Consider a 100% bond portfolio

[Trailwalker]

That re-investment risk beyond 30 years is the rather huge hole in the analysis. Remember, long TIPS yields that were near zero and sometimes negative were the norm just three years ago. So if you live past the longest available TIPS duration of 30 years, you are not getting a guaranteed return, things may well have returned to very low or negative yields and then you run out of money before you run out of days.

In 30 years, I'm very likely to be dead at 93. Personally, I wouldn't go long on TIPS or non-inflation protected bonds, but I see investors who do very well at 100% bond portfolios without going long if their nest eggs are large enough. I'm medium term with TIPS and long term with stocks.

 

[euro]

Stating the obvious here, but if the portfolio is large enough relative to the WR and the age of the owner(s), AA won't really matter anymore. I seem to recall that Ross Perot was 100% in muni bonds, and he was doing just fine, thank you very much....

 

[ncbill]

Stating the obvious here, but if the portfolio is large enough relative to the WR and the age of the owner(s), AA won't really matter anymore. I seem to recall that Ross Perot was 100% in muni bonds, and he was doing just fine, thank you very much....

HRP worth ~$4 billion at death.

If I had just 5% of that now I'd stick it all in 30-day Treasuries.

Well, probably more like 90%...the rest in a broad market index.

 

[enjoyinglife102]

I know many people and have read many stories about the need to go back to work after stocks collapsed. Not so for those with conservative portfolios. Inflation and spending habits can be managed and controlled. Seeing my savings cut in half can't be. The boogeyman of inflation often referenced on this board is most often countered with real life stories of members successfully dealing with their personal inflation rate. 100% bonds are 100% fine if it works for you.

 

[aja8888]

Won the game

At age 80, widower, one married daughter and no grandchildren, I have a very high percentage of fixed income investments and very low equity percentage (< 10%). I also own my home (100%) and have no bad spending habits or loans to pay off. I have no reason to have a high percentage of equities and manage to even save money each year just from periodic and divided payments. Also, no pension, just SS income.

Everybody loves the stock market when it's going up. Good for them.

 

[ERD50]

View attachment 47666

I posted this chart a few times, most recently on another thread. A bit dated but still relevant I think. Note that 60/40 carries almost the same risk as 100% bonds but with better returns.

Yes, IMO this is the most relevant (and maybe the only) answer needed for OP.

Keep in mind, by "risk" they mean "volatility" - many of us don't consider the terms interchangeable. So best to think in those terms - volatility, not 'risk of running out of money".

So per that, anyone looking for low volatility should go to the 28/72 AA, and consider that ~ 55/45 is about equivalent volatility with higher returns.

You can also plug these AA into FIRECalc or FICALC.app and see for yourself.


-ERD50

 

[erkevin]

No debt. Pensions cover 125% of monthly expenses. Portfolio is 25/65/10. Emotional risk tolerance is fairly low.

 

[youbet]

Yes, IMO this is the most relevant (and maybe the only) answer needed for OP.

Keep in mind, by "risk" they mean "volatility" - many of us don't consider the terms interchangeable. So best to think in those terms - volatility, not 'risk of running out of money".

Very pertinent comment ERD50. It does seem a few posters are confusing "risk" as being the possibility of depleting your FIRE portfolio with risk being volatility. In the case of the chart we're discussing, risk is indeed "volatility."

 

[youbet]

No debt. Pensions cover 125% of monthly expenses. Portfolio is 25/65/10. Emotional risk tolerance is fairly low.

I agree that if variations in the value of your FIRE portfolio cause you emotional pain and the long term lower returns of a low equity AA support your withdrawal plans, go ahead and run with a low equity AA. It's hard to assign a value to the relief from emotional stress you'll receive (I'm pretty risk tolerant so no personal experience) but I imagine it's well worth it to you.

 

[pb4uski]

Stating the obvious here, but if the portfolio is large enough relative to the WR and the age of the owner(s), AA won't really matter anymore. I seem to recall that Ross Perot was 100% in muni bonds, and he was doing just fine, thank you very much....

That was exactly my point where someone posted that they could never be comfortable with 100% bonds... in many situations with very well-funded or overfunded retirement plans it is a silly idea.

 

[youbet]

That was exactly my point where someone posted that they could never be comfortable with 100% bonds... in many situations with very well-funded or overfunded retirement plans it is a silly idea.

It isn't a silly idea if that is what makes that person comfortable. HI Bill was clear he was referring to himself and not to the "many situations" you refer to.

 

[pb4uski]

Then I guess his post was clearer to you than it was to me and I think it could be read either way.

I think the second sentence of his post suggests that he was talking generically and not personally.

That said, if someone had a retirement plan that relies on 4% WR for 30 years then I would agree that 0/100 would not be comfortable

 

[HI Bill]

What if you had a 2% WR? Or were 85 yo with a 4% WR?

