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Old 04-29-2017, 10:04 AM   #41
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Personally, after a 35 plus years bond bull market with rates near zero, why would anyone have a large allocation in bonds? Bond funds are particularly risky if there is a sharp rise in rates. But the AA crowd sticks to their allocation when bonds have no where to go but down.
A very good point Dash man. We have some existing exposure to bonds through balanced funds (VWELX/OAKBX), but we are not putting new money into them for that very reason. So our bond allocation is gradually decreasing and has been for awhile.
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Old 04-29-2017, 10:14 AM   #42
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Personally, after a 35 plus years bond bull market with rates near zero, why would anyone have a large allocation in bonds? Bond funds are particularly risky if there is a sharp rise in rates. But the AA crowd sticks to their allocation when bonds have no where to go but down.
What would you suggest as a similar risk/return alternative to bonds/funds? CD's and other cash equivalents have provided returns from 0-1% unless you go long. And bond funds were declared dead beginning in 2009 when rates were slashed, and that clarion call has been repeatedly constantly since. Meanwhile many short and intermediate bond funds have returned 2-3% per year after dividends and NAV changes for 8 years.

Everyone holding bonds should know the relationship between bond fund NAVs and interest rates.

This has been discussed many times here an elsewhere, and no one has yet come up with a clearly better alternative that isn't just trading one type of risk for another. Unless I missed it.
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Burned more than once by the market
Old 04-29-2017, 10:22 AM   #43
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Burned more than once by the market

I got involved with actively managed funds that underperformed the market and charged outsized fees. Even during roaring 90's built up a modest portfolio of CDs and also accelerated mortgage payments. Rode out '98 but pulled out in'12. Retirement is fully funded at net return of zero. Boring but works for us. Rebounds don't always occur (Nikkei 39,000). Also they can take 15 years from bottom. Nasdaq is 6K now but was 5000 in 2000.
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Old 04-29-2017, 10:22 AM   #44
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What would you suggest as a low risk alternative to bonds/funds? CD's and other cash equivalents have provided returns from 0-1% unless you go long. And bond funds were declared dead beginning in 2009 when rates were slashed, and that clarion call has been repeatedly constantly since. Meanwhile most bonds have returned 2-3% per year after dividends and NAV changes for 8 years.

This has been discussed many times here an elsewhere, and no one has yet come up with a clearly better alternative that isn't just trading one type of risk for another. Unless I missed it.
I don't think there is any obvious answer to this question, which is why it comes up on the forum so frequently.

I have some five year CD's paying 2.25% in a taxable account. Every year when I do my tax returns I ask myself why did I buy these CDs? I do have some 3% PenFed CDs in an IRA, so at least those are tax deferred.

I have a lot of municipal bond funds in taxable accounts. The after tax equivalent yield is probably in the low 2% range.

I don't worry as much about interest rate sensitivity as others seem to. Interest rates have been stagnant for so long now, that even when they do eventually rise, I believe it will be so gradual that it just won't be any big deal. The higher yields will eventually help to offset the dropping NAV of the funds and it should all work itself out. We won't get rich off the yield, but it provides some cushion against bear markets.

Interest rates will rise at some point in our lifetime. And markets will crash. And then recover. And in the end, it always seems to work out fine.
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Old 04-29-2017, 10:25 AM   #45
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Quote:
Originally Posted by Dash Man
Personally, after a 35 plus years bond bull market with rates near zero, why would anyone have a large allocation in bonds? Bond funds are particularly risky if there is a sharp rise in rates. But the AA crowd sticks to their allocation when bonds have no where to go but down.
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What would you suggest as a similar risk alternative to bonds/funds? CD's and other cash equivalents have provided returns from 0-1% unless you go long. And bond funds were declared dead beginning in 2009 when rates were slashed, and that clarion call has been repeatedly constantly since. Meanwhile many short and intermediate bond funds have returned 2-3% per year after dividends and NAV changes for 8 years.

Everyone holding bonds should know the relationship between bond fund NAVs and interest rates.

