What Ever Happened to "Your Age In Bonds"?

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LMK5
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What Ever Happened to "Your Age In Bonds"?

Post by LMK5 »

It wasn't all that long ago that "your age in bonds" was a widely-followed rule of thumb for knowledgeable investors. I remember when a friend of mine retired and had a 30/70 portfolio at the time, which seemed prudent. But today, I almost never hear of someone--or hear advice from someone--that advises less than 60% stocks. What happened over the years that has relegated "your age in bonds" to the investing trash heap? Is the main reason that we've become a little too comfortable with equity risk? Is there any data out there that shows that even knowledgeable investors tend to drift towards, and advocate for, a higher allocation to stocks during periods of positive stock market returns?

Are there more substantive reasons for the decline of "your age in bonds" or should we be revisiting this mantra?
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Re: What Ever Happened to "Your Age In Bonds"?

Post by jebmke »

Negative (real) interest rates probably a factor.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: What Ever Happened to "Your Age In Bonds"?

Post by Slinky »

Different times. I don’t see why anyone would hold bonds right now. And for the near future bonds look even less promising
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nedsaid
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Re: What Ever Happened to "Your Age In Bonds"?

Post by nedsaid »

jebmke wrote: Sat May 08, 2021 9:10 am Negative (real) interest rates probably a factor.
You beat me to it, I was going to say very low interest rates.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by txhill »

The value of bonds is based on an assumption that the government does not print a ton of money and debase the value of the currency in which the bond is denominated. Something like 40% of all dollars ever put into circulation were printed last year, and for as long as the economy and jobs are struggling due to the pandemic, there is no end in sight to Fed printing. So you have a pretty poor outlook for bonds.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by climber2020 »

Recency bias.

I recall in March and April 2020 there were zero “why bonds?” posts.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by am »

For long term investor with decades in front of them, bonds will be fine. In the short term, bonds look awful, most likely to lose money in real terms.

As assets are inflated now, I’ve nearly reached my goal years ahead of time. I’m debating going from say 80/20 stocks bonds to 65-70 stocks to lock in some gains. But on the other hand, I will hopefully have decades ahead of me and stocks will most likely do better.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by whereskyle »

LMK5 wrote: Sat May 08, 2021 9:07 am It wasn't all that long ago that "your age in bonds" was a widely-followed rule of thumb for knowledgeable investors. I remember when a friend of mine retired and had a 30/70 portfolio at the time, which seemed prudent. But today, I almost never hear of someone--or hear advice from someone--that advises less than 60% stocks. What happened over the years that has relegated "your age in bonds" to the investing trash heap? Is the main reason that we've become a little too comfortable with equity risk? Is there any data out there that shows that even knowledgeable investors tend to drift towards, and advocate for, a higher allocation to stocks during periods of positive stock market returns?

Are there more substantive reasons for the decline of "your age in bonds" or should we be revisiting this mantra?
The "substantive" reason is ill-advised market timing of the bond market, which always plagues investors, and always will plague investors. It is never different this time. People don't like nominal interest rates, so they're foolishly taking on too much risk.

Even Burton Malkiel has jumped ship, because investors never learn. He now thinks holding dividend-growth stocks is preferable to holding bonds for safety. The suggestion is atrocious, if you ask me.

Taylor, King of the Bogleheads, posted this great article recently from Allan Roth, someone who thankfully is not trying to time the bond market:

https://www.advisorperspectives.com/art ... bout-bonds

Bonds are for safety. They give you a fighting chance of beating inflation, even with low nominal yields (inflation has steadily ticked downward over the long term). High-quality and government bonds are great in deflationary times (recessions). And they're still an absolutely wonderful choice for a lower volatility, income-producing asset.

All that said, I do not hold my age in bonds. I earn a moderate income, have a long time horizon until retirement age, and I need more growth to achieve my goals. I plan to hold tons of bonds once I achieve 25x my expenses. I'll probably go 50/50.

