what's in your bond allocation? and how will you use it?

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birdbard
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what's in your bond allocation? and how will you use it?

Post by birdbard »

So everyone is in love with the I-bonds. Me too! But you are limited to 10k year.

Much has been said about bond funds the past 1-2 bear/recessions, etc. where they lose value - but not as much as stocks....but that just seems wrong because why not keep it in a matress instead? Also seems a lot of funds even if they are mostly treasuries lose value. But if you buy treasuries directly, they don't lose value from purchase ever, do they? Unless TIPS and deflation? And I think it looks like a lot more people on here are buying treasuries directly. Aside from some lack of instant liquidity, any downsides to buying treasuries directly?

So - what is in your bond allocation? and Why? What do you see as the principal advantages and disadvantages of your approach, and how - or are you? - doing anything to mitigate any disadvantages?

Ok - zooming into retirement. You have 30x expenses and a 60% stock, 40% bonds.

Will you be cashing in proportionately - so year 1 at 100k expenses - do you sell 60k of stocks and 40k of bonds and call that a day? or will it depend on market conditions? And what conditions would have you taking 100% from stocks, and which ones for 100% bonds?
aristotelian
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Re: what's in your bond allocation? and how will you use it?

Post by aristotelian »

Often nominal bonds go up when stocks crash, making them a better diversifier than cash. Doesn't happen all the time, but often enough. Bond holders were happy in 2008, Dec 2018, and March 2020. Certainly a portion in cash or inflation protected bonds also makes sense.
trismegistos
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Re: what's in your bond allocation? and how will you use it?

Post by trismegistos »

I'm at approximately 10% bonds across all my portfolios. Total US Bond Index Fund and I Bonds.
NYCaviator
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Re: what's in your bond allocation? and how will you use it?

Post by NYCaviator »

trismegistos wrote: Sat Jun 25, 2022 12:40 pm I'm at approximately 10% bonds across all my portfolios. Total US Bond Index Fund and I Bonds.
I keep seeing everyone saying to max out ibonds. Is that only because of this high inflation period, or do folks generally max out ibonds? Prior to the last couple of years, you rarely heard of people buying ibonds directly and common wisdom was to just buy a total bond fund.
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ruralavalon
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Re: what's in your bond allocation? and how will you use it?

Post by ruralavalon »

birdbard wrote: Sat Jun 25, 2022 12:15 pm So everyone is in love with the I-bonds. Me too! But you are limited to 10k year.

Much has been said about bond funds the past 1-2 bear/recessions, etc. where they lose value - but not as much as stocks....but that just seems wrong because why not keep it in a matress instead? Also seems a lot of funds even if they are mostly treasuries lose value. But if you buy treasuries directly, they don't lose value from purchase ever, do they? Unless TIPS and deflation? And I think it looks like a lot more people on here are buying treasuries directly. Aside from some lack of instant liquidity, any downsides to buying treasuries directly?
In the 2008 bear market (stock market down 36.99%) bond funds did NOT lose value. In 2008 Vanguard Total Bond Market Index Fund (VBTLX) was up 5.15%. In 2008 Vanguard Intermediate-term Treasury (VFIUX) was up 13.49%. Portfolio Visualizer.

birdbard wrote: Sat Jun 25, 2022 12:15 pmSo - what is in your bond allocation? and Why? What do you see as the principal advantages and disadvantages of your approach, and how - or are you? - doing anything to mitigate any disadvantages?

Ok - zooming into retirement. You have 30x expenses and a 60% stock, 40% bonds.

Will you be cashing in proportionately - so year 1 at 100k expenses - do you sell 60k of stocks and 40k of bonds and call that a day? or will it depend on market conditions? And what conditions would have you taking 100% from stocks, and which ones for 100% bonds?
Age 76. Our asset allocation is 60% stocks/40% bonds. Retired since 2011. We currently hold only Vanguard Balanced Index Fund (VBIAX) for the convenience. My wife has zero interest in investing, so I want a simple one-fund portfolio she could easily manage when I am no longer here.

In early retirement we sold stock index funds from our joint taxable account to pay retirement living expenses, and then rebalanced in my rollover IRA if necessary to maintain our desired asset allocation. When required minimum distributions (RMDs) we used the automated RMD service and withdrew proportionally from each fund in my rollover IRA, and then rebalancing if necessary to maintain our desired asset allocation.


NYCaviator wrote: Sat Jun 25, 2022 12:53 pm
trismegistos wrote: Sat Jun 25, 2022 12:40 pm I'm at approximately 10% bonds across all my portfolios. Total US Bond Index Fund and I Bonds.
I keep seeing everyone saying to max out ibonds. Is that only because of this high inflation period, or do folks generally max out ibonds? Prior to the last couple of years, you rarely heard of people buying ibonds directly and common wisdom was to just buy a total bond fund.
In my opinion that's because of the current very high interest rate available.
Last edited by ruralavalon on Sat Jun 25, 2022 1:32 pm, edited 1 time in total.
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dbr
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Re: what's in your bond allocation? and how will you use it?

