When is 0% bonds appropriate?

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carminered2019
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Re: When is 0% bonds appropriate?

Post by carminered2019 »

all I can say is thanks God I did not hold bonds for over 25 years until I retired at the age 50.
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selters
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Re: When is 0% bonds appropriate?

Post by selters »

When you are young AND your expected future contributions are far greater than the size of your current portfolio.
anoop
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Re: When is 0% bonds appropriate?

Post by anoop »

The normal formula is % in bonds = (110 - age). So if you are 10 years old or younger, then it's OK to have 0% in bonds. :D
Marseille07
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Re: When is 0% bonds appropriate?

Post by Marseille07 »

anoop wrote: Wed Jun 23, 2021 5:54 pm The normal formula is % in bonds = (110 - age). So if you are 10 years old or younger, then it's OK to have 0% in bonds. :D
I thought that's % in stocks. 11yo going 1/99 doesn't make much sense.
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Re: When is 0% bonds appropriate?

Post by anoop »

Marseille07 wrote: Wed Jun 23, 2021 6:01 pm
anoop wrote: Wed Jun 23, 2021 5:54 pm The normal formula is % in bonds = (110 - age). So if you are 10 years old or younger, then it's OK to have 0% in bonds. :D
I thought that's % in stocks. 11yo going 1/99 doesn't make much sense.
Yes, I made a mistake.
UpperNwGuy
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Re: When is 0% bonds appropriate?

Post by UpperNwGuy »

anoop wrote: Wed Jun 23, 2021 5:54 pm The normal formula is % in bonds = (110 - age). So if you are 10 years old or younger, then it's OK to have 0% in bonds. :D
The normal formula lately has been: Age minus 20.
Marseille07
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Re: When is 0% bonds appropriate?

Post by Marseille07 »

anoop wrote: Wed Jun 23, 2021 6:22 pm
Marseille07 wrote: Wed Jun 23, 2021 6:01 pm
anoop wrote: Wed Jun 23, 2021 5:54 pm The normal formula is % in bonds = (110 - age). So if you are 10 years old or younger, then it's OK to have 0% in bonds. :D
I thought that's % in stocks. 11yo going 1/99 doesn't make much sense.
Yes, I made a mistake.
I find it amusing that you talk the "normal formula" but aren't following it youself ;-)
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Re: When is 0% bonds appropriate?

Post by seajay »

HomerJ wrote: Wed Jun 23, 2021 11:51 am
Ari wrote: Wed Jun 23, 2021 11:00 amIt certainly seems to me that 100% stocks is a perfectly reasonable allocation to hold throughout retirement, even though it’s not optimal for minimizing downside. It has a much higher upside, though, so it’s not irrational to use it. Equally, using it up to the point of retirement seems reasonable, even if it’s not optimal.
I agree that it's reasonable, but one really needs to do the mental exercise of a 50% crash with 100% stocks happening the year before you planned to retire.
A 100% all stock with a 3% SWR was fine even if started in 1929.

If a investor had accumulated $1M and was planning to retire and apply a 3% SWR ... and the next day stocks halved, then there's no reason why they might not start with a 6% SWR, as though they had started the day earlier with twice as much stock value and used a 3% SWR.

Might be considered as a inflation adjusted SPIA, 3% (or whatever) SWR. The capital value might drop to a third or less in inflation adjusted terms during withdrawal years, but historically tended to recover from such lows. If a regular inflation adjusted income is the investment goal the prospects of achieving that are good, at least according to history. If the capital value is treated as having been 'spent', the same as a SPIA, then the paper value of the ongoing capital value could be considered as being irrelevant.
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HomerJ
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Re: When is 0% bonds appropriate?

Post by HomerJ »

seajay wrote: Thu Jun 24, 2021 1:00 pm
HomerJ wrote: Wed Jun 23, 2021 11:51 am
Ari wrote: Wed Jun 23, 2021 11:00 amIt certainly seems to me that 100% stocks is a perfectly reasonable allocation to hold throughout retirement, even though it’s not optimal for minimizing downside. It has a much higher upside, though, so it’s not irrational to use it. Equally, using it up to the point of retirement seems reasonable, even if it’s not optimal.
I agree that it's reasonable, but one really needs to do the mental exercise of a 50% crash with 100% stocks happening the year before you planned to retire.
A 100% all stock with a 3% SWR was fine even if started in 1929.
That is correct.

A 100% all stock with a 4% SWR failed if started in 1929.

And even a 3% WR was very very scary. (Don't tell me you'd be fine being down to $200,000 a few years after retiring, even if dividend payments were covering your 3% spending)
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nedsaid
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Re: When is 0% bonds appropriate?

Post by nedsaid »

etfan wrote: Mon Jun 21, 2021 8:16 pm If you know you're not going to need your money for X number of years, or you won't retire for X number of years, then it's OK to have 0% bonds in your portfolio.

What is X ?
At 40 years of age you need to start thinking about de-risking your portfolio, more bonds and less stocks as you age because your human capital from work becomes a decreasing asset. As you get older, you have less ability to contribute to retirement plans, a shorter investment horizon, and thus less ability to recover from bear markets.

A retired person could have 100% of their investments in stocks if their living expenses were fully covered by pensions and Social Security. Not that I would recommend 100% stocks for that person, just saying that is a rational choice. I would not do this myself even if my expenses were 100% covered by guaranteed income. John Bogle's suggestion that a 65% stock/35% bond portfolio is good for most investors is a pretty good one, pretty close to what I am doing now.

So one could have 100% of their retirement portfolio in stocks up until probably 20 or 25 years before retirement. I also am a believer that even young people need experience in the fixed income markets though a person in their twenties should have probably 90% or so in stocks.

Kind of weird, but I was actually very risk averse in my twenties. My IRA was 100% in Certificates of Deposit at the bank until I took it to a friend who became a stockbroker, I was 28-29 years old at the time. My workplace 403(b) at the time probably had stock funds in it and I had a taxable stock fund at 20th Century. But for a young guy, I was pretty risk averse. Even after going to my friend, I remember buying 3 Zero Coupon US Treasuries with an 8% yield to maturity and a Certificate of Deposit. I cautiously bought my first stock. Don't take it for granted that younger people are big risk takers, in my case I was not.
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1789
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Re: When is 0% bonds appropriate?

Post by 1789 »

etfan wrote: Mon Jun 21, 2021 8:16 pm If you know you're not going to need your money for X number of years, or you won't retire for X number of years, then it's OK to have 0% bonds in your portfolio.

What is X ?
It is appropriate all day and night as long as you have CASH. This is our situation.
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Re: When is 0% bonds appropriate?

