Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Fixed income conundrum
Old 05-09-2019, 06:46 PM   #1
Recycles dryer sheets
 
Join Date: Mar 2015
Posts: 77
Fixed income conundrum

54 yrs old $2.0 million. 99% equities. I am totally confused on bonds, bond mutual funds and bond ETFs. I would like to retire in 3 years and want to get to a 70/30 mix. Even if I sold to raise the 30% I would not know what to put it in. Thoughts/Suggestions?
__________________

thepalmersinking is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-09-2019, 06:56 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 21,027
Just move it into a total Bond Fund/ETF over the three years. FTBFX or BND. Simple, effective. No reason to be confused.

-ERD50
__________________

ERD50 is offline   Reply With Quote
Old 05-09-2019, 07:01 PM   #3
Thinks s/he gets paid by the post
HNL Bill's Avatar
 
Join Date: Dec 2017
Posts: 1,179
Many of us here buy bond funds, such as Vanguard's BND. These have an inherent risk of falling in value in economically difficult times, so many here recommend actual bonds.

For equities in taxable accounts: Consider the tax implications of selling equities ($600K worth) to transition to bonds. If you're going to trigger LTCGs, or worse yet, STCGs, it may be better to wait until you have a lower income to complete the transfers to mitigate the taxes. If you're MFJ, and your joint taxable income is less than $78,750, you'll be in the 0% LTCGs tax bracket.

Two ideas:
1) If you have 3 years to go, I'd concentrate on using new savings to invest in bonds, rather than selling equities, unless you have some you want to unload that have losses.
2) If some are in tax-deferred accounts, then you can buy bond funds within those accounts without incurring taxes after selling equities.
__________________
Balance in everything.
HNL Bill is offline   Reply With Quote
Old 05-09-2019, 08:33 PM   #4
Recycles dryer sheets
 
Join Date: Dec 2015
Posts: 478
VBTLX has not done that well over the past 5-10 years. I'd recommend PIMCO Income Institutional (PIMIX) which you can buy in a Vanguard Brokerage account for $25k minimum vs the normal $1M minimum, DODIX (Dodge and Cox Income), VWIUX (VG Intermed Term Tx-Ex), PIGIX (PIMCO Corporate Bond), Vanguard High Yield (VWEHX) and either FNMIX (Fidelity New Markets) and/or DBLEX (Doubleline Emerging Markets) instead. Note that some of these have higher ER's than the usual near rock bottom VG funds, so the BH crew is not going to love the choices - but you can't argue with performance and it's IMHO not all about expense ratios..

Run some M* reports and comparison charts, and you'll quickly see that VBTLX has fallen behind almost every decent bond fund choice out there in terms of performance over the 3, 5 and 10 year periods. I sold totally out of it over 3 years ago after watching it go pretty much nowhere fast. Yield is not that great on it, either..

PS - you may also want to consider being closer to "age in bonds" but depends on your goals and risk tolerance also. This bull market is VERY long in the tooth, and no way I'd personally go 70/30 at the age you'll be in 3 years..age in bonds would put you at 43/57, so maybe consider 50/50 on the outside unless you have a need to take the additional equity risk. The long term average return for 50/50 since 1926 is not that significantly different than 70/30, and you're likely to have a lot smoother ride and far less sleepless nights..but YMMV and JMHO.
24601NoMore is offline   Reply With Quote
Old 05-09-2019, 09:09 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 21,656
One school of thought is that the 30% in fixed income is "ballast" that you want to take minimal risk and have it maintain its value... and a return equal to inflation is plenty ok.

As a result, CDs are a good choice, as are U.S. Treasuries or even TIPs.

On option might be to combine Wellesley... a Vanguard managed fund that is 40/60 with an equity fund or ETF. For example, let's say you have $1 million. To get $300k of bonds with Wellesley, you would need $500k of Wellesley. The add $500k of Total Stock or your preferred stock funds.

End result is that you have $700k of equities ($500k directly and $200k in Wellesley) and $300k of bonds ($500k of Wellesley * 60% bonds).
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 05-09-2019, 11:13 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 7,143
Quote:
Originally Posted by thepalmersinking View Post
54 yrs old $2.0 million. 99% equities. I am totally confused on bonds, bond mutual funds and bond ETFs. I would like to retire in 3 years and want to get to a 70/30 mix. Even if I sold to raise the 30% I would not know what to put it in. Thoughts/Suggestions?
I'm in a similar boat, about 90% stocks, loved the ride but I thinking the train might go off rails soon.

