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Looking to diversify into Bonds need a one stop Vanguard fund recommendation
Old 02-09-2024, 04:01 AM   #1
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Looking to diversify into Bonds need a one stop Vanguard fund recommendation

I've got a military pension that funds the majority of our expenses. All of my investments are currently in equity, the vast majority of it in VTSAX.

My wife and I are 55/56 and I think I need to start moving some amount into bonds.

What would be a good single fund for us to invest in?
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Old 02-09-2024, 04:35 AM   #2
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BND or VBTLX

I suggest you determine your time horizon, however. Those are both intermediate duration.
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Old 02-09-2024, 05:28 AM   #3
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Pensions are like a set of bonds. A government pension is even inflation adjusted, so is like a large investment in inflation adjusted bonds. You have no need to be even more bond-like, I would just stay in stocks. With your expenses mostly covered, even a large fall in the stock market wouldn't affect you much.
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Old 02-09-2024, 06:19 AM   #4
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Since your pension pays most bills, I would exclude that from the next part of the analysis.

How much additional income do you need? When do you need it?

Will you purchase this bond fund in a tax-deferred (IRA), tax-free (Roth) or taxable account?
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Old 02-09-2024, 06:32 AM   #5
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Originally Posted by Exchme View Post
Pensions are like a set of bonds. A government pension is even inflation adjusted, so is like a large investment in inflation adjusted bonds. You have no need to be even more bond-like, I would just stay in stocks. With your expenses mostly covered, even a large fall in the stock market wouldn't affect you much.
most experts agree that one should not mix income streams with a portfolio allocation like it was part of it .

you cannot rebalance an income stream like a pension or ss ….

one can end up way to overly aggressive in equities.

if we were to value social security or pension as a dollar figure we may find that a 40k pension is like having 1 million dollars for purpose of income generation .

if we do a 50/50 with a million dollars in cash , that would require all 1 million dollars in equities to balance the phantom 1 million in pension or ss

that is likely way over what someone would want .

so it’s best to keep income streams what they are and portfolio allocations separate
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Old 02-09-2024, 06:44 AM   #6
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VBTLX is very popular, but like others have said you many not need much fixed income if your pension covers most of your expenses.
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Old 02-09-2024, 06:49 AM   #7
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one has to define why they want bonds in the first place .

if it is recession protection, then a barbel of very long treasuries and very short ones are best .

if it’s income , a mix of shorter term bond funds along with high yield are best .

personally i use money markets , short term bond funds , a shorter intermediate term bond fund and a floating rate high yield fund
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Old 02-09-2024, 06:52 AM   #8
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Bonds help with the mental side of investing. If you are a rock(no emotions) and are sure you will never waiver in a bear market, then you could remain 100% stocks or funds. Most people find out when they get close to retirement, the ability to ignore the markets becomes more difficult without the work income of pre-retirement. Don't feel like you have to be 100% unless it is necessary for your after retirement plan. Many throw it out there like a bravado way of thumping their chests. We never see them when the market goes into the eventual bear market. It's your plan, and will work best if you are honest about how you will react.

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Old 02-09-2024, 06:52 AM   #9
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one has to define why hey want bonds in the first place .

if it is recession protection, then a barbel of very long treasuries and very short ones are best .

if it’s income , a mix of shorter term bond funds along with high yield are best .

personally i use money markets , short term bond funds , an intermediate term but shorter intermediate term bond fund and a floating rate high yield fund
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Old 02-09-2024, 06:56 AM   #10
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Since your pension pays most bills, I would exclude that from the next part of the analysis.

How much additional income do you need? When do you need it?

Will you purchase this bond fund in a tax-deferred (IRA), tax-free (Roth) or taxable account?
I would put 2 to 3 years expenses into a CD ladder. Then, look at what’s left and see if you want to move anything into a bond fund.
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Old 02-09-2024, 06:59 AM   #11
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an income oriented portfolio is another option for shorter term money .

ours uses the 3 bond funds i mentioned above as well as about 25% in low volatility equity funds ..being 75% less volatile then the s&p we find it good for holding money for use over a 5 year period .

much better performance and inflation protection then just fixed income without much risk.

we keep about 5-7 years money in that
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Old 02-09-2024, 07:53 AM   #12
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You need to assess whether you need bonds or not, and that depends on what your withdrawal rate would be for your expenses not covered by your military pension (thank you for your service). If the expenses not covered by your pension divided by your retirement portfolio is 3% or less then you have "won the game" and could have negligible risk of running out of money if you were all stocks or all bonds, so bonds would be optional in that situation.

While bond funds took it on the nose in 2022 because of rising interest rates, from here I think rates will plateau and eventually decline a bit so I'm less concerned about interest rate risk.

I prefer the control of individual bonds to bond funds. If I have a need for money I can either not reinvest a coming maturity or sell a bond near to maturity at close to par. In similar circumstances with a bond fund to get case you effecicely sell a sliver of every bond in the bond fund's portfolio so no real control.