Post by etfan »

nedsaid wrote: Thu Jun 24, 2021 2:47 pm At 40 years of age you need to start thinking about de-risking your portfolio, more bonds and less stocks as you age because your human capital from work becomes a decreasing asset.
Do you use a self-balancing fund of funds or do you do it manually? There are many opinions here, ranging from a smooth "glide path" to those who advocate for a single percentage for life.
John Bogle's suggestion that a 65% stock/35% bond portfolio is good for most investors is a pretty good one, pretty close to what I am doing now.
For life? Do you basically go towards 0% stocks or is there a minimum percentage of stocks you will always hold?
I also am a believer that even young people need experience in the fixed income markets though a person in their twenties should have probably 90% or so in stocks.
Then there are those who say 10% is so low it makes no difference. I get the sense that to them, there are certain thresholds that make the concept meaningful. So if you want bonds, you should at least have, say, 30%.
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Re: When is 0% bonds appropriate?

Post by etfan »

1789 wrote: Thu Jun 24, 2021 3:49 pm
etfan wrote: Mon Jun 21, 2021 8:16 pm If you know you're not going to need your money for X number of years, or you won't retire for X number of years, then it's OK to have 0% bonds in your portfolio.

What is X ?
It is appropriate all day and night as long as you have CASH. This is our situation.
Cash in what form exactly (Savings, CDs, etc)? And enough to cover how many downturn years?
carminered2019
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Re: When is 0% bonds appropriate?

Post by carminered2019 »

If you were a long-term investor, the worst twenty years delivered a return of 6.4% a year so no need to worry during accumulating years and no need for bonds.
Marseille07
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Re: When is 0% bonds appropriate?

Post by Marseille07 »

carminered2019 wrote: Thu Jun 24, 2021 7:05 pm If you were a long-term investor, the worst twenty years delivered a return of 6.4% a year so no need to worry during accumulating years and no need for bonds.
1929-1949 returned 6.4% a year?
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Re: When is 0% bonds appropriate?

Post by HootingSloth »

Marseille07 wrote: Thu Jun 24, 2021 7:12 pm
carminered2019 wrote: Thu Jun 24, 2021 7:05 pm If you were a long-term investor, the worst twenty years delivered a return of 6.4% a year so no need to worry during accumulating years and no need for bonds.
1929-1949 returned 6.4% a year?
It did not. More like 0.4% real from Sept 1929 to Sept 1949. I've seen the 6.4% figure other places. It seems like it is maybe a nominal figure that is post-1957 only? In any event, not very helpful.
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carminered2019
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Re: When is 0% bonds appropriate?

Post by carminered2019 »

Marseille07 wrote: Thu Jun 24, 2021 7:12 pm
carminered2019 wrote: Thu Jun 24, 2021 7:05 pm If you were a long-term investor, the worst twenty years delivered a return of 6.4% a year so no need to worry during accumulating years and no need for bonds.
1929-1949 returned 6.4% a year?
EDITED: from 1979-2016.
the bottom line is equities have almost ZERO risk if you have a time horizon of 20+ years.
Last edited by carminered2019 on Thu Jun 24, 2021 7:31 pm, edited 1 time in total.
Marseille07
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Re: When is 0% bonds appropriate?

Post by Marseille07 »

HootingSloth wrote: Thu Jun 24, 2021 7:20 pm
Marseille07 wrote: Thu Jun 24, 2021 7:12 pm
carminered2019 wrote: Thu Jun 24, 2021 7:05 pm If you were a long-term investor, the worst twenty years delivered a return of 6.4% a year so no need to worry during accumulating years and no need for bonds.
1929-1949 returned 6.4% a year?
It did not. More like 0.4% real from Sept 1929 to Sept 1949. I've seen the 6.4% figure other places. It seems like it is maybe a nominal figure that is post-1957 only? In any event, not very helpful.
Thank you. The markets can be really ugly if we're unlucky.
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Re: When is 0% bonds appropriate?

Post by msw1 »

KlangFool wrote: Mon Jun 21, 2021 8:35 pm There is no reason to be more aggressive than 70/30.
I think this is too broad of a statement. Why should an early 20s investor beginning to accumulate hold a 70/30 allocation, or even a more conservative one? Bonds are for wealth preservation; they are not useful if you don't have wealth.
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Re: When is 0% bonds appropriate?

Post by HootingSloth »

Marseille07 wrote: Thu Jun 24, 2021 7:30 pm
HootingSloth wrote: Thu Jun 24, 2021 7:20 pm
Marseille07 wrote: Thu Jun 24, 2021 7:12 pm
carminered2019 wrote: Thu Jun 24, 2021 7:05 pm If you were a long-term investor, the worst twenty years delivered a return of 6.4% a year so no need to worry during accumulating years and no need for bonds.
1929-1949 returned 6.4% a year?
It did not. More like 0.4% real from Sept 1929 to Sept 1949. I've seen the 6.4% figure other places. It seems like it is maybe a nominal figure that is post-1957 only? In any event, not very helpful.
Thank you. The markets can be really ugly if we're unlucky.
Indeed, a German investor with a globally diversified stock portfolio still saw a 57-year period with 0 real return. Unlucky can look very, very bad.
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Re: When is 0% bonds appropriate?

Post by KlangFool »

msw1 wrote: Thu Jun 24, 2021 7:35 pm
KlangFool wrote: Mon Jun 21, 2021 8:35 pm There is no reason to be more aggressive than 70/30.
I think this is too broad of a statement. Why should an early 20s investor beginning to accumulate hold a 70/30 allocation, or even a more conservative one? Bonds are for wealth preservation; they are not useful if you don't have wealth.
msw1,

What do you tell someone that has

A) 3 months of emergency fund.

B) Portfolio of 1 X expense

It is okay to be 100% stock as opposed to 70/30?

If the stock drops 50% and the person is unemployed,

The 100/0 person could only last 9 months. The 70/30 person could last 10.8 months.

Are you going to tell the person that the extra 1.8 month of survival does not matter?

You need to survive in order to succeed. Being young does not mean the person could not starve and being homeless.

Wealth preservation matters for someone with a smaller portfolio too. It could mean the difference between they survive the recession or not.

Life is not a straight path of all sunny and roses.

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Re: When is 0% bonds appropriate?

Post by 1789 »

etfan wrote: Thu Jun 24, 2021 6:54 pm
1789 wrote: Thu Jun 24, 2021 3:49 pm
etfan wrote: Mon Jun 21, 2021 8:16 pm If you know you're not going to need your money for X number of years, or you won't retire for X number of years, then it's OK to have 0% bonds in your portfolio.

