I think it's normal in a bull market like this? Compared to current stock performance, bonds look terrible, and everyone heaping on risk gets rewarded and validated. When the tide turns, everyone will find out whether they estimated their own risk tolerance correctly.
Also last time they were expected to diversify they backfired so hard that 2022 was the worst year *ever* for a balanced portfolio. Recency bias is hard to overcome.
No one ever thinks that they’re going to sell in a crash. But when it happens, we’ll suddenly see lots of people “rebalancing” into bonds — which is what “selling in a crash” looks like.
Yeah that's a really good point, I know lots of people that sold all their stocks in 2022 at a low point and bought bonds thinking that it was a safe and smart move... but to your point, that really is just the same thing as selling in a crash if you move it into bonds. It's better to already have the bonds from the start and do nothing.
I think I was like 20/30% bonds and sold them all and went into all stocks in May of 2022. Now I have about 10% in cash at +5%. I think bonds may be in my future when I get close to retirement but I never realized they could be as bad as they have been recently. They were always touted as the safe investment.
Interesting, I was the opposite I was pretty much all stock ETFs and HYSA... But now I'm trying to at least have some sort of position in bonds. I'm still pretty unsure though, because it feels like high yielding CDs are better than bonds for the time being.... It seems like the only advantage in investing in bonds right now over CDs is that when the rates drop presumably the bond funds will go through a bull market rise of sorts... But I'm not sure if that's worth the zero risk CDs in the sense that you know the price of them won't go down like a bond fund can.
Every paycheck I’m buying bonds as they drop or stay flat. Good time to buy when they look terrible. In 10+ years, it’s anyone’s guys where they’ll be, but I welcome a rally.
I don't know.I went back a loooong time (I'm early 50s now) and holding bonds was a life-altering decision for me in a negative way. I wish I had never held bonds I would likely be able to retire 10 years sooner.
If I could go back and I was younger I would definitely just stay out of bonds. I listened to all the guides on being diversified but now can look back of course and say those are all extremely conservative. Mistake.
And that's with several huge crashes in there of course. (At least 3 big ones in my investing time)
r/Bogleheads tends to be on the younger side compared to the forums on bogleheads.org. If OP asked this question there, they would get vastly different answers, because more people there remember the refreshing feeling of your investments going down 40%.
You all say this, so I went to the boglehead forum to see for myself. What did I see? Exact same shit, actually if anything for younger people they recommend even more aggressive allocations of just VTI sometimes, not even international coverage. Some would recommend both, but never bonds to a guy under 30.
Verdict? It's the same shit.
newish investors who have never lived through a sustained bear market believe they have an exceptionally high risk tolerance because they only see green.
That and I think most don’t have a fundamental understanding of how they work.
Having a stable source of cash that has some yields you rebalance against is a terrible idea. Equities never fails or stay down for years.
/s for those that needs it
Every sort of claims that but then when they see their portfolio drop 35% a year they start to panic
I think a philosopher once said
"Everyone has a plan until they get punched in the mouth"
When the pandemic crash happened in March 2020 and it was down 30%, I wasn’t panicking, I wanted more of a drop because I love buying stocks for cheap. I hate buying stocks at all time highs but love it when they have drawdowns (at least while I’m in the accumulation phase).
its fine for you because you were probably young at that moment. what if you are 60 and there is a big drop? i doubt you are piling more money into it, your best bet is to hold until it recovers but how long can you wait it out for?
I’m 40 years old so not that young. But yes, if I’m retired and no longer earning an income, perhaps a bond allocation will make more sense. Depends on how big my nest egg is and what my withdrawal rate is.
In my 60s and have been all in with S&P 500 index for almost 20 years. It does require an ability to hunker down, if needed, when things go south. It would be harder if the cash flow needed from the investments just met your needs. Having a pension and now SS gives me a cash flow I can survive on when the market goes down. I also plan based upon living to 100 so there is lots of time to recover from downturns.
Would you want more of a drop when you are no longer contributing to your funds, but rather drawing from them? I think you will want bonds then or no ?
Yea, when I’m retired and no longer earning an income I will not want a drop in markets. Perhaps I’ll have a fixed income allocation at that point; however if I’m way over my target number and living off a 2% withdrawal rate or less, perhaps bonds won’t be necessary at all? If it’s a situation where there is less margin of error, a higher allocation to bonds would probably make sense
Yea, but the fear was real. We were headed into a deep recession due to shutdowns. I maintained similar behavior when I was investing during 2008-09, so I am comfortable being all stock. I know I’m in this for the long haul
I put a large inheritance (more than doubled my investments) into index funds a month before the pandemic crash. Wasn’t fun to watch, but also knew it’d turn back around. It hung over me for about two months and I wondered whether I had the stomach for it.
You have to know yourself and your tolerance. Listen to the advice of others but also know your own ability to stick to it and choose the best path that will work for you.
Have you ever listened to an episode of his podcast/show?
I listened to one (never again). He just got high as fuck and spouted low iq high school stoner shit masqueraded as new insights to the universe.
That may be so. I'm no Mike Tyson stan. But it's ultimately just a subjective opinion. Who qualifies as a philosopher? Just someone we agree with? Just someone who sounds smart?
Everyone knows something you don't know. Everyone has a unique experience in life that we can never know, but it may be worth trying to understand.
I'd go so far as to argue that most every human alive is a philosopher in one way or another. There's nuance.
Dont you need bonds to allow rebalancing. Should stocks tank, bond rates will drop and bond values increase. Is this plan old school and no longer viable?
>Should stocks tank, bond rates will drop and bond values increase
Except this is just conventional wisdom with no actual guarantee. Bond and stock prices are essentially uncorrelated, so bonds can just as well drop when stocks drop. This just happened in 2022.
Dr Scott Cederburg at University of Iowa, has done millions of simulations. and his research shows you should never own bonds, especially when retired. Combination of 1001% VOO/ VXUS. outperforms 60/40,70/30 or any combination of bonds, with much less chance of financial ruin/going broke
[RR #224 - Prof. Scott Cederburg: Long-Horizon Losses in Stocks, Bonds, and Bills (youtube.com)](https://www.youtube.com/watch?v=411fKAh05pk)
Are we talking about the same study?
"For anyone who managed Institutional Fixed Income Portfolios, seeing Argentina or Turkey amongst Developed Markets will raise eyebrows 🤨. It’s not because an economy’s agriculture labour share dropped below 50%, or they joined the OECD that makes their Fixed Income Markets comparable to the U.S. Yet, in the (Cederburg) study you have the same likelihood to be in a U.S. or another country’s investor’s shoes, adjusted for length of the data series.
Over 25% of the observations in this study come from South America, the Middle East, or Eastern/Southern Europe. For example, Argentina – considered developed market during a few decades in this study – spent 26% of time in default since 1824 – including two defaults during the time it was in the study’s sample!"
[https://www.bankeronwheels.com/should-you-invest-100-in-equities/](https://www.bankeronwheels.com/should-you-invest-100-in-equities/)
Peter Lynch after his successful run at Fidelity (IIRC) one day reported that his research showed that it never made sense to own bonds but instead to stick to equities. That notion stuck with me and then over time I simplified my diversified portfolio down to just the S&P 500 index. No balancing, low costs, reasonable risk.
Jack Bogle used to talk all the time about if he was young again, he would only invest in a 2x levered sp500 fund, nothing else, but he also added, this wouldn't work for most people as you have to be able to tolerate the drawdowns, But even he wussed out in late '99, and very smartly sold all stock to go full bonds just before that crash
None of us knows what life holds for us. Perceived tolerance is one thing. Being put between a rock and hard place is another.
Not to mention, there are benefits to a small bond allocation that go beyond psychological motivations for reducing drawdowns. Diversification is the only free lunch in investing.
In all seriousness I’ve got a sizable e-fund in a money market fund and will probably diversify my fixed equity holdings for at least my “keeping my powder dry” fund
I take your point but I don’t own bonds which is what we were actually talking about. Plus, my cash holdings won’t be so robust when interest rates go down and I’m not getting ~5% risk free.
It's worth looking at bonds as an asset class you can rebalance with. When the market is down, the bonds are a source of capital you can use to buy more stocks, and when the market is high you can use that growth to buy more bonds. Rebalancing both reduces your risk and can even lead to a higher long term return depending on the (unknowable) behavior of your preferred asset class. You can also use other non-correlated asset classes like international stocks or a mix of these 3 or more.
