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Old 08-17-2013, 02:36 AM   #121
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I plan on doing this. We will see whose approach was right over the next few years. Let's consider this an experiment. If, at the end of the experiment, my 401k balance is higher with bonds than with money market only, I will have no problem admitting defeat and will say so publicly. But if my CD and money market approach shows better results over the next 5 to 10 years, the beer is on Midpack

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Check back with us in 5 to 10 years and tell us if they did better than CD and money market funds.
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Old 08-17-2013, 02:42 AM   #122
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Hello kiki - This is the full description provided by Vanguard:

"This index fund offers a low-cost, diversified approach to bond investing, providing broad exposure to U.S. investment-grade bonds with maturities from five to ten years. Reflecting this goal, the fund invests about 50% of assets in corporate bonds and 50% in U.S. government bonds within that maturity range. Risks of the fund include the fact that changes in interest rates, both up and down, can affect the fund by resulting in lower bond prices or an eventual decrease in income for the fund. Investors looking to add a diversified bond fund to their portfolio may wish to consider this fund."

Its risk potential is low (2 out 5). I have heard good things about Vanguard here + Bogleheads, and thought this fund was a good match for a first try.

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I'm also curious about your asset mix. Why did you choose the bond fund?
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Old 08-17-2013, 02:47 AM   #123
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The $10,000 is the hypothetical amount given by Vanguard for illustrative purposes. I have invested more.

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I would buy more, especially of the bond fund. At the very least, the couple of hundred dollars needed to get it back up to $10,000.
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Old 08-17-2013, 02:52 AM   #124
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Maybe you should invite them to join this website... I feel a bit lonely sometimes, although I read a few posts recently from others who seem to be 100% CDs (more conservative than me, if Alan thought this was even possible :-) )

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I'm not meaning anything derogatory, my Sister and BIL have the same risk tolerance that you appear to. We are all unique!

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Old 08-17-2013, 03:02 AM   #125
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I agree with this. And it is a risk I have been willing to take, but was hoping diversification would help mitigate it.

I will meet a mod next week face to face (another first) and this subject will likely be discussed.

Will answer other posts soon, but falling asleep now and must go to this CPR certification class in a few hours... I have been missing these chest compressions

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But keeping money in very low yield investments simply won't keep up with inflation and is a losing proposition. You're about the same age as me, which means you have many years to go. Don't worry about five months of returns. It's a very small blip of time relative to the rest of your life. You will be fine. Just hang in there and maintain whatever asset allocation you feel comfortable with, and ignore the daily gyrations.
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Old 08-17-2013, 07:21 AM   #126
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to explore within myself how I can handle the stress of losing money.
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I have lost money each time I deviated from my stance (I bought a condo in spring-summer 2008 which has lost about $50-100K since then, and now these bonds).
It might help if you don't think of it as "losing money." You've only lost money if you cash out now. This is money that is invested for the long-term, and you wou won't know whether you truly lost or gained for another 10 years.

That's the trouble with looking at short-term fluctuations. They are entertaining to watch, but they don't really matter if you're in it for the long haul.

You sound like a busy guy. You might want to ignore their performance for a while, check in monthly or quarterly. Paying attention to short-term results is going to give you agita.
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Old 08-17-2013, 09:36 AM   #127
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Sometimes it's useful to remember that when I bought, I bought a certain number of shares. When I see my balance go down, I still own exactly the same number of shares. So, in that sense, I didn't lose anything. Now, we all know that share prices go up and down, but unless I sell shares for a lower price than I bought them, I didn't lose money.

Yes, this flies in the face of "mark-to-market" methodology. But it's no crazier than the ignoring the "flash crash" of a 2010. The value of my holdings took a dip, and several minutes later they went back up to the same level as they were before. I learned of this when I read about the whole thing that evening. Did I really "lose money?" Should I even care about an hourly, daily, or yearly dip?
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Old 08-17-2013, 10:19 AM   #128
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I don't know which is more boring, this discussion, interviews with celebrities, or This American Life on NPR.

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Old 08-17-2013, 10:23 AM   #129
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I don't know which is more boring, this discussion, interviews with celebrities, or This American Life on NPR.
Why would you torture yourself reading a thread that doesn't interest you? Far easier to skip it without comment, I would have thought.
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Old 08-18-2013, 10:15 AM   #130
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Maybe you should invite them to join this website... I feel a bit lonely sometimes, although I read a few posts recently from others who seem to be 100% CDs (more conservative than me, if Alan thought this was even possible :-) )
I wish I could, I'd love to have them see a brave person step out of their comfort zone as you are.

