Bogleheads take on bond tent

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martincmartin
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Bogleheads take on bond tent

Post by martincmartin »

Hello Mr. Bond Tent
Micheal Kitces coined the concept. Traditional advice is to reduce equities as you get older, using "age in bonds" or some other curve. For example, since we generally think we should match asset allocation to the time until we need the money. Say you keep 5 years worth of expenses in fixed income. At the start of a 30 year retirement, that's 5/30 = 17% of your assets, with the rest in some stock/bond mix. Later, when only 5 years remain, that's 100% fixed income, no stocks.

However, when you backtest this on historical data and compare it to a fixed asset allocation, fixed gives you a lower chance of running out of money in retirement. And, in fact, increasing equities over time does better than either.

There are a couple factors at play here:

1. "Safe" assets aren't. Fixed income assets are considered safer than equities, and in fact are often referred to as safe assets. This is certainly true over the span of days, months and years. But in the U.S., stocks have always outperformed Treasuries over all 20 year periods. Internationally, there are cases where they haven't, such as Japan's lost decades. Still, stocks are much, much more likely to outperform bonds over any 20 year period. This matters, because generally people retire before they have accumulated the sum total of all their future expenses. For example, if your expenses stayed the same in real terms, a 30 year retirement would need a portfolio that's 30x your annual expenses, or a 3.3% withdrawl rate. If you retire before this, say when you need a 4% withdrawl rate, then 100% fixed income will guarantee you run out of money, forcing you to play the Squid Game, which is very dangerous. In fact, fixed income doesn't keep up with inflation in the long term, so even if you had 30x you'd still run out. If you need positive real growth to succeed, then assets that provide negative real growth aren't safe in this sense.

2. The future performance of stocks doesn't just depend on their current price. Even in a bear market, it's safe to assume people will need food, clothing, shelter, transportation, entertainment, etc for decades to come, so companies that provide these will have profits for decades to come. In fact, there's an idea that the value of a company is the discounted sum of future dividends. Of course, we can't know the future dividends or the discount rate, but the point remains that stock markets oscillate between under valuing and over valuing, and if we've just had a bear market, stocks are more likely to do better.

To some, the idea that the stock price reflects all public information, including valuations, is the essence of the efficient market hypothesis. The capital asset pricing model assumes this and, as the wikipedia article says, "fails many historical back tests." It may be true when looking at minute by minute returns, or day by day, even year by year. But things are different when you look at decades.

This idea, that $1000 in stocks is the same whether we've just had a long bull or bear market, is very pernicious and baked into a lot of thinking. For example, people panic when the stock market crashes, because they think they've lost a lot of money. They're implicitly thinking the market is as likely to go down as it is to go up. But historically this isn't true.

3. Sequence of return risk. Traditional theory more or less ignores the effect of adding funds during accumulation, or withdrawing them during retirement. In a world where you neither add nor withdraw from your portfolio for 20+ years, historical data says you're best with 100% stocks, even in the worst case, and only need to hold bonds if you don't have diamond hands and will panic in a market crash. However, withdrawing money during retirement changes this. If you start with $1M in all stocks, have $40k annual expenses, and the stock market crashes 75%, well now your $40k withdrawl is 16% of your portfolio, and have a smaller portfolio to take advantage of the recovery. So the need for bonds, and the amount, is driven by sequence of return risk, not ability to take risk.

Putting it all together

Why have a lot of bonds at the start of retirement, and then go to 80% or even 100% equities after 5 to 15 years?
  • If there's a bull market in the first decade of retirement, your equity portion has grown nicely. Your portfolio is now higher than when you started, even after 10 years of withdraws, and you only have 20 years of expenses ahead of you, not 30. Any asset allocation will succeed, in the sense of not running out of money in 20 years, even 100% equities.
  • If there's a bear market in the first decade, you haven't been touching your equities, taking your living expenses exclusively from your bonds. When the following bull market comes, you're better off being stock heavy, to take best advantage of equity growth.
So what do Bogleheads think of the bond tent for retirement? Are you sold? If not, what are you objections to the arguments above?
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Re: Bogleheads take on bond tent

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martincmartin wrote: Sun Jan 23, 2022 8:27 am... But in the U.S., stocks have always outperformed Treasuries over all 20 year periods...
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Re: Bogleheads take on bond tent

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martincmartin wrote: Sun Jan 23, 2022 8:27 am But in the U.S., stocks have always outperformed Treasuries over all 20 year periods.
Long-term Treasuries (LT Gov Bnd) outperformed US stocks (i.e. "the market" i.e. the S&P 500 index) over 20 years from 2000 to 2019.

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Re: Bogleheads take on bond tent

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mrpotatoheadsays wrote: Sun Jan 23, 2022 8:55 am Long-term Treasuries (LT Gov Bnd) outperformed US stocks (i.e. "the market" i.e. the S&P 500 index) over 20 years from 2000 to 2019.
Long-term Treasuries are only one kinds of Treasury. Best to look at some weighting of all Treasuries, but if not, Intermediate Term Treasuries seem like the best approximation.

Also, there are around 4,000 stocks in the U.S. stock market. S&P 500 is just large cap stocks, a segment of the total stock market.