There are good reasons not to hold one's age in bonds. Predictions about the bond market and the direction of interest rates are absolutely not among those reasons. I fear that people are hating bonds for the wrong reasons.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by Svensk Anga »

The Bengen and Trinity studies that give us “safe” withdrawal rates show that likelihood of success falls off if equity allocation is too low, especially for longer retirements. Early retirements and improvements in life expectancy should logically lead to higher equity allocation. Age in bonds is a holdover from the era when life expectancy was about to normal retirement age. The 1970’s inflation may have lead to some rethinking of just how safe a high bond allocation really is, although TIPS can now alleviate that.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by spanky123 »

LMK5 wrote: Sat May 08, 2021 9:07 am Are there more substantive reasons for the decline of "your age in bonds" or should we be revisiting this mantra?
120 - age is another mantra.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by dbr »

I imagine age in bonds is less often mentioned on this forum to the degree people become more familiar with and use withdrawal studies that don't really support that formula. The problem of retiring on too little in stocks is mentioned above.

I don't know if recommending more nuanced thinking such as need, ability, and willingness to take risk has pushed age in bonds aside. I would like to think so but kind of doubt it.

The model presented in Target Retirement fund glide paths may be having an effect. These funds are much higher in stocks until very late on. However the Target Retirement Income Fund is at 30/70 reached when a conventional retiree might be age 70. Notably it does not then proceed to 20/80 and 10/90.

Mr. Bogle is the vocal initiator of that rule around here, but it is significant that his rule also includes Social Security as a bond, which then produces a much higher allocation to stocks as such for many typical retirees. He would agree that a pension or annuities would have the same effect.

I agree that recency is a big factor. That applies both to the current low level of interest rates and to the almost unprecedented bull market in stocks.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by KyleAAA »

Age in bonds was never great advice to begin with.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by whereskyle »

Svensk Anga wrote: Sat May 08, 2021 9:30 am The Bengen and Trinity studies that give us “safe” withdrawal rates show that likelihood of success falls off if equity allocation is too low, especially for longer retirements. Early retirements and improvements in life expectancy should logically lead to higher equity allocation. Age in bonds is a holdover from the era when life expectancy was about to normal retirement age. The 1970’s inflation may have lead to some rethinking of just how safe a high bond allocation really is, although TIPS can now alleviate that.
The historical evidence does not support the more equities, better long-term results proposition, at least if portfolio viability is the primary concern:

Monte Carlo Simulation results based on historical returns from 1972-2020:

50% US Stocks/50% Intermediate Treasuries, 4% Withdrawal Rate: 96.26% success rate over 30 years. Over 40 years? Success rate is 91.14%. Over 50 years? Success rate is 86.42%.

80% US Stocks/20% Intermediate Treasuries, 4% withdrawal rate: 92.23% success rate over 30 years. Over 40 years? Success Rate is 87.72% Over 50 years? Success Rate is 84.97%.


80/20 loses to 50/50 over 30, 40, and 50-year time periods. The historical data tested includes the stagflation of the 1970s.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by abuss368 »

Jack Bogle would say that the bond allocation should have something to do with age. That is the bond allocation should increase over time. Mr. Bogle would say “age in bonds” is a good starting point.

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

Post by dbr »

whereskyle wrote: Sat May 08, 2021 9:48 am
Svensk Anga wrote: Sat May 08, 2021 9:30 am The Bengen and Trinity studies that give us “safe” withdrawal rates show that likelihood of success falls off if equity allocation is too low, especially for longer retirements. Early retirements and improvements in life expectancy should logically lead to higher equity allocation. Age in bonds is a holdover from the era when life expectancy was about to normal retirement age. The 1970’s inflation may have lead to some rethinking of just how safe a high bond allocation really is, although TIPS can now alleviate that.
The historical evidence does not support the more equities, better long-term results proposition, at least if portfolio viability is the primary concern:

Monte Carlo Simulation results based on historical returns from 1972-2020:

50% US Stocks/50% Intermediate Treasuries, 4% Withdrawal Rate: 96.26% success rate over 30 years. Over 40 years? Success rate is 91.14%. Over 50 years? Success rate is 86.42%.

80% US Stocks/20% Intermediate Treasuries, 4% withdrawal rate: 92.23% success rate over 30 years. Over 40 years? Success Rate is 87.72% Over 50 years? Success Rate is 84.97%.


80/20 loses to 50/50 over 30, 40, and 50-year time periods. The historical data tested includes the stagflation of the 1970s.
The statement is not the more equities the safer or higher the withdrawals. The statement is that withdrawal falls off when there are not enough stocks. The actual result that fairly consistently appears is that things are fine from 100/0 down to about 30/70 with a mild optimum at maybe 60/40. Below 30% stocks results do fall off a cliff for modest withdrawal rates. At low withdrawal rates even 0/100 is fine. The age in bonds formula has a retiree 65/35 at age 65 and 30/70 at age 70. This is not necessarily dangerous.

