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Rebalancing... thinking of bonds
Old 07-18-2016, 11:29 AM   #1
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Rebalancing... thinking of bonds

A little background...

- 55, as is my DW
- Earliest I'll retire is 60, but likely to keep working part time after that.
- $1M in total retirement savings, although 20% in a pension cash earning about 1%
- $100K in cash
- Paid for $330K house
- Largest retirement amount is $680K in a 401K with 200 fund choices
- Never rebalanced, currently:
48% Large Cap Growth
16% Large Cap Income
15% International
13% Small/Mid Cap
8% REIT Funds

I'm at the point where I want to divest from International... most Large Cap companies are global companies.

I'm thinking of:
30% Large Cap Growth
20% Large Cap Income
15% Small/Mid Cap
15% REIT (some international)
10% LT Muni Bonds
10% LT Commercial Bonds

I'm OK with market ups and downs and haven't sold a share in any of the downturns.... just ridden them out. I know this is aggressive, but have 20% of retirement in stable/fixed pension fund.

My question is on the last two... I've never invested in bonds, primarily because I've had about $200K in the pension fund. I'm thinking of taking that as a double life annuity payment because they offer a premium if I do that which pushes it to a guaranteed ~8%. Either way, I'm thinking I should start moving some into Bonds.

I'm looking at two Vanguard funds, VWETX and VUSUX... LT bond funds. My concern is they seem a bit "too good to be true" in that they've returned big returns for the life of the funds and are up about 15% this year.

Is this a bad time to be moving to bonds? From my reading, it seems that people have been saying its a bad time for years.
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Old 07-18-2016, 03:09 PM   #2
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Overall, I find your plan to re-balance is reasonable. I too have recently been moving some AA from equities to bonds as the market has improved. However, I share your concern about where bonds will go from here. I do not like LT bond funds or ETF's. I have been buying intermediate term (4-9 yr) individual bonds around BBB quality, both muni and corporate. When they mature, I get back face value, and I can roll them into something else, maybe at a higher rate by then.
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Old 07-18-2016, 03:14 PM   #3
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Originally Posted by DrRoy View Post
Overall, I find your plan to re-balance is reasonable. I too have recently been moving some AA from equities to bonds as the market has improved. However, I share your concern about where bonds will go from here. I do not like LT bond funds or ETF's. I have been buying intermediate term (4-9 yr) individual bonds around BBB quality, both muni and corporate. When they mature, I get back face value, and I can roll them into something else, maybe at a higher rate by then.
Thanks for the quick reply. I'm pretty firm on not investing in individual stocks or bonds, just because I don't think I have enough know-how or diversity to do it. I"m frankly having a hard enough time dealing with mutual funds and ETFs. I am looking at maybe intermediate term now after thinking about this more. I plan to leave things alone after this rebalance for a while.

Its probably not correct to call this a rebalance alone, as I'm also changing strategy from when I setup things about 8 years ago.
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Old 07-18-2016, 03:36 PM   #4
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I just found a problem in my portfolio you might learn from.

A corporate bond fund I have as a bit of my portfolio dropped in value on Brexit just when
I did not want that to happen. All my other bond funds stayed even or increased in value. I then noticed the Beta changed from when I bought it. I'm now moving out of that fund into one that did well when equities did poor.

I'd suggest you look at a few times where your equity funds suffered and pick a bond fund/ETF that did well on that day.
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Old 07-18-2016, 03:48 PM   #5
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The concern with respect to bonds is "interest rate risk" and as interest rates rise then the value of bonds (and of your bond fund) decline. That said, the concern about rising interest rates has been around a long time and still has yet to happen.

I prefer corporate bond funds to treasuries or total bonds (which is a high proportion of treasuries)... in 2015 Warren Buffett refers to 30 year treasuries as having return-free risk.

I mitigate interest rate risk by investing in target-maturity corporate bond ETFs sponsored by BlackRock (iBonds) and Guggenheim (Bulletshares) ... these funds buy bonds that mature in a specified year and in that maturity year they make a terminal distribution of the fund... so it operates similar to a single bond but has the benefit of credit risk diversification albeit at a cost of a management fee.
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Old 07-18-2016, 04:05 PM   #6
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Originally Posted by convergent View Post
Thanks for the quick reply. I'm pretty firm on not investing in individual stocks or bonds, just because I don't think I have enough know-how or diversity to do it. I"m frankly having a hard enough time dealing with mutual funds and ETFs.
I agree on the individual stocks. Too volatile. I see individual bonds differently, and the traders at the Fidelity bond desk have been very helpful resources on bond selection.



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Old 07-18-2016, 04:12 PM   #7
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I agree on the individual stocks. Too volatile. I see individual bonds differently, and the traders at the Fidelity bond desk have been very helpful resources on bond selection.



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Thanks... I'll have to look into that down the road. I'll need to get more educated on bonds for the future.
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Old 07-18-2016, 04:49 PM   #8
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Fidelity will build you a ladder of individual bonds and charge you only a $1/bond commision. That is pretty darn cheap.
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