Interesting graph, thanks for posting that.
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Re: Bogleheads take on bond tent

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martincmartin wrote: Sun Jan 23, 2022 9:08 am...
Also, there are around 4,000 stocks in the U.S. stock market. S&P 500 is just large cap stocks, a segment of the total stock market...
The S&P 500 isn't "just" large cap stocks, if it wasn't market-cap weighted most of the stocks would be in the range that's broadly considered "mid caps", but because it's market cap weighted it shares the same "Large Cap Fund" style as other "Total Market" indexes, and doesn't/hasn't had any significant difference from the performance of the various "Total Market" indexes, the S&P 500 even has an explicit objective in its methodology of being a proxy for the broad U.S. market.
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Re: Bogleheads take on bond tent

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martincmartin wrote: Sun Jan 23, 2022 9:08 am Also, there are around 4,000 stocks in the U.S. stock market. S&P 500 is just large cap stocks, a segment of the total stock market.
The US Total Market Index and S&P 500 Index are large-cap blend indexes. From 1928 to 2020, the US Total Market Index returned 9.9% while the S&P 500 Index returned 10.0%. Because of the market-cap weighting, the returns of smaller equities have been insignificant.

"Buy the total market" is nothing more than a sales pitch. Investors who purchased Total Market indices did not receive the benefits of mid-cap and small-cap equities.
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Re: Bogleheads take on bond tent

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martincmartin wrote: Sun Jan 23, 2022 8:27 am So what do Bogleheads think of the bond tent for retirement? Are you sold? If not, what are you objections to the arguments above?
The problem with the "bond tent" is that it doesn't work. In other words, it doesn't generally increase the sustainable withdrawal rate of a portfolio. A constant asset allocation in retirement does that, a "bond tent" doesn't.

Planning for the gap years between retirement and claiming Social Security is important and that MIGHT in some cases generate a plan that looks like a bond tent, but this is due more to the uneven cash flows than to sequence of returns risk mitigation.

Some investors find psychological comfort in the bond tent concept, which might be reason enough to adopt it. But, objectively speaking, it doesn't improve the probability of a successful retirement income stream.
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Re: Bogleheads take on bond tent

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vineviz wrote: Sun Jan 23, 2022 9:47 am
martincmartin wrote: Sun Jan 23, 2022 8:27 am So what do Bogleheads think of the bond tent for retirement? Are you sold? If not, what are you objections to the arguments above?
The problem with the "bond tent" is that it doesn't work. In other words, it doesn't generally increase the sustainable withdrawal rate of a portfolio. A constant asset allocation in retirement does that, a "bond tent" doesn't.

Planning for the gap years between retirement and claiming Social Security is important and that MIGHT in some cases generate a plan that looks like a bond tent, but this is due more to the uneven cash flows than to sequence of returns risk mitigation.

Some investors find psychological comfort in the bond tent concept, which might be reason enough to adopt it. But, objectively speaking, it doesn't improve the probability of a successful retirement income stream.
My comment is along the same lines. The comment is that it takes a lot of proving that hasn't happened to establish that schemes like this actually make a meaningful difference in outcome over all possible future possibilities. The one exception, which isn't really the same thing, is funding a short term high cost bridge, perhaps to starting Social Security, at the beginning of retirement. Probably the extra spending should be put away in CDs or a ladder of bonds lasting the five or ten years or so involved. Even that has to be modeled to be checked.

What should be kept in mind is that asset allocation has a weak effect on withdrawal outcomes. The increased return or decreased risk of a choice is offset by the increased risk or decreased return, respectively, of how you alter the AA. The handle on portfolio failure in retirement id withdrawal rate, so inherently one would expect a scheme involving changing withdrawal rates would make more sense. Even FireCalc already uses some withdrawal options you can select. This was known way back when Bengen and Trinity did the original work.

I would add that just about any scheme that separates out bonds, cash, or equities as separate sources of supporting retirement is a mental device for psychological security and not an actual effect.

The last comment is that what asset allocation does affect is how large the estate will be for portfolios that survive. You heirs will be richer the more you hold in stocks. At the other extreme if you build a no-fail retirement using an inflation indexed annuity, you have no stocks and your heirs get nothing.
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Re: Bogleheads take on bond tent

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vineviz wrote: Sun Jan 23, 2022 9:47 am
The problem with the "bond tent" is that it doesn't work. In other words, it doesn't generally increase the sustainable withdrawal rate of a portfolio. A constant asset allocation in retirement does that, a "bond tent" doesn't.

Planning for the gap years between retirement and claiming Social Security is important and that MIGHT in some cases generate a plan that looks like a bond tent, but this is due more to the uneven cash flows than to sequence of returns risk mitigation.

Some investors find psychological comfort in the bond tent concept, which might be reason enough to adopt it. But, objectively speaking, it doesn't improve the probability of a successful retirement income stream.
I could be convinced that the bond tent is not better in general. But conditional on retiring after 13 years of bull market gains and stretched valuations, I think it has a decent chance of improving outcome. Prospective retirees hit their number usually after a sustained bull run. Conditional probability for those who retire on the wealth number rather than an age target might generally be better with the tent.

The tent or bond bucket is useful as a tool to fund the delay to SS claiming. It is endorsed by several researchers in retirement planning as described here: https://obliviousinvestor.com/an-ideal- ... -strategy/ Note that beyond the delayed claiming pot, they find that a high equity allocation works well.
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Re: Bogleheads take on bond tent

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Svensk Anga wrote: Sun Jan 23, 2022 10:30 am I could be convinced that the bond tent is not better in general. But conditional on retiring after 13 years of bull market gains and stretched valuations, I think it has a decent chance of improving outcome. Prospective retirees hit their number usually after a sustained bull run. Conditional probability for those who retire on the wealth number rather than an age target might generally be better with the tent.
Even if we were to accept the premise of these arguments as true, they are arguments for a higher bond allocation overall not an argument for a "bond tent" per se (which proposes a higher bond allocation at the start of retirement than at the end).
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Re: Bogleheads take on bond tent

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Svensk Anga wrote: Sun Jan 23, 2022 10:30 am
vineviz wrote: Sun Jan 23, 2022 9:47 am
The problem with the "bond tent" is that it doesn't work. In other words, it doesn't generally increase the sustainable withdrawal rate of a portfolio. A constant asset allocation in retirement does that, a "bond tent" doesn't.

