor
My circumstances inform my plan. If we don’t have a bad bear market in the next ten years I will be able to early retire at the end of those ten years at age 42.

If we do hit a bear market at any point before then I’ll just keep working. I’ll have another 20 years after that to hit my number.
We hit a bear market next year, stocks drop 75%. You lose your job because the economy is dead. What's your plan?
Seriously? If stocks drop 75% and the economy “dies”, what’s your plan? And while we’re at it, how much in bonds would get me through the zombie apocalypse?

And like I mentioned above, if you feel really strongly about this, instead of wasting your time trying to change my mind, you and everyone else should be trying to convince Vanguard, Blackrock, and all the other target date fund managers that keeping people at 90/10 into their 40s is a bad idea. Good luck with that.
Last edited by HEDGEFUNDIE on Wed Sep 19, 2018 11:37 pm, edited 3 times in total.

JustinR
Posts: 685
Joined: Tue Apr 27, 2010 11:43 pm

Re: Age in Bonds - Still Recommended?

Post by JustinR » Wed Sep 19, 2018 11:34 pm

HEDGEFUNDIE wrote:
Wed Sep 19, 2018 11:25 pm
JustinR wrote:
Wed Sep 19, 2018 11:24 pm
HEDGEFUNDIE wrote:
Sun Sep 16, 2018 7:49 pm
Taylor Larimore wrote:
Sun Sep 16, 2018 7:44 pm
HEDGEFUNDIE and nasrullah:

I think it is dangerous to maintain a 100% stock allocation right up to the day you retire. What happens if we have a bad bear market the year before retiring? Answer: There goes your retirement. :(

It is no accident that ALL target funds decrease their stock allocations before their target retirement dates.

Best wishes.
Taylor
My circumstances inform my plan. If we don’t have a bad bear market in the next ten years I will be able to early retire at the end of those ten years at age 42.

If we do hit a bear market at any point before then I’ll just keep working. I’ll have another 20 years after that to hit my number.
We hit a bear market next year, stocks drop 75%. You lose your job because the economy is dead. What's your plan?
Seriously? If stocks drop 75% and the economy “dies”, what’s your plan? And while we’re at it, how much in bonds would get me through the zombie apocalypse?
So you're just not going to answer the question? Ok.

Jacobkg
Posts: 699
Joined: Sat May 23, 2009 7:32 pm

Re: Age in Bonds - Still Recommended?

Post by Jacobkg » Thu Sep 20, 2018 1:19 am

I do remember threads from a few years ago where folks were commenting that target retirement glide paths were too aggressive in stocks and recommending to pick the target fund based on allocation rather than year.

ThrustVectoring
Posts: 462
Joined: Wed Jul 12, 2017 2:51 pm

Re: Age in Bonds - Still Recommended?

Post by ThrustVectoring » Thu Sep 20, 2018 2:43 am

TravelforFun wrote:
Fri Sep 14, 2018 6:58 pm
I guess I'm the only one on this forum who doesn't care about AA. I keep 10 years worth of annual expenses in bonds, CDs, money market, and savings, and the rest is in stock regardless of the %.

TravelforFun
That's roughly my plan too. Age based percentage is only really a thing because you can't give a short explanation of how your current asset level and life goals translate into stock and bond amounts.

Like, for me, I'm pretty early in accumulation, so I'm doing emergency fund + disability insurance + 100% stocks. I'm sticking with that until I think I'm roughly 10 years out from retirement, then accumulating a 10-year TIPS ladder for 10x annual expenses. Ladder done (or funded through short-term bonds to pick up next 1-2 rungs) + 2 years expenses cash + 18 years expenses stocks = pull the trigger on retirement. Spend-down strategy is "roll TIPS ladder and spend stocks if at least 18 years expenses in stocks, otherwise rebuild stock position and spend bonds".

So, what does this strategy mean in terms of fixed income exposure? Who the hell knows, and good luck explaining it in a few memorable sentences. But "older people should probably own more bonds" is vaguely correct generic advice that is probably a good idea to communicate somehow.

