|
06-06-2010, 05:26 PM
|
#1
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
|
John Bogle on bonds
We've seen a lot of concern about the performance bonds/bond funds in what some expect to be a rising interest rate environment. Here is what John Bogle, founder of Vanguard, has to say about the subject:
Bogle's not afraid of bonds: Vanguard founder says to keep investing simple
__________________
Numbers is hard
|
|
|
|
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
06-06-2010, 06:12 PM
|
#2
|
Thinks s/he gets paid by the post
Join Date: Feb 2007
Posts: 2,525
|
It's very interesting that Bogle considers SS as a part of the bond allocation. I'm not clear on how to bring the SS dollars into the allocation equation though.
|
|
|
06-06-2010, 06:45 PM
|
#3
|
Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
|
Quote:
Originally Posted by ejman
It's very interesting that Bogle considers SS as a part of the bond allocation. I'm not clear on how to bring the SS dollars into the allocation equation though.
|
I interpreted his comments as meaning do a present value calculation on your SS benefits, and consider that amount as part of your bond allocation when applying the "age in bonds" allocation.
So, a 65 year old with $1mm would normally have $650k in bonds; if his SS benefits corresponded to a present value of $200k, he would allocate $450k to bonds (which would correspond to $650k in bonds when the present value of SS is included). Most spreadsheets have a "PV" function.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
|
|
|
06-06-2010, 06:55 PM
|
#4
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
|
What Rich said.
There are some past threads discussing this subject and I recall no consensus on either the wisdom of following Bogles suggested allocation or on how to arrive at the PV of SS benefits. Big surprise, eh?
__________________
Numbers is hard
|
|
|
06-06-2010, 08:06 PM
|
#5
|
Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
|
That's true, though Bogle is a hard guy to argue with. I'm sticking with 40-45% equities probably long term, but if I were rich, ailing and in my 80s, that 20% equity position might make sense for me, too.
Did you reduce your bond allocation when you started SS?
Once more time, everyone's situation is different.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
|
|
|
06-06-2010, 08:32 PM
|
#6
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
|
Quote:
Originally Posted by Rich_in_Tampa
Did you reduce your bond allocation when you started SS?
|
No, I didn't factor SS into my asset allocation. I've stuck with an equity percentage similar to yours, although the current market slide has made me think Bogle's "100 minus your age" bond equity allocation may have some merit...
__________________
Numbers is hard
|
|
|
06-06-2010, 08:48 PM
|
#7
|
Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
|
Quote:
Originally Posted by REWahoo
No, I didn't factor SS into my asset allocation. I've stuck with an equity percentage similar to yours, although the current market slide has made me think Bogle's "100 minus your age" bond allocation may have some merit...
|
Did you mean Bogle's "your current age in bonds" (or 100 minus your age in stocks")?
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
|
|
|
06-06-2010, 08:52 PM
|
#8
|
Thinks s/he gets paid by the post
Join Date: Feb 2007
Posts: 2,525
|
Quote:
Originally Posted by Rich_in_Tampa
I interpreted his comments as meaning do a present value calculation on your SS benefits, and consider that amount as part of your bond allocation when applying the "age in bonds" allocation.
So, a 65 year old with $1mm would normally have $650k in bonds; if his SS benefits corresponded to a present value of $200k, he would allocate $450k to bonds (which would correspond to $650k in bonds when the present value of SS is included). Most spreadsheets have a "PV" function.
|
I see, so all I have to do is figure out how long I'll live and what the future inflation adjusted and law change (if any) adjusted SS payments will be and just plug them into the PV calculation... I can see why neither you or REWahoo have actually made that adjustment. Sounds like a good approach to me. I think when I start collecting SS I'll just let it be and consider it mana from heaven...
|
|
|
06-06-2010, 08:54 PM
|
#9
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
|
Quote:
Originally Posted by Rich_in_Tampa
Did you mean Bogle's "your current age in bonds" (or 100 minus your age in stocks")?
|
In stocks. Thanks for catching my goof.
__________________
Numbers is hard
|
|
|
06-06-2010, 09:03 PM
|
#10
|
Thinks s/he gets paid by the post
Join Date: Feb 2007
Posts: 2,525
|
Actually, it just occurred to me that if I were to follow the 25X rule (or conversely stated the 4% withdrawal guideline) then say a $2,000/mo SS payment would translate into a $600K current pot indexed for inflation as part of the bond allocation no?
|
|
|
06-06-2010, 09:04 PM
|
#11
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
|
Si.
__________________
Numbers is hard
|
|
|
06-06-2010, 09:07 PM
|
#12
|
Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
|
Quote:
Originally Posted by ejman
Actually, it just occurred to me that if I were to follow the 25X rule (or conversely stated the 4% withdrawal guideline) then say a $2,000/mo SS payment would translate into a $600K current pot indexed for inflation as part of the bond allocation no?
|
Roughly, though SS is COLA-adjusted and the periodic amounts rise by some 8% per year if you delay taking them.
But too much thinking going on here . I think that the 4% rule estimate is fine, and throwing the PV estimate in as a rough amount to help you adjust your asset allocation.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
|
|
|
06-06-2010, 11:45 PM
|
#13
|
Thinks s/he gets paid by the post
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 3,361
|
Quote:
Originally Posted by ejman
Actually, it just occurred to me that if I were to follow the 25X rule (or conversely stated the 4% withdrawal guideline) then say a $2,000/mo SS payment would translate into a $600K current pot indexed for inflation as part of the bond allocation no?
|
Or if you want more precision, assume SS is an immediate annuity and figure what it would cost to purchase. (Vanguard has a page that given a monthly amount can give you the needed payment). Of course its hard to find an annunity that also pays 1/2 to your spouse if they have no earnings record etc.
|
|
|
06-07-2010, 09:58 AM
|
#14
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2005
Posts: 17,205
|
Quote:
Originally Posted by ejman
Actually, it just occurred to me that if I were to follow the 25X rule (or conversely stated the 4% withdrawal guideline) then say a $2,000/mo SS payment would translate into a $600K current pot indexed for inflation as part of the bond allocation no?
|
Only if you are about to start taking SS now....
I am early 50s... and I will not start to get SS for a long time... so taking my (lets say) $24k per year X 25 is not what I have... that is what I will have 'then'... I would have to discount it back to today...
|
|
|
06-07-2010, 11:50 PM
|
#15
|
Dryer sheet aficionado
Join Date: May 2010
Posts: 44
|
Quote:
Originally Posted by meierlde
Of course its hard to find an annunity that also pays 1/2 to your spouse if they have no earnings record etc.
|
It's Social "welfare" Security.
|
|
|
06-08-2010, 07:49 AM
|
#16
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
|
Quote:
Originally Posted by meierlde
Of course its hard to find an annunity that also pays 1/2 to your spouse if they have no earnings record etc.
|
Plenty of annuities have a survivor income option.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
|
|
|
06-08-2010, 10:09 AM
|
#17
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,008
|
Quote:
Originally Posted by ejman
I see, so all I have to do is figure out how long I'll live and what the future inflation adjusted and law change (if any) adjusted SS payments will be and just plug them into the PV calculation... I can see why neither you or REWahoo have actually made that adjustment. Sounds like a good approach to me. I think when I start collecting SS I'll just let it be and consider it mana from heaven...
|
That's my plan. I'm still young enough to not "count" on SS. I haven't even decided what age I'll take it.
But Bogle's advice probably makes sense for someone for whom SS is a big portion of their retirement income.
Audrey
__________________
Retired since summer 1999.
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Thread Tools |
|
Display Modes |
Linear Mode
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|