The result that does increase with increased allocation to stocks is the range of wealth remaining at death. This increases in both magnitude and uncertainty of results with stock allocation. A person using need, ability, and willingness to take risk who has an objective of maximizing legacy wealth, an ability due to modest living and non-portfolio income streams, and a tolerance for volatility could very well opt for 100% stocks in retirement. Most retirees are probably not so confident of events and prone to that sort of risk taking nor wealthy enough to tolerate bad results.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by Svensk Anga »

Bengen's follow-up study is here:

https://finalytiq.co.uk/wp-content/uplo ... fetime.pdf

Look at figure 3 where he explores the sensitivity of SWR to starting equity allocation. For the "age in bonds" path (called 1% phase down), SWRs fall off below an age 65 equity allocation of 55%. That is 45% bonds or age - 20 for the bond allocation. Age in bonds (35% starting equity) would give the retiree a maximum SWR of 3.5% while one could have withdrawn slightly better than 4% with a higher and/or steadier equity allocation.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by willthrill81 »

Over the next decade at least, bonds are likely to lose out to inflation.

Even in the past, 'age in bonds' has been overly conservative.

In this thread, vineviz lays out a different, likely better, rule of thumb: bonds = 2 * (age - 40). Following this would mean that an investor would have no bond exposure at all until age 41.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by abuss368 »

nedsaid wrote: Sat May 08, 2021 9:12 am
jebmke wrote: Sat May 08, 2021 9:10 am Negative (real) interest rates probably a factor.
You beat me to it, I was going to say very low interest rates.
For sure!
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Re: What Ever Happened to "Your Age In Bonds"?

Post by Garco »

I was never "age in bonds" when I was in early and middle stages of my career. Because of an overdose of higher education, I didn't start saving and investing until almost age 30. Then I followed the mandatory savings rules of my employers for the next 40 years: minimum contribution of 15% of my gross salary every year (5% from my salary, 10% employer "match"). In all of those years I invested more in equities than in fixed income. Starting at about 75% in equities. But there was very little taper to the asset allocation over the years. It pretty much stayed at 65-75% equities until I retired at age 70. In addition to my retirement fund I also saved money for my family, including college costs of my children, with the goal of their graduating without any student debt.

I succeeded. I'm retired. Kids are established in their careers.They have no debt. What should my asset allocation be now? Here is what it IS. My main retirement fund today has 59.8% in equities. One reason for this is because -- to use the old cliche -- "I've won the game." But also because the size of the portfolio is large enough that it can absorb some losses, sustain some risk, without any near-term impact on my quality of life. Also, I've got some extra money that derives not from my own career-life savings but from bequests. That extra money is a reserve, part of our "estate" that's not being used for current living expenses. It's mainly a legacy for our children, on top of whatever remains in our main long-term investments from my career.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by JD2775 »

willthrill81 wrote: Sat May 08, 2021 10:06 am Over the next decade at least, bonds are likely to lose out to inflation.

Even in the past, 'age in bonds' has been overly conservative.

In this thread, vineviz lays out a different, likely better, rule of thumb: bonds = 2 * (age - 40). Following this would mean that an investor would have no bond exposure at all until age 41.
That's an interesting way to approach it. I'd have 12% bonds right now given that formula. I have about 20-25% currently. I was 70/30 but have let it slide and haven't rebalanced for a while.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by willthrill81 »

JD2775 wrote: Sat May 08, 2021 10:51 am
willthrill81 wrote: Sat May 08, 2021 10:06 am Over the next decade at least, bonds are likely to lose out to inflation.

Even in the past, 'age in bonds' has been overly conservative.