So rather than a bond fund, consider a bond ladder, buying 10 bonds that mature in each of the next 10 years. The bond desk at your brokerage can easily propose a 10 year US Treasury ladder for you. At today's rates a 10-year ladder would yield about 4.3% and be steady income.
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Old 02-09-2024, 07:54 AM   #13
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i tried to creat a bond ladder at fidelity…it was crazy trying to get the buys to go thru.

i gave up …it was like it wouldn’t accept the price as they changed in seconds
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Old 02-09-2024, 08:07 AM   #14
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Quote:
Originally Posted by Exchme View Post
Pensions are like a set of bonds. A government pension is even inflation adjusted, so is like a large investment in inflation adjusted bonds. You have no need to be even more bond-like, I would just stay in stocks. With your expenses mostly covered, even a large fall in the stock market wouldn't affect you much.
I think this is a good point. Not sure you "need" bonds unless for psychic reasons.

But as others have suggested, a small CD ladder might be a good way to get your toes wet in fixed income. And that would provide cash at intervals that you can spend or reinvest without risking selling equities in a down market.

And now would be a decent time to make that move since stocks have been rallying.
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Old 02-09-2024, 08:14 AM   #15
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Originally Posted by rwdflynavy View Post
I've got a military pension that funds the majority of our expenses. All of my investments are currently in equity, the vast majority of it in VTSAX.

My wife and I are 55/56 and I think I need to start moving some amount into bonds.

What would be a good single fund for us to invest in?
How much of your expenses are *not* funded by your pension? And how large is your portfolio?

I ask, because it could be that the divs from an equity fund are enough to make up the difference, so no/little need to ever sell anything. VSTAX is ~ 1.5% div yield. If so, I'd think you'd be fine with a high equity allocation. Still, 10% or so of bonds or other fixed income could buffer that. Or more fixed if the volatility would bother you, but it shouldn't if the divs alone cover you OK.

-ERD50
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Old 02-09-2024, 09:47 AM   #16
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i tried to creat a bond ladder at fidelity…it was crazy trying to get the buys to go thru.

i gave up …it was like it wouldn’t accept the price as they changed in seconds
Interesting. I buy bonds at Schwab all the time and trades get filled right away. Have you tried calling the bond desk?
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Old 02-09-2024, 11:43 AM   #17
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I didn’t bother. I went back to my funds
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Old 02-10-2024, 03:55 AM   #18
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How much of your expenses are *not* funded by your pension? And how large is your portfolio?

I ask, because it could be that the divs from an equity fund are enough to make up the difference, so no/little need to ever sell anything. VSTAX is ~ 1.5% div yield. If so, I'd think you'd be fine with a high equity allocation. Still, 10% or so of bonds or other fixed income could buffer that. Or more fixed if the volatility would bother you, but it shouldn't if the divs alone cover you OK.

-ERD50
Appreciate all the responses.

Portfolio is about $1.3M and does not kick off enough dividends to fund the extra expenses of about $30K/yr. For the next couple years, we are funding our excess expenses drawing down an inherited IRA. After that, we'll begin withdrawing from our taxable accounts at 2-3% WR.

We've got quite a bit of flexibility, so we can probably continue to be heavy equity focused, but thought I'd ask about options.
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Old 02-10-2024, 05:21 AM   #19
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Originally Posted by rwdflynavy View Post
Appreciate all the responses.

Portfolio is about $1.3M and does not kick off enough dividends to fund the extra expenses of about $30K/yr. For the next couple years, we are funding our excess expenses drawing down an inherited IRA. After that, we'll begin withdrawing from our taxable accounts at 2-3% WR.

We've got quite a bit of flexibility, so we can probably continue to be heavy equity focused, but thought I'd ask about options.
You have $1.3M and want to generate $30K annually (about 2.3% initial withdrawal).

Current VTSAX yield is 1.5% or so. That provides $19,500 income, and preserves the number of shares (I think this is where you are in thought). You'll have to sell shares one way or another.

You require another $11,500 annually.

a) Current VBMFX (intermediate duration bond fund) yield is 3.0% or so. $400,000 generates $12,000.

b) Current VBIRX (short duration bond fund) yield is 2.5%. $500,000 generates $12,500.

c) Current VBLAX (long duration bond fund) yield is just under 5.0%. $250,000 generates $12,500.

The yields, dividends, and NAV's do fluctuate. Also, you need to project how taxes will affect your investment returns. Do you file your own taxes each year?

There's a thread on individual bonds. That will inform you to a greater extent about a non-fund solution.

Also consider some CD laddering.
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Old 02-10-2024, 07:19 AM   #20
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Appreciate all the responses.

Portfolio is about $1.3M and does not kick off enough dividends to fund the extra expenses of about $30K/yr. For the next couple years, we are funding our excess expenses drawing down an inherited IRA. After that, we'll begin withdrawing from our taxable accounts at 2-3% WR.

We've got quite a bit of flexibility, so we can probably continue to be heavy equity focused, but thought I'd ask about options.
Yes, you can definitely continue to be heavy equity focused (well, based on the worst times in history at least).

If you plug a 2%~3% inflation adjusted withdrawal into FIRECalc.com or FICalc.app, you'll see that rate has been better than 100% safe, with any asset allocation that has at least 15% equities (going above 85% fixed is where failures begin). Yes, 'too much' equities has been safer than 'too little' equities.

https://ficalc.app?additionalIncome=...constantDollar

https://ficalc.app?additionalIncome=...constantDollar

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