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Risk Shedding Stocks -> Bonds
Old 10-07-2013, 11:59 AM   #1
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Risk Shedding Stocks -> Bonds

I am about 3.5 years from my walk away from corporate America, I will be 55 then. All of my projections look pretty good. Long story short is I don't plan on pulling from my portfolio until my wife retires some 3-4 years after me. My portfolio is presently 95% stocks and I am nervous. I have been talking with my Fidelity rep (Fidelity has about 50% of my portfolio now) about moving into bonds.

But he told me that the bond market isn't too hot right now, although he agrees I should move something. I'd be comfortable with a 60/40 stocks/bonds.

I weathered 2008-2012 pretty well, but this close to retirement could not afford something like that now should it occur.

I realize that everyone's risk tolerance is different, but thoughts from those in the trenches about moving into bonds at this point? I would put myself right about in the middle of the conservative/aggressive scale. Good place/sites for advice/research on the bond market?

Thanks an advance...
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Old 10-07-2013, 12:21 PM   #2
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Originally Posted by doneat58 View Post
I am about 3.5 years from my walk away from corporate America, I will be 55 then. All of my projections look pretty good. Long story short is I don't plan on pulling from my portfolio until my wife retires some 3-4 years after me. My portfolio is presently 95% stocks and I am nervous. I have been talking with my Fidelity rep (Fidelity has about 50% of my portfolio now) about moving into bonds.

But he told me that the bond market isn't too hot right now, although he agrees I should move something. I'd be comfortable with a 60/40 stocks/bonds.

I weathered 2008-2012 pretty well, but this close to retirement could not afford something like that now should it occur.

I realize that everyone's risk tolerance is different, but thoughts from those in the trenches about moving into bonds at this point? I would put myself right about in the middle of the conservative/aggressive scale. Good place/sites for advice/research on the bond market?

Thanks an advance...
There is no sure thing, However...

The role of bonds is now, as always to moderate the volitility of stocks. Bonds offer a somewhat better store of value than stocks over the short term. Even though the interest rate trends are not in bonds favor they may still offer the above protection in uncertain times.

Here's some reading material:

https://personal.vanguard.com/us/ins...rates-08142013
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Old 10-07-2013, 12:26 PM   #3
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Annette Thau's most recent edition of The Bond Book. It is good because as far as I know she isn't paid by and doesn't rely on advertising revenue from the mutual fund industry, so it is a bit of a different perspective than what you read most places online.

Also note that Fidelity doesn't make any money from investors who buy individual TIPS at auction, so my experience has been that they act like they don't exist.
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Old 10-07-2013, 12:36 PM   #4
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Just go for short term duration bonds for now and wait and see what interest rates do. 95% is much too high if you are entering ER. I'm 55 and am at 62/38 stocks to bonds/cash.
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Old 10-07-2013, 12:55 PM   #5
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If you are willing to retire when the market allows you are OK with 95% equities. If you want to retire on a fairly firm date, then you should be more conservative.

Bonds may not look terribly great, but that shouldn't stop you. As MasterBlaster said, the bonds are there to moderate your equities. Cash will work almost as well. Ideally you just want something that behaves much differently than equities, even moving in the opposite direction, but with good long term gains. Cash won't move up and down in price and may not keep up with inflation, at least in the short term, but it might still perform better than bonds if interest rates rise rapidly.

Or consider something different in bonds. Certainly international bonds won't have the same behaviors as U.S. bonds. And short-term bonds won't lose much, though they might not be any better than cash in an online bank at 0.8%.
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Old 10-07-2013, 04:56 PM   #6
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Wow you must have nerves of steel to be 95% in equities and so close to retiring! Do you have a Stable Value fund in your 401k? I'd put the FI portion into that. If no SV then a short term bond fund. I would not put it into high yield bonds as they are more equity like than bond like in that they tend to follow the equity markets.
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Old 10-07-2013, 05:14 PM   #7
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The standard places when one needs fixed income in order of risk (low to high)

I-bonds, TSP G, CDs, TIAA TA, stable value, short-term bond (corporate, investment grade, total index, Treasury), intermediate-term bonds, long-term bonds.

