I have been using my age minus 20 for my bond allocation since i'm pretty aggressive. I have read that a lot of people just use their age for bond allocation. i'm 36, so my method is 16% bonds, but using just my age is 36% for bonds. what do most of you do?
how do most of you determine your bond allocation?
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clifp
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Personally, if you want to use a formula I am a bigger fan of Age-20 than just age for your bond allocation. At some point I read a study that showed that historically this AA produce higher returns over a lifetime with only a modest increase in volatility.
Generally speaking I am enough of a contrarian that I like to buy bonds when they are out of favor like in 2000 and junk bonds in fall of 2008 and sell them when the become popular like they are recently.
Generally speaking I am enough of a contrarian that I like to buy bonds when they are out of favor like in 2000 and junk bonds in fall of 2008 and sell them when the become popular like they are recently.
Spanky
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I am more conservative: age + 5%
My moving cash/bond allocation preference is ~50%+5%*(X-15), where X is the market P/E (currently 23). That said, I don't use a timing approach to my allocation (e.g. annual balancing) but only sell when overvalued. The allocation target would then determine where the new money goes.
Moemg
Gone but not forgotten
I do the age I wish I was so mine is currently at 34 % .
I have a govt COLA'd pension that's the equivalent of I bonds, and two mortgages, so we don't own any bonds in our ER portfolio.
We had some EE and I bonds in our teen's college fund, but the room/board payments are rapidly taking care of that little problem...
I do something similar though my formula is a tad different.
easysurfer
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I do the age = bond allocation so I can do the math in my head 
audreyh1
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I never worried about owning bonds until right before I retired - certainly not when I was pretty young and expected decades in the markets.
Audrey
age = bonds for me.
Currently at 35/55/10.
As I got closer to ER and found myself closer and closer to my financial targets I had no problems in lowering the volatility by increasing the bond portion. I've never had the stellar returns some have posted here over the years but it has been nice and steady.
I've also been fortunate to hang onto non-COLA pensions although I was never certain of them until the last 12 months before I ER'ed. Since the companies that provide the pensions could always go bankrupt leaving me with PBGC insurance, which is not very much if I'm still in my 50's, I am still cautious and prefer a large bond allocation.
Currently at 35/55/10.
As I got closer to ER and found myself closer and closer to my financial targets I had no problems in lowering the volatility by increasing the bond portion. I've never had the stellar returns some have posted here over the years but it has been nice and steady.
I've also been fortunate to hang onto non-COLA pensions although I was never certain of them until the last 12 months before I ER'ed. Since the companies that provide the pensions could always go bankrupt leaving me with PBGC insurance, which is not very much if I'm still in my 50's, I am still cautious and prefer a large bond allocation.
I don't care for bonds as an asset class. The thought of having hundreds of thousands tied up in an investment that barely beats inflation bothers me about as much as equity volatility bothers most investors.
But all the SWR & MPT studies I've seen and the backtesting I've conducted suggest that the first 10-20% allocated to bonds improves 40-50 year SWR's, and reduces portfolio volatility a fair amount with only a modest reduction in expected returns, so we have 20% of our ER portfolio in TBM (we've also got decent SSI & a non-indexed pension due in ~9-12 years)
But all the SWR & MPT studies I've seen and the backtesting I've conducted suggest that the first 10-20% allocated to bonds improves 40-50 year SWR's, and reduces portfolio volatility a fair amount with only a modest reduction in expected returns, so we have 20% of our ER portfolio in TBM (we've also got decent SSI & a non-indexed pension due in ~9-12 years)
Telly
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how do most of you determine your bond allocation?
I go at it the other way 'round --> Determine suitable Equity allocation first. Then that leaves the remaining percentage for Fixed. Which can then be sliced into an actual bond allocation, cash allocation, any other fixed instruments.
For me, it's 60/40 Equity/Fixed. I have no plans to change that allocation. Maybe someday when I reach 70 YOA, I might consider a small change.
If I was in my 30's, I probably would be 100% equities, or close to it.
That said, if there was a person in their 30's who was nearing the big $ amount to retire in their 30's, then yes, I could sure see trimming back some on the equities to stave off a bear market putting them 10 years back in their plans! But they still need to think about long-term growth to keep up with/pass inflation in the future.
I go at it the other way 'round --> Determine suitable Equity allocation first. Then that leaves the remaining percentage for Fixed. Which can then be sliced into an actual bond allocation, cash allocation, any other fixed instruments.
For me, it's 60/40 Equity/Fixed. I have no plans to change that allocation. Maybe someday when I reach 70 YOA, I might consider a small change.
If I was in my 30's, I probably would be 100% equities, or close to it.
That said, if there was a person in their 30's who was nearing the big $ amount to retire in their 30's, then yes, I could sure see trimming back some on the equities to stave off a bear market putting them 10 years back in their plans! But they still need to think about long-term growth to keep up with/pass inflation in the future.
traineeinvestor
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+1
I also have very little allocation to bonds and anticiapate making only a slightly bigger allocation as I transition to retirement.
GregLee
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100/0. Our pensions are enough for current expenses, so I think of our small investment as long term, perhaps to be used for LTC.