This has been discussed many times here an elsewhere, and no one has yet come up with a clearly better alternative that isn't just trading one type of risk for another. Unless I missed it.
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I don't think there is any obvious answer to this question, which is why it comes up on the forum so frequently.
I agree. But if Dash Man thinks people holding bonds/funds are mistaken, presumably he has a better asset class(es) of similar risk/return to recommend.
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Old 04-29-2017, 10:30 AM   #46
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I am surprised at the group think on this board that seems to have most fully invested in stocks. This is my question...if one has enough resources to fund retirement using a 'safe return' rate, why gamble with the bulk of one's assets in the stock market? (Doesn't anyone else remember '08?) We're planning to spend down. At 85 we can age in place and live comfortably on SS if we're still kickin. We're not planning on catastrophic LTC costs etc, hoping to be dust in the wind before that happens.
You either came in here with a preconceived notion or you haven't spent time reading the threads.

There are people with all sorts of investment philosophies and practices here, with a wide range of wealth & income, strategies on withdrawal and spending etc. etc.
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Old 04-29-2017, 10:48 AM   #47
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This thread is very entertaining. Lots of good ideas stated here plus plenty of silly ones.

I feel that at age 69 a 60/40 is good for us. But am willing to cut back on equities if certain well defined conditions materialize. The last time these showed up were in late 2007 and we are nowhere near now. One condition is an inverted yield curve.
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Old 04-29-2017, 10:49 AM   #48
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There are people with all sorts of investment philosophies and practices here, with a wide range of wealth & income, strategies on withdrawal and spending etc. etc.
That's what makes it an interesting place. It would be boring if we all did the same thing.
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Old 04-29-2017, 11:14 AM   #49
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Originally Posted by TJFogelberg View Post
I am surprised at the group think on this board that seems to have most fully invested in stocks. This is my question...if one has enough resources to fund retirement using a 'safe return' rate, why gamble with the bulk of one's assets in the stock market? (Doesn't anyone else remember '08?) We're planning to spend down. At 85 we can age in place and live comfortably on SS if we're still kickin. We're not planning on catastrophic LTC costs etc, hoping to be dust in the wind before that happens.
If I was 85 I wouldn't be 65 % in the market either, but I'm 63 and the income is nice.
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Old 04-29-2017, 11:26 AM   #50
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And bond funds were declared dead beginning in 2009 when rates were slashed, and that clarion call has been repeatedly constantly since. Meanwhile many short and intermediate bond funds have returned 2-3% per year after dividends and NAV changes for 8 years.
+1 Bond funds will tank someday. The stock market will crash someday. Inflation will return someday and lessen the value of our cash investments. We just don't know when. That's why it's important to understand one's risk tolerance and stick to an appropriate asset allocation.
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Old 04-29-2017, 11:44 AM   #51
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The only bad question is the one that doesn't it asked. Welcome to the neighborhood. The banking fraud & watching the US Congress peeing on itself as they took orders from Goldman Sachs to pass TARP or watch the world as they know it disappear into oblivion would make anyone think twice about casting their pearls before the swine known as Wall st. But then again you got to ask yourself what are your alternatives.
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Old 04-29-2017, 11:47 AM   #52
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What would you suggest as a similar risk/return alternative to bonds/funds? CD's and other cash equivalents have provided returns from 0-1% unless you go long. And bond funds were declared dead beginning in 2009 when rates were slashed, and that clarion call has been repeatedly constantly since. Meanwhile many short and intermediate bond funds have returned 2-3% per year after dividends and NAV changes for 8 years.

Everyone holding bonds should know the relationship between bond fund NAVs and interest rates.

This has been discussed many times here an elsewhere, and no one has yet come up with a clearly better alternative that isn't just trading one type of risk for another. Unless I missed it.
While not completely similar in risk due mainly to government bonds, I use high yield dividend index funds that were 4-6% at the time (3-4% now). I figure the funds contain older established companies with little likelihood of going under, no riskier than the corporate bond component of any bond index fund. Any additional risk has been offset by growth in fund value over the years.
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Old 04-29-2017, 11:57 AM   #53
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I've always assumed I was minority here in being ~90% invested in equities in retirement (rest in cash to cover 2 years expenses). My reasons for doing so are that we have pensions, which I treat as a bond component, and we'd like to leave a legacy for the kids. I will say that if/when interest rates rise above a certain level, I'll reduce my equity portion as I want to leave a balanced asset allocation to be inherited.

