Join Early Retirement Today
View Poll Results: How many years of withdrawals should you have in bonds and cash
0 years in bonds & cash, keep 100% in stocks 3 3.61%
1 year in bonds & cash, the rest in stocks 2 2.41%
2-4 years in bonds & cash, the rest in stocks 15 18.07%
5-9 years in bonds & cash, the rest in stocks 26 31.33%
10-19 years in bonds & cash, the rest in stocks 13 15.66%
20-29 years in bonds & cash, the rest in stocks 7 8.43%
30+ years in bonds & cash, the rest in stocks 1 1.20%
Don't vary the AA regardless of bond & cash amount 16 19.28%
Voters: 83. You may not vote on this poll

Reply
 
Thread Tools Search this Thread Display Modes
Old 01-10-2014, 09:09 AM   #21
Recycles dryer sheets
SteveL's Avatar
 
Join Date: Aug 2005
Posts: 380
During the crash of 2008, virtually every asset class was down including bonds. Even the Vanguard Total Bond Fund had a big decline. After the FED acted to provide liquidity it partially recouped the big drop.

What I think this means is that you should look to cash for funds to tide you over recessions. You don't want to have to sell assets (bonds or equities) when their price is depressed. So, you need your cash to supplement taxable dividends and interest, SS, pensions to maintain your spending during recessions.

These funds are a part of your AA, and not connected to the bond/equity split.
__________________

__________________
Retired -- 2001
SteveL 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 01-10-2014, 02:47 PM   #22
Dryer sheet aficionado
 
Join Date: Feb 2008
Posts: 32
A 90/0/10 portfolio. Expenses are covered by dividends + cash for 5-10 years then Dividends + Social Security
__________________

__________________
Nothing I say should be considered medical,psychiatric,legal,financial,electrical,or plumbing advice. I know nothing about anything.
FLD3C is offline   Reply With Quote
Old 01-10-2014, 03:00 PM   #23
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 882
Quote:
Originally Posted by SteveL View Post
During the crash of 2008, virtually every asset class was down including bonds. Even the Vanguard Total Bond Fund had a big decline. After the FED acted to provide liquidity it partially recouped the big drop.

What I think this means is that you should look to cash for funds to tide you over recessions. You don't want to have to sell assets (bonds or equities) when their price is depressed. So, you need your cash to supplement taxable dividends and interest, SS, pensions to maintain your spending during recessions.

These funds are a part of your AA, and not connected to the bond/equity split.
According to the VG website the 2008 return for Total Bond Market was ~5% (positive). 2009 was over 6%.

I retired in December, 2007 and kept all my fixed invested in short-intermediate duration bonds (no cash) until October, 2008 when long TIPS became a screaming buy.
__________________
jebmke is offline   Reply With Quote
Old 01-10-2014, 03:56 PM   #24
Full time employment: Posting here.
CaliforniaMan's Avatar
 
Join Date: Dec 2013
Location: San Diego
Posts: 846
Quote:
Originally Posted by jebmke View Post
According to the VG website the 2008 return for Total Bond Market was ~5% (positive). 2009 was over 6%.

I retired in December, 2007 and kept all my fixed invested in short-intermediate duration bonds (no cash) until October, 2008 when long TIPS became a screaming buy.
Your comment got me curious. I looked at the VG website for the Total Bond Market Index yearly highs and lows for 2007-2009:

Total Bond Mkt Index Adm
High High Date Low Low Date
$10.21 12/03/2007 $9.73 06/12/2007
$10.37 01/22/2008 $9.58 10/31/2008
$10.56 11/30/2009 $9.96 03/10/2009

Seems that if you bought and sold at the worst possible times, at the high in 2007 and sold at the low in 2008 you would be down only a little over 6%, not taking into account the dividends you received over that time which would cut that about in half.
__________________
Merrily, merrily, merrily, merrily,
Life is but a dream.
CaliforniaMan is online now   Reply With Quote
Old 01-10-2014, 04:04 PM   #25
Full time employment: Posting here.
CaliforniaMan's Avatar
 
Join Date: Dec 2013
Location: San Diego
Posts: 846
Quote:
Originally Posted by audreyh1 View Post
No, expenses are different from withdrawals. They are quite a bit lower, as my absolute $ withdrawals increase with the rising portfolio since I use a fixed % of the portfolio each year, but so far my expenses have not. Also, the expenses I use for this computation are after taxes, because if I were only spending down cash and bonds, and equities had taken a huge hit, taxes would be close to 0.