Post by dbr »

I would STRONGLY suggest approaching this by reading systematic discussion of both bonds as such and of investment planning in particular. It is way too easy to get lost in details that may or may not be relevant while missing the important things to know about bonds. It is very easy to get quite confused just reading threads on bonds on the forum.

Books by Swedroe, Ferri, and Bernstein are a good start. There is a link right on this page to Amazon which also produces a small referral fee for the forum. It will default to a search for Bogleheads, and those books are recommended, but I would search my authors for sure.

Also a good Wiki article is this one: https://www.bogleheads.org/wiki/Three-fund_portfolio

and going through "getting started" https://www.bogleheads.org/wiki/Getting_started

and you can go here and enter "bond" on the search line: https://www.bogleheads.org/wiki/Main_Page
treypar
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Re: what's in your bond allocation? and how will you use it?

Post by treypar »

I like to buy Treasuries at auction in the 2 to 3 year term. Most of my bond mutual funds have lost money this year and may come back in the future.
livesoft
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Re: what's in your bond allocation? and how will you use it?

Post by livesoft »

Nothing much has changed for me. Bond allocation is made of
Total US Bond Market Index (TBM)
Short-term corporate bond index
TIAA Traditional annuity

No I-bonds, no CDs, no savings accounts, and only enough cash for about the next 2 weeks of expenses.

I rebalance between the first two as needed. Sometimes TBM does better and sometimes worse.

I run a nominally 60/40 portfolio because then I can easily compare performance of my portfolio against some benchmark 60/40 funds such as VSMGX, VBIAX, and DGSIX.

When I make withdrawals I sell from a taxable account a stock ETF and then rebalance in a tax-deferred account as needed. Most recent transactions are selling VEA, exchanging BND into SPDW, and then doing a rebalance by selling VCSH and buying VTI. If you are interested enough in this response, then you will look up the ticker symbols.
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dbr
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Re: what's in your bond allocation? and how will you use it?

Post by dbr »

NYCaviator wrote: Sat Jun 25, 2022 12:53 pm
trismegistos wrote: Sat Jun 25, 2022 12:40 pm I'm at approximately 10% bonds across all my portfolios. Total US Bond Index Fund and I Bonds.
I keep seeing everyone saying to max out ibonds. Is that only because of this high inflation period, or do folks generally max out ibonds? Prior to the last couple of years, you rarely heard of people buying ibonds directly and common wisdom was to just buy a total bond fund.
That is because there is a current disconnect of sudden high inflation, low yields on bonds, and a trend to increasing interest rates that drive existing bond NAVs down. You could classify this as a windfall although those who would benefit the most would be those who had already amassed lots of I bonds by buying over the years.

I bonds always made sense as a certain component of fixed income if a person wanted to create an account at Treasury Direct to buy them. Earlier on the fixed rates were above zero and the purchase limits were more liberal sometimes.

People might not have bought I bonds so much when prioritizing contributions to 401K's and IRAs, where you can't hold the bonds or buying stocks in taxable accounts instead. I bonds are after tax tax deferral but IRA and 401k are pre tax tax deferral, which can be huge. A Roth IRA is after tax tax exempt and is further competition for money. Taxable equities capital growth is tax deferred until realized and may be tax exempt at inheritance. It is also true that TIPS often have a positive real return rather than the present zero of I bonds.

Disclaimer: For decades, since TIPS became available, I have owned intermediate TIPS funds and intermediate Treasury funds. Now I own only the TIPS funds. That does not mean anything regarding what someone else should do.
RCL
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Re: what's in your bond allocation? and how will you use it?

Post by RCL »

NYCaviator wrote: Sat Jun 25, 2022 12:53 pm
trismegistos wrote: Sat Jun 25, 2022 12:40 pm I'm at approximately 10% bonds across all my portfolios. Total US Bond Index Fund and I Bonds.
I keep seeing everyone saying to max out ibonds. Is that only because of this high inflation period, or do folks generally max out ibonds? Prior to the last couple of years, you rarely heard of people buying ibonds directly and common wisdom was to just buy a total bond fund.
Market Timing?? Chasing Returns?? FOMO??
dbr
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Re: what's in your bond allocation? and how will you use it?

Post by dbr »

RCL wrote: Sat Jun 25, 2022 1:59 pm
NYCaviator wrote: Sat Jun 25, 2022 12:53 pm
trismegistos wrote: Sat Jun 25, 2022 12:40 pm I'm at approximately 10% bonds across all my portfolios. Total US Bond Index Fund and I Bonds.
I keep seeing everyone saying to max out ibonds. Is that only because of this high inflation period, or do folks generally max out ibonds? Prior to the last couple of years, you rarely heard of people buying ibonds directly and common wisdom was to just buy a total bond fund.
Market Timing?? Chasing Returns?? FOMO??
Feeding frenzy.
hudson
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Re: what's in your bond allocation? and how will you use it?