Oh, and I survived 2 market downturns, losing up to 50% in value, only to come out much better in the end. The only drawback being FI at a later time, more in line with retirement plans.
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Old 04-29-2017, 12:04 PM   #54
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While not completely similar in risk due mainly to government bonds, I use high yield dividend index funds that were 4-6% at the time (3-4% now). I figure the funds contain older established companies with little likelihood of going under, no riskier than the corporate bond component of any bond index fund. Any additional risk has been offset by growth in fund value over the years.
That's the rub. A perfectly acceptable personal choice, but the risk is simply not comparable to broad bond fund. Vanguard characterizes Total Bond Market Index Fund Investor Shares (VBMFX) risk at 2 of 5 and High Dividend Yield Index Fund Investor Shares (VHDYX) risk at 4 of 5. Doesn't serve the same purpose in an asset allocation plan at all. I can only assume suspect Dash Man was advocating market timing, that's a different discussion altogether.
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Old 04-29-2017, 12:07 PM   #55
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.if one has enough resources to fund retirement using a 'safe return' rate, why gamble with the bulk of one's assets in the stock market? (Doesn't anyone else remember '08?) ......
You make the assumption that "gambling" the bulk of one's assets in the stock market is particularly risky in regards to running out of money. It's not always much of a "gamble". We currently have 85% of our assets in equities. But we have enough in fixed assets (cash and bond funds) to live on through a market downturn. And if things really turned south, we could also cut back expenses to the point that we could probably live off just the distributions from our assets. So having a lot of money in equities isn't much of a gamble in our situation. The added value of investing in equities supports our desired charitable donations and financial gifts to our kids.
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Old 04-29-2017, 12:10 PM   #56
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I am surprised at the group think on this board that seems to have most fully invested in stocks. This is my question...if one has enough resources to fund retirement using a 'safe return' rate, why gamble with the bulk of one's assets in the stock market? (Doesn't anyone else remember '08?) We're planning to spend down. At 85 we can age in place and live comfortably on SS if we're still kickin. We're not planning on catastrophic LTC costs etc, hoping to be dust in the wind before that happens.
I may be one of the "gamblers" who prefer to stay in the game. I would ask you the opposite question. "If one has enough resources to fund retirement using a safe return rate, WHY NOT continue with the bulk of one's assets in the stock market?"

If you can continue making above CD and bond rates, and the include the inevitable "big correction" or two or three in your plan, can still cover most of your expenses with non-investible incomes such as SS and pension incomes, can continue living in the same lifestyle you have up till now, why not continue with what brought you to this point? The various calculators all give the opportunity to change one's asset allocation for determining the likely hood of success. I use them.

What if you and your spouse plan to age 90, find a success rate that makes you comfortable, and then happen to live to age 105 or more, what then? You say you are not planning for LTC but what if you happen to need care? even though most don't, many do. Making historically higher returns on my equity investments only opens more security for us over the next 30+ years..... I know 30 years ago I didn't think of some expenses that I have now. Who knows what the next 10, 20, 30 years will bring?

But ours is not a set and forget plan. I can always adjust it any time I need to and probably will. I am continuing to increase my financial knowledge even at the age of 64. Who knows what my plan will look like in 10, or 20 years? So far - so good!

At least that is some of my thinking.
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Old 04-29-2017, 12:10 PM   #57
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The recovery from DOW 5000 in 2008 happened because of QE, zero interest rates, and other artificial interventions. Savers have been crushed and often persuaded to invest in "higher yielding" securities and annuities that often pay 6-8% commission to the agent who talks them into it. I'm not against stocks, just disagree with conventional wisdom that one should be heavily invested. I'm using a fixed rate of return of 2% with inflation the same. We pay no income taxes upon full retirement. Everything is paid for. Our big purchases are behind us. Health is generally above average despite problems causing desire to retire early. We definitely won't be investing aggressively to try to fully fund LTC costs. (Few spend any length of time in a LTC facility). Currently 70% CD, zeroes, ST Vang bond. 30% index stock funds, a few ind securities, and high yield and longer duration bond funds. 2 low cost annuities. We have very low fixed costs now and in retirement. A significant portion of our budget is discretionary, which is a wonderful thing. If you have 3X the money you need to fund actual cash needs, I see no harm in ramping up risk and playing the market. (You're playing with money you will never touch anyway. )