What is X ?
It is appropriate all day and night as long as you have CASH. This is our situation.
Cash in what form exactly (Savings, CDs, etc)? And enough to cover how many downturn years?
37 year old in accumulation phase. 8 months worth of expenses cash in a money market. It is important to identify what one expect from a bond investment. Income? Not so much these times. Insurance against a crash? Sure, treasuries would provide that.
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Re: When is 0% bonds appropriate?

Post by nedsaid »

etfan wrote: Thu Jun 24, 2021 6:54 pm
nedsaid wrote: Thu Jun 24, 2021 2:47 pm At 40 years of age you need to start thinking about de-risking your portfolio, more bonds and less stocks as you age because your human capital from work becomes a decreasing asset.
Do you use a self-balancing fund of funds or do you do it manually? There are many opinions here, ranging from a smooth "glide path" to those who advocate for a single percentage for life.

Nedsaid: I very rarely rebalanced until July of 2013. I have been in a program of mild rebalancing from stocks to bonds as the market hits new highs ever since. Mostly this has been a process that I have done myself. About 30% of my retirement is now in a Private Client Group Cautious Portfolio, they do all the rebalancing for that portion of my portfolio, I have been using their service for just over 1 1/2 years now.

As far as Glide Path, I haven't been too successful. In 2013, I had 69% stocks, now in 2021 I am down to 63%-64%.

John Bogle's suggestion that a 65% stock/35% bond portfolio is good for most investors is a pretty good one, pretty close to what I am doing now.
For life? Do you basically go towards 0% stocks or is there a minimum percentage of stocks you will always hold?

Nedsaid: I think Bogle said "most investors." Presumably that could be for life.

I believe that the minimum amount of stocks of stocks someone should have in a portfolio is 20%, even if they are ultraconservative and risk averse.

With interest rates so low, it is harder to justify a very bond heavy portfolio.

I also am a believer that even young people need experience in the fixed income markets though a person in their twenties should have probably 90% or so in stocks.
Then there are those who say 10% is so low it makes no difference. I get the sense that to them, there are certain thresholds that make the concept meaningful. So if you want bonds, you should at least have, say, 30%.

Nedsaid: When the 2000 bear market hit, I had 20% bonds and cash, that DID make a difference for me.
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Re: When is 0% bonds appropriate?

Post by Nathan Drake »

I'm 100% stocks and 0% bonds. I still have steady income. I have over 50x bare minimum annual expenses saved. Still relatively early/mid career years.

I don't think for my personal situation bonds serve much purpose. I have enough to weather a stint of unemployment. I can survive a historically enormous global stock market crash and be okay. I suspect I would eventually be able to find enough employment to cover basic expenses even if I couldn't save anything or had to take a massive paycut. The world is increasingly more remote, and there are tons of jobs out there in a pinch.

I suspect that I may go to a 20% bond allocation near or during retirement and then drawdown that bond portion while letting the 80% equities ride as expected lifespan decreases.

Historically bonds just haven't been that great of an investment, but they are essential for sequence of return risk depending on your situation. Certainly a 4% SWR would need a reasonable allocation. 2-3%? Maybe not so much.
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etfan
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Re: When is 0% bonds appropriate?

Post by etfan »

KlangFool wrote: Thu Jun 24, 2021 8:03 pm The 100/0 person could only last 9 months. The 70/30 person could last 10.8 months.

Are you going to tell the person that the extra 1.8 month of survival does not matter?
I think the 100% stock proponents are counting on the fact/hope that the extra money stocks provide during the good years would provide the buffer you need during the bad years.
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etfan
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Re: When is 0% bonds appropriate?

Post by etfan »

Nathan Drake wrote: Thu Jun 24, 2021 11:38 pm I'm 100% stocks and 0% bonds. I still have steady income. I have over 50x bare minimum annual expenses saved.
That almost doesn't qualify as a 0% bonds portfolio. :)
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Re: When is 0% bonds appropriate?

Post by Capster1 »

It is up to the individual situation and what sort of risk profile they want.

I had 100% VTSAX until my late 30's.
I'm 43 and currently have a Vanguard Intermediate Bond Fund as well as a Municipal Bond Closed End Fund. Bonds make up less than 10% of my portfolio.
Some times the % of my net worth in the market makes me uncomfortable (I don't own a house). So, I prefer to hold bonds as well.

I have no idea what is going to happen, can't predict it, so I prefer being in that asset class versus not being there.
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Re: When is 0% bonds appropriate?

Post by Marseille07 »

etfan wrote: Fri Jun 25, 2021 12:18 am
KlangFool wrote: Thu Jun 24, 2021 8:03 pm The 100/0 person could only last 9 months. The 70/30 person could last 10.8 months.

Are you going to tell the person that the extra 1.8 month of survival does not matter?
I think the 100% stock proponents are counting on the fact/hope that the extra money stocks provide during the good years would provide the buffer you need during the bad years.
Every Boglehead holding equities is counting on this. Doesn't matter what percentage.
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Re: When is 0% bonds appropriate?

Post by dbr »

Marseille07 wrote: Fri Jun 25, 2021 12:59 am
etfan wrote: Fri Jun 25, 2021 12:18 am
KlangFool wrote: Thu Jun 24, 2021 8:03 pm The 100/0 person could only last 9 months. The 70/30 person could last 10.8 months.

Are you going to tell the person that the extra 1.8 month of survival does not matter?
I think the 100% stock proponents are counting on the fact/hope that the extra money stocks provide during the good years would provide the buffer you need during the bad years.
Every Boglehead holding equities is counting on this. Doesn't matter what percentage.
That is a natural consequence that comes with the territory. So yes, holding equities in any amount includes the concept. It is the point of understanding return and risk.
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Re: When is 0% bonds appropriate?

Post by seajay »

HomerJ wrote: Thu Jun 24, 2021 2:28 pm
seajay wrote: Thu Jun 24, 2021 1:00 pm
HomerJ wrote: Wed Jun 23, 2021 11:51 am
Ari wrote: Wed Jun 23, 2021 11:00 amIt certainly seems to me that 100% stocks is a perfectly reasonable allocation to hold throughout retirement, even though it’s not optimal for minimizing downside. It has a much higher upside, though, so it’s not irrational to use it. Equally, using it up to the point of retirement seems reasonable, even if it’s not optimal.
I agree that it's reasonable, but one really needs to do the mental exercise of a 50% crash with 100% stocks happening the year before you planned to retire.
A 100% all stock with a 3% SWR was fine even if started in 1929.
That is correct.

A 100% all stock with a 4% SWR failed if started in 1929.

And even a 3% WR was very very scary. (Don't tell me you'd be fine being down to $200,000 a few years after retiring, even if dividend payments were covering your 3% spending)
Perhaps no more/less than if all the money had been spent on a SPIA.

