No matter how old you are, if by bonds you mean something longer than 1-2 year duration, you are likely making a mistake.
If you allocate 30% to bonds, and by accepting considerable interest rate risk and some credit risk you are able to get 2% after expenses, isn't that going to throw a huge load on the other 70% of your portfolio?
I would guess that the only people here who would be retired at age 60 would be people with very good government pensions, if we were getting 2% on 30-50% of our portfolios during our saving years. After all, 2% returns are after inflation negative, and after tax even worse, and would have been so almost any time in US history other than the '30s.
So if you are attracted to 2% returns, do the really sensible thing and spend all your free time trying to get on a government payroll. Otherwise, it is going to take a long career and abstemious living to eke out even moderate savings, or a lightning strike like big options in the money, or a even bigger lightning strike like marrying a truly wealthy mate.
This retirement thing gets easy to uderstand with a little arithmetic.
Ha
here is my thoughts on it and i guess i go against the grain.
to me investing allocations are all about pucker factor, NOT AGE AT ALL..age may be last on my list.
PUCKER FACTOR FIRST, GOAL 2ND.
wall street telling a 25 year old to go heavy into equities and have them panic, bail and run each time there is a downturn and lose money will do them no good.
bonds and cash are away of tempering the volatility into ones comfort zone.
the worst mistake advisors make is having someones allocations based on age.
even at 65 we have long term money that we wont need to eat with for 30 years.
no reason a 65 year old has to have a very conservative portfolio for that long term money unless thats their comfort zone .
2008 -2009 taught folks that age based is not the way to put an allocation together.
sometimes tempering the volatility with bonds or cash is whats needed to keep someone in the game .
i cringe every time i see someone say your young , you dont need bonds yet or you dont need a big cash position.
yes, they just may, and the quicker wall street realizes investing is a whole lot more then your age and trying to squeak out every penny of gains the better most folks will do.
the big issue is that volatility has changed since 2000. .In the past, if you had a 60/40 portfolio you had a range in mind that you were going to be getting something like , ten or 11% volatility .
what we’re seeing since 2000 is even with a 60/40 stock/bond allocation, there are periods of time when your portfolio can have a 30/40 percent volatility swing , which are swings that no investor thought they would see.
thats far more then anyone signed on for or more then they could stand in pucker factor.
as andrew lo said the future of investing may be about protecting against the volatility of volatility.
MANY TIMES LESS EQUALS MORE.
(much farther along on my quest for FI, and don't need as much equity exposure).