Thier issue is much different than yours. My BIL was always told don't you ever get into the market, by his depression era Father.

My Sister has had 64 years of my father
telling her she's not smart enough to invest, or anything else. BS both of them have the intelligence to invest, they both lack the confidence, a little education, and are full of fear.

MRG
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Old 08-18-2013, 05:02 PM   #131
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Point well taken. I tried Wellesley because of all the many good references I read about it here (i.e. 'psst' from uncle Mick and others).

The VBIMX is described as such on the Vanguard website : "This index fund offers a low-cost, diversified approach to bond investing, providing broad exposure to U.S. investment-grade bonds with maturities from five to ten years. Reflecting this goal, the fund invests about 50% of assets in corporate bonds and 50% in U.S. government bonds within that maturity range. Risks of the fund include the fact that changes in interest rates, both up and down, can affect the fund by resulting in lower bond prices or an eventual decrease in income for the fund. Investors looking to add a diversified bond fund to their portfolio may wish to consider this fund."

I liked its 2 rating (i.e. low risk) on a scale from 1 to 5. Its 3 year performance was 5%. Now it's been going south since I bought in. Good thing I am not a financial advisor...
It is hard to read your description of VBIMX without thinking that one of the reasons you bought it was because of its 3 year performance of 5%, and were hoping that it would continue averaging 5% returns going forward. If so, I would say that you were rather optimistic. From everything I've read, the single best indicator of bond fund performance is the fund's current yield. An investor is highly likely to experience bond fund returns that are close to the fund's yield, as long as the investor is willing to hold the fund for the number of years indicated by the fund's duration. In the case of VBIMX, that means a reasonable expectation is that it will average about 2.7% per year over the next 6.5 years. That's not terrible in today's low interest rate environment, but it's not 5% either.
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Old 08-18-2013, 05:58 PM   #132
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Do you mean this thread : LOL!'s Market Timing Newsletter
I had a look at the first post :
"Today, we are all neutral. Invested in passively-managed index funds such as VCSH, VTI, VEU, VWO, VBR, VSS, VNQ. No cash.
Watch this thread for transaction info."

With all due respect, LOL, I have no idea what this post means. Please remember many of us here are not experts. Where do I get the list of passively managed index funds anyway ? Isn't Wellesly passively managed too since I do not need to tell them where to invest ?
No, you don't need, or more correctly, you don't get to tell any mutual fund where to invest. A passive fund follows a formula of what to invest, such as mirroring the S&P 500 or some other index. In an actively managed fund like Wellesley, the manager has freedom to choose stocks to try to improve the fund performance. Often there are some other limitations in the fund, such as Wellesley's stated objective of 35-40% stocks.
If you go to Vanguard's list of funds at https://personal.vanguard.com/us/fun...assetclass=all
on the left side you'll see ways to filter the results, such as Asset class or minimum investments. The third filter is Management. Selecting Index (or deselecting Active) will show you the list of passively managed funds at Vanguard.
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Old 08-18-2013, 06:24 PM   #133
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^Actually, a list of passively-managed index funds was in the sentence quoted by obgyn65: VCSH, VTI, VEU, VWO, VBR, VSS, VNQ. There was no need to look further.

But thanks RunningBum for showing how to find all the Vanguard funds.
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Old 08-18-2013, 08:33 PM   #134
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I don't know which is more boring, this discussion, or ...
I kind of agree, but for me, it has little to do with the OP, and much to do with the whole concept of risk/reward, long-term portfolio performance, AA, and the effects of inflation. And those should be of interest to us all.

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Quote:
Originally Posted by LOL! View Post
Check back with us in 5 to 10 years and tell us if they did better than CD and money market funds.
I plan on doing this. We will see whose approach was right over the next few years. ...
This encapsulates the issue. The OP is still looking for 'guarantees'. There are no guarantees. Any supposed guarantees are an illusion. This illusion separates him from reality.

Inflation is real, it reduces buying power. $10,000 after a period of 20% inflation is not the same as $10,000 after a period of 5% inflation. The only thing that makes CDs appear 'guaranteed' is the illusion that is created when inflation is ignored.

And there is no guarantee that the 'real' (inflation adjusted) returns of something like Wellesley will outpace the real returns of CDs over 5 years or 10 years. A 10 year comparison does not make one or the other 'right' or 'wrong'. That is not the point.

The point is - fixed income rarely provides enough real return to allow anything like a 3.5% WR for an early retiree. A 40 year FIRECalc run shows it would have failed 73/100 times over 40 years (5 year treasuries - in line with the OP 5-10 year outlook). On average, the portfolio ends near zero, with the majority of lines grouped below zero, and many failing in the first 25 years. That is about as close to a 'guarantee' as you will get - but a guarantee of failing isn't the kind of guarantee you want. That is not risk-averse, that is risk-seeking.