Planning for the gap years between retirement and claiming Social Security is important and that MIGHT in some cases generate a plan that looks like a bond tent, but this is due more to the uneven cash flows than to sequence of returns risk mitigation.

Some investors find psychological comfort in the bond tent concept, which might be reason enough to adopt it. But, objectively speaking, it doesn't improve the probability of a successful retirement income stream.
I could be convinced that the bond tent is not better in general. But conditional on retiring after 13 years of bull market gains and stretched valuations, I think it has a decent chance of improving outcome. Prospective retirees hit their number usually after a sustained bull run. Conditional probability for those who retire on the wealth number rather than an age target might generally be better with the tent.

The tent or bond bucket is useful as a tool to fund the delay to SS claiming. It is endorsed by several researchers in retirement planning as described here: https://obliviousinvestor.com/an-ideal- ... -strategy/ Note that beyond the delayed claiming pot, they find that a high equity allocation works well.
I agree the bond tent works well for bridging a gap. I hate raising common sense to the level of applying a metaphor to it.

The other issue you raise above is one of those hard to prove things. Getting clear pictures about the average behavior of portfolios is hard enough. Trying to clearly show something regarding conditional probabilities is even more impossible even if it seems intuitive.
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Re: Bogleheads take on bond tent

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vineviz wrote: Sun Jan 23, 2022 9:47 am
martincmartin wrote: Sun Jan 23, 2022 8:27 am So what do Bogleheads think of the bond tent for retirement? Are you sold? If not, what are you objections to the arguments above?
The problem with the "bond tent" is that it doesn't work. In other words, it doesn't generally increase the sustainable withdrawal rate of a portfolio. A constant asset allocation in retirement does that, a "bond tent" doesn't.

Planning for the gap years between retirement and claiming Social Security is important and that MIGHT in some cases generate a plan that looks like a bond tent, but this is due more to the uneven cash flows than to sequence of returns risk mitigation.

Some investors find psychological comfort in the bond tent concept, which might be reason enough to adopt it. But, objectively speaking, it doesn't improve the probability of a successful retirement income stream.
Vince -

To bridge the uneven cash flows between retirement and Social Security, whey not simply allocate a position to US & International High Dividend funds as well as possibly real estate crowdfunding such as Fundrise? I have asked that a couple of times. That should lower the “income risk”. Jack Bogle used to recommend an allocation to dividend funds for this exact purpose.

Sam at Financial Samurai has also followed this glide path and retired early:

https://www.financialsamurai.com/real-e ... ng-center/

Best.
Tony
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Re: Bogleheads take on bond tent

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vineviz wrote: Sun Jan 23, 2022 10:46 am
Svensk Anga wrote: Sun Jan 23, 2022 10:30 am I could be convinced that the bond tent is not better in general. But conditional on retiring after 13 years of bull market gains and stretched valuations, I think it has a decent chance of improving outcome. Prospective retirees hit their number usually after a sustained bull run. Conditional probability for those who retire on the wealth number rather than an age target might generally be better with the tent.
Even if we were to accept the premise of these arguments as true, they are arguments for a higher bond allocation overall not an argument for a "bond tent" per se (which proposes a higher bond allocation at the start of retirement than at the end).

Vince -

Hence a possible strategy of High Dividend funds with Bonds perhaps.

Tony
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Re: Bogleheads take on bond tent

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abuss368 wrote: Sun Jan 23, 2022 10:50 am
vineviz wrote: Sun Jan 23, 2022 10:46 am
Svensk Anga wrote: Sun Jan 23, 2022 10:30 am I could be convinced that the bond tent is not better in general. But conditional on retiring after 13 years of bull market gains and stretched valuations, I think it has a decent chance of improving outcome. Prospective retirees hit their number usually after a sustained bull run. Conditional probability for those who retire on the wealth number rather than an age target might generally be better with the tent.
Even if we were to accept the premise of these arguments as true, they are arguments for a higher bond allocation overall not an argument for a "bond tent" per se (which proposes a higher bond allocation at the start of retirement than at the end).

Vince -

Hence a possible strategy of High Dividend funds with Bonds perhaps.

Tony
Dividends are another one of those “feels good and fools some people” strategies that don’t objectively improve retirement outcomes in general.
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Re: Bogleheads take on bond tent

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vineviz wrote: Sun Jan 23, 2022 10:55 am
abuss368 wrote: Sun Jan 23, 2022 10:50 am
vineviz wrote: Sun Jan 23, 2022 10:46 am
Svensk Anga wrote: Sun Jan 23, 2022 10:30 am I could be convinced that the bond tent is not better in general. But conditional on retiring after 13 years of bull market gains and stretched valuations, I think it has a decent chance of improving outcome. Prospective retirees hit their number usually after a sustained bull run. Conditional probability for those who retire on the wealth number rather than an age target might generally be better with the tent.
Even if we were to accept the premise of these arguments as true, they are arguments for a higher bond allocation overall not an argument for a "bond tent" per se (which proposes a higher bond allocation at the start of retirement than at the end).

Vince -

Hence a possible strategy of High Dividend funds with Bonds perhaps.

Tony
Dividends are another one of those “feels good and fools some people” strategies that don’t objectively improve retirement outcomes in general.

Vince -

That is definitely one perspective and viewpoint. But if cash flow issues arise, a dividend strategy and maybe crowdfunded real estate are options. Jack Brennan updated his book and has done a lot of interviews and podcasts over the past year stressing US & International Total Market funds with High Dividend funds. Bond yields being in the toilet.