Post by hudson »

birdbard wrote: Sat Jun 25, 2022 12:15 pm So everyone is in love with the I-bonds. Me too! But you are limited to 10k year.

Much has been said about bond funds the past 1-2 bear/recessions, etc. where they lose value - but not as much as stocks....but that just seems wrong because why not keep it in a matress instead? Also seems a lot of funds even if they are mostly treasuries lose value. But if you buy treasuries directly, they don't lose value from purchase ever, do they? Unless TIPS and deflation? And I think it looks like a lot more people on here are buying treasuries directly. Aside from some lack of instant liquidity, any downsides to buying treasuries directly?

So - what is in your bond allocation? and Why? What do you see as the principal advantages and disadvantages of your approach, and how - or are you? - doing anything to mitigate any disadvantages?

Ok - zooming into retirement. You have 30x expenses and a 60% stock, 40% bonds.

Will you be cashing in proportionately - so year 1 at 100k expenses - do you sell 60k of stocks and 40k of bonds and call that a day? or will it depend on market conditions? And what conditions would have you taking 100% from stocks, and which ones for 100% bonds?
I'm 100% fixed with around 90% CDs and 10% SCHP (a TIPS ETF)
My plan is to go with very high quality fixed income.
Why all fixed? Stocks and real estate give me heartburn.
What about when your CDs mature? I'll likely go all individual treasuries with 70% TIPS and 30% nominal. I've got around 2 years to figure it out.
I agree with dbr: consider reading books by L. Swedroe, W. Bernstein, R. Ferri, or Taylor L. Vineviz's posts have strongly influenced my future plans.

And how will I use it? I spend or save the dividends/interest. Every year is different.
Last edited by hudson on Sun Jun 26, 2022 3:49 pm, edited 1 time in total.
johnegonpdx
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Re: what's in your bond allocation? and how will you use it?

Post by johnegonpdx »

6% <3Y
6% 3-5Y
3% 5-7Y
7% >7Y

I use it to rebalance when my AA drifts too far from my targets.

Note: I am likely bumping up the <3Y % through bond ladders by shifting some of my HYSA cash reserves as rates get more attractive. I have a decent cash position since I am approaching retirement.
dbr
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Re: what's in your bond allocation? and how will you use it?

Post by dbr »

I forgot to reply regarding how I will use it.

Taken as a whole I use my portfolio as a source of withdrawals when I need money to spend and I anticipate leaving what is left when we are gone to our children and possibly elsewhere. In say portfolio because it is not part of the concept that assets in bonds have a different use from assets in stocks.

In a different sense some of the money is in bonds rather than stocks because bonds are not as uncertain in future returns as stocks are. That comes at a price of lower probable returns. Or, the other way around, some of the money is in stocks because stocks can be expected over a wide range of uncertainty to return more than bonds. I do not have money in real estate, gold, timber, oil, etc. because there is no significant benefit for me to do that and I don't want the bother. In the past I have owned farmland and natural gas.
CloseEnough
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Re: what's in your bond allocation? and how will you use it?

Post by CloseEnough »

TIAA Traditional (with 3%, no restrictions) = 35%
BNDX (Vanguard Total International Index) = 25%
SWSBX (Schwab Short Term Bond index) = 12%
SWAGX (Schwab US Aggregate Bond index) = 25%
Cash (roughly one year expenses). = 3%

I use it for diversification of overall portfolio (rough overall allocation of 60/40) and to withdraw from if cash is needed for expenses when equities are down, to keep overall allocation in range.
bridge2benefits
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Re: what's in your bond allocation? and how will you use it?

Post by bridge2benefits »

I'm in my fifties, 1-2 years from retirement. Fixed income makes up 65% of my overall portfolio. Earlier during accumulation, I held about 30% of my fixed income in Vanguard municipal bond funds, but I sold them earlier this year.

My current allocation within fixed income:

70% in duration matched individual TIPS and I Bonds
10% in a MYGA
10% in a stable value fund in my 401k
10% in High Yield Savings and Checking

Later this year I will redeploy most of the HYS into more TIPS. Once I turn 59.5, I will also redeploy the MYGA and stable value funds into TIPS and I Bonds.

I will use the TIPS and I Bonds to fund a portion of my annual living expenses during retirement, until I begin collecting social security at age 70. In this way I will have a floor of predictable real income, covering 80% of my expected living expenses, protected from inflation risk and interest rate risk.
HootingSloth
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Re: what's in your bond allocation? and how will you use it?