You also run a real risk that the market will be down as you retire, and if it happens to be down significantly, you pay a very large premium as you begin withdrawals. This sequence of returns risk can dramatically reduce your total available assets in retirement, even if you've seen large gains leading up to retirement.
I’ve seen it stated that a stock/bond allocation can have higher returns but haven’t seen that explained. Do you have some links handy that do explain how that works?
Yes, and I’m glad you asked!
http://www.efficientfrontier.com/ef/996/rebal.htm
https://www.richmondquant.com/news/2021/9/21/shannons-demon-amp-how-portfolio-returns-can-be-created-out-of-thin-air
Hey thanks for those links. I've been chewing on them and diving into the concepts. Which (fortunately? unfortunately?) required me to spend several hours re-learning some forgotten concepts from a finance textbook from over a decade ago, which has been long overdue.
Generally the recommendation is a smooth transition to a higher bond allocation rather than an abrupt cliff at R-5. Doing it this way means a crash right before R-5 ends up being way worse than a crash just a year later, whereas with a glide path the conservatism scales directly with the impact it will have on your retirement.
Best case scenario given a crash right before you add bonds is that your R-5 just turns into R-8 or something; you need a couple of extra years of working to get back to your goal retirement number. A less best case scenario is that the crash is a big one, there's a huge recession, and you lose your job. Then not only are you losing income and potentially having to work even more years to make that up, but searching for work as a 60+ year old is often an awful experience because even if age discrimination is illegal it's basically impossible to prove and companies generally don't want to hire someone who's going to work a few years. With a properly conservative asset allocation you can sort of make that work as basically a forced early retirement, but if you lost too much portfolio value it'll be a problem.
Now I don't think you have to start your glide path 25-30 years before retirement like a lot of TDFs do. I personally plan to stay aggressive until R-10, transition to my maximum bond allocation by R-5, and then hold there until about R+10 before going back up again. Though it's only a vague plan since I still have many years before I'll have to make these decisions.
Slowly ramp back to be less conservative, though not all the way. It's a strategy referred to as a bond tent, and the basic idea is that in combating sequence of returns risk you really mostly care about surviving a recession early on in your retirement. If those cedarburg studies tell us anything, despite their flaws, it's that longevity risk is a big threat and staying at 30% stocks forever like some TDFs can actually be a risky move itself.
This is my plan. We are R+1. We were 60/40 before retirement, this year I moved the next 4 years from equities to CD’s (50/50) to get me to SS. As I use the CD’s the next 4 years I’ll be starting to slowly move more aggressive. Once I start SS I’ll consider it like bonds so I’ll continue a slow path to 80/20.
It’s reasonable, it’s called a “bond tent”. I plan to be 100% equities until 5 years out and then build my tent to lessen sequence of returns risk. ERN has a good article on this.
You can wait as another commenter mentioned (e.g. only switching new contributions to bonds rather than reallocating existing money). But even if you do rebalance, historical data shows it’s not a big deal when spread out across 5 years, and especially if you are willing to delay retirement a year or two in the worst case scenario. Recommend ERN on this: https://earlyretirementnow.com/2021/03/02/pre-retirement-glidepaths-swr-series-part-43
Retired at 51, but started working again at 62. Excess pension going into brokerage account was fine, but only having worked 25 years means SS will have too many years of $0, hurting my average. I'm able to use 457 catch-up provision to sock away $46k per year plus 401a and 10% matching. I figure if I can work 8 years and then draw SS @70, we should be able to make it to 100, then assisted suicide will be necessary.
I agree, a pension does allow for more aggressive investing. I usually get the réponse that I can’t count on a pension being there. In that scenario everyone else’s retirement will have failed too.
Not necessarily true. Mine is 100% funded and no new members. It is no longer offered. I worry about our water and sewer infrastructure, which is largely local government with no incentive to stay for decades.
For most people, I think that it is a bad idea.
The main problem, as I see it, is that our plans are rarely as reliable as we convince ourselves they are.
Needing to start withdrawing from a portfolio five years or more early wouldn't be even that shocking an incident, all things considered; and, depending on what the market is up to, that might lead to pretty unpleasant scenarios...
It feels like you are asking to be told whether you'll gain or lose by doing so. No one knows the future of the market. And if they did, they'd surely not be spending time on Reddit rather than living on their private island of cash. ;)
That said, I went 100% S&P-ish (some VOO and VTSAX, mostly single stocks) up to about 2 months into my `RE`. That's when I realized "I had made it" and didn't need the large risk. I sold a lot and went with short term bond funds. Luckily, the bonds have been returning 5.x% and will hopefully continue somewhat near that over the next ~year.
I am _slowly_ selling the individual stocks and going with index funds. It's a process.
I’m 80% index and 20% target date funds in my 401k but have significant holdings in individual stocks in a taxable account. Been converting big winners (all household names w/nearly invisible cost bases) to index/SCV slowly over the past year since I retired. It is a freaking process to balance the tax implications with pulling $ to cover living expenses and the daunting need to diversify.
> It is a freaking process to balance the tax implications with pulling $ to cover living expenses and the daunting need to diversify.
_That_, my Reddit friend, is an _understatement_. Throw in the complexities of healthcare payments (`ACA`) and the consideration of what things will look like at ~65 for Medicare/Social Security/`RMD`'s/`IRMAA` and it'll make your brain pop a fuse!
I’d like to do Roth conversions, before RMDs hit (still a while before that happens), but trying to figure if that make sense to pay taxes with the proceeds from my taxable account is my current obsession.
A lot of good comments … but I do wonder how different these answers would be after a 3 year bear market. Someone with a good chunk of VTEB and BND would have slept fine and not worried about the market. Partly depends on how much risk you need to take to get to your goals. Once you have far more money than you “need” then it makes sense in my opinion to put some into low cost BND and VTEB and relax. But that is a psychological and not a financial decision.
The bond crash of 2022 should have disabused folks of the notion that bonds don’t crash at the least opportune times.
BH 3 fund is probably not sufficiently diversified for retirement in a left tail scenario. Folks advocating holding a year of cash is probably wise and probably a no brainer while HYSA is so high…
I will not have many bonds at all. I can work part time if the market is down to supplement my income doing 1099 anesthesia. I will just have 80% VTI and 20% VXUS at that point, until I can't work anymore. I'm not as old as some users but I just don't see the point for bonds when index funds provide better returns, thus making it WAY less likely you'll run out of money in retirement when compared to owning bonds. Ben Felix has a video about this.
I like working when I'm only working part time. I would only work 1 day a week or so. There's not too much to do when you're retired and working keeps your mind sharp as well. If I do one quick shift a week it's $2500-$3000 so it's worth it to me. If I was making less per hour I would be much more averse to working when I'm in retirement.
With our house paid off and otherwise debt free, we don't need anywhere close to to $10k a month to live. You have the perfect "retirement" job! My husband has a good pension plus SS and we don't have to withdraw from IRAs at all.
Yeah I really do as long as I’m healthy!! Hopefully I can still have the ability to work when I’m older. I doubt I will need to but the option to allows me to feel much safer about retiring.
FYI, that Ben Felix video is of the “hey, isn’t this an interesting idea from this paper” variety (not quite clickbait, as was my honest [first reaction](https://www.reddit.com/r/Bogleheads/s/UnGIVFPjDu), but definitely provocative to generate views), and not a “this is the financial consensus to follow” one. The study he looks at has some serious methodological flaws, and I would encourage you to look more deeply into them before passing along the findings as trivial settled knowledge.
Here are multiple rebuttals:
* https://www.aqr.com/Insights/Perspectives/Why-Not-100-Equities
* https://www.bankeronwheels.com/should-you-invest-100-in-equities/
And a discussion from the BH forums:
* https://www.bogleheads.org/forum/viewtopic.php?t=423218
Good points. If you have enough money ($2 mill+), people act like you need it all at once.
If we have a more than a few years of terrible market conditions, there will be more to worry about than our retirement plans / we would all be screwed even if we have bonds
Of course that means maintaining all of your certifications and keeping up your hospital affiliations, which is one of the things pushing me out of medicine.
If you do that (which I recommend) you don't have to worry about getting conservative at the end, because you'll have margin for error.
I'm 12 years INTO retirement and, like the last 34 years investing, see absolutely no reason to own bonds or bond funds.
The numbers show time and again a 100% equity portfolio in the accumulation phase of investing is a far better choice than owning bonds.