For new money, not in tax shelters (IRA/401K), I'm stuffing it in CD's at Ally bank paying 2.8% for 15 months.

For IRA's I'm doing a mix of BND, SPTS, or SPTL , some treasuries frat my brokerage (learning how to buy them as it's a little confusing).

And there is a class of funds that invest directly in a bunch of stocks , and then end on a certain date and payout everything, example would be BSJM.

So there is lots of choice, and lots to learn.
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is offline   Reply With Quote
Old 05-10-2019, 03:31 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 21,977
Quote:
Originally Posted by ERD50 View Post
Just move it into a total Bond Fund/ETF over the three years. FTBFX or BND. Simple, effective. No reason to be confused.

-ERD50
BND is a US bond index fund, FTBFX is not an index fund. The Fidelity index fund equivalent of Vanguard BND/VBMFX/VBTLX is FXNAX.
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 05-10-2019, 03:40 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 21,977
Quote:
Originally Posted by HNL Bill View Post
Many of us here buy bond funds, such as Vanguard's BND. These have an inherent risk of falling in value in economically difficult times, so many here recommend actual bonds.
What? No, high credit quality bond funds like BND do not have the inherent risk of falling in economically difficult times, just the opposite. They offer protection during economically difficult times as they tend to rise as interest rates usually drop during such times.
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 05-10-2019, 04:44 AM   #9
Recycles dryer sheets
 
Join Date: Feb 2015
Posts: 226
Quote:
Originally Posted by thepalmersinking View Post
54 yrs old $2.0 million. 99% equities. I am totally confused on bonds, bond mutual funds and bond ETFs. I would like to retire in 3 years and want to get to a 70/30 mix. Even if I sold to raise the 30% I would not know what to put it in. Thoughts/Suggestions?



Whatever you decide to do....do it NOW! At 99% equities....you could potentially lose half of your portfolio in a few months. How would you react if you wake up six months from now and you have $1 million?



If part of the equities are in a tax deferred/tax free account....then it's easy. Just make the change and there are no tax consequences.
Even if the entire $2million is in a taxable account.....I would still make the shift you want immediately. Maybe you can tax loss harvest a bit but even if you cannot...DO IT! And pay the tax man his cut.
This will be a far less painful scenario than losing a significant portion of your portfolio in a few short months. Remember paying taxes on gains means you made money...never a bad thing. Personally, I would even go to a 60/40 split.


Just remember in a taxable account if you hold bonds....see if municipal bonds make sense for your tax bracket.


Again....don't delay. You are sitting potentially on a ticking time bomb!
MrLoco is offline   Reply With Quote
Old 05-10-2019, 06:22 AM   #10
Full time employment: Posting here.
 
Join Date: Jul 2013
Posts: 627
Quote:
Originally Posted by ERD50 View Post
Just move it into a total Bond Fund/ETF over the three years. FTBFX or BND. Simple, effective. No reason to be confused.

-ERD50
+1

We are Fidelity customers and use FXNAX.
mrfeh is offline   Reply With Quote
Old 05-10-2019, 06:32 AM   #11
Recycles dryer sheets
 
Join Date: Oct 2013
Posts: 240
For fixed income, you could keep 3 to 5 years living expenses in cash such as CDs or Vanguard Prime Money Market Fund (VMMXX) so you can potentially weather any storm without selling stocks at a low point.
freedomatlast is offline   Reply With Quote
Old 05-10-2019, 06:34 AM   #12
Thinks s/he gets paid by the post
VanWinkle's Avatar
 
Join Date: Oct 2017
Location: Brighton
Posts: 1,068
Quote:
Originally Posted by 24601NoMore View Post
VBTLX has not done that well over the past 5-10 years. I'd recommend PIMCO Income Institutional (PIMIX) which you can buy in a Vanguard Brokerage account for $25k minimum vs the normal $1M minimum, DODIX (Dodge and Cox Income), VWIUX (VG Intermed Term Tx-Ex), PIGIX (PIMCO Corporate Bond), Vanguard High Yield (VWEHX) and either FNMIX (Fidelity New Markets) and/or DBLEX (Doubleline Emerging Markets) instead. Note that some of these have higher ER's than the usual near rock bottom VG funds, so the BH crew is not going to love the choices - but you can't argue with performance and it's IMHO not all about expense ratios..