I used this cell in 2008 which limited the amount I rebalanced by selling cash and bonds to buy stocks so that I would still have X years expenses remaining in cash and bonds after rebalancing. It reduced my equity allocation just a couple of percent at the time. If the market had not recovered, I would have then just have been spending down cash and bonds until equity had recovered enough to start rebalancing the other way.
Thanks for your comment audreyh1. This is kind of the strategy I was thinking about employing should/when we have another serious market decline. Limiting the re-balance into stocks to keep a minimum time in bonds & cash for the market to recover. All of us newbies have plans, but I find it really helpful hearing from people like you who have actually been there and done it.
__________________
Merrily, merrily, merrily, merrily,
Life is but a dream.
CaliforniaMan is online now   Reply With Quote
Old 01-10-2014, 04:39 PM   #26
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 882
Quote:
Originally Posted by CaliforniaMan View Post
Your comment got me curious. I looked at the VG website for the Total Bond Market Index yearly highs and lows for 2007-2009:

Total Bond Mkt Index Adm
High High Date Low Low Date
$10.21 12/03/2007 $9.73 06/12/2007
$10.37 01/22/2008 $9.58 10/31/2008
$10.56 11/30/2009 $9.96 03/10/2009

Seems that if you bought and sold at the worst possible times, at the high in 2007 and sold at the low in 2008 you would be down only a little over 6%, not taking into account the dividends you received over that time which would cut that about in half.
Right, and you are only selling small slices of the bonds in any one month. Overall, I made more in bonds than I would have in cash. The bond market constipation was a fairly short (but scary) period. IMO, the bond market situation in '08 was more frightening than the entire equity market down tick.
__________________
jebmke is offline   Reply With Quote
Old 01-10-2014, 05:15 PM   #27
Thinks s/he gets paid by the post
 
Join Date: Mar 2009
Posts: 1,433
I am much more worried about the bond market in the next 10 years than the '07 - '09 timeframe. A slow painful decline. However, I still plan to stick to my allocation plan and take it from there.
__________________
Retired in 2016. Living off dividends / interest and a mini pension. Freedom.
foxfirev5 is offline   Reply With Quote
Old 01-10-2014, 06:09 PM   #28
Recycles dryer sheets
galeno's Avatar
 
Join Date: Nov 2002
Location: Alajuela, Costa Rica
Posts: 220
We keep a 60/40 port. With 3% AWR we have 13 years of living expenses in fixed income. At 4% we have 10 years.
__________________
AA = 60/35/5. Expected CAGR = 5.7%. GSD (5y) = 7.8%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.5%. Net Port Yield = 1.7%. Term = 36 yr. FI Duration = 4.9 yr. Portfolio survival probability = 86%.
galeno is offline   Reply With Quote
Old 01-10-2014, 07:09 PM   #29
Thinks s/he gets paid by the post
 
Join Date: Sep 2009
Location: Hong Kong
Posts: 1,574
Quote:
Originally Posted by audreyh1 View Post
In my spreadsheet I have a cell that tell me how many years of expenses I have in bonds and cash.
I do the same thing. My floor is 2 years of living expenses in cash/bonds/equivalents (currently more than twice that). I tend to frame this in terms of liquidity management rather than asset allocation (although I suspect the difference is semantic rather than substantial).
__________________
Budgeting is a skill practised by people who are bad at politics.
traineeinvestor is offline   Reply With Quote
Old 01-10-2014, 08:11 PM   #30
Recycles dryer sheets
 
Join Date: Aug 2005
Posts: 480
In our late 60's and both retired, we are about 50-50 on our asset allocation, but only a handful of money (maybe 2 months of living expenses) is in bond funds that I haven't bothered to sell. The vast majority of our fixed income is in a five year CD ladder, spread around 3 different banks/CU's both for additional diversification and to stay under the $250k insurance limit.

