Bogleheads® debates

Bogleheads® generally agree on a number of principles of investing - many of which are captured in the Bogleheads® investment philosophy.

This page is for areas of current debate around savings, investment, asset allocation, asset location, or retirement. It is not meant to catalog every minor disagreement, but rather fundamental areas which are frequently debated and on which compelling arguments have been made in several different threads on both (or all sixteen) sides of an issue. The issues here were mostly taken from this.

Individual bonds versus bond funds
This topic is a subject of constant debate. The controversy is due to perspective.


 * Pro fund: A rolling ladder is a fund.
 * Pro ladder: A fund does not reduce its duration as time goes by.

Both points are true. Trying to simulate a ladder with funds is clumsy. Trying to simulate a fund with individual bonds is next to impossible unless we limit to Treasuries. Therefore the contention can be solved only if we don't see it as either/or. Use the right tool when the job calls for it.

Discussions and references

 * Individual bonds vs a bond fund and corresponding Discussion tab, wiki article
 * , forum discussion

Adding international/developed market bonds

 * Pro: International bonds hedge against interest rate risk and have low correlation with other asset classes.
 * Con: After currency hedging costs you get low yield, better to take risk on equity side.

Total Bond Market Index and bond diversification

 * Pro: TBM gives you cheap diversified access to entire bond market.
 * Con: TBM Includes callable bonds and mortgage-backed securities, which you shouldn't have in your portfolio. Stick with highly-rated govt securities or investment grade only.

TIPS behavior in different inflation and interest rates environments

 * Pro: TIPS will continue to provide real return and inflation protection.
 * Con: We have no way of knowing, they've never been tested, the CPI will be gamed.

Bond market timing

 * Pro: You cannot predict future interest rates. Stick to your asset allocation and stay the course.
 * Con: It is useful to time purchase of different classes of bonds based on relative interest rate changes (ie TIPS vs nominals).

Will small/value premiums persist, and should one should tilt?

 * Pro: Small/value premiums are robust since 1929 in backtesting.
 * Con: No guarantees that these premia will continue going forward. You can just hold the market - no need to tilt.

Discussions and references

 * Fama and French three-factor model
 * Value Tilting - Stock
 * Fama French Paper: Characteristics, Covariances, and Average Returns: 1929 to 1997 (abstract)
 * Fama French Paper: Characteristics, Covariances, and Average Returns: 1929 to 1997 (abstract)

Gold

 * Pro: Gold is a useful and historical store of value, it offers inflation and currency protection, it offers SHTF protection, and is a useful non-correlated diversifier.
 * Con: Gold is a shiny yellow metal, it has no returns, offers no dividends, and is the essence of pure speculation (the only way to make money is to convince someone it is worth more than you paid for it).

Importance of and location for an emergency fund

 * Pro: Keep from 3-6 months, keep in cash/money market.
 * Pro: Store in your Roth.
 * Con: Many people don’t need an emergency fund.

Discussions and references

 * Placing cash needs in a tax-advantaged account

Whether or not to tax-adjust one's asset allocation

 * Pro: If you don't do this, your after-tax allocations are different then you believe they are
 * Con: It doesn't make a real difference

Discussions and references

 * Tax-adjusted asset allocation

How to set asset allocation in distribution phase

 * Capitalize pension and social security and use it as a bond equivalent.
 * Use the pension and social security as cash flow that reduces amount needed from retirement portfolio. Then set asset allocation using standard willingness and need criteria.

Discussions and references
tbd

Keep or pay off a low-rate mortgage

 * Keeping it provides inflation protection and liquidity and possibly better risk-adjusted returns.
 * Being free and clear from debt and having a certain return is better.

Discussions and references

 * Paying down loans versus investing
 * Paying down loans versus investing
 * Paying down loans versus investing

Paper savings bonds vs an e account with Treasury Direct

 * Pro TD: Easier/simpler to hold assets electronically.
 * Pro Paper: Treasury Direct's online policies could mean that you lose your money with no recourse - better to hold paper.

To add

 * When to take Social Security
 * The role of annuities in retirement planning
 * Whether one's "labor capital" should be included in one's allocation.
 * Should a mortgage (or debt) be considered a negative bond?
 * Is the CPI used to calculate social security COLAs and TIPS principal adjustments accurate compared to 'true' inflation
 * When is it worth it to use margin or leverage