Never say never, LOL. Here are some instances where I'd go with 100% bonds:

• My wife and I both had terminal diagnoses, with less than a few years to live.
• The government debt fell back to <50% of the GDP.
• Average bond yields exceeded average equity yields for a decade.
• I stopped caring about leaving a bequest to a charity upon my death.
• I was running low on $ to fund my final few years.
• Money market funds stopped being 'safer' than bonds in terms of return and investment loss.

I've never had any luck with bonds, except, perhaps, today.

 

[youbet]

Then I guess his post was clearer to you than it was to me and I think it could be read either way.

I think the second sentence of his post suggests that he was talking generically and not personally.

That said, if someone had a retirement plan that relies on 4% WR for 30 years then I would agree that 0/100 would not be comfortable

I think that when we're discussing AA's for portfolios likely to survive at any AA, personal, subjective parameters come strongly into play. Some folks become uncomfortable due to periodic negative returns, others with "money left on the table,' etc. Whatever floats your boat.

Although my FIRE portfolio would survive with a 0/0/100 AA given our circumstances, I'm approximately 60/30/10 today. That's what I'm most comfortable with for now. But I certainly understand, and respect, that other folks who are fortunate enough to have choices make other decisions regarding AA. Your current path is very interesting and I've been following along, even applying some strategies to my 30% fixed portion.

 

[ducky911]

Bonds suck!....Looking in the rear view mirror I would have much better off if I didn't have bonds, foreign funds or small caps. I did sleep better with them but rarely saw them out perform sp500.

That being said, when I get that negative about each of these three classes, It's probably a good time to buy. hehe

 

[imbatman]

....for some of us, outperforming S&P500 isn't even in our top 5 goals........but yeah, the last 3 years have been catastrophically disasterous in an unprecedented manner for anyone cashing out bonds/ bond funds before call / maturity

 

[AlmostThoreau]

Yes, IMO this is the most relevant (and maybe the only) answer needed for OP.

Keep in mind, by "risk" they mean "volatility" - many of us don't consider the terms interchangeable. So best to think in those terms - volatility, not 'risk of running out of money".

So per that, anyone looking for low volatility should go to the 28/72 AA, and consider that ~ 55/45 is about equivalent volatility with higher returns.

You can also plug these AA into FIRECalc or FICALC.app and see for yourself.

That again assumes bonds are risky/volatile. I have a liability matching TIPS ladder. More stocks means more risk, in a linear fashion.

 

[AlmostThoreau]

I would never be comfortable with 100% bonds due to inflation. To evaluate the risk of an allocation with 100% anything, one just needs to peruse the Callahan Periodic Table of Investment Returns. https://www.callan.com/research/202...c Table of,our other Periodic Table resources.

Yes, by bonds I meant TIPS.

 

[BlueberryPie]

https://youtu.be/3TbOKJibpy8?si=6pPaSWDVK1yT-AZP

 

[Midpack]

I like my AA for the LONG haul given our WR.

 

[ERhoosier]

The old investing advice of holding an equity AA of '100-age' makes a ton of sense to me, especially now when bonds are actually paying something and equities appear generously valued. And +1 for TIPS (in a retirement account) when inflation is concerning. There have been plenty of rolling 15 yr inflationary periods where total inflation-adjusted equity returns (SP500 inc dividends reinvested) were NEGATIVE. Against that backdrop, 10-15yr TIPS guaranteed at inflation plus 2.2% don't look bad.

 

[pb4uski]

https://youtu.be/3TbOKJibpy8?si=6pPaSWDVK1yT-AZP

Naked links, especially to a 22 minute YouTube video are not at all helpful.

How about a couple paragraph synposis so we can decide whether it is worth 22 minutes of our life to watch the video?

 

[pletal]

Stating the obvious here, but if the portfolio is large enough relative to the WR and the age of the owner(s), AA won't really matter anymore. I seem to recall that Ross Perot was 100% in muni bonds, and he was doing just fine, thank you very much....

Totally agree.. I calculate at a 2 percent WR

 

[mickeyd]

I have been sittin' pretty with 45/45/10 AA for over 10 years. I works perfectly for me, but probably not for you. That's why, I am told, they have chocolate, vanilla and strawberry ice cream.

 

[Montecfo]

I'm sticking with about 65/35. The cash is part of my bond allocation.

Bonds seem great now (and hopefully we have all been adding duration to our bond portfolios this year) but I doubt these yields will last.

Having an allocation to TIPS seems logical if the real yields remain attractive and you are ok with volatility.

ETA: If rates fall over time then what would I do? Move back to an equity allocation at high prices goosed by lower interest rates? That seems to be a major risk.