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Bonds and the elderly
Old 07-20-2013, 07:33 PM   #1
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Bonds and the elderly

I’m 69 years old and I'm not sure what percentage of bonds I should have in my portfolio. Does the percentage of bonds I need become weirdly exaggerated if I continue to grow older? Might there be a top limit to the bond percentage? Apparently, I have 52% of my portfolios in bonds (all in either mutual funds or ETFs). This does not include the dividend paying stocks that I pretend are a substitute for bonds.
Thank you.
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Old 07-20-2013, 07:46 PM   #2
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69 is "elderly"? Bullpuckey!

The Bogleheads theory is "your age in bonds", but I view that to be similar to the 4% Rule - only a general guide. At 66 I currently have ~50% in bonds and have no plans to make substantial changes in the foreseeable future.
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Old 07-20-2013, 07:59 PM   #3
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REWahoo...

Bullpuckey?

So why are you defying the Bogleheads as you "only" have (the wiggley line goes here) 50% in bonds? Wow, after looking for a bit, I found that wiggely line on the keyboard. Look: ~
I never used it before--not sure I ever noticed it before.
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Old 07-20-2013, 08:04 PM   #4
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Well, I actually questioned a similar assumption a few weeks ago on the Boglehead forum, essentially trying to understand the reasoning behind the assumption, and the answers weren't that clear cut...

I don't know, I wouldn't take those guideline rules as being 'holy'. Do your own simulation with Firecalc or equivalent, and play with some parameters and see what goes...

In my case, I just couldn't convince myself to add more bonds once I'll reach 60 (stocks) / 40 (bonds). But that's just me and my own situation...
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Old 07-20-2013, 08:11 PM   #5
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There is no prescribed percentage of bonds/bond funds that one should have in their portfolio. The "age in bonds" thing is just a load of crap for folks who need a sound bite.

One has to figure out their own willingness, ability, and need to take risk (Larry Swedroe) and everyone is unique in this regard.

if the stock market can drop 50% occasionally (say in 2000-2002 or 2007-2009), then one's portfolio might have its equities drop 50%. If one had 80% in equities, that would be a 40% hit to the portfolio, but if one had 50% in equities, that would be a 25% hit.

If one can take a 40% hit while sleeping peacefully at nice, then one's "willingness" to take that risk might suggest 20% in bonds.

I suspect a 69-year-old cannot stomach a 40% hit to their portfolio.

Nevertheless, there is no need to keep increasing the bond percentage as one grows older. If I had $20 million in my portfolio and I was 80 years old, I think I would have significant willingness and ability to take risk, but I would not have a need to take risk. You might be different from me.
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Old 07-20-2013, 08:18 PM   #6
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So why are you defying the Bogleheads as you "only" have (the wiggley line goes here) 50% in bonds?
I don't look at it as defying Bogleheads, more along the lines of listening to FIRECalc.

Per the chart below, FIRECalc runs at various equity percentanges indicate once you go below ~40% equities your 30 year portfolio survival chances begin to drop off substantially. An AA with ~40% equities and enough cash (~10%) to ride out a few bad market years results in 50% bonds (~) .

If I do get lucky and actually end up being "elderly", I may up my bond %.
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Old 07-20-2013, 08:24 PM   #7
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Ideally, by the time one reaches 69 years of age, one would have been investing in bonds for many years, and some of the bonds previously purchased would be at higher yields than today's bonds are paying. I suppose that only works for individual bonds that are not callable at an early date though. Bond funds don't quite work that way, although if one had been in bond funds for the past thirty years, the cumulative returns and appreciation would be quite high right now, to make up for the currently low yields.

If you were 69 years of age and had little to no exposure to bonds, I'm not sure this is the right time to plunk down 50% or more of your holdings all at once. With interest rates so low, it's virtually guaranteed that the next few years of returns are going to be weak. I would probably DCA into a bond fund, while investing in a 5 year CD from Ally Bank that gives me flexibility to pull the money out early with only a 60 day penalty if I need to.
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Old 07-20-2013, 09:52 PM   #8
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I go with 0% in bonds whenever I can.

FIRECalc assumes a constant percentage in bonds throughout retirement. If you're counting on those results, leave your bond allocation as it is.

What percentage of bonds would you like to have when you turn 100? If your portfolio is really large you might want 0% (portfolio is large enough to handle large market swings) or 100% (why risk it?). If your portfolio is on the small side, you might want 100% bonds to be safe. I don't think the simple formulas make much sense in retirement.
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Old 07-21-2013, 12:24 AM   #9
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69 is "elderly"? Bullpuckey!