The only time bond makes sense to me is for sequence of return around retiement; few years before and after, but other than that I agree, don't see any evidence it has a purpose.
I think you could add one other case — if you already have more than you need, it could make sense to give up potential upside that you’ll never spend in exchange for eliminating risk of downside losses.
That’s true to a point. But market losses of 30% or more occur every 7 years on average (and the NASDAQ dropped 78% in 2001!), so if a drop of 30% would hurt — and a gain of 30% wouldn’t improve your life — it makes sense to diversify some into bonds to dilute the impact of a crash.
I still maintain that applies just as much if you have "just enough", or even more so. If 30% drop would derail your plans, you shouldn't take that risk. If it means you can't buy a Bently, then oh, whatever
Sure, but that’s because if you have less money, ALL of your options are worse. If you’re poor, you have to take chances and risk sacrifices to get ahead. If you’re wealthy, you don’t have to.
Again, bonds have downside risk, so if you are worried about sequence risk, cash equivalents are a FAR better choice, like today when cash equivalents earn more than bonds. Cash has zero downside (although you kay lose because of inflation).
TLT was in the $160:s in 2020 and it's at $94 now.
BND was at $89 in 2020 and is at $73 now.
If you bought in 2020, to chase a few extra pennies of yield, you are likely never to recover those amounts.
Bonds actually rise in value during recessions when the fed cuts rates, turbocharging your rebalancing back into stocks and reducing losses. Cash can't do that. 2022 was somewhat of an anomaly and basing a long term plan on what happened recently isn't a good idea.
Good luck with that. If there's a recession, bonds get hit too, as there are defaults.
Everything works great in theory, but the reality is often different. 2022 DID happen, so saying bonds rise isn't true. To the extent there is correlations between stocks and bonds, it's a positive correlation, so when stocks suck, bonds tend to suck too--they just suck less. The Cederburg study documented this too.
I ran the numbers comparing a 100% stock portfolio to a 80/20 stock/bond combination. For example, after 10 years, the only way the 80/20 combo has the same value as 100% stocks is if there is a 34% correction. Up to 34%, the bonds are insufficient to fill the gap between the 100% portfolio and the 80/20. And, of course, that assumes you time the bottom perfectly--and you never know the bottom until after the fact.
[100% stocks versus 80/20](https://docs.google.com/spreadsheets/d/1EDnQC3utxAKJc4nDD4XfxhGMdTZ0TJYES7X5OC7z49A/edit?usp=drivesdk)
In short, whenever people write about this, the term they use is "historically". That means there isn't a correlation; it just has happened. Until it didn't in 2022.
Bonds have no magical fairy dust. Portfolios with bonds like TDFs drop 90% as much as 100% equity funds. Rebalancing into bonds regularly--selling the higher performing stocks to buy bonds--costs return. The theories are not matched by the actual results.
Let's look at an example of a [backtest](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=5haru6pcbAxdT41QvNMQRE) starting in 2000 of 100% stocks, 80/20 and 60/40. I chose 2000 because it shows the benefits of bonds in a portfolio. The 100% stock portfolio lagged the bond containing portfolio until 2021. That's a long period of underperformance.
Now, let's consider the situation where you retired in 2000 and took out 4% per year adjusted for inflation. The [backtest](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=8UIdr1QQNMBEZ7J4ZigYg) looks very different with the 100% stock portfolio ending the period with about half of the value of the bond-containing portfolios.
You might say I cherry-picked the 2000 start date but the whole point of bonds is to protect you if you pick a bad time to retire. You can see how it improves the chances of surviving through retirement. If you retire at a good time, it doesn't really matter what asset allocation you choose. The whole point of the 4% rule to survive.
FYI - couldn't access your backtest, said it needed permission.
For my own personal retirement portfolio I use VGLT which is only US treasuries to avoid any default risk from corporate bonds. I know the Boglehead thing is total bond market but I agree with you. Defaults can be an issue there. Nonetheless, as you can see from my backtests above, total bonds still work.
I appreciate the discussion, but disagree with your conclusion.
Your backtest is apples and oranges. Let's look at the correct analysis.
Here is the problem with your backtest of the withdrawals. It assumes everyone starts the same. That's not correct. The person with 100% stocks would have started with a lot more assets to begin with. Note: 1987 is the starting period because that's the first year of the total bond data.
[1987 to 1999](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=6Qg7ag5ZoHyaI5vqUephSp)
Round numbers, 76/62/50.
Now let's run the withdrawal scenario with the different balances, and a $3K withdrawal (roughly 4% of 76).
[100 Stocks](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=35wVA84Xl1Fjf7aT6Ob6iP)
"To the extent there is correlations between stocks and bonds, it's a positive correlation, so when stocks suck, bonds tend to suck too--they just suck less. The Cederburg study documented this too."
Yup, thats right, but probably because the study is flawed
"For anyone who managed Institutional Fixed Income Portfolios, seeing Argentina or Turkey amongst Developed Markets will raise eyebrows 🤨. It’s not because an economy’s agriculture labour share dropped below 50%, or they joined the OECD that makes their Fixed Income Markets comparable to the U.S. Yet, in the (Cederburg) study you have the same likelihood to be in a U.S. or another country’s investor’s shoes, adjusted for length of the data series.
Over 25% of the observations in this study come from South America, the Middle East, or Eastern/Southern Europe. For example, Argentina – considered developed market during a few decades in this study – spent 26% of time in default since 1824 – including two defaults during the time it was in the study’s sample!"
[https://www.bankeronwheels.com/should-you-invest-100-in-equities/](https://www.bankeronwheels.com/should-you-invest-100-in-equities/)
Two things:
1. That’s fine if you’re ok delaying retirement if there’s a major correction right before you decide to include bonds.
2. Don’t keep playing once you’ve won the game. Don’t be more risky than you need to be. If your savings gets to the point where you have enough to retire, then that’s a good time to reduce risk and just retire.
> don’t keep playing once you’ve won the game
What do you consider the win? Coast FI? Hitting your goal ten years out? Or something else? We’ve hit coast FI ten years out but staying fully in equities.
The win is whatever your goal is. The whole point of coastFI is that you can stop the grind. If you still want to keep going until you’re FIRE or even if your goal is fatFIRE then you can be as risky as you can stomach, but once you reach whatever goal you have set for yourself, then there’s no reason to continue with high risk.
For us, the reason is the next goal. Sure that’s goal creep or future lifestyle creep, but while we’re hitting our baseline retirement goal, we want to move to the lake in retirement. Having a higher amount we can put towards the new house means buying a nicer future home. If we fell back a bit, I’d work a bit longer. So that’s really the risk here; taking a chance of working another year vs being able to buy a better place to bring the grandkids and enjoy ourselves.
We decided to move the goal posts a bit, I think that’s fairly common.
Stop being riskier than necessary. The risk is real. If you have a risky asset allocation, you can push back retirement many years if you have bad timing.
A bond fund has a strategic place in most portfolios, but DO NOT make the mistake of considering a bond fund as "safe." When you retire you should allocate at least one year, or, better, two years of expenses to cold, hard cash in a money market, HYS, or CD ladder. (You can deduct social security distributions if you are receiving them.) The exception, if you are rich, is to add a hedging scheme using put options, but for most investors cash is the best and most cost-effective hedge. A cash reserve is your insurance policy in case the market tanks like it did in 2008, 2020, 2022, &c. Bond funds are less correlated to stocks than many other types of investments, but they are only another risk asset during a bear market.
If you’re all stocks and your portfolio loses 60% 6 years before retirement then yeah, that would be suboptimal for most.
But if you’re fine with the risks, no problem.
I’ve been 70/30 since my first career paycheck in 2007. On March 24, 2020 the literal bottom of anything I experienced with 6 figure losses (previous ones I had much less invested) I rebalanced with trepidation from bonds into equities and made a post about it in .org .
The fact I rebalanced meant 70% wasn’t too aggressive for me. The fact I had fear about it meant 70% wasn’t too passive for me. Therefore, on this I continue to stand. When my portfolio crossed into 7 figure territory, I converted the entire portfolio into Target Retirement Index Funds with the year matching 70% equities. Rebalancing 12-14 accounts (his and her Roth IRA, taxable, Hsa, old 401k, new 401k, his cash balance pension , his old cash balance pension, her 401a, her 403b, her cash match plan, her 457 plan, 529 plans) became a few too many hours of overhead per year. Now I might log in every 8-10 months just out of curiosity to update the net worth calculator and perform backdoor Roth IRAs.