I noticed now you have not addressed the real estate / Fundrising perspective and strategy😂

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Re: Bogleheads take on bond tent

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martincmartin wrote: Sun Jan 23, 2022 8:27 am So what do Bogleheads think of the bond tent for retirement? Are you sold? If not, what are you objections to the arguments above?
We won't deploy a bond tent. Spendy insurance policy. Unlikely to be needed.

Instead, we will maintain a fixed asset allocation and have sufficient leeway in our budget to reduce spending if needed. Basically, we will use the Variable Portfolio Withdrawal method in retirement.
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Re: Bogleheads take on bond tent

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abuss368 wrote: Sun Jan 23, 2022 11:09 am That is definitely one perspective and viewpoint. But if cash flow issues arise, a dividend strategy and maybe crowdfunded real estate are options. Jack Brennan updated his book and has done a lot of interviews and podcasts over the past year stressing US & International Total Market funds with High Dividend funds. Bond yields being in the toilet.
I don't pay much attention to what Jack Brennan says about asset allocation. And if it makes you feel better to own high dividend companies then whose going to stop you from doing so? Not me.

The good news about strategies that don't make a difference in outcomes is that, except for fees and taxes, following them doesn't tend to do much damage.
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Re: Bogleheads take on bond tent

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vineviz wrote: Sun Jan 23, 2022 11:15 am
abuss368 wrote: Sun Jan 23, 2022 11:09 am That is definitely one perspective and viewpoint. But if cash flow issues arise, a dividend strategy and maybe crowdfunded real estate are options. Jack Brennan updated his book and has done a lot of interviews and podcasts over the past year stressing US & International Total Market funds with High Dividend funds. Bond yields being in the toilet.
I don't pay much attention to what Jack Brennan says about asset allocation. And if it makes you feel better to own high dividend companies then whose going to stop you from doing so? Not me.

The good news about strategies that don't make a difference in outcomes is that, except for fees and taxes, following them doesn't tend to do much damage.
Now that is a very perceptive observation.
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Re: Bogleheads take on bond tent

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vineviz wrote: Sun Jan 23, 2022 11:15 am
abuss368 wrote: Sun Jan 23, 2022 11:09 am That is definitely one perspective and viewpoint. But if cash flow issues arise, a dividend strategy and maybe crowdfunded real estate are options. Jack Brennan updated his book and has done a lot of interviews and podcasts over the past year stressing US & International Total Market funds with High Dividend funds. Bond yields being in the toilet.
I don't pay much attention to what Jack Brennan says about asset allocation. And if it makes you feel better to own high dividend companies then whose going to stop you from doing so? Not me.

The good news about strategies that don't make a difference in outcomes is that, except for fees and taxes, following them doesn't tend to do much damage.
Thanks Vince -

So the second part of the question related to Sam at Financial Samurai and real estate crowdfunding with Fundrise. That investment has less liquidity and charges 1%. Based on your response in terms of strategies that don’t make a difference in outcomes, that could by chance. Not having access to capital when needed and a high expense ratio could result in a negative outcome.

Best.
Tony
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Re: Bogleheads take on bond tent

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vineviz wrote: Sun Jan 23, 2022 11:15 am
I don't pay much attention to what Jack Brennan says about asset allocation. And if it makes you feel better to own high dividend companies then whose going to stop you from doing so? Not me.
Vince -

Investors would be wise to listen to Jack Brennan. He is a wealth of wisdom and information. His two books are excellent and I can better understand why Jack Bogle selected him.

My thoughts…..
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Re: Bogleheads take on bond tent

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abuss368 wrote: Sun Jan 23, 2022 11:20 am So the second part of the question related to Sam at Financial Samurai and real estate crowdfunding with Fundrise. That investment has less liquidity and charges 1%. Based on your response in terms of strategies that don’t make a difference in outcomes, that could by chance. Not having access to capital when needed and a high expense ratio could result in a negative outcome.
Unsurprisingly, from 2017 to 2021 the average Fundrise account has had a total return less than that of both Vanguard's REIT index fund and total stock market fund. There's no magic bullet here, and you're more likely to shoot yourself in the foot by chasing schemes like this.
Last edited by vineviz on Sun Jan 23, 2022 11:40 am, edited 1 time in total.
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Re: Bogleheads take on bond tent

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abuss368 wrote: Sun Jan 23, 2022 11:22 am Investors would be wise to listen to Jack Brennan. He is a wealth of wisdom and information. His two books are excellent and I can better understand why Jack Bogle selected him.
I think Jack Brennan is a smart guy.

While Brennan was at the helm of Vanguard the firm launched both Vanguard LifeStrategy Income Fund (VASIX) and Vanguard Target Retirement Income Fund (VTINX): do either of those funds include an allocation to REITs or high dividend stocks?

Does Vanguard's target date fund glide path include a bond tent? Does ANY firm design their glide path in such a way?
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Re: Bogleheads take on bond tent

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abuss368 wrote: Sun Jan 23, 2022 11:09 am
vineviz wrote: Sun Jan 23, 2022 10:55 am
abuss368 wrote: Sun Jan 23, 2022 10:50 am
vineviz wrote: Sun Jan 23, 2022 10:46 am
Svensk Anga wrote: Sun Jan 23, 2022 10:30 am I could be convinced that the bond tent is not better in general. But conditional on retiring after 13 years of bull market gains and stretched valuations, I think it has a decent chance of improving outcome. Prospective retirees hit their number usually after a sustained bull run. Conditional probability for those who retire on the wealth number rather than an age target might generally be better with the tent.
Even if we were to accept the premise of these arguments as true, they are arguments for a higher bond allocation overall not an argument for a "bond tent" per se (which proposes a higher bond allocation at the start of retirement than at the end).

