DoingHomework
Recycles dryer sheets
- Joined
- May 28, 2010
- Messages
- 254
I've been thinking over the last couple of months about making a change. I mulled over posting my question on here yesterday while driving and decided to do so this morning. Now the Fed announcement on interest rates makes it even more timely.
A couple of years ago I started shifting a significant amount into bonds. This was lifestyle timing not market timing. We got serious about setting an ER date in 2017 and I figured it was a good idea to switch to a ~30% bond allocation. This was partly for safety and partly so that we'd have an income portfolio in place when 2017 comes around. I started the shift in small steps and we are currently at about 20% bonds. The money is mostly in relatively near duration funds. The longest term are GNMA funds at about 6 years.
This is specifically in reference to taxable money. I was willing to pay the extra tax on the income from the bonds as the price of beginning to make the move gradually. Our tax deferred money is roughly 30% bonds already.
Lately though I have been rethinking this decision for a couple of reasons. One big change is that my wife has a government pension she'll start getting in late 2014 and, because of a service purchase opportunity that came as a surprise in 2011, will be considerably more than we expected. I can look at this pension as a "phantom portfolio" in government bonds. That would eliminate most of the need to have a 30% bond allocation in our taxable portfolio because her pension will already cover more than half of our income needs. In a rough way it would mean we have a 50% bond allocation as is.
My thinking a couple of days ago was to stop the bond allocation where it is and possibly even take some profits. I was thinking of cutting back to about 10% bonds. That idea was driven partly from the realization that we probably don't need so much because of the pension and partly because I expect(ed) rates to start creeping back to normal relatively soon as the economy recovers.
But now, the Fed announces this morning that rates are staying low for a while. Bonds are rallying as are stocks. I'm torn between following through with my previous plan to cut back the allocation a little and take advantage of the rally or stay put since rates are probably not going to rise as soon as I had thought.
Any comments on how I should think about this?
A couple of years ago I started shifting a significant amount into bonds. This was lifestyle timing not market timing. We got serious about setting an ER date in 2017 and I figured it was a good idea to switch to a ~30% bond allocation. This was partly for safety and partly so that we'd have an income portfolio in place when 2017 comes around. I started the shift in small steps and we are currently at about 20% bonds. The money is mostly in relatively near duration funds. The longest term are GNMA funds at about 6 years.
This is specifically in reference to taxable money. I was willing to pay the extra tax on the income from the bonds as the price of beginning to make the move gradually. Our tax deferred money is roughly 30% bonds already.
Lately though I have been rethinking this decision for a couple of reasons. One big change is that my wife has a government pension she'll start getting in late 2014 and, because of a service purchase opportunity that came as a surprise in 2011, will be considerably more than we expected. I can look at this pension as a "phantom portfolio" in government bonds. That would eliminate most of the need to have a 30% bond allocation in our taxable portfolio because her pension will already cover more than half of our income needs. In a rough way it would mean we have a 50% bond allocation as is.
My thinking a couple of days ago was to stop the bond allocation where it is and possibly even take some profits. I was thinking of cutting back to about 10% bonds. That idea was driven partly from the realization that we probably don't need so much because of the pension and partly because I expect(ed) rates to start creeping back to normal relatively soon as the economy recovers.
But now, the Fed announces this morning that rates are staying low for a while. Bonds are rallying as are stocks. I'm torn between following through with my previous plan to cut back the allocation a little and take advantage of the rally or stay put since rates are probably not going to rise as soon as I had thought.
Any comments on how I should think about this?