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Old 11-09-2015, 11:50 AM   #21
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Explains the why bonds posts. Many of us do not have a pension.
I have a pension and I still keep a lot in bonds. Unless the pension is several times your expenses you still need to guard your purchasing power and ability to supplement a pension
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Old 11-09-2015, 12:34 PM   #22
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I have a pension and I still keep a lot in bonds. Unless the pension is several times your expenses you still need to guard your purchasing power and ability to supplement a pension

Are you assuming a non-COLA'd pension? For instance I am working toward a COLA'd pension that will be ~1.3x expenses. For this reason I feel very comfortable with an aggressive allocation as my purchasing power will match inflation and I technically wouldn't need to supplement my pension (although I will have money available to do so).


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Old 11-09-2015, 12:51 PM   #23
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Are you assuming a non-COLA'd pension? For instance I am working toward a COLA'd pension that will be ~1.3x expenses. For this reason I feel very comfortable with an aggressive allocation as my purchasing power will match inflation and I technically wouldn't need to supplement my pension (although I will have money available to do so).


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I have a Cola'd pension but really wtf does that mean? It might be COLA'd to the CPI but not to me. My pension is about 1.11 of my regular expenses and there is no reason to believe it will always"match inflation". They will "up" it as they wish and suppress it as they wish and call it "Adjusted." (Yeah man, I have exactly that much f'ing confidence in them)

My stash is only for supplementing any excess. I do not think this justifies any kind of "aggressiveness". If I'm going to need the money, I'm going to need the money. Increasing the "odds" of an upside always increases the odds of a downside too. The object is to "screw the odds" and gamble as little as necessary. As least that's my objective. And make no mistake about it. Trusting equities is a gamble. More like sizing up horses at the track or counting cards in blackjack than rolling the dice or simply pulling the handle. Not a crap shoot or waiting for a lottery hit, but still gambling.
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Old 11-09-2015, 12:57 PM   #24
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When equities were done correctly, they use to call it business man's risk.
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Old 11-09-2015, 01:06 PM   #25
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Old 11-09-2015, 01:07 PM   #26
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For instance I am working toward a COLA'd pension that will be ~1.3x expenses.
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My pension is about 1.11 of my regular expenses ...
Here I was thinking my non-COLA pension covering ~40% of our initial retirement expenses starting next year was a nice perk. I don't see how anyone with a COLA'd pension exceeding their retirement expenses would ever need to worry about their investments, unless it's a public pension or seriously underfunded pension pool at risk of being reduced at a future date.
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Old 11-09-2015, 01:28 PM   #27
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We have our mostly non-COLA pensions offset with a low interest, fixed rate mortgage on the house. The mortgage interest will go down over the life of the mortgage, so the excess pension income will be extra income to save or spend, even if inflation erodes the initial value.
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Old 11-09-2015, 01:35 PM   #28
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Here I was thinking my non-COLA pension covering ~40% of our initial retirement expenses starting next year was a nice perk. I don't see how anyone with a COLA'd pension exceeding their retirement expenses would ever need to worry about their investments, unless it's a public pension or seriously underfunded pension pool at risk of being reduced at a future date.
I have a COLAed public pension that covers 50% of my income needs. So to have a liability matching portfolio I needed extra guaranteed income. I use a rental property and TIAA-Traditional for that. If I didn't have those I would be nervous about a stock allocation over 60% in retirement, but also nervous about relying on bond funds for income with 10 year treasuries at 2.2%. So I'm glad I have non bond fund options for fixed income in retirement and that I can be aggressive with the rest of my portfolio. I have no chance of running out of money, so I can emphasize an allocation that maximizes the potential size of my portfolio. I think this article makes some good points about the possible pitfalls of owning bond funds for the next decade. Of course they will still reduce volatility and many people will own them, but maybe some alternatives should be considered to add to the diversity of a portfolio. Real estate, SPIAs, QLACs, target date bond funds, CDs could all be in the mix. Getting away form 60/40 doesn't necessarily mean more equities.
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Old 11-09-2015, 01:38 PM   #29
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When equities were done correctly, they use to call it business man's risk.
It is a risk, and with equities the long run may mean 40 years. That is a good bet when you are 20 and your portfolio is smaller, and can be a good bet even when you are 60+ if it is money you can afford to lose in a 10 - 20 year time frame. For money you cannot afford to lose, money you need to cover essential retirement expenses, a matching strategy might be a more sleep well at night investment style.
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Old 11-09-2015, 01:46 PM   #30
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I have non-COLA pensions but I don't count them as part of my bond allocation. This last 3 years the pensions have been less than 50% of our income and I really only look to the portfolio to draw down the funds needed to fill in the spending gap left by the pensions. I'm at ~50/50 as an allocation. If all goes well then we'll have a lot more in pensions/SS income by age 70, 10 years from now. I really don't know what AA I expect to want beyond that, first order of business will be to celebrate making it to 70
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Old 11-09-2015, 01:55 PM   #31
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Old 11-09-2015, 01:58 PM   #32
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Here's a link to this interesting article in today's USA Today in which the author Jeff Reeves argues that while 60/40 portfolio was Ok a generation ago, people are now living longer and so investors must adapt.