It's a play off between 3% SWR has always historically worked, including the times when the ongoing inflation adjusted portfolio value had declined to low levels in real terms, versus worrying about "this time it could be different" resulting in sleepless nights or worse - capitulation. I've seen some in their late 80's with 100% stock and just shrugging off the big dips, I guess because they'd already been through such previously. Others panic and sell out at the worst possible time to 'save what is left'. In fairness those with 100% stock had their own home and pensions also behind that. The better ones more inclined to ride things out when they're stock-heavy are the disinterested, only interested in the regular income being available in their spending account.
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Re: When is 0% bonds appropriate?

Post by seajay »

dbr wrote: Fri Jun 25, 2021 7:05 am
Marseille07 wrote: Fri Jun 25, 2021 12:59 am
etfan wrote: Fri Jun 25, 2021 12:18 am I think the 100% stock proponents are counting on the fact/hope that the extra money stocks provide during the good years would provide the buffer you need during the bad years.
Every Boglehead holding equities is counting on this. Doesn't matter what percentage.
That is a natural consequence that comes with the territory. So yes, holding equities in any amount includes the concept. It is the point of understanding return and risk.
Many save/invest money today that might otherwise have been spent/enjoyed, in anticipation of being able to spend/enjoy that money at a later date instead. With regular savings/accumulation some will average in at highs and lows. Similar drawing regular amounts/retired will average out at highs/lows. Broadly washes.

A primary factor is how well or not the capital matched/lagged/beat inflation between putting the money away and withdrawing it. Broadly on average stocks have provided the best prospects to achieve that (tend to beat inflation in total return terms).

Averaging in over many years/decades and out again over many years/decades is more inclined to achieve the overall broad average outcome. I don't recall ever having seen figures comparing different choices of asset allocations that span such-as 30 years of averaging in followed by subsequent 30 years of averaging out, but suspect that a constant all-stock across both would tend to reveal the better overall average outcome.

100% stock also avoids the rebalance dilemma, fear of selling bonds to add to stocks that had declined a lot.
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Re: When is 0% bonds appropriate?

Post by sureshoe »

nedsaid wrote: Thu Jun 24, 2021 2:47 pm
etfan wrote: Mon Jun 21, 2021 8:16 pm If you know you're not going to need your money for X number of years, or you won't retire for X number of years, then it's OK to have 0% bonds in your portfolio.

What is X ?
At 40 years of age you need to start thinking about de-risking your portfolio, more bonds and less stocks as you age because your human capital from work becomes a decreasing asset. As you get older, you have less ability to contribute to retirement plans, a shorter investment horizon, and thus less ability to recover from bear markets.

A retired person could have 100% of their investments in stocks if their living expenses were fully covered by pensions and Social Security. Not that I would recommend 100% stocks for that person, just saying that is a rational choice. I would not do this myself even if my expenses were 100% covered by guaranteed income. John Bogle's suggestion that a 65% stock/35% bond portfolio is good for most investors is a pretty good one, pretty close to what I am doing now.

So one could have 100% of their retirement portfolio in stocks up until probably 20 or 25 years before retirement. I also am a believer that even young people need experience in the fixed income markets though a person in their twenties should have probably 90% or so in stocks.

Kind of weird, but I was actually very risk averse in my twenties. My IRA was 100% in Certificates of Deposit at the bank until I took it to a friend who became a stockbroker, I was 28-29 years old at the time. My workplace 403(b) at the time probably had stock funds in it and I had a taxable stock fund at 20th Century. But for a young guy, I was pretty risk averse. Even after going to my friend, I remember buying 3 Zero Coupon US Treasuries with an 8% yield to maturity and a Certificate of Deposit. I cautiously bought my first stock. Don't take it for granted that younger people are big risk takers, in my case I was not.
Randomly picking one of these age based suggestions to reply to. But you hit a couple good points I was kicking around. In general, 40 feels like the ballpark age to start thinking about de-risking. I don't see a great reason to not be fully invested prior to 40. Maybe if you're FIRE and socking away ridiculous amounts and ultra-conservative... but otherwise, I don't see it.

The hard part is knowing if you're 100-0 or 90-10 that if you take a 25% or 40% hit that you might have to ride that out for 3-5 (or 10) years. At 45, that would suck - I'm willing to eat that risk. At 50, I think I'd be very annoyed. At 60, I'd be heartbroken.
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Re: When is 0% bonds appropriate?

Post by monodactyl »

0% bonds is appropriate when a x% chance of drawing down y% is acceptable in that time period.

So assume x = 99.9%, we want 99.9% of the drawdowns we get from equities to be acceptable in that time period.

Let's assume equity characteristics of:
8% average return
15% standard deviation.

99% of good outcomes being acceptable is the same as assuming the 0.1 percentile outcome being acceptable.

So in 1 year, the worst 0.1% of an asset with 8% return and 15% standard deviation is: exp(norminv(0.001,8%,15%)) - 1 = -38% drawdown in one year. If that's okay, then you can be 100% in stocks for a year. Here is it for different years:

Okay with a -38% drawdown at the end of 1 year
Okay with a -47% drawdown at the end of 2 years
Okay with a -57% drawdown at the end of 5 years
Okay with a -62% drawdown at the end of 10 years
Okay with a -59% drawdown at the end of 20 years
Okay with a -48% drawdown at the end of 30 years
Okay with a -28% drawdown at the end of 40 years

What I did for the other periods was convert the 1-year return and standard deviation to n year returns and standard deviations. So for 5 years, I converted the 8% mean return to 8%*5 (assuming multiplicative ln returns that I eventually exp()), and standard deviation I just took sqrt((15%^2)*5)

Disclaimer this was just an exercise in me trying to answer the question just right now. Not sure if it's the correct way to think about it, but that's my attempt.

Edit: Also. Kind of interesting that the worst 0.1% outcome gets worse as the period gets longer, before eventually getting better. Presumably because there's only so much the return can deviate from the mean.
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Re: When is 0% bonds appropriate?

Post by HootingSloth »

monodactyl wrote: Fri Jun 25, 2021 10:22 am 0% bonds is appropriate when a x% chance of drawing down y% is acceptable in that time period.

So assume x = 99.9%, we want 99.9% of the drawdowns we get from equities to be acceptable in that time period.

Let's assume equity characteristics of:
8% average return
15% standard deviation.

99% of good outcomes being acceptable is the same as assuming the 0.1 percentile outcome being acceptable.