Post by HootingSloth »

Right now I have the following components of my fixed income allocation:
  • $30k cash: some might call this an "emergency fund," but to me it is just the short duration part of my fixed income.
  • $30k I bonds: Could not pass these up in April, so I (and my wife and our trust) maxed out for the year
  • $140k intermediate term municipal bonds: together with the cash and I bonds, this provides liquidity in case of things like extended unexpected job losses
  • $75k BND/BNDX equivalents: These are held as part of target date retirement funds in tax deferred accounts. I like this simplicity and they also can help with rebalancing.
  • $215k in mortgage prepayments: If my liquidity needs are met by cash, I bonds, and munis, then new fixed income dollars go here (unless and until munis start paying higher interest than my mortgage rate). These days, this is the real work horse for fixed income.
In all, fixed income is much more complicated than stocks, where I just invest in VTSAX/VTIAX or equivalents to get an 80% Global Market Cap + 20% U.S. tilt.

When I am closer to retirement (still probably 20+ years off), I intend to have a TIPS ladder or similar to act as a bridge to SS benefits claimed at 70, and a COLA pension will be an additional component of fixed income as well. If inflation adjusted SPIAs exist again, I would also consider them.
Global Market Portfolio + modest tilt towards volatility (80/20->60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currency-hedge bonds) + tax optimization
JayB
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Re: what's in your bond allocation? and how will you use it?

Post by JayB »

We're 100% in fixed income; no stocks, no mutual funds or ETFs. Got out of stocks 20+ years ago in order to sleep better and worry less. Not taking risks to "grow" assets or outpace inflation; we're comfortable slowly spending down our portfolio in retirement.

33% in TIAA Traditional, now earning 4.2% (GRA), and about 3.6% (2 GSRAs); will take RMD's in a few years, with the RMD amounts naturally growing a couple of % or so for the first 25 years.

2% in Savings Bonds (mostly I, some EE) intended for a 18-20 yr cashout to help fund any LTC needs.

46% in Roth IRAs, all zero coupon Treasurys and equivalents held to maturity in a ladder from 2032 to 2048, intended for any LTC or senior living facility costs. By design, each rung's maturity value is 3% more than the previous year's.

5% in zero coupon Municipal bonds held to maturity, for funding everyday expenses beyond a joint lifetime TIAA annuity currently paying out. Maturities from 2022 to 2027. Don't plan to add more.

12% in zero coupon Treasury equivalents (Agency bonds with the same credit ratings as Treasurys) held to maturity for everyday expenses. Maturities from 2026 to 2039. Amounts not needed at maturity are reinvested toward the long end.

2% in cash and cash equivalents.
pascalwager
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Re: what's in your bond allocation? and how will you use it?

Post by pascalwager »

In retirement, I've got 44% Vanguard Short-Term Investment-Grade and 56% TIPS funds (% of bonds). The overall duration equals my calculated investment horizon. (The STIG fund was the best available in a limited account.)

I withdraw from both stocks and bonds in proportion to the current S/B ratio (59/41). I don't rebalance.
MikeG62
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Re: what's in your bond allocation? and how will you use it?

Post by MikeG62 »

livesoft wrote: Sat Jun 25, 2022 1:45 pm Nothing much has changed for me. Bond allocation is made of
Total US Bond Market Index (TBM)
Short-term corporate bond index
TIAA Traditional annuity

No I-bonds, no CDs, no savings accounts, and only enough cash for about the next 2 weeks of expenses.

I rebalance between the first two as needed. Sometimes TBM does better and sometimes worse.

I run a nominally 60/40 portfolio because then I can easily compare performance of my portfolio against some benchmark 60/40 funds such as VSMGX, VBIAX, and DGSIX.
That approach cannot have felt very good the last 6-8 months.

Why not hold a ladder of some sort duration individual bonds/T-Bills (in addition to the above) which mature every few months providing the cash flow you need. This avoids finding yourself in the position of needing to sell when every asset class is down?

I'm sure you will school me as you don't have 80,000 posts for no reason.
Real Knowledge Comes Only From Experience
livesoft
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Re: what's in your bond allocation? and how will you use it?

Post by livesoft »

MikeG62 wrote: Mon Jun 27, 2022 8:38 amThat approach cannot have felt very good the last 6-8 months.
I dunno. I accurately track performance and so far in 2022 our portfolio is outperforming benchmark portfolios by about 2% to 3%. I actually do not care about losing money because I have lost money all my life.
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gavinsiu
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Re: what's in your bond allocation? and how will you use it?

Post by gavinsiu »

I have 50% Vanguard Bond Market and 50% Vanguard Inflation-Protected Secs. The bond part is supposed to act as a buffer to cushion the portfolio. I do not withdraw for it. There is a separate cash portfolio for rainy day.
dbr
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Re: what's in your bond allocation? and how will you use it?

Post by dbr »

MikeG62 wrote: Mon Jun 27, 2022 8:38 am
livesoft wrote: Sat Jun 25, 2022 1:45 pm Nothing much has changed for me. Bond allocation is made of
Total US Bond Market Index (TBM)
Short-term corporate bond index
TIAA Traditional annuity

No I-bonds, no CDs, no savings accounts, and only enough cash for about the next 2 weeks of expenses.

I rebalance between the first two as needed. Sometimes TBM does better and sometimes worse.