In this thread, vineviz lays out a different, likely better, rule of thumb: bonds = 2 * (age - 40). Following this would mean that an investor would have no bond exposure at all until age 41.
That's an interesting way to approach it. I'd have 12% bonds right now given that formula. I have about 20-25% currently. I was 70/30 but have let it slide and haven't rebalanced for a while.
What no rule of thumb can account for is an individual investor's unique situation (e.g., risk tolerance, time to retire, proportion of their portfolio that must fund essential vs. discretionary expenses, etc.). As such, a rule of thumb is only potentially useful as a starting point for decision making purposes.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by hudson »

LMK5 wrote: Sat May 08, 2021 9:07 am It wasn't all that long ago that "your age in bonds" was a widely-followed rule of thumb for knowledgeable investors. I remember when a friend of mine retired and had a 30/70 portfolio at the time, which seemed prudent. But today, I almost never hear of someone--or hear advice from someone--that advises less than 60% stocks. What happened over the years that has relegated "your age in bonds" to the investing trash heap? Is the main reason that we've become a little too comfortable with equity risk? Is there any data out there that shows that even knowledgeable investors tend to drift towards, and advocate for, a higher allocation to stocks during periods of positive stock market returns?

Are there more substantive reasons for the decline of "your age in bonds" or should we be revisiting this mantra?
Age in bonds is a good thing to consider when deciding on an asset allocation.
Stocks don't work for some people.
For someone trying to select an asset allocation...
research...read the Boglehead books and the wiki.
consider age in bonds
take the sleep test
don't listen to anyone posting in a forum until you've done the above...especially me

Then decide for yourself no matter what people recommend.

Nisiprius says: viewtopic.php?p=5922055&sid=1c6ca2bc646 ... b#p5922055
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Re: What Ever Happened to "Your Age In Bonds"?

Post by AlohaJoe »

Bogleheads are all about "asset allocation is about willingness, need, and ability" but the second you point out that lower starting bond yields directly mean need to take risk has gone up for all investors and the average investor now needs a heavier tilt toward equities they go

.... Wait, I didn't mean it like that.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by willthrill81 »

AlohaJoe wrote: Sat May 08, 2021 11:03 am Bogleheads are all about "asset allocation is about willingness, need, and ability" but the second you point out that lower starting bond yields directly mean need to take risk has gone up for all investors and the average investor now needs a heavier tilt toward equities they go

.... Wait, I didn't mean it like that.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by RickBoglehead »

"What ever happened to" is really just a "I'm not doing this anymore and I don't see people posting about it all the time on this forum".

There are a whole bunch of strategies and theories that people follow. 99% of them don't post about it. Of the 1% that do, 1/2 of those post about everything. Therefore, ANYTHING that is popular in the mindset at a point in time will be gone from top of mind within a few months.

It's still a viable strategy for many people.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by whereskyle »

AlohaJoe wrote: Sat May 08, 2021 11:03 am Bogleheads are all about "asset allocation is about willingness, need, and ability" but the second you point out that lower starting bond yields directly mean need to take risk has gone up for all investors and the average investor now needs a heavier tilt toward equities they go

.... Wait, I didn't mean it like that.
Just not true that low bond yields mean investors need to take more risk. The market is probably correct that long-term inflation will stay low, and intermediate-term bonds will continue beating inflation as they historically have. Low nominal yields are fine if interest rates stay low, which all of the evidence in the developed world suggests will be the case.

11% nominal yield is no better than 1% nominal yield if inflation rates are 11% and 1%, respectively.

Just because yields are lower does not mean the market is incorrect about future interest rates and future inflation rates.
Last edited by whereskyle on Sat May 08, 2021 11:35 am, edited 1 time in total.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by jebmke »

whereskyle wrote: Sat May 08, 2021 11:30 am Just not true that low bond yields mean investors need to take more risk. The market is probably correct that long-term inflation will stay low, and intermediate-term bonds will continue beating inflation as they historically have. Low nominal yields are fine if interest rates stay low, which all of the evidence in the developed world suggests will be the case.
However, real yields are down considerable over the last decade. At the peak in 2008 I purchased long Tips with slightly over 3% real yield. A comparable duration Tip today would have a real yield of -.3%.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: What Ever Happened to "Your Age In Bonds"?

Post by RXfiles »

climber2020 wrote: Sat May 08, 2021 9:15 am Recency bias.