Vince -

Hence a possible strategy of High Dividend funds with Bonds perhaps.

Tony
Dividends are another one of those “feels good and fools some people” strategies that don’t objectively improve retirement outcomes in general.

Vince -

That is definitely one perspective and viewpoint. But if cash flow issues arise, a dividend strategy and maybe crowdfunded real estate are options. Jack Brennan updated his book and has done a lot of interviews and podcasts over the past year stressing US & International Total Market funds with High Dividend funds. Bond yields being in the toilet.

I noticed now you have not addressed the real estate / Fundrising perspective and strategy😂

Tony
It is tough to talk about real estate because there aren't really available data sets to use. How did real estate/Fundrising work out for the 1929 retiree? It is a question we can't really answer. At a high level, you are investing in risky assets and that risk may or may not show up at bad times. That crowdsourced building that is going to pay out 8% might default during the next down turn and you might end up getting 50% on the dollar. How to quantify that risk is hard.

Dividends on the other hand we can look at and study. You could sit down and calculate what the SWR was for the 1929 or 1966 retiree using whatever criteria you want to use to pick stocks. Everyone who has done it has failed to come up with any benefit.
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Re: Bogleheads take on bond tent

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vineviz wrote: Sun Jan 23, 2022 9:47 am The problem with the "bond tent" is that it doesn't work. In other words, it doesn't generally increase the sustainable withdrawal rate of a portfolio. A constant asset allocation in retirement does that, a "bond tent" doesn't.
Mathematically, in back testing, a bond tent lowers the chance of running out of money, and increases the amount of money at the end of retirement, compared to a constant asset allocation. You can see this in cFIREsim, for example. A constant 60/40 fails in 6 starting years, with a 5th percentile ending portfolio of $38k, whereas a 50/50 gliding to 100/0 in 10 years, fails in only 5 starting years, and the 5th percentile ending portfolio is $105k.

Or do you have some other definition of "doesn't work"?
Planning for the gap years between retirement and claiming Social Security is important and that MIGHT in some cases generate a plan that looks like a bond tent, but this is due more to the uneven cash flows than to sequence of returns risk mitigation.
The scenario we're talking about here is the oversimplified one of constant spending (in real terms) for 30 years. No social security.
Some investors find psychological comfort in the bond tent concept, which might be reason enough to adopt it. But, objectively speaking, it doesn't improve the probability of a successful retirement income stream.
Who would find psychological comfort in being 90 years old, with no SS or other pension, and having 100% stocks? To me, it's something that's psychologically a very hard sell, but objectively speaking, does improve the probability of a successful retirement, if only a little.
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Re: Bogleheads take on bond tent

Post by abuss368 »

vineviz wrote: Sun Jan 23, 2022 11:36 am
abuss368 wrote: Sun Jan 23, 2022 11:20 am So the second part of the question related to Sam at Financial Samurai and real estate crowdfunding with Fundrise. That investment has less liquidity and charges 1%. Based on your response in terms of strategies that don’t make a difference in outcomes, that could by chance. Not having access to capital when needed and a high expense ratio could result in a negative outcome.
Unsurprisingly, from 2017 to 2021 the average Fundrise account has had a total return less than that of both Vanguard's REIT index fund and total stock market fund. There's no magic bullet here, and you're more likely to shoot yourself in the foot by chasing schemes like this.
Hi Vince -

Excellent perspective and thoughts. Thank you for that. Assuming you noted the returns on Fundrise’s page directly compared to Vanguard REIT and Total Stock?

Best.
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Re: Bogleheads take on bond tent

Post by abuss368 »

vineviz wrote: Sun Jan 23, 2022 11:40 am
abuss368 wrote: Sun Jan 23, 2022 11:22 am Investors would be wise to listen to Jack Brennan. He is a wealth of wisdom and information. His two books are excellent and I can better understand why Jack Bogle selected him.
I think Jack Brennan is a smart guy.

While Brennan was at the helm of Vanguard the firm launched both Vanguard LifeStrategy Income Fund (VASIX) and Vanguard Target Retirement Income Fund (VTINX): do either of those funds include an allocation to REITs or high dividend stocks?

Does Vanguard's target date fund glide path include a bond tent? Does ANY firm design their glide path in such a way?

Vince -

I agree. Back then interest rates were much higher. Heck I had a savings account paying 5.50% (or more)! Now with low yield environment and projected to continue, I suspect High Dividend funds are entering the thought process much more frequently. Investors and retirees are income starved!

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Re: Bogleheads take on bond tent

Post by abuss368 »

randomguy wrote: Sun Jan 23, 2022 11:46 am
It is tough to talk about real estate because there aren't really available data sets to use. How did real estate/Fundrising work out for the 1929 retiree? It is a question we can't really answer. At a high level, you are investing in risky assets and that risk may or may not show up at bad times. That crowdsourced building that is going to pay out 8% might default during the next down turn and you might end up getting 50% on the dollar. How to quantify that risk is hard.

Dividends on the other hand we can look at and study. You could sit down and calculate what the SWR was for the 1929 or 1966 retiree using whatever criteria you want to use to pick stocks. Everyone who has done it has failed to come up with any benefit.
Correct. Any analysis with any strategy review is always limited by the data available. Real estate crowdfunding? Only around since it’s creation with the 2012 JOBS Act. I suspect investing in a single building is much the same risk (or different types of risks) as investing with an individual stock and individual bond.

Fundrise however has e-REITs which hold hundreds of buildings and single family homes.