So in 1 year, the worst 0.1% of an asset with 8% return and 15% standard deviation is: exp(norminv(0.001,8%,15%)) - 1 = -38% drawdown in one year. If that's okay, then you can be 100% in stocks for a year. Here is it for different years:

Okay with a -38% drawdown at the end of 1 year
Okay with a -47% drawdown at the end of 2 years
Okay with a -57% drawdown at the end of 5 years
Okay with a -62% drawdown at the end of 10 years
Okay with a -59% drawdown at the end of 20 years
Okay with a -48% drawdown at the end of 30 years
Okay with a -28% drawdown at the end of 40 years

What I did for the other periods was convert the 1-year return and standard deviation to n year returns and standard deviations. So for 5 years, I converted the 8% mean return to 8%*5 (assuming multiplicative ln returns that I eventually exp()), and standard deviation I just took sqrt((15%^2)*5)

Disclaimer this was just an exercise in me trying to answer the question just right now. Not sure if it's the correct way to think about it, but that's my attempt.
This seems OK to me as one conceptual way of looking at this problem. However, it is making a lot of assumptions about the probability distribution of annual stock market returns that we know to be false. Actual stock market returns are negatively skewed, leptokurtic, and demonstrate autocorrelation. As a result, all of your drawdown estimates are too low.

Unfortunately, it is difficult to determine just how overoptimistic these numbers are. We do not and cannot have access to the true "generating process" of stock market returns. Because tail events are rare, it takes huge amounts of data to put strong statistical constraints on the shape of the tails. Unfortunately, we only have about 150 years of data in the US, plus a lesser amount of data in a handful of other markets. As a result, it is very difficult to estimate how large a drawdown corresponds with a 1 in 1000 event as you are trying to do here.
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Re: When is 0% bonds appropriate?

Post by nedsaid »

sureshoe wrote: Fri Jun 25, 2021 10:08 am
nedsaid wrote: Thu Jun 24, 2021 2:47 pm
etfan wrote: Mon Jun 21, 2021 8:16 pm If you know you're not going to need your money for X number of years, or you won't retire for X number of years, then it's OK to have 0% bonds in your portfolio.

What is X ?
At 40 years of age you need to start thinking about de-risking your portfolio, more bonds and less stocks as you age because your human capital from work becomes a decreasing asset. As you get older, you have less ability to contribute to retirement plans, a shorter investment horizon, and thus less ability to recover from bear markets.

A retired person could have 100% of their investments in stocks if their living expenses were fully covered by pensions and Social Security. Not that I would recommend 100% stocks for that person, just saying that is a rational choice. I would not do this myself even if my expenses were 100% covered by guaranteed income. John Bogle's suggestion that a 65% stock/35% bond portfolio is good for most investors is a pretty good one, pretty close to what I am doing now.

So one could have 100% of their retirement portfolio in stocks up until probably 20 or 25 years before retirement. I also am a believer that even young people need experience in the fixed income markets though a person in their twenties should have probably 90% or so in stocks.

Kind of weird, but I was actually very risk averse in my twenties. My IRA was 100% in Certificates of Deposit at the bank until I took it to a friend who became a stockbroker, I was 28-29 years old at the time. My workplace 403(b) at the time probably had stock funds in it and I had a taxable stock fund at 20th Century. But for a young guy, I was pretty risk averse. Even after going to my friend, I remember buying 3 Zero Coupon US Treasuries with an 8% yield to maturity and a Certificate of Deposit. I cautiously bought my first stock. Don't take it for granted that younger people are big risk takers, in my case I was not.
Randomly picking one of these age based suggestions to reply to. But you hit a couple good points I was kicking around. In general, 40 feels like the ballpark age to start thinking about de-risking. I don't see a great reason to not be fully invested prior to 40. Maybe if you're FIRE and socking away ridiculous amounts and ultra-conservative... but otherwise, I don't see it.

The hard part is knowing if you're 100-0 or 90-10 that if you take a 25% or 40% hit that you might have to ride that out for 3-5 (or 10) years. At 45, that would suck - I'm willing to eat that risk. At 50, I think I'd be very annoyed. At 60, I'd be heartbroken.
Three paths someone could take to deal with de-risking. First, you could follow a glidepath of less stocks and more bonds as you age. Second, you could have a static asset allocation throughout life. John Bogle said that a 65% stock and 35% bond portfolio is good for most investors. A 65% stock allocation in retirement doesn't seem like quite so much if you consider the actuarial value of Social Security as a bond, which Bogle said was about $350,000. Third, you could take the Benjamin Graham approach in which he recommended a minimum of 25% and a maximum 75% for stocks. The flip side of that is a maximum of 75% and a minimum of 25% for bonds.
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Re: When is 0% bonds appropriate?

Post by monodactyl »

HootingSloth wrote: Fri Jun 25, 2021 10:35 am
monodactyl wrote: Fri Jun 25, 2021 10:22 am 0% bonds is appropriate when a x% chance of drawing down y% is acceptable in that time period.

So assume x = 99.9%, we want 99.9% of the drawdowns we get from equities to be acceptable in that time period.

Let's assume equity characteristics of:
8% average return
15% standard deviation.

99% of good outcomes being acceptable is the same as assuming the 0.1 percentile outcome being acceptable.

So in 1 year, the worst 0.1% of an asset with 8% return and 15% standard deviation is: exp(norminv(0.001,8%,15%)) - 1 = -38% drawdown in one year. If that's okay, then you can be 100% in stocks for a year. Here is it for different years:

Okay with a -38% drawdown at the end of 1 year
Okay with a -47% drawdown at the end of 2 years
Okay with a -57% drawdown at the end of 5 years
Okay with a -62% drawdown at the end of 10 years
Okay with a -59% drawdown at the end of 20 years
Okay with a -48% drawdown at the end of 30 years
Okay with a -28% drawdown at the end of 40 years

What I did for the other periods was convert the 1-year return and standard deviation to n year returns and standard deviations. So for 5 years, I converted the 8% mean return to 8%*5 (assuming multiplicative ln returns that I eventually exp()), and standard deviation I just took sqrt((15%^2)*5)

Disclaimer this was just an exercise in me trying to answer the question just right now. Not sure if it's the correct way to think about it, but that's my attempt.
This seems OK to me as one conceptual way of looking at this problem. However, it is making a lot of assumptions about the probability distribution of annual stock market returns that we know to be false. Actual stock market returns are negatively skewed, leptokurtic, and demonstrate autocorrelation. As a result, all of your drawdown estimates are too low.

Unfortunately, it is difficult to determine just how overoptimistic these numbers are. We do not and cannot have access to the true "generating process" of stock market returns. Because tail events are rare, it takes huge amounts of data to put strong statistical constraints on the shape of the tails. Unfortunately, we only have about 150 years of data in the US, plus a lesser amount of data in a handful of other markets. As a result, it is very difficult to estimate how large a drawdown corresponds with a 1 in 1000 event as you are trying to do here.
I had to google "Leptokurtic" - never heard of it before, but it looks like it should be better? if outliers seem less common?