I recall in March and April 2020 there were zero “why bonds?” posts.
Bonds don't work the way equities do tho. Its not like they can just randomly start outpreforming like equities can.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by RXfiles »

KyleAAA wrote: Sat May 08, 2021 9:46 am Age in bonds was never great advice to begin with.
Easy to say looking back and not having experienced a huge drawdown during retirement.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by roth evangelist »

Stocks are wealth building assets. Bonds are wealth preservation assets. It makes no sense to have "your age in bonds" when you're still well within the wealth building stage of your life. It's just too conservative for people who are saving for a standard retirement age. "Your age in bonds" would have a 40-year-old invest in a classic 60/40 mix even though they sill have 25 or 30 years until retirement. Even as far as rules of thumb go it's not a very good one. I prefer 120 minus your age in stocks personally.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by whereskyle »

jebmke wrote: Sat May 08, 2021 11:34 am
whereskyle wrote: Sat May 08, 2021 11:30 am Just not true that low bond yields mean investors need to take more risk. The market is probably correct that long-term inflation will stay low, and intermediate-term bonds will continue beating inflation as they historically have. Low nominal yields are fine if interest rates stay low, which all of the evidence in the developed world suggests will be the case.
However, real yields are down considerable over the last decade. At the peak in 2008 I purchased long Tips with slightly over 3% real yield. A comparable duration Tip today would have a real yield of -.3%.
Real yields were extremely low in 2013. Then they went up in 2014. One either believes in timing the market or one does not. If people swore off bonds in 2013, they were probably too late to capture higher real yields in 2014. Historically, it's a bad strategy to time the market in all market conditions. Of course, people will still do it, and they will likely suffer as a result.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by patrick013 »

The newspaper this morning noted a recent rare Fed warning regarding
markets and traders. Everything from booming equities to runs on MMF's.

Sounds like age in bonds could even be age in treasuries while valuations
in the market appear based on shallow fundamentals and declining liquidity.

So we wait and see as usual what may happen that hasn't happened yet and
age in bonds doesn't look bad at all.
age in bonds, buy-and-hold, 10 year business cycle
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Re: What Ever Happened to "Your Age In Bonds"?

Post by vineviz »

LMK5 wrote: Sat May 08, 2021 9:07 am It wasn't all that long ago that "your age in bonds" was a widely-followed rule of thumb for knowledgeable investors. I remember when a friend of mine retired and had a 30/70 portfolio at the time, which seemed prudent. But today, I almost never hear of someone--or hear advice from someone--that advises less than 60% stocks. What happened over the years that has relegated "your age in bonds" to the investing trash heap? Is the main reason that we've become a little too comfortable with equity risk? Is there any data out there that shows that even knowledgeable investors tend to drift towards, and advocate for, a higher allocation to stocks during periods of positive stock market returns?

Are there more substantive reasons for the decline of "your age in bonds" or should we be revisiting this mantra?
"Age in bonds" was (and possibly still is) widely cited rule of thumb for UNknowledgeable investors. It was never very sensible advice, even though it is directionally correct (younger investors should own fewer bonds than older investors, generally speaking).

There's a generation of investors, roughly those who entered the workforce in the late 1970s and early 1980s, which was lucky that a rule of thumb like this didn't do very harm to their financial plans. Investing in a bond-heavy portfolio over the past 40 years was relatively benign, and being 40% bonds by age 40 worked out pretty well for them.

For someone entering the workforce today, following a strategy like this is VERY likely to be less successful than such a strategy was for their grandparents.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by abuss368 »

AlohaJoe wrote: Sat May 08, 2021 11:03 am Bogleheads are all about "asset allocation is about willingness, need, and ability" but the second you point out that lower starting bond yields directly mean need to take risk has gone up for all investors and the average investor now needs a heavier tilt toward equities they go

.... Wait, I didn't mean it like that.
Total Bond market and chill.

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

Post by tibbitts »

spanky123 wrote: Sat May 08, 2021 9:41 am
LMK5 wrote: Sat May 08, 2021 9:07 am Are there more substantive reasons for the decline of "your age in bonds" or should we be revisiting this mantra?
120 - age is another mantra.
Not really. We started with age-in-bonds which lasted seemingly forever, then flipped though 110-age, 120-age, and now we've arrived at "why not 100% equities?" But I wouldn't categorize those as mantras to the same degree.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by ruud »

tibbitts wrote: Sat May 08, 2021 12:24 pm
spanky123 wrote: Sat May 08, 2021 9:41 am
LMK5 wrote: Sat May 08, 2021 9:07 am Are there more substantive reasons for the decline of "your age in bonds" or should we be revisiting this mantra?
120 - age is another mantra.
Not really. We started with age-in-bonds which lasted seemingly forever, then flipped though 110-age, 120-age, and now we've arrived at "why not 100% equities?" But I wouldn't categorize those as mantras to the same degree.
Not to pick on you specifically, but I'm always curious why people refer to "110-age in stocks" and not the equivalent but less confusing "age-10 in bonds".
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HyperCat
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Re: What Ever Happened to "Your Age In Bonds"?