Call me a dirty market timer, but bonds do not look like they can currently provide the portfolio stability we have used them for in the past.
__________________
Gearhead Jim is offline   Reply With Quote
Old 01-10-2014, 09:45 PM   #31
Recycles dryer sheets
Sirka's Avatar
 
Join Date: Mar 2011
Location: Southern CA
Posts: 200
Quote:
Originally Posted by SteveL View Post
During the crash of 2008, virtually every asset class was down including bonds. Even the Vanguard Total Bond Fund had a big decline. After the FED acted to provide liquidity it partially recouped the big drop.

What I think this means is that you should look to cash for funds to tide you over recessions. You don't want to have to sell assets (bonds or equities) when their price is depressed. So, you need your cash to supplement taxable dividends and interest, SS, pensions to maintain your spending during recessions.
+1
Cash is king during a crash. Bonds go down as well!
I ran out of cash in 2009 buying stocks.
Ever since 2008, I keep more cash in Money Market even though it pays nothing. At least it does not go down, like the bond funds did last year.
__________________
Hard to say what it was, when it isn't.
FIRED in 2005 @ 55
Sirka is offline   Reply With Quote
Old 01-10-2014, 10:47 PM   #32
Thinks s/he gets paid by the post
growing_older's Avatar
 
Join Date: Jun 2007
Posts: 2,608
I wonder if you are asking a question like: If your portfolio at your desired asset allocation was so large that you were sure you had enough, what would you do with additional money. Would you continue to allocate unneeded extra money at your original desired asset allocation, or would you effectively start a new second portfolio, with different goals, at a different asset allocation, such as 100% equities?
__________________
growing_older is offline   Reply With Quote
Having a floor of safe investments
Old 01-11-2014, 07:10 AM   #33
Dryer sheet aficionado
 
Join Date: Mar 2012
Posts: 36
Having a floor of safe investments

In his book "Retirement Portfolios", Michael J. Zwecher goes into great depth talking about creating a floor of very safe, inflation protected investments, that will support your lifestyle, and then use equities to hopefully get some gains over time to add in luxuries or increase your spending if you wish. For example, a high net worth individual may be able to realistically fund their expected lifetime of spending using only a portion of their assets. Let's say you have two people, one having $5 million and the other having $7 million, but they both have pensions and only need an additional $50,000 a year from their portfolio to live the life they want. They both put $2 million dollars in very safe, inflation protected investments such as iBonds, CDs, etc. so they now have their basic lifestyle covered for 40 years. This is the floor. It would then seem to be reasonable to put a large chunk of their money in riskier investments to build a legacy or raise their spending in the future if stocks do well. In the example, one has 60% in stocks and the other has 71% in stocks. Now the stock market tanks. This is where something called one way rebalancing kicks in. If the stock market tanks, neither person rebalances from their floor of safe investments into stocks. Their floor of safe investments remains the same so their spending is unaffected. If stocks go up over time they could rebalance to their safe investments and raise the floor. They only rebalance from stocks to bonds and never the reverse.

A wealthy person who has a floor like this could have a high allocation to stocks as they have the ability to accept the risk. They just build a floor that corresponds to their lifetime spending needs and what they do with the rest of the money has little impact on supporting their chosen lifestyle.

Zwecher explains this whole idea much better than I can. I really like his one way rebalancing idea to protect you from selling bonds once your floor is in place.
__________________
Jackson D is offline   Reply With Quote
Old 01-11-2014, 09:41 AM   #34
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,813
Quote:
Originally Posted by CaliforniaMan View Post
If so what is the correct number of years you should have in bonds?
When I see this comment, I assume it goes with a withdrawal plan that says in "some" circumstances I'd get 100% of my withdrawals from bonds.

If I get into that situation, clearly my "number of years in bonds" will drop. But, that must be okay, or why would I make this type of plan?

So I think this approach requires some explicit plan for when to actually withdraw those bonds, when to stop withdrawing them, and when to refill the bond bucket.

The answer to "how much is enough" comes from writing out that plan then running it through possible market scenarios until I've convinced myself that it meets my goals (whatever they may be) in at least X% of the plausible scenarios.

