Laddered Bonds vs Bond Funds in Buckets - Does this make sense?

[DawgMan]

I know allot is discussed here regarding bond funds vs laddered bonds, but I wanted to sound out my latest thoughts as to some adjustments to my now decumulation/legacy retirement investment strategy, as opposed to my initial plan. While I have subscribed to a total return AA annual rebalance approach during my accumulation years and defaulted to the same strategy for decumulation, the current inflationary/increasing interest rate environment has poked the inner bear in me! While I have a somewhat conservative nature, I am wired to weigh the risk/rewards in life and have play my cards accordingly in business and other. Therefore, I lean more towards "playing the game" (from a legacy perspective) as opposed to "why play the game". I have wrestled with all of this on many posts in the past so won't spend time laying out all the background.

Short version... was planning to ride a 60/40 AA, take a WR in the 2.5%+ range (higher discretionary spend with plenty of levers to pull if the SHTF), rebalance annually, holding a specific mix of equities and fixed income all in ETFs. This year will be the first year I take a withdrawal (partial due to some earned income, but still year 1 of a withdrawal). Current environment has my short, intermediate bonds and preferred ETFs losing with a high probability of getting their butts kicked in the near future. This has prompted me to rethink what I am really trying to accomplish as I withdrawal $$. First, I am comfortable protecting no more than 10 years worth of planned spend (including all the extra fat I mentioned) based on worst case scenarios of stock market recoveries. IF I am prepared to spend out of my 10 year $$ bucket until the stock market shows gains, am I not better with a predictable individual bond ladder/Bulletshare type fixed portion as opposed to bond ETFs? Or is a hybrid a better mix (i.e. ladder up say 5 years spend worth of individual bonds, rest in say intermediate bond ETFs), or keep all 10 years in a mix of bond ETFs??

So here's the other part of the observation. If I move in this direction my AA goes to a 75/25 mix. More volatile, yes. But, my thought is the 75% does 3 things... 1) I only touch it to replenish my fixed bucket when stocks are up; 2) this is really long term/legacy $$ at the end of the day for my kids/charity or my own gluttonous spending, and 3) basically balances out my conservative nature (dependable bond returns) with my calculated risk philosophy (stocks achieve better returns over time).

Thoughts? Suggestions?

 

[audreyh1]

Well, I do have my fixed income “laddered” in that I hold some cash, some short-term bond index fund, and the bulk in intermediate term bond index fund, and rebalance between the three as warranted. This supports a scenario where several years of draws are taken from fixed income.

Even though I’ve been retired for a while, I’m still invested for many decades, so I don’t try to second guess the short-term market moves, but rather rebalance infrequently as needed. I’m also not looking at legacy investing for heirs which would probably drive a higher equity allocation.

I don’t bother with individual bond issues either.

I like to keep things simple and ignore short-term market moves. I certainly don’t try to anticipate them. Just simple rebalancing once a year at most usually.

 

[njhowie]

So here's the other part of the observation. If I move in this direction my AA goes to a 75/25 mix. More volatile, yes. But, my thought is the 75% does 3 things... 1) I only touch it to replenish my fixed bucket when stocks are up; 2) this is really long term/legacy $$ at the end of the day for my kids/charity or my own gluttonous spending, and 3) basically balances out my conservative nature (dependable bond returns) with my calculated risk philosophy (stocks achieve better returns over time).

Thoughts? Suggestions?

Thoughts: Sounds like you've already decided to change and are looking for confirmation.

You've provided no "need" for making any change. You, just like many others, are being frightened simply because of short-term performance. You like to believe that your bonds are a ballast, but when the rubber hits the road, you really can't handle short term volatility, regardless of the asset class. If you think fixed income is likely going to get its butt kicked, then what leads you to believe that equities won't get its butt kicked even more?

Suggestion: Stick to your plan. Do nothing. Don't make any changes. Go have a beer.

 

[VanWinkle]

Thoughts: Sounds like you've already decided to change and are looking for confirmation.

You've provided no "need" for making any change. You, just like many others, are being frightened simply because of short-term performance. You like to believe that your bonds are a ballast, but when the rubber hits the road, you really can't handle short term volatility, regardless of the asset class. If you think fixed income is likely going to get its butt kicked, then what leads you to believe that equities won't get its butt kicked even more?

Suggestion: Stick to your plan. Do nothing. Don't make any changes. Go have a beer.

+1

 

[DawgMan]

Wow! Appreciate the honesty! But nobody likes my Segway??

You all feel good about riding out short/intermediate bond ETFs the next 2 plus years?

 

[audreyh1]

You all feel good about riding out short/intermediate bond ETFs the next 2 plus years?

Sure. Like any of my asset classes, if they drop relative to the other assets I own, I buy more.

 

[pb4uski]

If your WR is 2.5%, then you could set up a 10 year ladder with either corporate bonds, UST, CDs or MYGAs... that covers off 25%... and put the remaining 15% in a bond ETF. Together the ladder and bond ETF would be your 40% of fixed income.

Then if fixed income is underweight after the most current rung of the ladder matures and is withdrawn, buy a new 10 year fixed income to restore the ladder. If not, then do a partial or defer a year.