Aeowyn
Recycles dryer sheets
I don't do a straight percentage. I look at cash and bonds as a hedge against a bad stock market.
For money I don't need for say 7+ years, I don't put anything in bonds - I put those assets in a portfolio that is 100% equities (some of the stock mutual funds may have a few bonds thrown in but bonds are generally <5% overall in this portfolio)
I keep a cash emergency fund of 3-6 months of expenses. For things that I'm going to purchase above my income stream within the next year, I also keep cash.
For purchases I plan to make that are at a year out but less than 7 years, I put in a conservative portfolio of mostly bond and balanced mutual funds. Usually the bond % in this portfolio is ~50% and the stocks in the portfolio are mostly large cap.
I haven't retired yet, but plan to in the next couple years. We're only in our mid 40s and plan to pursue some business/farming opportunities - but don't plan on having positive cash flow from them in the near term. So we will be relying on our investment income stream just like in retirement.
I'm planning something that looks like this:
Cash: emergency fund of 6 months expenses + 1-2 years of cash needed above any income streams
Conservative portfolio (50% bonds): 3-6 years of cash needed above any income streams
Aggressive portfolio (0% bonds): remainder.
If you look at this from a % withdrawal rate from a portfolio, if I have a 4% withdrawal rate, then the amount of money I'll have above the emergency funds is:
Cash: 1-2 years --> 4-8% of portfolio
Bonds 3-6 years of 50% --> 6-12% of portfolio
Stocks mutual funds --> 80-90% of portfolio
For a withdrawal rate of 6%, it would look like this:
Cash: 1-2 years --> 6-12% of portfolio
Bonds 3-6 years @ 50% bond--> 9-18% of portfolio
Stocks mutual funds --> 70-85% of portfolio
As you can probably tell, I'm not a big fan of bonds. I don't so much view cash and bonds as investments, but more as insurance that will allow me to have patience to ride out a bad stock market.
For money I don't need for say 7+ years, I don't put anything in bonds - I put those assets in a portfolio that is 100% equities (some of the stock mutual funds may have a few bonds thrown in but bonds are generally <5% overall in this portfolio)
I keep a cash emergency fund of 3-6 months of expenses. For things that I'm going to purchase above my income stream within the next year, I also keep cash.
For purchases I plan to make that are at a year out but less than 7 years, I put in a conservative portfolio of mostly bond and balanced mutual funds. Usually the bond % in this portfolio is ~50% and the stocks in the portfolio are mostly large cap.
I haven't retired yet, but plan to in the next couple years. We're only in our mid 40s and plan to pursue some business/farming opportunities - but don't plan on having positive cash flow from them in the near term. So we will be relying on our investment income stream just like in retirement.
I'm planning something that looks like this:
Cash: emergency fund of 6 months expenses + 1-2 years of cash needed above any income streams
Conservative portfolio (50% bonds): 3-6 years of cash needed above any income streams
Aggressive portfolio (0% bonds): remainder.
If you look at this from a % withdrawal rate from a portfolio, if I have a 4% withdrawal rate, then the amount of money I'll have above the emergency funds is:
Cash: 1-2 years --> 4-8% of portfolio
Bonds 3-6 years of 50% --> 6-12% of portfolio
Stocks mutual funds --> 80-90% of portfolio
For a withdrawal rate of 6%, it would look like this:
Cash: 1-2 years --> 6-12% of portfolio
Bonds 3-6 years @ 50% bond--> 9-18% of portfolio
Stocks mutual funds --> 70-85% of portfolio
As you can probably tell, I'm not a big fan of bonds. I don't so much view cash and bonds as investments, but more as insurance that will allow me to have patience to ride out a bad stock market.
donheff
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I am somewhere in this area. My pension is a solid backstop that will pay the basic bills and our weekend house might bail us out in a crisis. But the portfolio allows us to lead the lifestyle we have become accustomed to. For many years we were 100% equities but have gone to about 25% bonds in retirement. Everything I read says that will reduce volatility and provide a liquidity cushion to let equities recover from a crash. We would like to continue withdrawing from the portfolio to support travel etc even in bad times. Without a pension I would probably move toward 45-50% bonds.
Danmar
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Since my pensions represent about half of my projected spending, the portfolio is all equity (SWR about 3-3.3%) 60 years old retired 4years.
Our allocation is based on running several projections (e.g., Firecalc, i-orp and with Vanguard planners) and what appears to be bestr SWR for our situation (age, other income, etc).
Fyi, currently retired since 2000 and allocation 45/55. Don't include cash needed for next couple of years. Incidentally, actual allocation is sorta bucketized in stock indices, Wellesley and bonds, 35/30/35.
Fyi, currently retired since 2000 and allocation 45/55. Don't include cash needed for next couple of years. Incidentally, actual allocation is sorta bucketized in stock indices, Wellesley and bonds, 35/30/35.
kyounge1956
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I'm 55 and have a target AA of 70% fixed, 30% equity to reduce volatility of the overall portfolio. I don't plan to change it as I age, at least not until age 70 or so.
Gotadimple
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