Post by HyperCat »

RickBoglehead wrote: Sat May 08, 2021 11:19 am It's still a viable strategy for many people.
+1. Using it as we speak.

It seems to me there are two big themes in modern retirement planning: High-income people trying to retire as early and/or as comfortably as possible and low-income people trying to retire at all. Both situations become more achievable with high equity tilts, so that's become the talk of the town. For people in the middle, I see nothing wrong with age in bonds.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by Marseille07 »

HyperCat wrote: Sat May 08, 2021 12:39 pm
RickBoglehead wrote: Sat May 08, 2021 11:19 am It's still a viable strategy for many people.
+1. Using it as we speak.

It seems to me there are two big themes in modern retirement planning: High-income people trying to retire as early and/or as comfortably as possible and low-income people trying to retire at all. Both situations become more achievable with high equity tilts, so that's become the talk of the town. For people in the middle, I see nothing wrong with age in bonds.
Nothing wrong with age in bonds, but I don't get people bashing on cash a lot here. When someone said they have 140K in cash on another thread, people quickly point out how cash loses vs inflation, it's a drag etc etc...meanwhile they have 800K in bonds with 10Y at 1.50%.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by TravelforFun »

Many of us go with years in bonds. Mine is 10 years worth of expenses in bonds which equates to about 30% of my asset.

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

Post by nisiprius »

I think the S-shaped curves used by target-date funds came from financial economics theory that made some kind of quantitative assessment of the effect of declining "human capital," and seemed to show that instead of the straight line implied by "age in bonds," it was better to get most of the de-risking accomplished over a narrow period of time, e.g. age 40-60:

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

Post by JPM »

Risk/benefit balance favored investment in bonds during the 40 year bull market in bonds. Fed policy favored bonds with its gradual decline in interest rates from 16% to less than 2% over that period. The late Marty Zweig's mantra was "Don't fight the Fed." Relatively high bond allocations worked well under the financial conditions from 1981 to the recent past. You enjoyed positive returns from income and/or capital appreciation. If you have a long investment horizon, bond investment even now may be OK as your low interest bonds roll off and are replaced by what will probably be higher interest bonds in the future.

With short-term investment horizons (e.g those already in mid to late retirement), current bonds offer little (or negative net of inflation) return and the risk of capital loss unless held to maturity should interest rates rise as some predict. Future inflation rates remain unknowable. The money supply increase of recent years, especially the past year or so vs the expanding need for dollars in an expanding globalized dollar economy may or may not balance out.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by climber2020 »

RXfiles wrote: Sat May 08, 2021 11:36 am
climber2020 wrote: Sat May 08, 2021 9:15 am Recency bias.

I recall in March and April 2020 there were zero “why bonds?” posts.
Bonds don't work the way equities do tho. Its not like they can just randomly start outpreforming like equities can.
That's not why I hold bonds. Once the portfolio hits a certain level, the same level of risk is no longer required. When stocks crater, which they will at some point, I'll sleep well knowing I can live off my safe assets for the better part of a decade without having to touch my stocks.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by dbr »

JPM wrote: Sat May 08, 2021 12:59 pm Risk/benefit balance favored investment in bonds during the 40 year bull market in bonds. Fed policy favored bonds with its gradual decline in interest rates from 16% to less than 2% over that period. The late Marty Zweig's mantra was "Don't fight the Fed." Relatively high bond allocations worked well under the financial conditions from 1981 to the recent past. You enjoyed positive returns from income and/or capital appreciation. If you have a long investment horizon, bond investment even now may be OK as your low interest bonds roll off and are replaced by what will probably be higher interest bonds in the future.

With short-term investment horizons (e.g those already in mid to late retirement), current bonds offer little (or negative net of inflation) return and the risk of capital loss unless held to maturity should interest rates rise as some predict. Future inflation rates remain unknowable. The money supply increase of recent years, especially the past year or so vs the expanding need for dollars in an expanding globalized dollar economy may or may not balance out.
Being in mid-retirement my asset allocation is 50/50, which is way less in bonds than age in bonds.