The Bogleheads theory is "your age in bonds", but I view that to be similar to the 4% Rule - only a general guide. At 66 I currently have ~50% in bonds and have no plans to make substantial changes in the foreseeable future.
At 65.95, I'm 43% bonds and 6% cash. Typically run 50/50, equity/bonds + cash.
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Old 07-21-2013, 12:56 AM   #10
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I’m 69 years old and I'm not sure what percentage of bonds I should have in my portfolio.....
At that age I would not have more than 100 percent in bonds. Or in equities.
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Old 07-21-2013, 07:21 AM   #11
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Señor Redduck, do you have any other income, such as Social Security or a pension? If so, that could be considered part of a fixed income allocation.
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Old 07-21-2013, 08:32 AM   #12
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It's also worth remembering that the "age (or "X minus age") in bonds" guidelines were devised back when bonds were paying a decent rate. In today's world, the same assumptions shouldn't be relied upon.
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Old 07-21-2013, 08:37 AM   #13
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Señor Redduck, do you have any other income, such as Social Security or a pension? If so, that could be considered part of a fixed income allocation.
Well said. Our pension more than exceed the cost of our lifestyle and will allow us to continue to invest. So we have the flexibility to go 70 percent stock with the a lance in bonds and cash. We our 65.
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Old 07-21-2013, 10:39 AM   #14
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Originally Posted by REWahoo View Post
At 66 I currently have ~50% in bonds and have no plans to make substantial changes in the foreseeable future.
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Originally Posted by youbet View Post
At 65.95, I'm 43% bonds and 6% cash. Typically run 50/50, equity/bonds + cash.
For another (somewhat similar) data point, I am 65.12 years old and my percentages are 49.5% bond funds, 5.5% cash, and 45% equity funds.

If I decide to cut back on the equity funds as I grow older, I might increase the percentage of bonds a little but also I might increase the percentage of cash.
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Old 07-21-2013, 01:26 PM   #15
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Seeing that bonds are now, as Buffett says, "return-free risk", why would you purposely have more than a nominal percentage in bonds?

Worse yet, why would you purposely increase your bond exposure now?
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Old 07-21-2013, 01:39 PM   #16
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Señor Redduck, do you have any other income, such as Social Security or a pension? If so, that could be considered part of a fixed income allocation.

OK, MichaelB, it took me awhile to get what you did re: "Senor" with the squiggly thingy (~). It came to me while I was brushing my teeth. (Yet another reason to brush more often). Anyhow, for a Moderator, you're way clever. Sorry to have under-estimated you (again). However, if that squiggly thing has nothing to do with REWahoo's squiggly thingy (see above posts) , this post might be a bit confusing to you (and, I didn't under-estimate you after all). (Do I need to put a smiley face here? Yeah, it might be a very good idea).
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Old 07-21-2013, 01:55 PM   #17
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Seeing that bonds are now, as Buffett says, "return-free risk", why would you purposely have more than a nominal percentage in bonds?

Worse yet, why would you purposely increase your bond exposure now?
The reasons to have more than a nominal percentage in bonds are that the alternatives either have lower expected returns than bonds (cash) or carry significantly more risk than bonds (stocks).
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Old 07-21-2013, 02:10 PM   #18
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Señor duck, I think you're brushing too hard.
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Old 07-21-2013, 03:29 PM   #19
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for a Moderator, you're way clever.
Damn redduck, that is really, really funny!

You just made my afternoon. Thanks.
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Old 07-21-2013, 04:14 PM   #20
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Seeing that bonds are now, as Buffett says, "return-free risk", why would you purposely have more than a nominal percentage in bonds?

Worse yet, why would you purposely increase your bond exposure now?
My bond exposure is roughly 12.4% of my overall portfolio (age = 36) (excluding tiny positions in pssst Wellesley and Wellington)

Of that, about 35% of it is in I-series savings bonds, maybe 4% in Muni ETFs, 3% in a few bond ETFs and 58% in various preferred stocks.

I had liquidated most of my bond ETFs over the past few months in anticipation of the yield curve rise (some sold at the right time, a few others I waited too long), but I have added a few preferred stocks over the past few months. My reasons for adding those is because the rates range from 7%-8%+, and I was willing to add a few higher yielders (with some higher risk involved) to spruce up the overall portfolio yield.

These preferred stock fixed income positions, while somewhat vulnerable to other yields, don't fluctuate as much compared to the yield curve (unless rates go crazy and 10 year treasuries spike to 10%!). Since I purchased them at par or slightly under, I don't have a problem holding them for a long time, and don't have to worry about a fund manager selling them off when the coupon is at $.80 on the dollar and decimating the NAV of the fund.

The yields on the preferred stocks are high enough to handle most foreseeable rate curve advances in the future. And if rates jump THAT much higher, my overall fixed income position is relatively low, so I can just add some more fixed income to my portfolio at the higher yields and average things out.
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