Run some M* reports and comparison charts, and you'll quickly see that VBTLX has fallen behind almost every decent bond fund choice out there in terms of performance over the 3, 5 and 10 year periods. I sold totally out of it over 3 years ago after watching it go pretty much nowhere fast. Yield is not that great on it, either..

PS - you may also want to consider being closer to "age in bonds" but depends on your goals and risk tolerance also. This bull market is VERY long in the tooth, and no way I'd personally go 70/30 at the age you'll be in 3 years..age in bonds would put you at 43/57, so maybe consider 50/50 on the outside unless you have a need to take the additional equity risk. The long term average return for 50/50 since 1926 is not that significantly different than 70/30, and you're likely to have a lot smoother ride and far less sleepless nights..but YMMV and JMHO.
You might mention risk vs reward as there is no comparison in quality with those funds. DBLEX- Emerging market bonds.... Just buy 10% more equities if you want more risk. Junk bonds are called "junk" for a reason. Look at 2008 to see the difference between quality and junk.

If it works for you, fine. But for someone just delving into bonds, I would recommend the safety of a 60% plus government bond core fund.
__________________
Retired May 13th(Friday) 2016 at age 61.
VanWinkle is offline   Reply With Quote
Old 05-10-2019, 06:36 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 9,306
Quote:
Originally Posted by ERD50 View Post
Just move it into a total Bond Fund/ETF over the three years. FTBFX or BND. Simple, effective. No reason to be confused.

-ERD50
+1 If you have a 401K or IRA just do it. If everything is taxable, take that into account in planning your transition. But relax a bit. If we crash in the next few months before you can get to your desired AA just tough it out and do nothing until we bounce back. You have three years. As you get more into the bond fund you will have options for withdrawals when equities are way down.
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is offline   Reply With Quote
Old 05-10-2019, 06:37 AM   #14
Recycles dryer sheets
 
Join Date: Dec 2015
Posts: 478
Quote:
Originally Posted by MrLoco View Post
Whatever you decide to do....do it NOW! At 99% equities....you could potentially lose half of your portfolio in a few months. How would you react if you wake up six months from now and you have $1 million?
Ditto that as well as the advice up-thread to take a close look at Wellesley.

I posted a chart in another thread that shows the real risk being taken in portfolios with very high equity allocations like OP apparently has. Over the past 100 years or so, there have been several times where it's taken SIXTEEN PLUS YEARS to get back to "even" from "peak" (which, we easily could have been at over the past month, pre market freakout over the trade deal). This is the real risk being taken with high equity positions, and there appears to be a lot of misconception out there that recovery from a tough bear market usually happens "within a few years", so taking risk is no big deal. That is most definitely NOT the case and unless one is comfortable that it literally could take 16+ years for the value of your portfolio to get back to where it was last week or last month after a brutal bear, having a FI allocation based on age and well informed / realistic risk-tolerance would be strongly recommended.
24601NoMore is offline   Reply With Quote
Old 05-10-2019, 06:43 AM   #15
Recycles dryer sheets
 
Join Date: Dec 2015
Posts: 478
Quote:
Originally Posted by VanWinkle View Post
You might mention risk vs reward as there is no comparison in quality with those funds. DBLEX- Emerging market bonds.... Just buy 10% more equities if you want more risk. Junk bonds are called "junk" for a reason. Look at 2008 to see the difference between quality and junk.

If it works for you, fine. But for someone just delving into bonds, I would recommend the safety of a 60% plus government bond core fund.
Fair point about risk, but not sure I'd go so far as to see it as comparable to increased equity risk..

PIMIX, for example, was only down 5.47% in 2008. I'll take that small worst-case loss for the significantly higher average 3, 5 and 10 year returns over VBTLX. FNMIX didn't do as well in 2008, but was still only down 18% or so compared to 40+% for many equity funds. In the meantime, it's 3, 5 and 10 year returns (and yield) are compelling..VWEHX is similar to FNMIX in terms of worst case draw-down with significant outperformance otherwise, compared to VBTLX..