I run a nominally 60/40 portfolio because then I can easily compare performance of my portfolio against some benchmark 60/40 funds such as VSMGX, VBIAX, and DGSIX.
That approach cannot have felt very good the last 6-8 months.

Why not hold a ladder of some sort duration individual bonds/T-Bills (in addition to the above) which mature every few months providing the cash flow you need. This avoids finding yourself in the position of needing to sell when every asset class is down?

I'm sure you will school me as you don't have 80,000 posts for no reason.
I won't call it school, but an example of going whole hog would be a thirty year ladder of thirty year TIPS to supply an inflation indexed income stream that does not have to be withdrawn from a portfolio except to start.

A catch is that at 0% real yield TIPS the payout on initial investment is 3.33% compared to the SWR on a portfolio of 4%. At -1% real yield the payout is 2.9%. To get 4% payout you have to find TIPS at +1.5% real yield.

Other ways to get income streams for retirement include delaying SS to age 70 to maximize that inflation indexed annuity or using a fixed SPIA rather than bonds for retirement income. Note SPIA payouts are affected by interest rates at purchase and by age. A significant benefit is pooling longevity risk with the other annuitants.

This is not a direct answer to your question, but might offer some perspective on the topic.

Disclaimer: I have done well with a fixed pension (no lump sum offered) and Social Security plus the portfolio. All of my bonds are TIPS funds. The good luck has been low inflation and a good stock market.
Outer Marker
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Re: what's in your bond allocation? and how will you use it?

Post by Outer Marker »

My fixed income is there to cushion the ride and provide stability in times like this. Plus rebalancing potential to buy equities when they are on sale. For this reason, I hold nearly all of my fixed income in Stable Value (though I am maxed out at 100% of my 401k). The other fixed income holdings I use to get to my 70/30 overall AA are ibonds and tips. Take all your risk on the equity side of the portfolio. Keep bonds short and safe.
CloseEnough
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Re: what's in your bond allocation? and how will you use it?

Post by CloseEnough »

MikeG62 wrote: Mon Jun 27, 2022 8:38 am
livesoft wrote: Sat Jun 25, 2022 1:45 pm Nothing much has changed for me. Bond allocation is made of
Total US Bond Market Index (TBM)
Short-term corporate bond index
TIAA Traditional annuity

No I-bonds, no CDs, no savings accounts, and only enough cash for about the next 2 weeks of expenses.

I rebalance between the first two as needed. Sometimes TBM does better and sometimes worse.

I run a nominally 60/40 portfolio because then I can easily compare performance of my portfolio against some benchmark 60/40 funds such as VSMGX, VBIAX, and DGSIX.
That approach cannot have felt very good the last 6-8 months.

Why not hold a ladder of some sort duration individual bonds/T-Bills (in addition to the above) which mature every few months providing the cash flow you need. This avoids finding yourself in the position of needing to sell when every asset class is down?

I'm sure you will school me as you don't have 80,000 posts for no reason.
Isn't a bit late to take that approach, assuming you need to draw from the current fixed income positions to create the ladder? Seems like you'd be locking in the losses, so to speak.
MikeG62
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Re: what's in your bond allocation? and how will you use it?

Post by MikeG62 »

CloseEnough wrote: Mon Jun 27, 2022 1:22 pm
MikeG62 wrote: Mon Jun 27, 2022 8:38 am
livesoft wrote: Sat Jun 25, 2022 1:45 pm Nothing much has changed for me. Bond allocation is made of
Total US Bond Market Index (TBM)
Short-term corporate bond index
TIAA Traditional annuity

No I-bonds, no CDs, no savings accounts, and only enough cash for about the next 2 weeks of expenses.

I rebalance between the first two as needed. Sometimes TBM does better and sometimes worse.

I run a nominally 60/40 portfolio because then I can easily compare performance of my portfolio against some benchmark 60/40 funds such as VSMGX, VBIAX, and DGSIX.
That approach cannot have felt very good the last 6-8 months.

Why not hold a ladder of some sort duration individual bonds/T-Bills (in addition to the above) which mature every few months providing the cash flow you need. This avoids finding yourself in the position of needing to sell when every asset class is down?

I'm sure you will school me as you don't have 80,000 posts for no reason.
Isn't a bit late to take that approach, assuming you need to draw from the current fixed income positions to create the ladder? Seems like you'd be locking in the losses, so to speak.
I am not suggesting he do that now. I am questioning why he would not have done that all along. I cannot imagine operating in retirement with two weeks of cash in the bank and knowing if I needed to raise more I would be forced to sell something. Different strokes for different folks I guess. FWIW, I am in my 7th year of retirement. So, it is not like I have no experience here.
Real Knowledge Comes Only From Experience
CloseEnough
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Re: what's in your bond allocation? and how will you use it?