While it is almost obvious that young investors would be high in stocks and old ones more likely to find volatility undesirable and returns of diminishing value, actually converting this to a formula rule of thumb seems silly. It might perhaps be that a rule of thumb can work as a short hand reference to a concept that has to be looked at in more detail, but on its own I don't see it.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by ApeAttack »

dbr wrote: Sat May 08, 2021 9:45 am Mr. Bogle is the vocal initiator of that rule around here, but it is significant that his rule also includes Social Security as a bond, which then produces a much higher allocation to stocks as such for many typical retirees. He would agree that a pension or annuities would have the same effect.
My future pension and stable government job is why I'm 90:10 at age 40. This AA only includes my three-fund portfolio investments.

Both 100:0 and 80:20 sound reasonable to me too, so I figure I might as will split the difference. My rule of thumb at the moment is age-30 in bonds, but I'm open to rethinking this rule in the future.

I like the idea that if/when a 25%+ crash happens I will have some funds I can shift to cheaper equities -- it will give me a feeling that I'm able to do something during a crazy time. But if the market continues to do well for a long time I will make a handsome profit and move some of the profit into bonds.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by ApeAttack »

ruud wrote: Sat May 08, 2021 12:35 pm
tibbitts wrote: Sat May 08, 2021 12:24 pm
spanky123 wrote: Sat May 08, 2021 9:41 am
LMK5 wrote: Sat May 08, 2021 9:07 am Are there more substantive reasons for the decline of "your age in bonds" or should we be revisiting this mantra?
120 - age is another mantra.
Not really. We started with age-in-bonds which lasted seemingly forever, then flipped though 110-age, 120-age, and now we've arrived at "why not 100% equities?" But I wouldn't categorize those as mantras to the same degree.
Not to pick on you specifically, but I'm always curious why people refer to "110-age in stocks" and not the equivalent but less confusing "age-10 in bonds".
How about,
-(age-110) in stocks
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Re: What Ever Happened to "Your Age In Bonds"?

Post by TigerNest »

I only consider something an investment if it has a positive expected return.

Bonds returns have not offered that after tax and inflation for a some time now.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by absolute zero »

AlohaJoe wrote: Sat May 08, 2021 11:03 am Bogleheads are all about "asset allocation is about willingness, need, and ability" but the second you point out that lower starting bond yields directly mean need to take risk has gone up for all investors and the average investor now needs a heavier tilt toward equities they go

.... Wait, I didn't mean it like that.
Maybe I’m not representative of the people you are describing, because I agree with you. Perhaps some of the confusion from others comes from the implications of the word “need.”

Lower bond yields increase the need to take risk in order to achieve goals, yes. But in this context, “need” is mostly a description of “minimum required risk.”Many investors are already taking more risk than they need, and so the fact that their need has increased does not necessarily mean they have to change their portfolio.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by JBTX »

Age in bonds was popular decades ago when nominal rates were higher, but also the prior 40 years when people still remembered the great depression, or perhaps experienced the 15 years prior to 1982. Stocks were perceived as much more risky.

Now we have experienced 40 years of mostly increasing bull markets, largely driven by long term lowering of interest rates. Stocks are perceived to be safer, even the severe drops recovered in a few years.

Now with very low rates, people view stocks as a better value. I'm not sure that totally makes sense though. The things depressing bond rates should, in theory, depress long term stock returns too

If stocks were to go through a long term volatile low return cycle, age in bonds may become more popular again.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by tibbitts »

ruud wrote: Sat May 08, 2021 12:35 pm
tibbitts wrote: Sat May 08, 2021 12:24 pm
spanky123 wrote: Sat May 08, 2021 9:41 am
LMK5 wrote: Sat May 08, 2021 9:07 am Are there more substantive reasons for the decline of "your age in bonds" or should we be revisiting this mantra?
120 - age is another mantra.
Not really. We started with age-in-bonds which lasted seemingly forever, then flipped though 110-age, 120-age, and now we've arrived at "why not 100% equities?" But I wouldn't categorize those as mantras to the same degree.
Not to pick on you specifically, but I'm always curious why people refer to "110-age in stocks" and not the equivalent but less confusing "age-10 in bonds".
I agree actually but was just being consistent by responding with the same format. I mean the resulting allocation as being the mantra, not so much the terminology.
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Re: What Ever Happened to "Your Age In Bonds"?

Post by jginseattle »

Shouldn't one also consider the nature of the equity allocation? Stocks with higher expected returns would allow for a larger bond allocation.
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