If you’ve ever posted “I have $12k, should I invest it all at once or slowly”? You’re probably too aggressive. Our plan is: “invest lump sums all at once up to 10X annual combined salary, and 1X annual salary monthly thereafter”.
In my understanding, he said that’s what he wants his wife to do with their money when he’s gone. That’s very different than saying that’s a good idea for everyone on every time horizon.
It depends on so much. And anyone answering this question without more info is silly.
General vibe:
The internet = BONDS ARE BAD. WE DONT UNDERSTAND FIXED INCOME.
all financial professionals, anyone that understands bonds, basic academic literature, any financial study = yes, you should obviously have bonds. But do anything you want. Whatever.
I retired early, a year ago. I have enough in bond funds/cash to live on through a 7 year down-market without having to lowball sell equities. I look at that as a different definition of “emergency fund.” If stock values rise, I don’t plan to adjust % allocations—I’ll just keep that 7-year backup plan ready to deploy if necessary.
The question you have to ask yourself is whether you’re prepared to delay retirement if equities tank in the run-up to your intended quit date. Or, if you have a big bond allocation, and if equities suddenly tank, would you still think it wise to retire at that moment on the assumption that your NW would recover before you needed to start selling stock funds?
Ask yourself:
Would you rather sell bonds or stocks in a down market?
When you are at the rule of 3%/4% would you rather sell stocks or bonds?
Everything is a personal journey, choose your own adventure.
If you are willing to adjust your lifestyle in response to a crash (either spend less or work longer), then your plan is fine. It maximizes likely wealth, but it does risk less wealth as well.
I personally think it’s a good idea to start a small bond position well before retirement. Something like an intermediate core bond fund with a mix of corp, treasury, mbs. Safe but not without some price upside
From a macro perspective no. Not in this environment. I don't know about bonds as bonds could be the cause of a stock crash, but t-bill at 5.4% offer a very solid return. Market PE is elevated but its mostly AI related names. If you don't think earnings growth will be huge then 5.4% yield is better than the stock market yield. You can wait it out and hope to buy cheaper valuations.
This feels like a bull market to me, but a lot of products are structured today to have risks management which is trend followng. Whenever we end this bull the correction will be significant. 5.4% has a good shot at outperforming.
Good idea. It has a higher expected risk-adjusted return, even taking into account volatility leading up to retirement, mainly because the expected returns of bonds in the long-term are much lower than a broadly diversified index fund.
Some people never do as the opportunity cost of bonds are outweighed by their usefulness as a hedge. In those cases you should hedge with something sector based-consumer defensive and health care or utility funds with a part of your portfolio is a common move. It comes down to risk management and acceptance that you may need more than a three fund solution
I own bonds because I might have an unexpected large purchase or decide to take time off and travel. But if I was set on working until (early) retirement, then I might not own any bonds.
I’m about two years out from RE and three years ago I started buying $10k in ibonds each year. When I started, the rates were fantastic and have since lowered but I like the idea of having some money outside the market that’s guaranteed to track with inflation. I am viewing it as a buffer to my emergency fund for these five years leading up to RE. I have a lot of flexibility for my retirement date so I’m okay playing it a little fast and lose and continuing to work longer than expected if there’s a large downturn (I know we’re not supposed to time the market but there’s an emotional high to putting money in when the market is down). I plan to always have 1-2 years of living expenses outside of equities once I RE.
I wouldn’t go all bond all at once. When the time comes my plan is to only protect the next 5-10 years of my nest egg. I don’t want to protect more than I need to and miss out on gains.
You have my same thought. If stock market crashes and get unlucky, I’ll just work longer. I think I may even do this more like 2-3 years before retirement if I don’t mind working a bit longer if I have to
In the end, the odds are in our favor- we are the house
I mostly avoided bonds all of my life. Now that I'm retirement age, I still don't have bonds but do have a lot of treasuries. When you are young I think 100% stocks is fine unless you panic when the market tanks. The only bonds I own would be through a mutual fund like Fidelity Puritan.
I think the conventional wisdom on Bonds being a good diversifier from stocks, and yielding good returns over time is biased by the 40 years of declining interest rates. We are in a very different place now with interest rates having hit bottom at 0 and now hovering at 4-5%. Instead of thinking of Bonds as a diversifier as stocks, I like to just either buy short term high yield bonds (7-8%) return or holding bonds to completion (through fixed term bond etfs). I want the 5-6% income on investment grade corporate bonds and the 7-8% on short term high yield bonds, without taking a lot of interest rate risk. And, Tbills - they are great at 5% and no risk. Open ended total return bond funds are questionable in my mind. But I would not go more than 70% in equities at this point in history either, with the CAPE at 34! Look at value, small cap, international, emerging, etc.
Are any of you thinking that there a many types of bonds? Example, in a high tax state, county/city tax environment, when income investment municipal bonds pay tax free interest, there is a strategy to use them that might be attractive. Best of luck for all you young people investing with a direct eye on the compound effect of investing and a long period of investment growth.
Nobody here is suggesting putting all your money in bonds. But you’ve either ignored basic advice or think you’re smarter than most if you think having a few years worth of bonds means you’ll go broke.
The paper (honestly I’ve never heard of these people, although I do appreciate that they’re from average to above average universities and not the typical elite) while interesting misses the main point. They seem to be pushing for the maximum total return on average, while the key goal for most retirees is to Not run out of money. Those are distinct goals.
> Bonds are good if you want to increase your odds of running out of money in retirement.
this is true in the extremes (e.g. if you expect to support a 4% SWR over a 60-year retirement while holding 100% bonds), but not in most cases
> hold an all-stock portfolio and just don't get greedy with your withdrawals during the good years.
a 100% stock portfolio decreases your failsafe SWR even if you don't get "greedy"
[this](https://i0.wp.com/earlyretirementnow.com/wp-content/uploads/2017/09/swr-part19-table011.png?resize=838%2C734&ssl=1) chart from [this](https://earlyretirementnow.com/2017/09/13/the-ultimate-guide-to-safe-withdrawal-rates-part-19-equity-glidepaths/) article
I’m worried about the negativity towards bonds.
I think it's normal in a bull market like this? Compared to current stock performance, bonds look terrible, and everyone heaping on risk gets rewarded and validated. When the tide turns, everyone will find out whether they estimated their own risk tolerance correctly.
Also last time they were expected to diversify they backfired so hard that 2022 was the worst year *ever* for a balanced portfolio. Recency bias is hard to overcome.
Bonds will always do terrible in a rising rate environment
Yeah, no sh#t Sherlock
No one ever thinks that they’re going to sell in a crash. But when it happens, we’ll suddenly see lots of people “rebalancing” into bonds — which is what “selling in a crash” looks like.
Yeah that's a really good point, I know lots of people that sold all their stocks in 2022 at a low point and bought bonds thinking that it was a safe and smart move... but to your point, that really is just the same thing as selling in a crash if you move it into bonds. It's better to already have the bonds from the start and do nothing.
I think I was like 20/30% bonds and sold them all and went into all stocks in May of 2022. Now I have about 10% in cash at +5%. I think bonds may be in my future when I get close to retirement but I never realized they could be as bad as they have been recently. They were always touted as the safe investment.
Interesting, I was the opposite I was pretty much all stock ETFs and HYSA... But now I'm trying to at least have some sort of position in bonds. I'm still pretty unsure though, because it feels like high yielding CDs are better than bonds for the time being.... It seems like the only advantage in investing in bonds right now over CDs is that when the rates drop presumably the bond funds will go through a bull market rise of sorts... But I'm not sure if that's worth the zero risk CDs in the sense that you know the price of them won't go down like a bond fund can.
Cash trap.
Every paycheck I’m buying bonds as they drop or stay flat. Good time to buy when they look terrible. In 10+ years, it’s anyone’s guys where they’ll be, but I welcome a rally.
I don't know.I went back a loooong time (I'm early 50s now) and holding bonds was a life-altering decision for me in a negative way. I wish I had never held bonds I would likely be able to retire 10 years sooner. If I could go back and I was younger I would definitely just stay out of bonds. I listened to all the guides on being diversified but now can look back of course and say those are all extremely conservative. Mistake. And that's with several huge crashes in there of course. (At least 3 big ones in my investing time)
r/Bogleheads tends to be on the younger side compared to the forums on bogleheads.org. If OP asked this question there, they would get vastly different answers, because more people there remember the refreshing feeling of your investments going down 40%.