Post by CloseEnough »

MikeG62 wrote: Mon Jun 27, 2022 2:16 pm
CloseEnough wrote: Mon Jun 27, 2022 1:22 pm
MikeG62 wrote: Mon Jun 27, 2022 8:38 am
livesoft wrote: Sat Jun 25, 2022 1:45 pm Nothing much has changed for me. Bond allocation is made of
Total US Bond Market Index (TBM)
Short-term corporate bond index
TIAA Traditional annuity

No I-bonds, no CDs, no savings accounts, and only enough cash for about the next 2 weeks of expenses.

I rebalance between the first two as needed. Sometimes TBM does better and sometimes worse.

I run a nominally 60/40 portfolio because then I can easily compare performance of my portfolio against some benchmark 60/40 funds such as VSMGX, VBIAX, and DGSIX.
That approach cannot have felt very good the last 6-8 months.

Why not hold a ladder of some sort duration individual bonds/T-Bills (in addition to the above) which mature every few months providing the cash flow you need. This avoids finding yourself in the position of needing to sell when every asset class is down?

I'm sure you will school me as you don't have 80,000 posts for no reason.
Isn't a bit late to take that approach, assuming you need to draw from the current fixed income positions to create the ladder? Seems like you'd be locking in the losses, so to speak.
I am not suggesting he do that now. I am questioning why he would not have done that all along. I cannot imagine operating in retirement with two weeks of cash in the bank and knowing if I needed to raise more I would be forced to sell something. Different strokes for different folks I guess. FWIW, I am in my 7th year of retirement. So, it is not like I have no experience here.
I misinterpreted, thought you were suggesting that change now. Operating with two weeks of cash in retirement would not be something I'd be comfortable with either, although if you have a big enough bucket to sell from, it really doesn't matter. Different strokes, as you say. My sense is there's a fair number of retirees here that operate with just a total bond fund on the fixed income side and simply keep their asset allocation steady as they make withdrawals. Although your approach has certainly been better over the 6-8 months. Congrats on your retirement .
dbr
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Re: what's in your bond allocation? and how will you use it?

Post by dbr »

CloseEnough wrote: Mon Jun 27, 2022 3:16 pm

I misinterpreted, thought you were suggesting that change now. Operating with two weeks of cash in retirement would not be something I'd be comfortable with either, although if you have a big enough bucket to sell from, it really doesn't matter. Different strokes, as you say. My sense is there's a fair number of retirees here that operate with just a total bond fund on the fixed income side and simply keep their asset allocation steady as they make withdrawals. Although your approach has certainly been better over the 6-8 months. Congrats on your retirement .
As far as cash reserve there are orders of magnitude difference between 2 weeks cash, 20 weeks, 200 weeks, and 2000 weeks. The last three are like half a year, four years, and forty years. Two weeks is a little tight unless one is damping costs through credit cards, half a year is a good damper for anyone, four years is really actually messing around with asset allocation more than managing cash, and forty years is an absurdity.
pascalwager
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Re: what's in your bond allocation? and how will you use it?

Post by pascalwager »

Outer Marker wrote: Mon Jun 27, 2022 8:57 am My fixed income is there to cushion the ride and provide stability in times like this. Plus rebalancing potential to buy equities when they are on sale. For this reason, I hold nearly all of my fixed income in Stable Value (though I am maxed out at 100% of my 401k). The other fixed income holdings I use to get to my 70/30 overall AA are ibonds and tips. Take all your risk on the equity side of the portfolio. Keep bonds short and safe.
But do be careful. The terms "short" and "safe", regarding bonds, only apply together when your investment horizon is also short. If your investment horizon is medium or long, then price risk and reinvestment risk are no longer in balance if your bonds are still short and that's not safe.
jvini
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Re: what's in your bond allocation? and how will you use it?

Post by jvini »

I'm at 60/40. A couple years away from retiring in late 50s.

In the beginning of the year I rolled almost all of my fixed assets from VGIT, intermediate treasury fund, into a stable value fund. When CD rates hit 3.1%I and 1 year Treasuries hit 2.9%, I put a third into a 3 year CD and 1/3 into a 1 yr Treasury. I left the other third in the stable value fund along with a bit of cash in a high yield savings account. Now each month I put cash into the savings account and buy stocks using the stable value fund. By the time I retire I'll have about 2 years expenses in cash and the other part of my 40% in the CD and likely the rest back in VGIT that was formerly in the 1 year Treasury.
abc132
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Re: what's in your bond allocation? and how will you use it?

Post by abc132 »

In my 40's with 10 years expenses worth of fixed income and 28 years of expenses in stocks.

10 years of fixed income:
4 years intermediate bond funds
2 years I-bonds
1 year EE-bonds
1.5 years individual Treasury
1.5 years CD/cash

The plan is to sell 0.5 years of fixed income each year from 50-70 and then to replace this with social security at 70, with half of my expenses covered by fixed income or social security. Ignoring the fixed income and social security, this will leave an approximately 30x stock portfolio with a 1.7% withdrawal rate. If the stock portfolio grows above 30x in ages 50-70, fixed income will not be withdrawn and fixed income will be replenished up to the original 10x, but never above 10x.

