What Ever Happened to "Your Age In Bonds"?

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DB2
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Re: What Ever Happened to "Your Age In Bonds"?

Post by DB2 »

willthrill81 wrote: Sun Oct 17, 2021 6:47 pm
rockstar wrote: Sun Oct 17, 2021 6:34 pm What I think I need to find now is an asset that is less volatile than stocks and provides a real return after inflation. It doesn't have to be a high real return, but it has to at least keep up with inflation. That's what I would love to replace bonds with in the near future. I think, I might start hunting for preferred stock again that I can buy below or at par that offers a real yield that I can hold until it's called.
Preferred stock funds' performance has not been what I would call reassuring. Take a look at the performance of PGF, one of the older preferred stock funds out there (it's ER is .63%, which is only somewhat above average for such funds), and Vanguard's Wellesley Income fund.

Image

PGF had a bigger maximum drawdown (-64%) than did TSM but had about a .8% smaller annualized return than did Wellesley. That seems like the worst of both worlds to me. Other funds I've seen, such as PFF and PGX, were very similarly uninspiring.

If you want less volatility than stocks but a positive expected real return, I think that you might want to consider something like a Larry Portfolio (i.e., some U.S. and ex-U.S. SCV and mostly intermediate-term Treasuries or TIPS) or something else entirely like rental properties.
Or how about Wellesley? :happy
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dziuniek
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Re: What Ever Happened to "Your Age In Bonds"?

Post by dziuniek »

Performance chasing.
Get rich or die tryin'
secondopinion
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Re: What Ever Happened to "Your Age In Bonds"?

Post by secondopinion »

hudson wrote: Mon Oct 18, 2021 12:05 pm
dbr wrote: Mon Oct 18, 2021 9:12 am
TimeTheMarket wrote: Mon Oct 18, 2021 6:31 am It is a general rule—so general in fact that it’s a terrible one. A 60 year old about to retire with 60% bonds is overly conservative IMO—though not hideously so. A 30 year old with 30% bonds isn’t overly conservative; it’s negligent.
Yes, and an 80 year old thinking he needs to be 80% in bonds might be right or he might have an asset allocation that makes no sense for what he wants to do.

The problem here is that a general idea that many investors would naturally increase their allocation to bonds, which does make sense for a lot of good reasons, gets turned into an arbitrary rule that is too general and also too specific to the point it doesn't make sense. So what follow is lots of attempts to fix the rule such as 110-age in stocks or 120-age in stocks or age in bonds but SS counted as a bond. And the result is just more nonsense but now the nonsense is also ambiguous. Or a person can follow the curves in some target date fund scheme, probably capturing a general idea but no more appropriate for anyone in particular than before.

Presumably things get this way because people who want to convey the advice are afraid investors can't understand an idea without expressing it as a rule.
I vote to use "age in bonds" as a starting place in one's financial education. Read Boglehead authors; read the discussions. Then make an educated decision.

100/0, 0/100 and everything in between can be optimal; it depends.

Beware of rules of thumb! Beware of blanket statements. Do your homework and do it your way.
To some, maybe 120/-20 is optimal (or more; some of the risk takers might object to doing less than this)?

But yes, do what matches your goals and situation.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
secondopinion
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Re: What Ever Happened to "Your Age In Bonds"?

Post by secondopinion »

dziuniek wrote: Mon Oct 18, 2021 12:30 pm Performance chasing.
I never agreed with either "age in bonds" or "performance chasing".

Pick the allocation best to meet your goals with the right combination of expected returns, volatility, and risk skew. You might be surprised what actually is best for you.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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willthrill81
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Re: What Ever Happened to "Your Age In Bonds"?