So I'd say you should start by writing out your plan for using and refilling your bond bucket.
__________________
Independent is offline   Reply With Quote
Old 01-11-2014, 09:42 AM   #35
Thinks s/he gets paid by the post
photoguy's Avatar
 
Join Date: Jun 2010
Posts: 2,301
Bernstein has a similar idea about creating a floor with safe investments. All I can say is that I wish I had the net worth typical of their clients that they target these ideas toward.
__________________
photoguy is offline   Reply With Quote
Old 01-11-2014, 10:46 AM   #36
Recycles dryer sheets
 
Join Date: Jun 2007
Posts: 359
I think Buffet would agree with the OP, although he might quibble on using bonds to hold your withdrawal fund - maybe short term would be OK...

Buffet made a statement last year about bonds being poor investments. His quote was "You shouldn’t be 40% in bonds…. Anybody I would [advise] ... I would have them having enough cash on hand so they would feel comfortable, and then the rest in equities"

Warren Buffett: Bonds Are ‘Terrible Investments’ Right Now - Income Investing - Barrons.com

To watch the interview where he said this, see the link below. Its the second video down on this page (time 1:18).

Warren Buffett: Stocks Will Go 'Far Higher' Over Time
__________________
FinanceGeek is offline   Reply With Quote
Old 01-11-2014, 11:04 AM   #37
Thinks s/he gets paid by the post
Rambler's Avatar
 
Join Date: Jul 2007
Posts: 2,247
I've played it a little differently. I currently keep enough cash for about 2 years of full expenses OR 4-5 years of full, fun-included expenses. Then, I have enough in a very wide variety of muni bonds to pay virtually all of my basic living expenses from the interest thrown off. I got a lot of the bonds early in the downturn, so the yield on purchase price was pretty good, and yield on current market value is also not bad at all at around 5.4-5.5%. I do have some corporate bonds but not too much. Beyond that, it's mostly a wide variety of stocks and funds with a slight value bent that toss off slightly better than market average divvies, plus some REITs that push off some higher divvies. Together, that provides the play money and the inflation protection.

As yields move higher, I will likely begin putting the extra fun money, plus proceeds from harvesting some losses to offset some gains that have run their course into more bonds, which will help me keep my balance.

Right now though, I'm about 70/30, the 70 including the equities and the minor amount of REITs. Cash is outside of that, but would be about 5% of the invested assets. We also have a good chunk of home equity that will be redirected to investments when, at some point maybe 10-15 years from now, we decide to downsize.

Just another way of looking at things.

R
__________________
Find Joy in the Journey...
Rambler is offline   Reply With Quote
Old 01-11-2014, 11:11 AM   #38
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,863
The monthly interest thrown off by my taxable account's bond funds more than covers my monthly expenses. Any excess gets reinvested, so I can add shares to the bond funds which will in turn spin off more interest. Over time, however, if my expenses grow to overtake the excess then I will have to dip into principal. But my projections don't have that happening for at least 10 more years. And even if I have to dip into principal, I will around that time have access to other money not yet available (i.e. IRA, frozen company pension, SS). Therefore, I expect the original bond funds to last me at least 30 years.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is offline   Reply With Quote
Old 01-11-2014, 11:19 AM   #39
Thinks s/he gets paid by the post
obgyn65's Avatar
 
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
I don't have much money in bonds at all. So to answer the OP's question, next to zero.
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
obgyn65 is offline   Reply With Quote
Old 01-11-2014, 11:23 AM   #40
Full time employment: Posting here.
CaliforniaMan's Avatar
 
Join Date: Dec 2013
Location: San Diego
Posts: 846
Quote:
Originally Posted by photoguy View Post
Bernstein has a similar idea about creating a floor with safe investments. All I can say is that I wish I had the net worth typical of their clients that they target these ideas toward.
I took a look at some reviews of the Bernstein book you mentioned. One stated:

"He does look at several examples of people with different spending needs. A rule of thumb he provides is that by age 70, people should have enough safe assets to fund at least 20 years of spending needs after accounting for Social Security and other pensions. Of course that is very tough to do, especially in today’s low interest rate environment."

Unless your spending is very low, and SS high, it does seem he is directing that to higher net worth individuals. 20 years seems a bit extreme for me, but for high net worth people it certainly would be prudent. I will put his book on my list. Thanks.
__________________

__________________
Merrily, merrily, merrily, merrily,
Life is but a dream.
CaliforniaMan is online now   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


 

 
All times are GMT -6. The time now is 11:17 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.