TheOscarGuy
Posts: 507
Joined: Sat Oct 06, 2012 1:10 pm
Location: MA

Re: Age in Bonds - Still Recommended?

Post by TheOscarGuy » Thu Sep 20, 2018 5:53 am

Jacobkg wrote:
Fri Sep 14, 2018 9:32 am
I started reading Bogleheads in 2007 and have been following on and off since. Early in that process I decided on my Asset Allocation, which includes the decision to implement the “your age in bonds” rule. I have been dutifully increasing my target bond allocation by 1% for the last decade (I’m now in my thirties).

I feel like over time Age in Bonds is being discussed less and less. Has it fallen out of favor? Should I consider rethinking my strategy? I don’t like to do this often but I figure once a decade isn’t too bad.

What are other accumulators doing?
80equities20bond.
Because I can sleep at night.
I do not believe age in bond is right for me. Do what feels right for your case.

michaeljc70
Posts: 3319
Joined: Thu Oct 15, 2015 3:53 pm

Re: Age in Bonds - Still Recommended?

Post by michaeljc70 » Thu Sep 20, 2018 10:22 am

TravelforFun wrote:
Fri Sep 14, 2018 6:58 pm
I guess I'm the only one on this forum who doesn't care about AA. I keep 10 years worth of annual expenses in bonds, CDs, money market, and savings, and the rest is in stock regardless of the %.

TravelforFun
You are just expressing it in a different way. If using the 4% rule, roughly you'd have 25 years of expenses so it would be 10/25 in FI or 60/40 AA.

Thesaints
Posts: 1619
Joined: Tue Jun 20, 2017 12:25 am

Re: Age in Bonds - Still Recommended?

Post by Thesaints » Thu Sep 20, 2018 10:32 am

Safely financing one’s retirement is not necessarily the same target as maximizing one’s portfolio return for a given risk.

TravelforFun
Posts: 1424
Joined: Tue Dec 04, 2012 11:05 pm

Re: Age in Bonds - Still Recommended?

Post by TravelforFun » Thu Sep 20, 2018 10:45 am

michaeljc70 wrote:
Thu Sep 20, 2018 10:22 am
TravelforFun wrote:
Fri Sep 14, 2018 6:58 pm
I guess I'm the only one on this forum who doesn't care about AA. I keep 10 years worth of annual expenses in bonds, CDs, money market, and savings, and the rest is in stock regardless of the %.

TravelforFun
You are just expressing it in a different way. If using the 4% rule, roughly you'd have 25 years of expenses so it would be 10/25 in FI or 60/40 AA.
Not really. The amount of my bonds, CDs, money market, and savings is fixed, and therefore my AA varies, sometimes wildly, which doesn't bother me.

TravelforFun

hulburt1
Posts: 324
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Re: Age in Bonds - Still Recommended?

Post by hulburt1 » Thu Sep 20, 2018 2:45 pm

Don't take SS use it as a bond fund. At 65 I've been in all the ups and downs. 3 years ago I made 1/2m. But live on 36000 a year. I'm 5% cash that will get me 2+ years. At the end of the year I will take one year out of my stock fund and put it into cash for next year. I live very happy I just have never bought what I can not pay cash. :sharebeer

HEDGEFUNDIE
Posts: 629
Joined: Sun Oct 22, 2017 2:06 pm

Re: Age in Bonds - Still Recommended?

Post by HEDGEFUNDIE » Thu Sep 20, 2018 4:43 pm

Just thought this post in the “what is your most expensive mistake” thread is apropos.

viewtopic.php?p=4128941#p4128801

BogleBoogie
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Location: AK

Re: Age in Bonds - Still Recommended?

Post by BogleBoogie » Fri Sep 21, 2018 7:45 am

bargainhuntingking wrote:
Sat Sep 15, 2018 12:50 am
Wait until your first market correction/recession like the one that occurred in 2008-2009. Age in bonds will suddenly become popular again.
Spot on.

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