Post by willthrill81 »

DB2 wrote: Mon Oct 18, 2021 12:30 pm
willthrill81 wrote: Sun Oct 17, 2021 6:47 pm
rockstar wrote: Sun Oct 17, 2021 6:34 pm What I think I need to find now is an asset that is less volatile than stocks and provides a real return after inflation. It doesn't have to be a high real return, but it has to at least keep up with inflation. That's what I would love to replace bonds with in the near future. I think, I might start hunting for preferred stock again that I can buy below or at par that offers a real yield that I can hold until it's called.
Preferred stock funds' performance has not been what I would call reassuring. Take a look at the performance of PGF, one of the older preferred stock funds out there (it's ER is .63%, which is only somewhat above average for such funds), and Vanguard's Wellesley Income fund.

Image

PGF had a bigger maximum drawdown (-64%) than did TSM but had about a .8% smaller annualized return than did Wellesley. That seems like the worst of both worlds to me. Other funds I've seen, such as PFF and PGX, were very similarly uninspiring.

If you want less volatility than stocks but a positive expected real return, I think that you might want to consider something like a Larry Portfolio (i.e., some U.S. and ex-U.S. SCV and mostly intermediate-term Treasuries or TIPS) or something else entirely like rental properties.
Or how about Wellesley? :happy
Wellesley has been robustly superior to all of the preferred stock funds I've seen that were around during the GFC: far smaller drawdowns, less volatility, smaller expense ratio, and better returns.
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dziuniek
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Re: What Ever Happened to "Your Age In Bonds"?

Post by dziuniek »

secondopinion wrote: Mon Oct 18, 2021 12:37 pm
dziuniek wrote: Mon Oct 18, 2021 12:30 pm Performance chasing.
I never agreed with either "age in bonds" or "performance chasing".

Pick the allocation best to meet your goals with the right combination of expected returns, volatility, and risk skew. You might be surprised what actually is best for you.
And age in bonds it is. I was answering the question asked by the OP.
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willthrill81
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Re: What Ever Happened to "Your Age In Bonds"?

Post by willthrill81 »

Why a 50 year old who has 15 years left until retirement and for whom SS benefits will cover all essential spending should put half of the portfolio into assets that will almost certainly lose out to inflation before taxes 'just because' makes no sense to me.
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000
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Re: What Ever Happened to "Your Age In Bonds"?

Post by 000 »

willthrill81 wrote: Mon Oct 18, 2021 10:43 pm Why a 50 year old who has 15 years left until retirement and for whom SS benefits will cover all essential spending should put half of the portfolio into assets that will almost certainly lose out to inflation before taxes 'just because' makes no sense to me.
To be fair Bogle would have counted those benefits when figuring age in bonds.
hudson
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Re: What Ever Happened to "Your Age In Bonds"?

Post by hudson »

willthrill81 wrote: Mon Oct 18, 2021 10:43 pm Why a 50 year old who has 15 years left until retirement and for whom SS benefits will cover all essential spending should put half of the portfolio into assets that will almost certainly lose out to inflation before taxes 'just because' makes no sense to me.
For scaredy-cat me...and nobody else...at 50; (now 73)
I would want a safe pile of fixed income.
Stocks give me heartburn. Stocks may not beat inflation. Stocks are fickle. I would do real estate first (ugh!).
I think, "Why should I be half stocks?"
CDs were fine; now it looks like SCHP, VAIPX, LTPZ, or individual TIPS duration matched is the best available.

Bottom line: There are those that don't warm up to stocks and want a safer alternative.
To each his own...
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willthrill81
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Re: What Ever Happened to "Your Age In Bonds"?

Post by willthrill81 »

hudson wrote: Tue Oct 19, 2021 4:22 am
willthrill81 wrote: Mon Oct 18, 2021 10:43 pm Why a 50 year old who has 15 years left until retirement and for whom SS benefits will cover all essential spending should put half of the portfolio into assets that will almost certainly lose out to inflation before taxes 'just because' makes no sense to me.
For scaredy-cat me...and nobody else...at 50; (now 73)
I would want a safe pile of fixed income.
Stocks give me heartburn. Stocks may not beat inflation. Stocks are fickle. I would do real estate first (ugh!).
I think, "Why should I be half stocks?"
CDs were fine; now it looks like SCHP, VAIPX, LTPZ, or individual TIPS duration matched is the best available.