Anyway, I tried a different historical approach using S&P. Obviously, what you said about only 150 years of data still stands, but I like the exercise in thinking about it.

Image

Could this be another way of thinking about it? Soul searching if those minimum annual returns for the appropriate time horizon are acceptable. The minimum historical values aren't as bad as the norminv approach, but I guess for the longer periods, we haven't really had 1000 periods, let alone non-overlapping periods.

At the end of the day, some leniency of the historical data being representative enough to make some educated decisions has to be assumed, shouldn't it? Otherwise, on the flip side of the coin, the lack of robustness similarly prevents you from justifying the inclusion of bonds on the same basis of unrepresentative return distributions and correlations.
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Re: When is 0% bonds appropriate?

Post by HootingSloth »

monodactyl wrote: Fri Jun 25, 2021 11:08 am I had to google "Leptokurtic" - never heard of it before, but it looks like it should be better? if outliers seem less common?

Anyway, I tried a different historical approach using S&P. Obviously, what you said about only 150 years of data still stands, but I like the exercise in thinking about it.

Image

Could this be another way of thinking about it? Soul searching if those minimum annual returns for the appropriate time horizon are acceptable. The minimum historical values aren't as bad as the norminv approach, but I guess for the longer periods, we haven't really had 1000 periods, let alone non-overlapping periods.

At the end of the day, some leniency of the historical data being representative enough to make some educated decisions has to be assumed, shouldn't it? Otherwise, on the flip side of the coin, the lack of robustness similarly prevents you from justifying the inclusion of bonds on the same basis of unrepresentative return distributions and correlations.
First, apologies for the unnecessary jargon. Leptokurtic is sometimes described as "fat tailed." A leptokuritc distribution will have more points very far out in the extremes. It can also have more points bunched near the mean, which may have caused the confusion when you googled it. This is probably a picture is worth a thousand words situation:

Image

I think it is great to look at historical returns and think about what they might mean for your asset allocation, as long as you do it with some caution. If you want to apply your method with 5% or 10% failure threshold, instead of 0.1%, then it could be more meaningful, although perhaps it does not help someone achieve the kind of certainty they really want.

I think looking at the minimum annual returns over various time periods can also be helpful, acknowledging that it is at once both a very conservative measure (worst so far is pretty bad) and still is no guarantee (the worst ever could still be ahead of us). Another worthwhile exercise is to look not just at the U.S., but the rest of the world as well. This can help avoid the kind of "survivorship bias" that comes from just looking at the country that has been the most successful in the recent past. Dimson and Marsh have at least one paper illustrating that approach, and I think it can be helpful to look at the actual history of these markets in a more qualitative way (i.e., reading historical accounts of what happened and what it was like to live through them).

I agree with your point that there needs to be some degree of an assumption that the future will look like the past in order to make a plan. The strength of the assumptions that you need to make will vary with your personal circumstances. If you are interested, I have talked about how I approach these questions in a series of posts in another thread, but my situation is somewhat unusual: here, here, here, here, here, and with more detail about what I personally do given my own situation here.

More generally, I would encourage people to think about as wide a variety of possible futures as they are able to, and how their plan would play out in each of them. We only get one chance at life, so it is helpful to be prepared. I don't think you necessarily need to have your whole plan driven around some worst case scenario, but it is helpful to think about how you would adapt. I also think it is better to try to think in qualitative terms to a large extent, because the usual quantitative approaches generally rely on pretty strong, and unfounded, assumptions. The quantitative stuff is useful, because it helps you get a feel for how different scenarios might play out. But, in my view, should not be the heart of your plan.
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Re: When is 0% bonds appropriate?

Post by Dottie57 »

Never, IMHO
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Re: When is 0% bonds appropriate?

Post by monodactyl »

HootingSloth wrote: Fri Jun 25, 2021 11:53 am
monodactyl wrote: Fri Jun 25, 2021 11:08 am I had to google "Leptokurtic" - never heard of it before, but it looks like it should be better? if outliers seem less common?

Anyway, I tried a different historical approach using S&P. Obviously, what you said about only 150 years of data still stands, but I like the exercise in thinking about it.

Image

Could this be another way of thinking about it? Soul searching if those minimum annual returns for the appropriate time horizon are acceptable. The minimum historical values aren't as bad as the norminv approach, but I guess for the longer periods, we haven't really had 1000 periods, let alone non-overlapping periods.

At the end of the day, some leniency of the historical data being representative enough to make some educated decisions has to be assumed, shouldn't it? Otherwise, on the flip side of the coin, the lack of robustness similarly prevents you from justifying the inclusion of bonds on the same basis of unrepresentative return distributions and correlations.
First, apologies for the unnecessary jargon. Leptokurtic is sometimes described as "fat tailed." A leptokuritc distribution will have more points very far out in the extremes. It can also have more points bunched near the mean, which may have caused the confusion when you googled it. This is probably a picture is worth a thousand words situation:

Image

I think it is great to look at historical returns and think about what they might mean for your asset allocation, as long as you do it with some caution. If you want to apply your method with 5% or 10% failure threshold, instead of 0.1%, then it could be more meaningful, although perhaps it does not help someone achieve the kind of certainty they really want.

I think looking at the minimum annual returns over various time periods can also be helpful, acknowledging that it is at once both a very conservative measure (worst so far is pretty bad) and still is no guarantee (the worst ever could still be ahead of us). Another worthwhile exercise is to look not just at the U.S., but the rest of the world as well. This can help avoid the kind of "survivorship bias" that comes from just looking at the country that has been the most successful in the recent past. Dimson and Marsh have at least one paper illustrating that approach, and I think it can be helpful to look at the actual history of these markets in a more qualitative way (i.e., reading historical accounts of what happened and what it was like to live through them).

I agree with your point that there needs to be some degree of an assumption that the future will look like the past in order to make a plan. The strength of the assumptions that you need to make will vary with your personal circumstances. If you are interested, I have talked about how I approach these questions in a series of posts in another thread, but my situation is somewhat unusual: here, here, here, here, here, and with more detail about what I personally do given my own situation here.

More generally, I would encourage people to think about as wide a variety of possible futures as they are able to, and how their plan would play out in each of them. We only get one chance at life, so it is helpful to be prepared. I don't think you necessarily need to have your whole plan driven around some worst case scenario, but it is helpful to think about how you would adapt. I also think it is better to try to think in qualitative terms to a large extent, because the usual quantitative approaches generally rely on pretty strong, and unfounded, assumptions. The quantitative stuff is useful, because it helps you get a feel for how different scenarios might play out. But, in my view, should not be the heart of your plan.
Interesting. Yeah, I was initially confused because when I googled, most of the mass of the distribution seemed concentrated around the mean.