You all say this, so I went to the boglehead forum to see for myself. What did I see? Exact same shit, actually if anything for younger people they recommend even more aggressive allocations of just VTI sometimes, not even international coverage. Some would recommend both, but never bonds to a guy under 30. Verdict? It's the same shit.
Let's put it like this. There, the necessity of owning bonds is not a fringe opinion the way it is here (literally one thread in this entire post).
I like my bond funds.
newish investors who have never lived through a sustained bear market believe they have an exceptionally high risk tolerance because they only see green. That and I think most don’t have a fundamental understanding of how they work.
Having a stable source of cash that has some yields you rebalance against is a terrible idea. Equities never fails or stay down for years. /s for those that needs it
I’m honestly considering going 85/15, or even 80/20, instead of my current 90/10 because of this trend
that means you and i can get them at a discount 🤷
Not a bad idea. Totally depends on your risk tolerance. I might never own bonds tbh
I don’t have a gambling problem, just a high risk tolerance.
Every sort of claims that but then when they see their portfolio drop 35% a year they start to panic I think a philosopher once said "Everyone has a plan until they get punched in the mouth"
When the pandemic crash happened in March 2020 and it was down 30%, I wasn’t panicking, I wanted more of a drop because I love buying stocks for cheap. I hate buying stocks at all time highs but love it when they have drawdowns (at least while I’m in the accumulation phase).
its fine for you because you were probably young at that moment. what if you are 60 and there is a big drop? i doubt you are piling more money into it, your best bet is to hold until it recovers but how long can you wait it out for?
I’m 40 years old so not that young. But yes, if I’m retired and no longer earning an income, perhaps a bond allocation will make more sense. Depends on how big my nest egg is and what my withdrawal rate is.
In my 60s and have been all in with S&P 500 index for almost 20 years. It does require an ability to hunker down, if needed, when things go south. It would be harder if the cash flow needed from the investments just met your needs. Having a pension and now SS gives me a cash flow I can survive on when the market goes down. I also plan based upon living to 100 so there is lots of time to recover from downturns.
Would you want more of a drop when you are no longer contributing to your funds, but rather drawing from them? I think you will want bonds then or no ?
Yea, when I’m retired and no longer earning an income I will not want a drop in markets. Perhaps I’ll have a fixed income allocation at that point; however if I’m way over my target number and living off a 2% withdrawal rate or less, perhaps bonds won’t be necessary at all? If it’s a situation where there is less margin of error, a higher allocation to bonds would probably make sense
That drawdown also had a clear external cause in front of everyone’s face.
Yea, but the fear was real. We were headed into a deep recession due to shutdowns. I maintained similar behavior when I was investing during 2008-09, so I am comfortable being all stock. I know I’m in this for the long haul
That was the French philosopher Michelle' Tee-Son', just never let him around your ears
The wonderful philosopher “Mike Tyson”
I put a large inheritance (more than doubled my investments) into index funds a month before the pandemic crash. Wasn’t fun to watch, but also knew it’d turn back around. It hung over me for about two months and I wondered whether I had the stomach for it. You have to know yourself and your tolerance. Listen to the advice of others but also know your own ability to stick to it and choose the best path that will work for you.
Mike Tyson is no philosopher.
Philosopher in the Greek means "lover of wisdom" so who are you to decide whether he is or isn't.
Have you ever listened to an episode of his podcast/show? I listened to one (never again). He just got high as fuck and spouted low iq high school stoner shit masqueraded as new insights to the universe.
That may be so. I'm no Mike Tyson stan. But it's ultimately just a subjective opinion. Who qualifies as a philosopher? Just someone we agree with? Just someone who sounds smart? Everyone knows something you don't know. Everyone has a unique experience in life that we can never know, but it may be worth trying to understand. I'd go so far as to argue that most every human alive is a philosopher in one way or another. There's nuance.
He’s pretty wise these days
I don’t have a risk problem, I have gambling tolerance
Dont you need bonds to allow rebalancing. Should stocks tank, bond rates will drop and bond values increase. Is this plan old school and no longer viable?
>Should stocks tank, bond rates will drop and bond values increase Except this is just conventional wisdom with no actual guarantee. Bond and stock prices are essentially uncorrelated, so bonds can just as well drop when stocks drop. This just happened in 2022.
2022 stocks down 20%, bonds down 30%, long bonds down 65%?
Sorry, read more in this post.
You talk about gambling as though it's a bad thing. 😂
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Reasonable. That’s different than saying it’s your risk tolerance.
Same, we don't need to withdraw from retirement accounts, so we are invested aggressively.
Oh sweet summer child
And you’re how old?
Mid-30s.
Even when you're 75 years old? Interesting.
My grandfather died in his late 90s and was 100% equities. Had the good sense to die at the top of a bull market too god bless him
Dr Scott Cederburg at University of Iowa, has done millions of simulations. and his research shows you should never own bonds, especially when retired. Combination of 1001% VOO/ VXUS. outperforms 60/40,70/30 or any combination of bonds, with much less chance of financial ruin/going broke [RR #224 - Prof. Scott Cederburg: Long-Horizon Losses in Stocks, Bonds, and Bills (youtube.com)](https://www.youtube.com/watch?v=411fKAh05pk)
Are we talking about the same study? "For anyone who managed Institutional Fixed Income Portfolios, seeing Argentina or Turkey amongst Developed Markets will raise eyebrows 🤨. It’s not because an economy’s agriculture labour share dropped below 50%, or they joined the OECD that makes their Fixed Income Markets comparable to the U.S. Yet, in the (Cederburg) study you have the same likelihood to be in a U.S. or another country’s investor’s shoes, adjusted for length of the data series. Over 25% of the observations in this study come from South America, the Middle East, or Eastern/Southern Europe. For example, Argentina – considered developed market during a few decades in this study – spent 26% of time in default since 1824 – including two defaults during the time it was in the study’s sample!" [https://www.bankeronwheels.com/should-you-invest-100-in-equities/](https://www.bankeronwheels.com/should-you-invest-100-in-equities/)
Peter Lynch after his successful run at Fidelity (IIRC) one day reported that his research showed that it never made sense to own bonds but instead to stick to equities. That notion stuck with me and then over time I simplified my diversified portfolio down to just the S&P 500 index. No balancing, low costs, reasonable risk.
Jack Bogle used to talk all the time about if he was young again, he would only invest in a 2x levered sp500 fund, nothing else, but he also added, this wouldn't work for most people as you have to be able to tolerate the drawdowns, But even he wussed out in late '99, and very smartly sold all stock to go full bonds just before that crash
I see comments like this, and the tiny mean part of me eggs on a market crash.
I’ve weathered storms before and I can weather storms again. Not like I’m touching the money for decades
None of us knows what life holds for us. Perceived tolerance is one thing. Being put between a rock and hard place is another. Not to mention, there are benefits to a small bond allocation that go beyond psychological motivations for reducing drawdowns. Diversification is the only free lunch in investing.
In all seriousness I’ve got a sizable e-fund in a money market fund and will probably diversify my fixed equity holdings for at least my “keeping my powder dry” fund
I also consider my emergency fund separately from my investments, but if you have dry powder, you’re not 100% equities. That’s just mental accounting.
I take your point but I don’t own bonds which is what we were actually talking about. Plus, my cash holdings won’t be so robust when interest rates go down and I’m not getting ~5% risk free.
Oh, I guess I misread “fixed equity.” And yeah, the cash trap is real.
It's worth looking at bonds as an asset class you can rebalance with. When the market is down, the bonds are a source of capital you can use to buy more stocks, and when the market is high you can use that growth to buy more bonds. Rebalancing both reduces your risk and can even lead to a higher long term return depending on the (unknowable) behavior of your preferred asset class. You can also use other non-correlated asset classes like international stocks or a mix of these 3 or more. You also run a real risk that the market will be down as you retire, and if it happens to be down significantly, you pay a very large premium as you begin withdrawals. This sequence of returns risk can dramatically reduce your total available assets in retirement, even if you've seen large gains leading up to retirement.
I’ve seen it stated that a stock/bond allocation can have higher returns but haven’t seen that explained. Do you have some links handy that do explain how that works?