Best.
Tony
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Re: Bogleheads take on bond tent

Post by dbr »

martincmartin wrote: Sun Jan 23, 2022 11:50 am
vineviz wrote: Sun Jan 23, 2022 9:47 am The problem with the "bond tent" is that it doesn't work. In other words, it doesn't generally increase the sustainable withdrawal rate of a portfolio. A constant asset allocation in retirement does that, a "bond tent" doesn't.
Mathematically, in back testing, a bond tent lowers the chance of running out of money, and increases the amount of money at the end of retirement, compared to a constant asset allocation. You can see this in cFIREsim, for example. A constant 60/40 fails in 6 starting years, with a 5th percentile ending portfolio of $38k, whereas a 50/50 gliding to 100/0 in 10 years, fails in only 5 starting years, and the 5th percentile ending portfolio is $105k.

Or do you have some other definition of "doesn't work"?

I would rate those results as didn't make any difference in failures and we already know that more in stocks raises the general level of wealth left over. I would not even say, investment variability being what it is, that $105k vs $38k is different. The difference at the higher percentiles of wealth would be more, meaning more in stocks elevates the upside a lot. The indicated solution if that is the objective is to invest 100/0 from the get go. I think this would meet the criterion of "it didn't work" because to succeed you have to make a meaningful improvement in outcome and that doesn't happen. I think even Pfau admits that, but I can't document that.
Planning for the gap years between retirement and claiming Social Security is important and that MIGHT in some cases generate a plan that looks like a bond tent, but this is due more to the uneven cash flows than to sequence of returns risk mitigation.
The scenario we're talking about here is the oversimplified one of constant spending (in real terms) for 30 years. No social security.

I agree with that. The reason for the example is that it demonstrates the conditions under which a "bond tent" is of benefit.
Some investors find psychological comfort in the bond tent concept, which might be reason enough to adopt it. But, objectively speaking, it doesn't improve the probability of a successful retirement income stream.
Who would find psychological comfort in being 90 years old, with no SS or other pension, and having 100% stocks? To me, it's something that's psychologically a very hard sell, but objectively speaking, does improve the probability of a successful retirement, if only a little.

I think the psychological comfort of that situation would depend a lot on how much one had in stocks. Most of the time one has way more than one needs. It is kind of like the observation that if you need $1M would you rather have a portfolio that gets to $3M and loses half of it or a portfolio that gets to $0.8M but doesn't lose any of it.

The essence of the question is what does providing for retirement income with a 60/40 portfolio fail at doing that some other solution has a high certainty of fixing without an offsetting cost or disadvantage of some kind. There certainly are cases for an individual where the choice could be rationally different, but there is no general solution, it would seem.
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Re: Bogleheads take on bond tent

Post by vineviz »

martincmartin wrote: Sun Jan 23, 2022 11:50 am
vineviz wrote: Sun Jan 23, 2022 9:47 am The problem with the "bond tent" is that it doesn't work. In other words, it doesn't generally increase the sustainable withdrawal rate of a portfolio. A constant asset allocation in retirement does that, a "bond tent" doesn't.
Mathematically, in back testing, a bond tent lowers the chance of running out of money, and increases the amount of money at the end of retirement, compared to a constant asset allocation. You can see this in cFIREsim, for example. A constant 60/40 fails in 6 starting years, with a 5th percentile ending portfolio of $38k, whereas a 50/50 gliding to 100/0 in 10 years, fails in only 5 starting years, and the 5th percentile ending portfolio is $105k.
For one thing, the difference between 5 "fails" and "6" fails is not statistically significant. Don't base your retirement strategy on noise.

Second, these two comparisons aren't "all else equal" since the 50/50 >>100/0 simulation has a higher average equity exposure than the constant 60/40 portfolio. Equalize the riskiness of the two simulations by increasing the 60/40 to 75/25 and you'll get the same "95.87% - Failed 5 of 121 total cycles" result for both.

Third, the problem with "simulators" that are simply bootstrapping historical sequences is that when you start getting down to the "worst" or "5th percentile" outcomes you're really only looking at one particular sequence of returns. These "failures" all involve return sequences starting in 1965, 1966, 1967, 1968, and 1969. Why? Because the return on stocks was less than the return on bonds for from 1965 through mid-1980, the entire first half of the retirement. I'm not saying that can't happen again, but it's definitely not more likely than stocks outperforming bonds for the first 15 years. In short, the "bond tent" evidence is highly dependent on the start year and doesn't generalize to the future (which, obviously, is uncertain).
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Re: Bogleheads take on bond tent

Post by vineviz »

abuss368 wrote: Sun Jan 23, 2022 11:59 am Investors and retirees are income starved!
Yep, and greed ALWAYS leads to better financial outcomes.

Not.
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Re: Bogleheads take on bond tent

Post by vineviz »

abuss368 wrote: Sun Jan 23, 2022 12:02 pm
Fundrise however has e-REITs which hold hundreds of buildings and single family homes.
And we have decades of data about REITs that tell us that they offer modest diversification benefits at best.
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Re: Bogleheads take on bond tent

Post by abuss368 »

vineviz wrote: Sun Jan 23, 2022 12:59 pm
abuss368 wrote: Sun Jan 23, 2022 12:02 pm
Fundrise however has e-REITs which hold hundreds of buildings and single family homes.
And we have decades of data about REITs that tell us that they offer modest diversification benefits at best.
Vince -

Correct with growing income streams correct?

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Re: Bogleheads take on bond tent

Post by randomguy »

abuss368 wrote: Sun Jan 23, 2022 1:12 pm
vineviz wrote: Sun Jan 23, 2022 12:59 pm
abuss368 wrote: Sun Jan 23, 2022 12:02 pm
Fundrise however has e-REITs which hold hundreds of buildings and single family homes.
And we have decades of data about REITs that tell us that they offer modest diversification benefits at best.
Vince -

Correct with growing income streams correct?