Interesting stuff, I'm fairly new to bogleheads and haven't been super active but seems to be tons of interesting content. The other thread you linked to was very much a conversation I had today regarding elevated CAPE and associated market returns.

At the end of the day though, for me personally, the robustness of the model has diminishing returns. Preparing to take the brunt of a 1% outcome vs a 0.1% outcome ultimately results in the same portfolio allocation and lifestyle for me. At the end of the day, further "prudence" in building something that can withstand a 2 standard deviation downside event still results in a fail for my monte-carlo simulation because I just don't have enough return to sustain my retirement with all that cash in my mattress. The lifestyle adaption of rice-and-beans every day is just not happening.
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Re: When is 0% bonds appropriate?

Post by HomerJ »

seajay wrote: Fri Jun 25, 2021 8:14 am
HomerJ wrote: Thu Jun 24, 2021 2:28 pm
seajay wrote: Thu Jun 24, 2021 1:00 pm
HomerJ wrote: Wed Jun 23, 2021 11:51 am
Ari wrote: Wed Jun 23, 2021 11:00 amIt certainly seems to me that 100% stocks is a perfectly reasonable allocation to hold throughout retirement, even though it’s not optimal for minimizing downside. It has a much higher upside, though, so it’s not irrational to use it. Equally, using it up to the point of retirement seems reasonable, even if it’s not optimal.
I agree that it's reasonable, but one really needs to do the mental exercise of a 50% crash with 100% stocks happening the year before you planned to retire.
A 100% all stock with a 3% SWR was fine even if started in 1929.
That is correct.

A 100% all stock with a 4% SWR failed if started in 1929.

And even a 3% WR was very very scary. (Don't tell me you'd be fine being down to $200,000 a few years after retiring, even if dividend payments were covering your 3% spending)
Perhaps no more/less than if all the money had been spent on a SPIA.

It's a play off between 3% SWR has always historically worked, including the times when the ongoing inflation adjusted portfolio value had declined to low levels in real terms, versus worrying about "this time it could be different" resulting in sleepless nights or worse - capitulation. I've seen some in their late 80's with 100% stock and just shrugging off the big dips, I guess because they'd already been through such previously. Others panic and sell out at the worst possible time to 'save what is left'. In fairness those with 100% stock had their own home and pensions also behind that. The better ones more inclined to ride things out when they're stock-heavy are the disinterested, only interested in the regular income being available in their spending account.
Well, the better answer for worry and to handle the crashes is to not be 100% stocks.

4% worked fine for 60/40 stocks/bonds during the Great Depression.

4% didn't work for 100% stocks during the Great Depression.

I think instead of dropping to 3% and remaining 100% stocks, one would be better off switching to 60/40 in retirement and getting to spend more at first (4% instead of 3%) than the 100% stock person.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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Re: When is 0% bonds appropriate?

Post by HootingSloth »

monodactyl wrote: Fri Jun 25, 2021 12:17 pm Interesting. Yeah, I was initially confused because when I googled, most of the mass of the distribution seemed concentrated around the mean.

Interesting stuff, I'm fairly new to bogleheads and haven't been super active but seems to be tons of interesting content. The other thread you linked to was very much a conversation I had today regarding elevated CAPE and associated market returns.

At the end of the day though, for me personally, the robustness of the model has diminishing returns. Preparing to take the brunt of a 1% outcome vs a 0.1% outcome ultimately results in the same portfolio allocation and lifestyle for me. At the end of the day, further "prudence" in building something that can withstand a 2 standard deviation downside event still results in a fail for my monte-carlo simulation because I just don't have enough return to sustain my retirement with all that cash in my mattress. The lifestyle adaption of rice-and-beans every day is just not happening.
Lots of great content on here, and such a wide variety of approaches to learn from. Sometimes it seems folks get a bit carried away with "one size fits all" thinking for questions like what percentage of bonds to hold, when so much depends on each individual (and we are often talking past each other on semantic issues like whether an emergency fund counts as part of the fixed income part of your asset allocation). It still has been incredibly helpful to hear the underlying reasoning and see how close it matches (or doesn't) my own thinking, personality, and situation.
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Re: When is 0% bonds appropriate?

Post by seajay »

HomerJ wrote: Fri Jun 25, 2021 12:23 pmWell, the better answer for worry and to handle the crashes is to not be 100% stocks.

4% worked fine for 60/40 stocks/bonds during the Great Depression.

4% didn't work for 100% stocks during the Great Depression.

I think instead of dropping to 3% and remaining 100% stocks, one would be better off switching to 60/40 in retirement and getting to spend more at first (4% instead of 3%) than the 100% stock person.
Good point. I was thinking that if 100% all stock during accumulation that you'd be more inclined to end with a larger pot and could therefore continue to apply a lower SWR to 100% stock that generated the same amount of $$$ income and as such was safer, however broadly 60/40 gains weren't that much lower than all-stock so the differences would be relatively small. Less than 1% more from all-stock so even over 20 years just around 20% more, such that 4% SWR is reduced to 4 / 1.2 = 3.3% SWR. Subjectively, as at times 100/0 versus 60/40 have at times tended to realign in total returns even after decades. And of course you could be 100% in earlier years and then rotate into 60/40 at/near retirement provided that selling down 40% didn't incur too large a tax hit.
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Re: When is 0% bonds appropriate?

Post by KlangFool »

seajay wrote: Sat Jun 26, 2021 10:09 am
And of course you could be 100% in earlier years and then rotate into 60/40 at/near retirement provided that selling down 40% didn't incur too large a tax hit.
seajay,

A) That assumes that the person timed the market perfectly. If not, the stock market crashes before the AA adjustment and the person would not have the TIME to wait for recovery.

Counting on being lucky is not a good planning strategy.

B) Historically, 100/0 can lose money in a 10 years period. So, the person would need to adjust the AA at least 10 years before retirement. So, how many years can the person be 100/0 realistically?

C) In the earlier year, the portfolio is small. The 100/0 person may not survive a bad recession with unemployment.

D) In summary, the person cannot be 100/0 in the earlier years because the portfolio is too small. In the later years, the person need to be adjust the AA to 60/40 at least 10 years before retirement.

E) After going through the whole thought process, the number of years that someone can be 100/0 is too small to matter. So, what is the point of 100/0 in the first place?

F) Start with an AA of 70/30 and 3 months of emergency fund. Glide to 60/40 over the years. The person would have a smoother and safer ride. And, even if the path is not totally smooth, the person would survive and thrive.

G) Furthermore, if the person got lucky, the person could retire with 70/30 immediately.

H) Balance is the key!

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Re: When is 0% bonds appropriate?