Bottom line: There are those that don't warm up to stocks and want a safer alternative.
To each his own...
I entirely agree that one's own situation, particularly one's risk tolerance, should be driving one's AA. Consequently, I don't believe that there are any good rules of thumb for arriving at an AA, including 'age in bonds'. At best, such rules of thumb are a starting point.
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Whakamole
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Re: What Ever Happened to "Your Age In Bonds"?

Post by Whakamole »

willthrill81 wrote: Mon Oct 18, 2021 10:43 pm Why a 50 year old who has 15 years left until retirement and for whom SS benefits will cover all essential spending should put half of the portfolio into assets that will almost certainly lose out to inflation before taxes 'just because' makes no sense to me.
A 50 year old with 5 years until (somewhat) early retirement is a more interesting question. You'd want enough safe assets to make it to Social Security, but you also need growth assets to make it until you die.

Does (age-40)*2 work here? Perhaps. If you have enough money to retire early, 30% in fixed income is quite substantial.
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willthrill81
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Re: What Ever Happened to "Your Age In Bonds"?

Post by willthrill81 »

Whakamole wrote: Tue Oct 19, 2021 10:40 am
willthrill81 wrote: Mon Oct 18, 2021 10:43 pm Why a 50 year old who has 15 years left until retirement and for whom SS benefits will cover all essential spending should put half of the portfolio into assets that will almost certainly lose out to inflation before taxes 'just because' makes no sense to me.
A 50 year old with 5 years until (somewhat) early retirement is a more interesting question. You'd want enough safe assets to make it to Social Security, but you also need growth assets to make it until you die.

Does (age-40)*2 work here? Perhaps. If you have enough money to retire early, 30% in fixed income is quite substantial.
Yes, early retirees probably need a higher equity allocation than older retirees. It seems that 70/30 to 90/10 has been the 'sweet spot' for them.
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alfaspider
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Re: What Ever Happened to "Your Age In Bonds"?

Post by alfaspider »

Age in bonds is a very rough rule of thumb, but is probably a bit too conservative. A 30 year old is probably better off with a much more aggressive portfolio than 70/30, and a 60/40 portfolio is more appropriate for a retiree than a 40 year old who plans to work another 25 years.

I've personally come to the conclusion that buying corporate bonds yielding 1.9% (current vanguard intermediate bond fund yield) doesn't make sense when I can simply pay down my 2.8% mortgage instead.
hudson
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Re: What Ever Happened to "Your Age In Bonds"?

Post by hudson »

willthrill81 wrote: Tue Oct 19, 2021 10:06 am
hudson wrote: Tue Oct 19, 2021 4:22 am
willthrill81 wrote: Mon Oct 18, 2021 10:43 pm Why a 50 year old who has 15 years left until retirement and for whom SS benefits will cover all essential spending should put half of the portfolio into assets that will almost certainly lose out to inflation before taxes 'just because' makes no sense to me.
For scaredy-cat me...and nobody else...at 50; (now 73)
I would want a safe pile of fixed income.
Stocks give me heartburn. Stocks may not beat inflation. Stocks are fickle. I would do real estate first (ugh!).
I think, "Why should I be half stocks?"
CDs were fine; now it looks like SCHP, VAIPX, LTPZ, or individual TIPS duration matched is the best available.

Bottom line: There are those that don't warm up to stocks and want a safer alternative.
To each his own...
I entirely agree that one's own situation, particularly one's risk tolerance, should be driving one's AA. Consequently, I don't believe that there are any good rules of thumb for arriving at an AA, including 'age in bonds'. At best, such rules of thumb are a starting point.
Many thanks! I agree!
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