Rational:

- 30x stock portfolio with 1.7% withdrawal rate is considered a growth portfolio well below the historical permanent withdrawal rate.
- The AA goes above 75/25 while still guaranteeing all expenses from 70-90 in a good sequence.
- The portfolio has more fixed income in good sequences (10 years fixed income + social security @ Age 70)
- Expenses could be cut to have an even lower withdrawal rate from stocks, pretty much guaranteeing even poor sequences.
- Standard of living may be adjusted higher at age 60 (in good or average sequences) when all assets become freely available.

My plan is a mixture of seeking 40 years of growth while not taking excessive risks having won the game. Sequence of returns risk (SORR) is reduced by having such a low initial withdrawal rate from stocks. This is intuitive because a 0% withdrawal rate from stocks has little SORR and will just give you the overall returns of the stock market. In good initial sequences the portfolio reduces late risk by shoring up fixed income. This sort of adaptive AA reduces the main tail risks of poor initial returns and running out of money late in retirement, and guarantees a higher minimum floor of spending than variable withdrawal rate methods.
Dude2
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Re: what's in your bond allocation? and how will you use it?

Post by Dude2 »

birdbard wrote: Sat Jun 25, 2022 12:15 pmWill you be cashing in proportionately - so year 1 at 100k expenses - do you sell 60k of stocks and 40k of bonds and call that a day? or will it depend on market conditions? And what conditions would have you taking 100% from stocks, and which ones for 100% bonds?
My approach is to:

a) determine the percentage of bonds necessary to allow you to not tinker with your portfolio, and then simply let it ride
b) when the time comes to extract money from the portfolio, you do exactly what you described. You can rebalance to your desired asset allocation via withdrawal just as you can with contributions. If in your example your balances had you at exactly the 60/40 ratio you desire, then yes, you'd take out your 100k as 60k stocks and 40k bonds. It isn't rocket science, and simple is best.
Then ’tis like the breath of an unfee’d lawyer.
dbr
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Re: what's in your bond allocation? and how will you use it?

Post by dbr »

Dude2 wrote: Tue Jun 28, 2022 4:10 am
birdbard wrote: Sat Jun 25, 2022 12:15 pmWill you be cashing in proportionately - so year 1 at 100k expenses - do you sell 60k of stocks and 40k of bonds and call that a day? or will it depend on market conditions? And what conditions would have you taking 100% from stocks, and which ones for 100% bonds?
My approach is to:

a) determine the percentage of bonds necessary to allow you to not tinker with your portfolio, and then simply let it ride
b) when the time comes to extract money from the portfolio, you do exactly what you described. You can rebalance to your desired asset allocation via withdrawal just as you can with contributions. If in your example your balances had you at exactly the 60/40 ratio you desire, then yes, you'd take out your 100k as 60k stocks and 40k bonds. It isn't rocket science, and simple is best.
Exactly. There is nothing mysterious about maintaining a rebalanced portfolio including by taking withdrawals as indicated. It is very difficult to show any advantage to schemes to mess around with the asset allocation other than this. Taking withdrawals toward balance can be from stocks or from bonds or from both in any particular case. Also, it doesn't mess things up at all to be somewhat out of balance if that is more convenient. People often recommend rebalance bands at perhaps 5%, and they can be larger because the exact asset allocation does not have a strong effect on outcomes.

A person who fears the effect of taking withdrawals when things are "down" should stop taking withdrawals.
MattB
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Re: what's in your bond allocation? and how will you use it?

Post by MattB »

dbr wrote: Sat Jun 25, 2022 2:04 pm
RCL wrote: Sat Jun 25, 2022 1:59 pm
NYCaviator wrote: Sat Jun 25, 2022 12:53 pm
trismegistos wrote: Sat Jun 25, 2022 12:40 pm I'm at approximately 10% bonds across all my portfolios. Total US Bond Index Fund and I Bonds.
I keep seeing everyone saying to max out ibonds. Is that only because of this high inflation period, or do folks generally max out ibonds? Prior to the last couple of years, you rarely heard of people buying ibonds directly and common wisdom was to just buy a total bond fund.
Market Timing?? Chasing Returns?? FOMO??
Feeding frenzy.
Guaranteed return without risk of principle loss.
MattB
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Re: what's in your bond allocation? and how will you use it?

Post by MattB »

MikeG62 wrote: Mon Jun 27, 2022 8:38 am That approach cannot have felt very good the last 6-8 months.
Short term performance is a poor reason to justify re-engineering one's investments.

I've been 90+% stocks since I started investing at 20. Now 37. I would never say, ugh, we're experiencing a bear market, I should rethink investing in stocks for the foreseeable future. And I can't see why the situation would be any different with a reasonable allocation to fixed income.

The answer, I think, is to pick a reasonable AA and stick to the plan, through thick and thin. People who reengineer every time the wind blows end up losing money to those who can stay the course.
dbr
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Re: what's in your bond allocation? and how will you use it?