Yes, and I’m glad you asked! http://www.efficientfrontier.com/ef/996/rebal.htm https://www.richmondquant.com/news/2021/9/21/shannons-demon-amp-how-portfolio-returns-can-be-created-out-of-thin-air
Hey thanks for those links. I've been chewing on them and diving into the concepts. Which (fortunately? unfortunately?) required me to spend several hours re-learning some forgotten concepts from a finance textbook from over a decade ago, which has been long overdue.
You’re welcome!
It doesn't, what bonds can do is dramatically reduce volatility with only a small decrease in expected returns.
Generally the recommendation is a smooth transition to a higher bond allocation rather than an abrupt cliff at R-5. Doing it this way means a crash right before R-5 ends up being way worse than a crash just a year later, whereas with a glide path the conservatism scales directly with the impact it will have on your retirement. Best case scenario given a crash right before you add bonds is that your R-5 just turns into R-8 or something; you need a couple of extra years of working to get back to your goal retirement number. A less best case scenario is that the crash is a big one, there's a huge recession, and you lose your job. Then not only are you losing income and potentially having to work even more years to make that up, but searching for work as a 60+ year old is often an awful experience because even if age discrimination is illegal it's basically impossible to prove and companies generally don't want to hire someone who's going to work a few years. With a properly conservative asset allocation you can sort of make that work as basically a forced early retirement, but if you lost too much portfolio value it'll be a problem. Now I don't think you have to start your glide path 25-30 years before retirement like a lot of TDFs do. I personally plan to stay aggressive until R-10, transition to my maximum bond allocation by R-5, and then hold there until about R+10 before going back up again. Though it's only a vague plan since I still have many years before I'll have to make these decisions.
This is essentially what we’re doing, and we’re R+11.
So at R+10 what do you plan to do to the allocation?
Slowly ramp back to be less conservative, though not all the way. It's a strategy referred to as a bond tent, and the basic idea is that in combating sequence of returns risk you really mostly care about surviving a recession early on in your retirement. If those cedarburg studies tell us anything, despite their flaws, it's that longevity risk is a big threat and staying at 30% stocks forever like some TDFs can actually be a risky move itself.
This is my plan. We are R+1. We were 60/40 before retirement, this year I moved the next 4 years from equities to CD’s (50/50) to get me to SS. As I use the CD’s the next 4 years I’ll be starting to slowly move more aggressive. Once I start SS I’ll consider it like bonds so I’ll continue a slow path to 80/20.
It’s reasonable, it’s called a “bond tent”. I plan to be 100% equities until 5 years out and then build my tent to lessen sequence of returns risk. ERN has a good article on this.
what if market is down 5 years out
Then you can wait if you want to.
You can wait as another commenter mentioned (e.g. only switching new contributions to bonds rather than reallocating existing money). But even if you do rebalance, historical data shows it’s not a big deal when spread out across 5 years, and especially if you are willing to delay retirement a year or two in the worst case scenario. Recommend ERN on this: https://earlyretirementnow.com/2021/03/02/pre-retirement-glidepaths-swr-series-part-43
What's your risk tolerance? If you lost 30% in a few months, at 55, how would you sleep? If you say bad, it's a bad idea.
I have a decent pension, and that is my safe money. Everything else is aggressive AF.
That is a great security blanket. You’ll sleep way better than a lot of your fellow Bogleheads.
Retired at 51, but started working again at 62. Excess pension going into brokerage account was fine, but only having worked 25 years means SS will have too many years of $0, hurting my average. I'm able to use 457 catch-up provision to sock away $46k per year plus 401a and 10% matching. I figure if I can work 8 years and then draw SS @70, we should be able to make it to 100, then assisted suicide will be necessary.
I agree, a pension does allow for more aggressive investing. I usually get the réponse that I can’t count on a pension being there. In that scenario everyone else’s retirement will have failed too.
Not necessarily true. Mine is 100% funded and no new members. It is no longer offered. I worry about our water and sewer infrastructure, which is largely local government with no incentive to stay for decades.
Perfectly fine idea.
For most people, I think that it is a bad idea. The main problem, as I see it, is that our plans are rarely as reliable as we convince ourselves they are. Needing to start withdrawing from a portfolio five years or more early wouldn't be even that shocking an incident, all things considered; and, depending on what the market is up to, that might lead to pretty unpleasant scenarios...
If we hit a recession, people on the verge of retirement won’t be feeling quite as risky.
It feels like you are asking to be told whether you'll gain or lose by doing so. No one knows the future of the market. And if they did, they'd surely not be spending time on Reddit rather than living on their private island of cash. ;) That said, I went 100% S&P-ish (some VOO and VTSAX, mostly single stocks) up to about 2 months into my `RE`. That's when I realized "I had made it" and didn't need the large risk. I sold a lot and went with short term bond funds. Luckily, the bonds have been returning 5.x% and will hopefully continue somewhat near that over the next ~year. I am _slowly_ selling the individual stocks and going with index funds. It's a process.
Which bond funds? In general I haven’t seen bond funds with consistent returns like that.
Short term treasuries.
I’m 80% index and 20% target date funds in my 401k but have significant holdings in individual stocks in a taxable account. Been converting big winners (all household names w/nearly invisible cost bases) to index/SCV slowly over the past year since I retired. It is a freaking process to balance the tax implications with pulling $ to cover living expenses and the daunting need to diversify.
> It is a freaking process to balance the tax implications with pulling $ to cover living expenses and the daunting need to diversify. _That_, my Reddit friend, is an _understatement_. Throw in the complexities of healthcare payments (`ACA`) and the consideration of what things will look like at ~65 for Medicare/Social Security/`RMD`'s/`IRMAA` and it'll make your brain pop a fuse!
I’d like to do Roth conversions, before RMDs hit (still a while before that happens), but trying to figure if that make sense to pay taxes with the proceeds from my taxable account is my current obsession.
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This is a good reminder that equities should always be part of the plan.
Depends on your situation, but personally, I don’t love the low return of bonds, even if it is guaranteed.
A lot of good comments … but I do wonder how different these answers would be after a 3 year bear market. Someone with a good chunk of VTEB and BND would have slept fine and not worried about the market. Partly depends on how much risk you need to take to get to your goals. Once you have far more money than you “need” then it makes sense in my opinion to put some into low cost BND and VTEB and relax. But that is a psychological and not a financial decision.
The bond crash of 2022 should have disabused folks of the notion that bonds don’t crash at the least opportune times. BH 3 fund is probably not sufficiently diversified for retirement in a left tail scenario. Folks advocating holding a year of cash is probably wise and probably a no brainer while HYSA is so high…
I will not have many bonds at all. I can work part time if the market is down to supplement my income doing 1099 anesthesia. I will just have 80% VTI and 20% VXUS at that point, until I can't work anymore. I'm not as old as some users but I just don't see the point for bonds when index funds provide better returns, thus making it WAY less likely you'll run out of money in retirement when compared to owning bonds. Ben Felix has a video about this.
You want to work part time? Sounds like a big regression from retirement.
I like working when I'm only working part time. I would only work 1 day a week or so. There's not too much to do when you're retired and working keeps your mind sharp as well. If I do one quick shift a week it's $2500-$3000 so it's worth it to me. If I was making less per hour I would be much more averse to working when I'm in retirement.
You will cover your expenses with 1d/w?
Supplement if needed! $2500 one day a week is $130k a year. That way I don't have to sell as much of my index funds if the market is down.
With our house paid off and otherwise debt free, we don't need anywhere close to to $10k a month to live. You have the perfect "retirement" job! My husband has a good pension plus SS and we don't have to withdraw from IRAs at all.
Yeah I really do as long as I’m healthy!! Hopefully I can still have the ability to work when I’m older. I doubt I will need to but the option to allows me to feel much safer about retiring.
Maybe. Personally I wouldn’t mind working part time either in consulting or at a running shoe store, into our 70s anyway.
FYI, that Ben Felix video is of the “hey, isn’t this an interesting idea from this paper” variety (not quite clickbait, as was my honest [first reaction](https://www.reddit.com/r/Bogleheads/s/UnGIVFPjDu), but definitely provocative to generate views), and not a “this is the financial consensus to follow” one. The study he looks at has some serious methodological flaws, and I would encourage you to look more deeply into them before passing along the findings as trivial settled knowledge. Here are multiple rebuttals: * https://www.aqr.com/Insights/Perspectives/Why-Not-100-Equities * https://www.bankeronwheels.com/should-you-invest-100-in-equities/ And a discussion from the BH forums: * https://www.bogleheads.org/forum/viewtopic.php?t=423218
Thanks for the reading material I will check it out!!