So you should at least be purchasing your annual quota of I-bonds. Nothing wrong with 40% of your portfolio in I-bonds, but I don't know anyone who can swing that.
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Old 10-07-2013, 07:06 PM   #8
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Wow, thanks for all the responses, lots to think about. Regarding Fidelity, who I have generally been happy with, he has offered some bond funds, but I haven't looked into them much. Yes, my date is fairly fixed as my employer is offering me a lump sum pension buy out early 2017 that I can't refuse (and that will have to be invested somewhere too?). I read the article MasterBlaster posted and it was very informative.

So in terms of going to buy i-Bonds, etc, TIPS stuff that Fidelity wouldn't offer me, how best to do that? Right at the Treasury website? And good info sites for places to buy?

Lastly, if I want to just sell some low performers and sit on some cash, what is best in terms of Tax liabilities? A big chunck of the portfolio is in Rollover IRS and my company's 401K.
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Old 10-07-2013, 07:20 PM   #9
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I think a google search will answer your questions about I-bonds.

I think the only place to buy them nowadays is TreasuryDirect - Home, but you can also get them through an "engineered" Federal tax refund.
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Old 10-07-2013, 08:25 PM   #10
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So in terms of going to buy i-Bonds, etc, TIPS stuff that Fidelity wouldn't offer me, how best to do that? Right at the Treasury website? And good info sites for places to buy?
You can buy any original issue treasury including TIPS without commission or markup right on the Fidelity website. You also can buy treasuries or TIPS on the secondary market with moderate spreads on that same Fidelity website.

Ha
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Old 10-07-2013, 09:00 PM   #11
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I've gradually moved most of my fixed income AA from bond funds to CD's.

I don't like that fact that a bond fund never matures, so you always have the exposure to capital loss (gains too, but that seems less likely now). Individual bonds require too much research and work for me.

When/If it seems like interest rates will remain stable or be declining again, like they did over the last couple of decades, then I'll be more inclined to use some bond funds. But I may well be pushing up daisies by then.

I know, I'm a dirty market timer. But you don't need a weatherman to know which way the wind is blowing.
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Old 10-07-2013, 09:01 PM   #12
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So in terms of going to buy i-Bonds, etc, TIPS stuff that Fidelity wouldn't offer me, how best to do that? Right at the Treasury website? And good info sites for places to buy?
I should clarify that in my experience the Fidelity advisers we have talked to who do the portfolio recommendations act like TIPS do not exist. They have always pushed stocks only to keep up with inflation.

Per HAs post, we have bought TIPS commission free through the Fidelity web site at auction time and also on the secondary market for the prices posted at the time of purchase.

In our experience some of our 401K plans have let us buy TIPS directly and some have not, depending on the investment choices in the plan. Some plans do not allow us to buy individual bonds or CDs at all.

For I bonds we have sometimes gotten the $5K in paper bonds as a part of our refund from our tax returns. Otherwise there is a $10K limit through Treasury direct per SSN or TIN for buying online.

I have not tried this yet but I have read if you have a business, retirement plan or trust with its own taxpayer identification number (TIN), each TIN can also buy up to the $10K limit -

Individual - FAQs Concerning the Change in the Annual Purchase Limit for Savings Bonds
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Old 10-07-2013, 09:21 PM   #13
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I would think of intermediate bonds as just preserving capital at this point. In other words over the next 5 years I'd guess at zero real return. But the safety component is still there relative to stocks.

Here is my prescription for intermediate bonds:
50/50 in PTTRX (or BOND) and DODIX

I would move all this to Treasuries if equities tank. I know this is not mainstream thinking. That is why you might take it seriously.

I think a 60/40 is good at age 55 rather then (yikes) 95/5. But it depends a bit on your income flows. If you have a pension and SS that basically takes care of your spending needs, then the high stock exposure might be OK.
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