Tony
The same way that the S&P 500 has had growing dividends. Over long time periods the trend is things go up. Over shorter periods things can go either way.
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Re: Bogleheads take on bond tent

Post by Svensk Anga »

vineviz wrote: Sun Jan 23, 2022 9:47 am
The problem with the "bond tent" is that it doesn't work. In other words, it doesn't generally increase the sustainable withdrawal rate of a portfolio. A constant asset allocation in retirement does that, a "bond tent" doesn't.

My problem with the constant asset allocation is that it is emotionally very difficult to sustain in times of market turmoil. What Bill Bernstein wrote in "Deep Risk" (p48, or Kindle location 666) about rebalancing from Treasuries to stocks in the early 1930's impressed me with the near impossibility of buy, hold, and rebalance when things get really bad. Sure the 4% rule worked in the 1930's, but you had to rebalance on schedule for the "rule" to hold true. How many here were rebalancing per their IPS in late 2008/early 2009 or even March 2020? How many were actually dumping stocks instead when finance theory says they ought to be buying? There were financial advisors copping to bailing on stocks in 2008/9. A sub-optimal plan that you can execute can beat the optimal one that you cannot.

What is the SWR if you fail to rebalance as needed? How much lower is it if you actually bail on stocks at the worst time?

For those without the referenced work, Bernstein's thought experiment had the 1929 retiree starting with 10 years worth of expenses in Treasuries and a 75/25 portfolio. Rebalancing every year, by 1932 the investor would be down to 37% of the original stash of safe bonds. How long do you go on throwing good money after bad?
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Re: Bogleheads take on bond tent

Post by dogagility »

Svensk Anga wrote: Sun Jan 23, 2022 4:12 pm My problem with the constant asset allocation is that it is emotionally very difficult to sustain in times of market turmoil.
This is a problem for some but not all people. Personal finance, after all.
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Re: Bogleheads take on bond tent

Post by vineviz »

Svensk Anga wrote: Sun Jan 23, 2022 4:12 pm
My problem with the constant asset allocation is that it is emotionally very difficult to sustain in times of market turmoil.
If an investor is at 70/30 when the market crashes, what difference does it make whether the asset allocation was 60/40, 70/30, or 80/20 a year earlier?

Rebalancing might be mentally taxing for some investors, but that is a feature of myopic loss aversion not of constant asset allocation.
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Re: Bogleheads take on bond tent

Post by willthrill81 »

abuss368 wrote: Sun Jan 23, 2022 10:48 am Sam at Financial Samurai has also followed this glide path and retired early:
I wouldn't pay any attention at all to anything Sam Dogen says. Remember that it was he who declared the forward safe withdrawal rate to be 0.5%, as discussed in this thread.

Karsten Jeske at Early Retirement Now thoroughly debunked the 'yield shield' (i.e., pro-dividend) strategy here; it actually led to worse outcomes.

It doesn't much matter whether one's income comes from capital gains or dividends, and dividends aren't going to save retirees who are withdrawing too much from their portfolio.
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Re: Bogleheads take on bond tent

Post by abuss368 »

willthrill81 wrote: Sun Jan 23, 2022 5:39 pm
abuss368 wrote: Sun Jan 23, 2022 10:48 am Sam at Financial Samurai has also followed this glide path and retired early:
I wouldn't pay any attention at all to anything Sam Dogen says. Remember that it was he who declared the forward safe withdrawal rate to be 0.5%, as discussed in this thread.

Karsten Jeske at Early Retirement Now thoroughly debunked the 'yield shield' (i.e., pro-dividend) strategy here; it actually led to worse outcomes.

It doesn't much matter whether one's income comes from capital gains or dividends, and dividends aren't going to save retirees who are withdrawing too much from their portfolio.
I recall that recommendation of 0.50% withdrawal. That caused a storm on his website.

Sam Dogen has recommended a lot of indexing, dividend funds, venture capital, venture debt, lending tree, and individual stocks. His post a couple of days ago noted he had $200,000 in Netflix and woke up Friday to it being worth less than $150,000. He is mostly recommending real estate crowdfunding with Fundrise and claims to have in excess of $800,000 invested. That is too much risk for me and would have me up at night. What if something happened to that platform? There have been stories of these platforms being here today gone tomorrow.

Hard to relate to Financial Samurai.

Best.
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Re: Bogleheads take on bond tent

Post by Svensk Anga »

willthrill81 wrote: Sun Jan 23, 2022 5:39 pm
I wouldn't pay any attention at all to anything Sam Dogen says. Remember that it was he who declared the forward safe withdrawal rate to be 0.5%, as discussed in this thread.
Sounds like someone who retired early with too aggressive a portfolio and came to regret it when markets showed their ugly side.
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Re: Bogleheads take on bond tent

Post by willthrill81 »

Svensk Anga wrote: Sun Jan 23, 2022 5:55 pm
willthrill81 wrote: Sun Jan 23, 2022 5:39 pm
I wouldn't pay any attention at all to anything Sam Dogen says. Remember that it was he who declared the forward safe withdrawal rate to be 0.5%, as discussed in this thread.
Sounds like someone who retired early with too aggressive a portfolio and came to regret it when markets showed their ugly side.
I believe that he just got bored with early retirement. He also claimed that $350k was needed to live a 'middle-class' lifestyle in the Bay area, which is so elitist that it's offensive.
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Re: Bogleheads take on bond tent

Post by Svensk Anga »

vineviz wrote: Sun Jan 23, 2022 4:19 pm
Svensk Anga wrote: Sun Jan 23, 2022 4:12 pm
My problem with the constant asset allocation is that it is emotionally very difficult to sustain in times of market turmoil.
If an investor is at 70/30 when the market crashes, what difference does it make whether the asset allocation was 60/40, 70/30, or 80/20 a year earlier?