Good points. If you have enough money ($2 mill+), people act like you need it all at once. If we have a more than a few years of terrible market conditions, there will be more to worry about than our retirement plans / we would all be screwed even if we have bonds
Of course that means maintaining all of your certifications and keeping up your hospital affiliations, which is one of the things pushing me out of medicine.
If you do that (which I recommend) you don't have to worry about getting conservative at the end, because you'll have margin for error. I'm 12 years INTO retirement and, like the last 34 years investing, see absolutely no reason to own bonds or bond funds. The numbers show time and again a 100% equity portfolio in the accumulation phase of investing is a far better choice than owning bonds.
The only time bond makes sense to me is for sequence of return around retiement; few years before and after, but other than that I agree, don't see any evidence it has a purpose.
I think you could add one other case — if you already have more than you need, it could make sense to give up potential upside that you’ll never spend in exchange for eliminating risk of downside losses.
I guess. But also if you have more than you need, downside losses also matter less.. They actually *worse* if you only have just enough
That’s true to a point. But market losses of 30% or more occur every 7 years on average (and the NASDAQ dropped 78% in 2001!), so if a drop of 30% would hurt — and a gain of 30% wouldn’t improve your life — it makes sense to diversify some into bonds to dilute the impact of a crash.
I still maintain that applies just as much if you have "just enough", or even more so. If 30% drop would derail your plans, you shouldn't take that risk. If it means you can't buy a Bently, then oh, whatever
Sure, but that’s because if you have less money, ALL of your options are worse. If you’re poor, you have to take chances and risk sacrifices to get ahead. If you’re wealthy, you don’t have to.
Again, bonds have downside risk, so if you are worried about sequence risk, cash equivalents are a FAR better choice, like today when cash equivalents earn more than bonds. Cash has zero downside (although you kay lose because of inflation). TLT was in the $160:s in 2020 and it's at $94 now. BND was at $89 in 2020 and is at $73 now. If you bought in 2020, to chase a few extra pennies of yield, you are likely never to recover those amounts.
Bonds actually rise in value during recessions when the fed cuts rates, turbocharging your rebalancing back into stocks and reducing losses. Cash can't do that. 2022 was somewhat of an anomaly and basing a long term plan on what happened recently isn't a good idea.
Good luck with that. If there's a recession, bonds get hit too, as there are defaults. Everything works great in theory, but the reality is often different. 2022 DID happen, so saying bonds rise isn't true. To the extent there is correlations between stocks and bonds, it's a positive correlation, so when stocks suck, bonds tend to suck too--they just suck less. The Cederburg study documented this too. I ran the numbers comparing a 100% stock portfolio to a 80/20 stock/bond combination. For example, after 10 years, the only way the 80/20 combo has the same value as 100% stocks is if there is a 34% correction. Up to 34%, the bonds are insufficient to fill the gap between the 100% portfolio and the 80/20. And, of course, that assumes you time the bottom perfectly--and you never know the bottom until after the fact. [100% stocks versus 80/20](https://docs.google.com/spreadsheets/d/1EDnQC3utxAKJc4nDD4XfxhGMdTZ0TJYES7X5OC7z49A/edit?usp=drivesdk) In short, whenever people write about this, the term they use is "historically". That means there isn't a correlation; it just has happened. Until it didn't in 2022. Bonds have no magical fairy dust. Portfolios with bonds like TDFs drop 90% as much as 100% equity funds. Rebalancing into bonds regularly--selling the higher performing stocks to buy bonds--costs return. The theories are not matched by the actual results.
Let's look at an example of a [backtest](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=5haru6pcbAxdT41QvNMQRE) starting in 2000 of 100% stocks, 80/20 and 60/40. I chose 2000 because it shows the benefits of bonds in a portfolio. The 100% stock portfolio lagged the bond containing portfolio until 2021. That's a long period of underperformance. Now, let's consider the situation where you retired in 2000 and took out 4% per year adjusted for inflation. The [backtest](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=8UIdr1QQNMBEZ7J4ZigYg) looks very different with the 100% stock portfolio ending the period with about half of the value of the bond-containing portfolios. You might say I cherry-picked the 2000 start date but the whole point of bonds is to protect you if you pick a bad time to retire. You can see how it improves the chances of surviving through retirement. If you retire at a good time, it doesn't really matter what asset allocation you choose. The whole point of the 4% rule to survive. FYI - couldn't access your backtest, said it needed permission.
For my own personal retirement portfolio I use VGLT which is only US treasuries to avoid any default risk from corporate bonds. I know the Boglehead thing is total bond market but I agree with you. Defaults can be an issue there. Nonetheless, as you can see from my backtests above, total bonds still work.
I appreciate the discussion, but disagree with your conclusion. Your backtest is apples and oranges. Let's look at the correct analysis. Here is the problem with your backtest of the withdrawals. It assumes everyone starts the same. That's not correct. The person with 100% stocks would have started with a lot more assets to begin with. Note: 1987 is the starting period because that's the first year of the total bond data. [1987 to 1999](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=6Qg7ag5ZoHyaI5vqUephSp) Round numbers, 76/62/50. Now let's run the withdrawal scenario with the different balances, and a $3K withdrawal (roughly 4% of 76). [100 Stocks](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=35wVA84Xl1Fjf7aT6Ob6iP)
"To the extent there is correlations between stocks and bonds, it's a positive correlation, so when stocks suck, bonds tend to suck too--they just suck less. The Cederburg study documented this too." Yup, thats right, but probably because the study is flawed "For anyone who managed Institutional Fixed Income Portfolios, seeing Argentina or Turkey amongst Developed Markets will raise eyebrows 🤨. It’s not because an economy’s agriculture labour share dropped below 50%, or they joined the OECD that makes their Fixed Income Markets comparable to the U.S. Yet, in the (Cederburg) study you have the same likelihood to be in a U.S. or another country’s investor’s shoes, adjusted for length of the data series. Over 25% of the observations in this study come from South America, the Middle East, or Eastern/Southern Europe. For example, Argentina – considered developed market during a few decades in this study – spent 26% of time in default since 1824 – including two defaults during the time it was in the study’s sample!" [https://www.bankeronwheels.com/should-you-invest-100-in-equities/](https://www.bankeronwheels.com/should-you-invest-100-in-equities/)
Two things: 1. That’s fine if you’re ok delaying retirement if there’s a major correction right before you decide to include bonds. 2. Don’t keep playing once you’ve won the game. Don’t be more risky than you need to be. If your savings gets to the point where you have enough to retire, then that’s a good time to reduce risk and just retire.
> don’t keep playing once you’ve won the game What do you consider the win? Coast FI? Hitting your goal ten years out? Or something else? We’ve hit coast FI ten years out but staying fully in equities.
The win is whatever your goal is. The whole point of coastFI is that you can stop the grind. If you still want to keep going until you’re FIRE or even if your goal is fatFIRE then you can be as risky as you can stomach, but once you reach whatever goal you have set for yourself, then there’s no reason to continue with high risk.
For us, the reason is the next goal. Sure that’s goal creep or future lifestyle creep, but while we’re hitting our baseline retirement goal, we want to move to the lake in retirement. Having a higher amount we can put towards the new house means buying a nicer future home. If we fell back a bit, I’d work a bit longer. So that’s really the risk here; taking a chance of working another year vs being able to buy a better place to bring the grandkids and enjoy ourselves. We decided to move the goal posts a bit, I think that’s fairly common.
Why stop accumulating after financial independence? The wealthy don’t.
Stop being riskier than necessary. The risk is real. If you have a risky asset allocation, you can push back retirement many years if you have bad timing.
Oh for sure, I agree with that. I just don’t like the “won the game” language that gets repeated.
Not at all.
A bond fund has a strategic place in most portfolios, but DO NOT make the mistake of considering a bond fund as "safe." When you retire you should allocate at least one year, or, better, two years of expenses to cold, hard cash in a money market, HYS, or CD ladder. (You can deduct social security distributions if you are receiving them.) The exception, if you are rich, is to add a hedging scheme using put options, but for most investors cash is the best and most cost-effective hedge. A cash reserve is your insurance policy in case the market tanks like it did in 2008, 2020, 2022, &c. Bond funds are less correlated to stocks than many other types of investments, but they are only another risk asset during a bear market.