The 60/40 stock-and-bond portfolio mix is dead in 2016

Cheers

This article and discussion thread scare the Bejeezes out of me. Actually it is difficult not to be depressed and fearful for my wife's and my future. What a lousy time to retire!
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Old 11-09-2015, 02:02 PM   #33
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I plan on getting even with you folks on pensions. With that big stash necessary to support us until the end, I'll have lots more money in the bank when I kick the bucket!
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Old 11-09-2015, 02:07 PM   #34
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Didn't take long for another counterargument:

Ignore the retirement alarmists: The 4% rule is imminently safe
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Old 11-09-2015, 02:07 PM   #35
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This article and discussion thread scare the Bejeezes out of me. Actually it is difficult not to be depressed and fearful for my wife's and my future. What a lousy time to retire!
I think you have drawn the wrong conclusion. There is plenty of hope for the future.

Bonds are not as bad a deal as some would present. The yield curve is highly sloped which means you are getting paid for going further out to intermediate term bonds. The credit spreads are pretty high now which mean the risk of corporates is priced in. Bonds should be viewed over a time greater then their durations.

Also don't forget, the markets already know all that has been presented here and most is priced in already i.e. semi-efficient market. Yikes, I'm sounding like a Boglehead.
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Old 11-09-2015, 02:45 PM   #36
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This article and discussion thread scare the Bejeezes out of me. Actually it is difficult not to be depressed and fearful for my wife's and my future. What a lousy time to retire!
Dude, cheer up. This is just ONE article and as noted below, there was a counter argument right behind it.

I see that you're new here....chillout and read some other threads and give it some time. I bet you'll find that your mood will improve over the next few months.

There have been naysayers and doomsters galore and most of them end up being proven wrong. (Like the guy 45 years ago who took me aside and showed me an article about how SS would be gone in 15 years (1985))
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Old 11-09-2015, 02:49 PM   #37
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Bonds are not as bad a deal as some would present. The yield curve is highly sloped which means you are getting paid for going further out to intermediate term bonds. The credit spreads are pretty high now which mean the risk of corporates is priced in. Bonds should be viewed over a time greater then their durations.
Better to be primarily in intermediate term bond funds for the long haul (greater than 5 years) than the total market bond funds which are spread out amongst short, intermediate, and long bonds?
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Old 11-09-2015, 03:09 PM   #38
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Better to be primarily in intermediate term bond funds for the long haul (greater than 5 years) than the total market bond funds which are spread out amongst short, intermediate, and long bonds?
Intermediate bond funds like VFIDX Vanguard Intermediate-term Investment Grade have a spread of maturities (see for example https://personal.vanguard.com/us/fun...tExt=INT#tab=2) . In fact, the VG Total Market has a slightly longer duration then VFIDX. VFIDX has more credit risk which means that there is more equity correlation as was seen in 2008.

My plan is to be in intermediate bond funds but with a big proviso. I'm perhaps too aware of what happened in the 1930's. I'll move to intermediate Treasuries when the yield curve flattens out (maybe at about 7 basis points per year). I've done the backtesting and this has worked out well. Big Caveat: that is the past no guarantees going forward but these are bonds not equities.
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Old 11-09-2015, 03:18 PM   #39
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Dude, cheer up. This is just ONE article and as noted below, there was a counter argument right behind it.

I see that you're new here....chillout and read some other threads and give it some time. I bet you'll find that your mood will improve over the next few months.

There have been naysayers and doomsters galore and most of them end up being proven wrong. (Like the guy 45 years ago who took me aside and showed me an article about how SS would be gone in 15 years (1985))
Thanks Marko, I needed read that.

Not sure how much better I feel though, as I do believe that bond funds will lose value as interest rates rise and that stocks are pretty high currently. My wife and I are in our early 60's and we are emotionally ready for retirement. Just not sure our stash is sufficient though with the dreaded "sequence of returns risk".

I do have two decent Bond alternatives. 1) TIAA traditional with a guaranteed minimum return of 3.5%, however that is in an old plan and I cannot add to it. 2) An IRA with a fixed annuity contract that I can add to that pays a guaranteed minimum of 4.5%. I opened the IRA approx. 30 years ago, I can add to it and withdraw from it at any time. I just want to limit how much I put into it to $300K or so because it carries risk related to the health of the insurance co. that owns the investment. The insurance co. is very highly rated though so the risk is low. There are no fees with this IRA, the insurance co. has to make their money off of spread income.

I meet with advisors from TIAA and Lincoln financial a couple of times a year at no cost and they both advise me to take advantage of the IRA that pays the minimum 4.5% return.
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Old 11-09-2015, 03:24 PM   #40
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Thanks Marko, I needed read that.

Not sure how much better I feel though, as I do believe that bond funds will temporarily lose value as interest rates rise...
Fixed it for you.

If you don't need that money for a few years, what's the worry. The dividends those bond funds pay will continue, and will increase over time.

Chill.
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