Congrats and good luck as your personal plan hits the unforeseeable jungle, which we all face. I am 80/20 with two index mutual funds and was a millionaire at 48 and am well on the way at 51 to multimillionaire. Like many, many here, I'm proof that a dirt simple common sense method works. I still have a LOT to learn from others but I have achieved enough to date that I'll only consider insults to my Bogle approach from people who have achieved more, earlier, with a repeatable method that works for my busy schedule and risk tolerance. Personally, I want nothing to do with individual stocks or annuities or CDs or, to be truthful, having any % of my net worth allocated to RVs. The nice thing about this board is it's a unique place to compare notes with other successful people. If it's group think, at least call it How the More Polite and Wealthy Group Thinks (relative to the rest of the toxic interwebs.)
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Old 04-29-2017, 12:21 PM   #58
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I am surprised at the group think on this board that seems to have most fully invested in stocks. This is my question...if one has enough resources to fund retirement using a 'safe return' rate, why gamble with the bulk of one's assets in the stock market? (Doesn't anyone else remember '08?) We're planning to spend down. At 85 we can age in place and live comfortably on SS if we're still kickin. We're not planning on catastrophic LTC costs etc, hoping to be dust in the wind before that happens.
Hi, and welcome to the forum, TJFogelberg. I encourage you to look around and read various posts and threads here so that you understand what sorts of things are frequently posted here.

Of course, we have members who are retired, not retired, working part time, 25-85 years old, and with various family situations. So while many of us follow the Bogleheads philosophies, investing in broad index funds instead of stocks, there are some who do invest in stocks. There are many threads here on AA and those who report a 100:0 AA are pretty few and far between, and often in the accumulation phase.

Personally I am retired and age 68, with a 45:55 AA that is mostly invested in Vanguard's broad index funds. Being quite conservative, I also have a paid off house and no debt other than one credit card which I always pay off in full each month.

The 2008-2009 stock market crash provided a nice test of asset allocation for many of us who never sold low, rebalanced during the crash several times, bought low in the process or otherwise. Many who did this ended up recovering our pre-crash net worth pretty rapidly, some by the end of 2009 or in 2010.
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Old 04-29-2017, 12:32 PM   #59
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Welcome to the forum. I'm 64 and I'm 70% in equities and I'm OK with that. I've been investing since I was 19 so I've been through bad markets, and learned early that if you're invested in good assets you stay the course. It has its rewards.


The last crash occurred while I was still employed, so it was easier to take since I was putting large amounts of money in at bargain-basement prices. When the next one comes, and it will, I'll take stock and figure out if I want to decrease my withdrawals, which I'm trying to keep at 3%. I'm getting SS and a couple of small pensions and could live on them if I had to but the travel and charity budgets would suffer.
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Old 04-29-2017, 01:32 PM   #60
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I realize there are many here diversified into real estate and other opportunities, but regarding equities there is a groupthink among many members. The asset allocation crowd unwilling to budge from their particular asset allocation had always puzzled me. Things do change in the financial world that I believe requires readjusting financial assets periodically, but I'm labeled a market timer by the AA folks. Personally, after a 35 plus years bond bull market with rates near zero, why would anyone have a large allocation in bonds? Bond funds are particularly risky if there is a sharp rise in rates. But the AA crowd sticks to their allocation when bonds have no where to go but down.
Stock equities I maintain in selected individual stocks rather than funds that will follow the wild swings in a turbulent market should significant events happen. I do keep a large sum in cash to live on for several years if there is a severe market downturn. I also have real estate, insured CDs and some physical gold and silver.
Worldwide sovereign, corporate and personal debt is skyrocketing and printing more and more dollars will eventually take its toll. All it will take is loss of faith in these fiat currencies to cause a worldwide financial crisis worse than 2008. None of the causes of the 2008 crisis has really been fixed. But I guess we'll see in time.
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