Post by dbr »

MattB wrote: Tue Jun 28, 2022 9:02 am
dbr wrote: Sat Jun 25, 2022 2:04 pm
RCL wrote: Sat Jun 25, 2022 1:59 pm
NYCaviator wrote: Sat Jun 25, 2022 12:53 pm
trismegistos wrote: Sat Jun 25, 2022 12:40 pm I'm at approximately 10% bonds across all my portfolios. Total US Bond Index Fund and I Bonds.
I keep seeing everyone saying to max out ibonds. Is that only because of this high inflation period, or do folks generally max out ibonds? Prior to the last couple of years, you rarely heard of people buying ibonds directly and common wisdom was to just buy a total bond fund.
Market Timing?? Chasing Returns?? FOMO??
Feeding frenzy.
Guaranteed return without risk of principle loss.
No, that was always true of I bonds and even at greater guaranteed return without much enthusiasm generated. It would seem pretty obvious that the current enthusiasm is the currently high nominal return compared to other fixed income. But that nominal return is not guaranteed.

I bonds always made sense for a certain use, especially regarding no risk of loss of real principal, but when I bond return was not remarkable compared to similar or higher real and nominal returns on other things, nobody cared very much.

Did you start buying I bonds in 1998? I didn't and the alternate choices have proved to be better for us over the last going on 25 years. We did open a TD account and had a couple bonds in it, but that was emptied out long ago.
MattB
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Re: what's in your bond allocation? and how will you use it?

Post by MattB »

dbr wrote: Tue Jun 28, 2022 9:22 am But that nominal return is not guaranteed.
Bologna. One purchasing i-bonds knows precisely what return they will get over the next six months, and sometimes over the next 12 months depending where in the cycle they choose to buy.

I'm not suggested you one can know the return over a multi-year period. But, at least over the short term, i-bonds offer a known, guaranteed nominal return.
MattB
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Re: what's in your bond allocation? and how will you use it?

Post by MattB »

dbr wrote: Tue Jun 28, 2022 9:22 am Did you start buying I bonds in 1998? I didn't and the alternate choices have proved to be better for us over the last going on 25 years. We did open a TD account and had a couple bonds in it, but that was emptied out long ago.
I did not start buying i-bonds in 1998 because I was 13 years old.

I first learned about i-bonds a year ago and have accumulated $100k in the time since. Currently aiming to hold $100-150k in i-bonds as our pool of short term reserves for the next 10 or 15 years. They provide a nice, low-stress way to accumulate money that might be spend in 1 to 5 years.
dbr
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Re: what's in your bond allocation? and how will you use it?

Post by dbr »

MattB wrote: Tue Jun 28, 2022 9:33 am
dbr wrote: Tue Jun 28, 2022 9:22 am Did you start buying I bonds in 1998? I didn't and the alternate choices have proved to be better for us over the last going on 25 years. We did open a TD account and had a couple bonds in it, but that was emptied out long ago.
I did not start buying i-bonds in 1998 because I was 13 years old.

I first learned about i-bonds a year ago and have accumulated $100k in the time since. Currently aiming to hold $100-150k in i-bonds as our pool of short term reserves for the next 10 or 15 years. They provide a nice, low-stress way to accumulate money that might be spend in 1 to 5 years.
Nothing wrong with that if it meets your needs.
HootingSloth
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Re: what's in your bond allocation? and how will you use it?

Post by HootingSloth »

MattB wrote: Tue Jun 28, 2022 9:28 am
dbr wrote: Tue Jun 28, 2022 9:22 am But that nominal return is not guaranteed.
Bologna. One purchasing i-bonds knows precisely what return they will get over the next six months, and sometimes over the next 12 months depending where in the cycle they choose to buy.

I'm not suggested you one can know the return over a multi-year period. But, at least over the short term, i-bonds offer a known, guaranteed nominal return.
Bingo. This is because I bond inflation adjustments are based on past inflation rates. No predicting the future or market timing is required for the first one or two rate-setting periods. Anyone who bought I bonds in late April 2022 knew exactly what they would return if held until June 2023, and that rate was extremely attractive relative to other nominal fixed income assets, even with the 3-month withdrawal penalty. Nobody knows, with certainty, what those I bonds will return after that point, but the decision whether to hold or sell can be made in June 2023 when the next year's nominal returns will also already be known. This is not market timing because I bonds are not marketable instruments with yield determined by market forces. The U.S. federal government declares the nominal yield in advance (on a rolling basis). It's, at worst, like getting a 14-and-change-month CD with a fantastic rate.

There are other potential purposes for accumulating I bonds, and some folks do that as well. But the current high level of interest in them is driven by a perfectly reasonable response to current conditions that don't depend on the other reasons someone might accumulate I bonds.
Global Market Portfolio + modest tilt towards volatility (80/20->60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currency-hedge bonds) + tax optimization
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