History says, if you want to keep up with inflation, you need to invest in business. And business goes through cycles, and there are risks. But historically, over a long term, that risk is less than sticking with fixed income. Under the same conditions as above, a 50-50 balanced portfolio would have failed only 2/100 times, compared to a 75/100 failure rate with 100% fixed.

Again, if you pull your WR% low enough (1.88% for the above case!), any AA would succeed historically. But that doesn't make equities 'risky' - they would have performed far better (fewer failures) across the history of data in FIRECalc.

-ERD50
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Old 08-18-2013, 10:54 PM   #135
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I can empathize with obgyn65's position as my approach is to fully fund my long term retirement from income sources other than stocks and bonds. I have no problem investing my money in a couch potato, 50/50, index fund portfolio knowing that after 67 I won't have to touch my investments. I have done as much to minimize my expenditure in retirement as possible...I've paid off the mortgage and get $15k/year rent from a ground floor apartment. I will get a $6k/year COLAed pension and SS checks from both the US and the UK which should total $50k/year in 2028 dollars. I will have to use 457 money to pay for early retirement, but 50% of that money is now in a stable value fund that along with the rent will cover my expenses until I'm 60.
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Old 08-19-2013, 02:27 AM   #136
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Do you know how I can check the performance of the equity portion ? The Vanguard performance page seems to give only an overall performance for some reason.

FYI, I have invested more than 20k. The 10k is the theoretical number given by Vanguard to check performance.

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Wellesley is 60% bonds, and interest rates rose over the time period you cite. Over that same time period the S&P 500 was up about 8%. If you look at the performance of the equity portion of Wellesley, I'm sure you will find it was up (that is why Wellesley was down considerably less than the intermediate-term bond fund). Effectively, of the 20K you invested in the those two funds, about 80% was in bonds.
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Old 08-19-2013, 02:35 AM   #137
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This is interesting. I just went back to the Vanguard site, and the Vanguard Wellesley Income Fund Admiral Shares (VWIAX) page clearly shows :

Dividend $0.49400
Record date : 06/26/2013
Reinvest date : 06/27/2013


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Originally Posted by Katsmeow View Post

The June dividend was not reinvested and was $969.42.
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Old 08-19-2013, 02:43 AM   #138
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Maybe there is a bit of truth in this. It seems that many posters here are more sophisticated than me when it comes to personal finance, and I am always happy to learn something new when time permits. I still work or volunteer close to 7 days a week, but expect to have more time to learn and share with you all when I finally FIRE. I agree not to get into equities at all for the time being.


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It almost seems to me as if you expect us to tell you what to do, and then explain everything to you, because you don't have the time to search out this information for yourself.

(...)

To be perfectly honest, if you don't have the time, or are not willing to spend the time that is required for all this stuff to sink in and take root, you should not be in anything other than the fixed income investments that currently make up the overwhelming majority of your portfolio. If you're truly comfortable with the fact that they will lose purchasing power over time to inflation (as you have indicated), then continue on the course you are already on, and don't give equities a second thought. If, however, you are interested in learning how to put together a portfolio from which you can draw an income which will keep pace with inflation and, just as importantly, want to learn a bit about risk assessment so that you feel comfortable with that portfolio, then there's plenty of good reading right here on this forum as well as on Bogleheads and the many great books that have been recommended and talked about right here on this forum.

Best of luck!
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Old 08-19-2013, 02:47 AM   #139
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I would have sold everything, like many did and now have postponed their retirement. I even remember calling my EJ advisor when the Dow was around 6,000 and asking her if I could sell my CDs and buy something safer... She laughed at me.

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If that little blip made you nervous you would have been on life support during the 2008 melt down ! As the saying goes "If you can't stand the heat stay out of the kitchen ".
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Old 08-19-2013, 02:56 AM   #140
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Again, I made little money when working in Europe for about 10 years. I shared some salary info here a year or two ago. Unlike some peers I do not take additional patients or take the extra workloads - my extra time is given to volunteering. Most of my money saved is from being frugal and having a good salary, but nothing extraordinary when I look at Bogleheads' polls. It is also my understanding that we have big law or accounting top partners and bankers who post here and who have made much more than me for many years. And that's ok too.

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Why does anyone care about what OBGYN does?? He/She makes a ton of money as a Dr. and can afford to buy nothing but CD's. The rest of us must make do with equities. Let's see, a $1 in 1980's $1 is still a dollar. A $1 in the 1980's S&P is about $15. Take a pick.
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