Having a "core" bund fund like DODIX (0.29% 2008 loss), coupled with a good quality corporate fund like PIGIX (1.89% 2008 gain) and go-anywhere fund like PIMIX with less $$ in the other, marginally more risky funds (FNMIX/DBLEX, VWEHX) is IMHO the best of all worlds - good upside with only incrementally increased risk, as long as you do your due diligence and understand potential downside in another 2008-like scenario vs opportunity for significantly increased upside over something like VBTLX.
24601NoMore is offline   Reply With Quote
Old 05-10-2019, 06:48 AM   #16
Thinks s/he gets paid by the post
 
Join Date: Nov 2015
Posts: 1,562
Quote:
Originally Posted by MrLoco View Post
Whatever you decide to do....do it NOW! At 99% equities....you could potentially lose half of your portfolio in a few months. How would you react if you wake up six months from now and you have $1 million?
Curious, have you see any analysis of what would happen to bond portfolio if equities dropped a hypothetical 50%? Got to think a drop like that would cause a significant ripple effect in the economy and market.
bobandsherry is offline   Reply With Quote
Old 05-10-2019, 07:06 AM   #17
Thinks s/he gets paid by the post
VanWinkle's Avatar
 
Join Date: Oct 2017
Location: Brighton
Posts: 1,068
Quote:
Originally Posted by bobandsherry View Post
Curious, have you see any analysis of what would happen to bond portfolio if equities dropped a hypothetical 50%? Got to think a drop like that would have implications across the board.
If you look back to 2008, the high quality bond funds actually increased or gained 5-6%(VBTLX 5.15%) or more, while junk bonds(VWEHX -21.29) took a 20% plus loss.

Every time may not be the same, but history is all we have to form an opinion of what may happen in the future.
__________________
Retired May 13th(Friday) 2016 at age 61.
VanWinkle is offline   Reply With Quote
Old 05-10-2019, 07:07 AM   #18
Thinks s/he gets paid by the post
VanWinkle's Avatar
 
Join Date: Oct 2017
Location: Brighton
Posts: 1,068
Quote:
Originally Posted by 24601NoMore View Post
Fair point about risk, but not sure I'd go so far as to see it as comparable to increased equity risk..

PIMIX, for example, was only down 5.47% in 2008. I'll take that small worst-case loss for the significantly higher average 3, 5 and 10 year returns over VBTLX. FNMIX didn't do as well in 2008, but was still only down 18% or so compared to 40+% for many equity funds. In the meantime, it's 3, 5 and 10 year returns (and yield) are compelling..VWEHX is similar to FNMIX in terms of worst case draw-down with significant outperformance otherwise, compared to VBTLX..

Having a "core" bund fund like DODIX (0.29% 2008 loss), coupled with a good quality corporate fund like PIGIX (1.89% 2008 gain) and go-anywhere fund like PIMIX with less $$ in the other, marginally more risky funds (FNMIX/DBLEX, VWEHX) is IMHO the best of all worlds - good upside with only incrementally increased risk, as long as you do your due diligence and understand potential downside in another 2008-like scenario vs opportunity for significantly increased upside over something like VBTLX.
If you look back to 2008, the high quality bond funds actually increased or gained 5-6%(VBTLX 5.15%) or more, while junk bonds(VWEHX -21.29) took a 20% plus loss.

I would agree that anyone with a 99% equities position could likely take the added risk of leveraged or low quality bond funds. You may have a good point there.
__________________
Retired May 13th(Friday) 2016 at age 61.
VanWinkle is offline   Reply With Quote
Old 05-10-2019, 07:12 AM   #19
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 2,583
PTIAX
A go anywhere bond fund
5 star fund
4.75% yield
1.62 Sharpe ratio
COcheesehead is offline   Reply With Quote
Old 05-10-2019, 07:24 AM   #20
Thinks s/he gets paid by the post
VanWinkle's Avatar
 
Join Date: Oct 2017
Location: Brighton
Posts: 1,068
Quote:
Originally Posted by COcheesehead View Post
PTIAX
A go anywhere bond fund
5 star fund
4.75% yield
1.62 Sharpe ratio
Pretty impressive since 2011. I wonder about how it would react under
stress of 2008. Over 30% rated less than BBB so it gets some push from lower quality and extended term (10-20 yr)

Thanks for the info!!
__________________

__________________
Retired May 13th(Friday) 2016 at age 61.
VanWinkle is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Retirement Income: fixed income, systematic withdrawals or annuities? BBQ-Nut FIRE and Money 29 03-01-2014 11:34 AM
Condo conundrum MRGALT2U Life after FIRE 4 02-04-2006 09:19 AM
Ok, another conundrum: wills & trusts for expats ladelfina Life after FIRE 16 01-13-2006 09:12 AM
Conundrum psmalloy FIRE and Money 24 03-20-2005 06:51 AM
ER Conundrum John Galt Other topics 21 11-23-2004 08:36 AM

» Quick Links

 
All times are GMT -6. The time now is 11:06 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.