Post by seajay »

KlangFool wrote: Sat Jun 26, 2021 10:27 am
seajay wrote: Sat Jun 26, 2021 10:09 am
And of course you could be 100% in earlier years and then rotate into 60/40 at/near retirement provided that selling down 40% didn't incur too large a tax hit.
seajay,

A) That assumes that the person timed the market perfectly. If not, the stock market crashes before the AA adjustment and the person would not have the TIME to wait for recovery.

Counting on being lucky is not a good planning strategy.

B) Historically, 100/0 can lose money in a 10 years period. So, the person would need to adjust the AA at least 10 years before retirement. So, how many years can the person be 100/0 realistically?

C) In the earlier year, the portfolio is small. The 100/0 person may not survive a bad recession with unemployment.

D) In summary, the person cannot be 100/0 in the earlier years because the portfolio is too small. In the later years, the person need to be adjust the AA to 60/40 at least 10 years before retirement.

E) After going through the whole thought process, the number of years that someone can be 100/0 is too small to matter. So, what is the point of 100/0 in the first place?

F) Start with an AA of 70/30 and 3 months of emergency fund. Glide to 60/40 over the years. The person would have a smoother and safer ride. And, even if the path is not totally smooth, the person would survive and thrive.

G) Furthermore, if the person got lucky, the person could retire with 70/30 immediately.

H) Balance is the key!

KlangFool
If a investor accumulates enough one day and decides that 4% SWR is OK, perhaps $1M portfolio, $40K of income expected, and stocks halve the next day before they've activated that, then 8% SWR against the $500K portfolio value has the same prospect for success/failure as it they'd stated with 4% against the $1M portfolio value a day earlier.

Yes the capital values and rate of withdrawals as a percentage of the portfolio value look nasty, but the likes of the Trinity study suggest that (mostly) worked out OK for 30 year periods. Dropping to 3.5% (7% if halved), worked out OK.

Ongoing capital values might be concerning, but unless actioned - such as capitulating then the prospects based on history were OK. Could mentally be considered as having bought a inflation adjusted annuity, all spent capital, objective of just providing a regular inflation adjusted income.

Run through sequences of SWR yearly values for all start dates 30 year periods and some of those will exhibit large real value declines at times, but that continued on mostly OK. There have been periods where no matter what asset allocation was held inflation beat all blends. A situation that should be considered no matter what asset allocation, and ponder how you might cope with that at the time if/when encountered.

You could revise SWR to utilise the current or past highest high in inflation adjusted terms as the 'capital' amount. You could also revise the SWR value increase each year to be uplifted by inflation or to 4% of the inflation adjusted prior highest capital value high .. whichever were the greater (in which case income would broadly tend to rise ahead of inflation).
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Re: When is 0% bonds appropriate?

Post by seajay »

HomerJ wrote: Fri Jun 25, 2021 12:23 pm I think instead of dropping to 3% and remaining 100% stocks, one would be better off switching to 60/40 in retirement and getting to spend more at first (4% instead of 3%) than the 100% stock person.
Choices, choices !! Some suggest 100% stock, Graham advocated 50/50, Larry suggests 30/70 !!!

I know, can't make my mind up so I'll run all three equally and as I have enough for a 3% SWR I'll take the equivalent of 1% from each, or if one is working out better than the others I might take 2% from that and 0% from another that is struggling. Clumping them all together and that's 60/40 :D And being diversified across all three at least I wont have been fully wrong in the choice actually selected.
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Re: When is 0% bonds appropriate?

Post by KlangFool »

seajay wrote: Sat Jun 26, 2021 10:59 am
If a investor accumulates enough one day and decides that 4% SWR is OK,
seajay,

Is it safe to assume that the market only crash after the investor accumulate enough?

What if the market crash and do not recover when the investor is at X% of the goal? And, X is less than 100.

Counting on being lucky is not a good planning strategy.

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Re: When is 0% bonds appropriate?

Post by hoops777 »

You are 100 pct stocks and own a home that has doubled or tripled in value. Life is great! What could possibly go wrong ?
There is great wisdom in that old saying about not putting all of your eggs in one basket.
K.I.S.S........so easy to say so difficult to do.
carminered2019
Posts: 1939
Joined: Fri Jun 21, 2019 7:06 pm

Re: When is 0% bonds appropriate?

Post by carminered2019 »

KlangFool wrote: Sat Jun 26, 2021 11:29 am
seajay wrote: Sat Jun 26, 2021 10:59 am
If a investor accumulates enough one day and decides that 4% SWR is OK,
seajay,

Is it safe to assume that the market only crash after the investor accumulate enough?

What if the market crash and do not recover when the investor is at X% of the goal? And, X is less than 100.

Counting on being lucky is not a good planning strategy.

KlangFool
majority of people do not invest based on luck. People invest based on maximum return with minimum risk and holding stocks for over 20+ years has almost ZERO risk.
KlangFool
Posts: 31529
Joined: Sat Oct 11, 2008 12:35 pm

Re: When is 0% bonds appropriate?

Post by KlangFool »

carminered2019 wrote: Sat Jun 26, 2021 2:19 pm
KlangFool wrote: Sat Jun 26, 2021 11:29 am
seajay wrote: Sat Jun 26, 2021 10:59 am
If a investor accumulates enough one day and decides that 4% SWR is OK,
seajay,

Is it safe to assume that the market only crash after the investor accumulate enough?

What if the market crash and do not recover when the investor is at X% of the goal? And, X is less than 100.

Counting on being lucky is not a good planning strategy.

KlangFool
majority of people do not invest based on luck. People invest based on maximum return with minimum risk and holding stocks for over 20+ years has almost ZERO risk.
carminered2019,

Normal people realized that they could be unemployed in a recession. And, the unemployment could last a while. Given that there will be a few recessions across 20+ years, they do not assume that they would be fully-employed continuously across 20+ years.

<<majority of people do not invest based on luck.>>

I had worked 30+ years. I was unemployed for more than 1 year a few times. I am unemployed for more than 1 year now.

Please let me know why do you believe that you can safely assume that you would be fully-employed continuously across 20+ years. Can you predict your own future?

Are you that lucky?

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: When is 0% bonds appropriate?

Post by Marseille07 »

KlangFool wrote: Sat Jun 26, 2021 3:04 pm I had worked 30+ years. I was unemployed for more than 1 year a few times. I am unemployed for more than 1 year now.

Please let me know why do you believe that you can safely assume that you would be fully-employed continuously across 20+ years. Can you predict your own future?

Are you that lucky?

KlangFool
Employment isn't luck though. Some people are star players and stay employed no matter where. Some people hop jobs every 3 months. This is also dependent on the industry, years of experience, education. Luck is certainly a factor but not a big one.
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