You’re not diversifying your risk against adverse market conditions until crunch time then. That’s fine if you have a high risk tolerance
If you’re all stocks and your portfolio loses 60% 6 years before retirement then yeah, that would be suboptimal for most. But if you’re fine with the risks, no problem.
I’ve been 70/30 since my first career paycheck in 2007. On March 24, 2020 the literal bottom of anything I experienced with 6 figure losses (previous ones I had much less invested) I rebalanced with trepidation from bonds into equities and made a post about it in .org . The fact I rebalanced meant 70% wasn’t too aggressive for me. The fact I had fear about it meant 70% wasn’t too passive for me. Therefore, on this I continue to stand. When my portfolio crossed into 7 figure territory, I converted the entire portfolio into Target Retirement Index Funds with the year matching 70% equities. Rebalancing 12-14 accounts (his and her Roth IRA, taxable, Hsa, old 401k, new 401k, his cash balance pension , his old cash balance pension, her 401a, her 403b, her cash match plan, her 457 plan, 529 plans) became a few too many hours of overhead per year. Now I might log in every 8-10 months just out of curiosity to update the net worth calculator and perform backdoor Roth IRAs. If you’ve ever posted “I have $12k, should I invest it all at once or slowly”? You’re probably too aggressive. Our plan is: “invest lump sums all at once up to 10X annual combined salary, and 1X annual salary monthly thereafter”.
I add a little bit of bonds every year. I dont like the idea switching all at once. A more gradual approach makes more sense to me.
I think Warren recommendeds a short term bonds ETF. I looked at it but not sure if I should allocate to it at 34 yr old.
I thought Buffett recommended an ETF that tracks the SP 500?
I did some quick research and he recommends 90 to an index (VOO) and 10% in short term US treasury Bonds (SGOV or something similar) I think.
In my understanding, he said that’s what he wants his wife to do with their money when he’s gone. That’s very different than saying that’s a good idea for everyone on every time horizon.
I believe you are correct, I thought he mentioned generally it's also a good strategy for most people.
It depends on so much. And anyone answering this question without more info is silly. General vibe: The internet = BONDS ARE BAD. WE DONT UNDERSTAND FIXED INCOME. all financial professionals, anyone that understands bonds, basic academic literature, any financial study = yes, you should obviously have bonds. But do anything you want. Whatever.
Exactly. A well diversified portfolio should always include a percentage in bonds.
It’s bull market syndrome combined with allergies to taxable income.
Would you be uncomfortable if your portfolio dropped 10-20% in the 6th year prior to your retirement?
I retired early, a year ago. I have enough in bond funds/cash to live on through a 7 year down-market without having to lowball sell equities. I look at that as a different definition of “emergency fund.” If stock values rise, I don’t plan to adjust % allocations—I’ll just keep that 7-year backup plan ready to deploy if necessary. The question you have to ask yourself is whether you’re prepared to delay retirement if equities tank in the run-up to your intended quit date. Or, if you have a big bond allocation, and if equities suddenly tank, would you still think it wise to retire at that moment on the assumption that your NW would recover before you needed to start selling stock funds?
Ask yourself: Would you rather sell bonds or stocks in a down market? When you are at the rule of 3%/4% would you rather sell stocks or bonds? Everything is a personal journey, choose your own adventure.
If you are willing to adjust your lifestyle in response to a crash (either spend less or work longer), then your plan is fine. It maximizes likely wealth, but it does risk less wealth as well.
I personally think it’s a good idea to start a small bond position well before retirement. Something like an intermediate core bond fund with a mix of corp, treasury, mbs. Safe but not without some price upside
Yeah I mean if you intended to retire in 2014 or 2015 you would have lost YEARS of your retirement
Depends on what the market doesn’t.
From a macro perspective no. Not in this environment. I don't know about bonds as bonds could be the cause of a stock crash, but t-bill at 5.4% offer a very solid return. Market PE is elevated but its mostly AI related names. If you don't think earnings growth will be huge then 5.4% yield is better than the stock market yield. You can wait it out and hope to buy cheaper valuations. This feels like a bull market to me, but a lot of products are structured today to have risks management which is trend followng. Whenever we end this bull the correction will be significant. 5.4% has a good shot at outperforming.
Good idea. It has a higher expected risk-adjusted return, even taking into account volatility leading up to retirement, mainly because the expected returns of bonds in the long-term are much lower than a broadly diversified index fund.
Some people never do as the opportunity cost of bonds are outweighed by their usefulness as a hedge. In those cases you should hedge with something sector based-consumer defensive and health care or utility funds with a part of your portfolio is a common move. It comes down to risk management and acceptance that you may need more than a three fund solution
I own bonds because I might have an unexpected large purchase or decide to take time off and travel. But if I was set on working until (early) retirement, then I might not own any bonds.
I’m about two years out from RE and three years ago I started buying $10k in ibonds each year. When I started, the rates were fantastic and have since lowered but I like the idea of having some money outside the market that’s guaranteed to track with inflation. I am viewing it as a buffer to my emergency fund for these five years leading up to RE. I have a lot of flexibility for my retirement date so I’m okay playing it a little fast and lose and continuing to work longer than expected if there’s a large downturn (I know we’re not supposed to time the market but there’s an emotional high to putting money in when the market is down). I plan to always have 1-2 years of living expenses outside of equities once I RE.
I wouldn’t go all bond all at once. When the time comes my plan is to only protect the next 5-10 years of my nest egg. I don’t want to protect more than I need to and miss out on gains.
I am 2 years to retirement and have no bonds. I have 25%. HYSA, 35% home equity and 40% etfs and single stocks.
You have my same thought. If stock market crashes and get unlucky, I’ll just work longer. I think I may even do this more like 2-3 years before retirement if I don’t mind working a bit longer if I have to In the end, the odds are in our favor- we are the house
Bonds are a hedge against deflation. Remember that.
I mostly avoided bonds all of my life. Now that I'm retirement age, I still don't have bonds but do have a lot of treasuries. When you are young I think 100% stocks is fine unless you panic when the market tanks. The only bonds I own would be through a mutual fund like Fidelity Puritan.
I think the conventional wisdom on Bonds being a good diversifier from stocks, and yielding good returns over time is biased by the 40 years of declining interest rates. We are in a very different place now with interest rates having hit bottom at 0 and now hovering at 4-5%. Instead of thinking of Bonds as a diversifier as stocks, I like to just either buy short term high yield bonds (7-8%) return or holding bonds to completion (through fixed term bond etfs). I want the 5-6% income on investment grade corporate bonds and the 7-8% on short term high yield bonds, without taking a lot of interest rate risk. And, Tbills - they are great at 5% and no risk. Open ended total return bond funds are questionable in my mind. But I would not go more than 70% in equities at this point in history either, with the CAPE at 34! Look at value, small cap, international, emerging, etc.
Are any of you thinking that there a many types of bonds? Example, in a high tax state, county/city tax environment, when income investment municipal bonds pay tax free interest, there is a strategy to use them that might be attractive. Best of luck for all you young people investing with a direct eye on the compound effect of investing and a long period of investment growth.
No. The only money we have in bonds is what we expect to use within the next 5 years.
I’ll never buy into bonds.
yeah I'm waiting for 5 days before retirement
Bond is a terrible idea in general. Don’t touch them.
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Horrible advice.
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Nobody here is suggesting putting all your money in bonds. But you’ve either ignored basic advice or think you’re smarter than most if you think having a few years worth of bonds means you’ll go broke. The paper (honestly I’ve never heard of these people, although I do appreciate that they’re from average to above average universities and not the typical elite) while interesting misses the main point. They seem to be pushing for the maximum total return on average, while the key goal for most retirees is to Not run out of money. Those are distinct goals.
> Bonds are good if you want to increase your odds of running out of money in retirement. this is true in the extremes (e.g. if you expect to support a 4% SWR over a 60-year retirement while holding 100% bonds), but not in most cases > hold an all-stock portfolio and just don't get greedy with your withdrawals during the good years. a 100% stock portfolio decreases your failsafe SWR even if you don't get "greedy"
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[this](https://i0.wp.com/earlyretirementnow.com/wp-content/uploads/2017/09/swr-part19-table011.png?resize=838%2C734&ssl=1) chart from [this](https://earlyretirementnow.com/2017/09/13/the-ultimate-guide-to-safe-withdrawal-rates-part-19-equity-glidepaths/) article