Rebalancing might be mentally taxing for some investors, but that is a feature of myopic loss aversion not of constant asset allocation.
The reason Bernstein wrote the investing for adults series is that his advisory clients were panicking in 2008/9. He looked at the evidence of how real world folks behaved and bowing to reality, he changed his approach. That is why "won the game" and "stop playing" are part of the lexicon on this site. (I believe these concepts do not appear in "The Intelligent Asset Allocator".) Behavioral finance has shown us that myopic loss aversion as well as a host of other dysfunctional behavior is typical of humans. Homo economicus exists only in textbooks.

It is one thing to rebalance when one is in a steady job and accumulating. It is quite another when one is years removed from work, skills are outdated, unemployment is 10% and there is a host of well qualified younger candidates competing with you for paid work. Oh, and your spouse is ragging you about why you were taking so much risk. But maybe your stocks will bounce back in time.
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Re: Bogleheads take on bond tent

Post by vineviz »

Svensk Anga wrote: Sun Jan 23, 2022 5:55 pm
willthrill81 wrote: Sun Jan 23, 2022 5:39 pm
I wouldn't pay any attention at all to anything Sam Dogen says. Remember that it was he who declared the forward safe withdrawal rate to be 0.5%, as discussed in this thread.
Sounds like someone who retired early with too aggressive a portfolio and came to regret it when markets showed their ugly side.
He's also not actually retired. He writes a blog (which provides income via referral and affiliate links), manages a handful of rental real estate properties, has written at least one book, etc.
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Re: Bogleheads take on bond tent

Post by loukycpa »

Wade Pfau and Michael Kitces have a paper on this worth a read.

"We find, surprisingly, that rising equity glide-paths in retirement – where the portfolio starts out conservative and becomes more aggressive through the retirement time horizon – have the potential to actually reduce both the probability of failure and the magnitude of failure for client portfolios."

https://papers.ssrn.com/sol3/papers.cfm ... id=2324930

I believe Karsten Jeske has looked at this also and has confirmed the same through research.

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Re: Bogleheads take on bond tent

Post by vineviz »

loukycpa wrote: Sun Jan 23, 2022 7:09 pm Wade Pfau and Michael Kitces have a paper on this worth a read.
They make the same errors that were addressed earlier in the thread: lack of statistical significance, mismatching risk levels, over-reliance on a single historical return sequence, etc.
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Re: Bogleheads take on bond tent

Post by martincmartin »

vineviz wrote: Sun Jan 23, 2022 7:18 pm
loukycpa wrote: Sun Jan 23, 2022 7:09 pm Wade Pfau and Michael Kitces have a paper on this worth a read.
They make the same errors that were addressed earlier in the thread: lack of statistical significance, mismatching risk levels, over-reliance on a single historical return sequence, etc.
To be clear, the effect is pretty robust. It happens for multiple countries, multiple time periods, realistic sequences of expenses, short vs medium vs long treasuries vs TBM, etc. What do you mean by "mismatching risk levels"?
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Re: Bogleheads take on bond tent

Post by vineviz »

martincmartin wrote: Sun Jan 23, 2022 7:57 pm To be clear, the effect is pretty robust. It happens for multiple countries, multiple time periods, realistic sequences of expenses, short vs medium vs long treasuries vs TBM, etc. What do you mean by "mismatching risk levels"?
Robust according to whom? Pfau & Kitces 2013 found that a rising equity glide path improved the 4% withdrawal rate success rate from 74% all the way up to .... 74% (table 2), from 64% all the way up to .... 64% (table 4), and from 95% all the way up to .... 95% (table 6). When the authors claimed improvement by "a small margin" they weren't kidding.
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Re: Bogleheads take on bond tent

Post by martincmartin »

vineviz wrote: Sun Jan 23, 2022 8:12 pm
Robust according to whom?
Michael McClung in Living Off Your Money, for example.
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Re: Bogleheads take on bond tent

Post by randomguy »

Svensk Anga wrote: Sun Jan 23, 2022 5:55 pm
willthrill81 wrote: Sun Jan 23, 2022 5:39 pm
I wouldn't pay any attention at all to anything Sam Dogen says. Remember that it was he who declared the forward safe withdrawal rate to be 0.5%, as discussed in this thread.
Sounds like someone who retired early with too aggressive a portfolio and came to regret it when markets showed their ugly side.
No it sounds like some trying to generate clicks on his website to help fund his retirement. Want to bet that fundrise link is an affliate and he gets a kick back?
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Re: Bogleheads take on bond tent

Post by martincmartin »

Svensk Anga wrote: Sun Jan 23, 2022 4:12 pm
My problem with the constant asset allocation is that it is emotionally very difficult to sustain in times of market turmoil.
Yeah, I think it's strange that stocks are the one thing people are eager to buy more of when overpriced, but then when they go on sale, are afraid to buy. That's the opposite of retail goods.
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Re: Bogleheads take on bond tent

Post by vineviz »

martincmartin wrote: Sun Jan 23, 2022 8:22 pm
vineviz wrote: Sun Jan 23, 2022 8:12 pm
Robust according to whom?
Michael McClung in Living Off Your Money, for example.
McClung wrote: "A Rising Glidepath strategy showed a moderate improvement over traditional rebalancing for some realistic retirement cases when based on equivalent stock-bond averages, but this improvement was not consistent over broader testing."

He's describing what I pointe out earlier: the rising glidepath doesn't consistently improve outcomes, and when it has in the past the effect has been small.
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