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-   -   Balance is overrated (https://www.early-retirement.org/forums/f28/balance-is-overrated-70855.html)

lawman 03-01-2014 03:03 PM

Balance is overrated
 
Haven't checked in here for quite a while but now that I'm re adjusting my portfolio I'm interested in other points of view..I'm 57, have three pensions, a modest lifestyle and no debt for the last 30 years..I've saved up a sizable amount of money..Preservation of this capital is all that matters..I don't need more money I just need to be able to maintain my purchasing power..The stock market valuations are not justified at these levels... .I'm going to a 90 - 95 % bond funds position..Tell me why I'm making a mistake..Thanks

REWahoo 03-01-2014 03:11 PM

You think stock market valuations aren't justified and bond valuations are? You need to read up on the huge decline in bond prices the financial media has been telling us is about to happen - any day now.

Midpack 03-01-2014 03:14 PM

I don't know why anyone would suggest you're "making a mistake." And without specifics, no one could with any credibility whatsoever. Best of luck, really...

marinauser 03-01-2014 03:18 PM

How do you know whether or not the bond market is over-valued? Holding all bonds puts you at risk of rising interest rates and inflation. What is the overall duration of your bond portfolio? Have you calculated what a 1% rise in interest rates would do to your bonds' values? Even if you hold individual bonds and hold to maturity, you won't keep up with inflation if interest rates rise and you receive below market interest therefore not meeting your goal of maintaining the portfolio. More importantly, how do you know the equity market is over-valued and how did you make that determination? I would probably never go past a 50/50 mix and probably will stay closer to 60% equities and I don't need big gains, I just want to guard against guessing wrong on inflation, interest rates and equity prices. People have gotten spoiled by the long term bull bond market and many will be surprised when they have 10 or 20% losses in bonds if interest rates rise. You heard the fears last summer when the 10 yr ticked up and bond prices in the short/intermediate area fell. Ultimately, it is what lets you sleep at night.

LOL! 03-01-2014 03:19 PM

Quote:

Originally Posted by lawman (Post 1421866)
Preservation of this capital is all that matters..I don't need more money I just need to be able to maintain my purchasing power.

Please describe how 90%-95% bond funds preserves this capital and how it helps you with your need to be able to maintain your purchasing power.

Chuckanut 03-01-2014 03:19 PM

Quote:

Originally Posted by lawman (Post 1421866)
The stock market valuations are not justified at these levels... .I'm going to a 90 - 95 % bond funds position..


What is your reasoning behind this statement? I think that would make a good discussion and help you figure out how to preserve your capital.

nash031 03-01-2014 03:38 PM

Quote:

Originally Posted by lawman (Post 1421866)
Haven't checked in here for quite a while but now that I'm re adjusting my portfolio I'm interested in other points of view..I'm 57, have three pensions, a modest lifestyle and no debt for the last 30 years..I've saved up a sizable amount of money..Preservation of this capital is all that matters..I don't need more money I just need to be able to maintain my purchasing power..The stock market valuations are not justified at these levels... .I'm going to a 90 - 95 % bond funds position..Tell me why I'm making a mistake..Thanks

If preservation of this capital is all that truly matters, why not invest in an inflation-protected security alone, or just stuff it all under a mattress? No matter what you do with stocks or bonds, you are taking some market risk.

Conversely, there are studies out there regarding SWR that show that a portfolio tilted severely towards bonds is less likely to succeed over the course of retirement because of inflation risk.

That said, you didn't give anyone enough information to tell you if you're making a mistake. For me, it'd be a mistake to go 90-95% bonds, but that's just me.

lawman 03-01-2014 03:40 PM

I'm in intermediate term bond funds..( SSIRX, PONAX, PONDX, HSTRX,PTRAX)
..I'm not worried about higher interest rates..I know they will go up. I hope they do..I'm prepared to stay in bond funds forever..I can't time interest rates and I don't think anyone else can either..I expect a real return of 2% - 3% over the next ten years..I'm much less confident that the stock market will provide that..I base most of my opinion on what John Hussman says as..

braumeister 03-01-2014 04:08 PM

1 Attachment(s)
Quote:

Originally Posted by lawman (Post 1421886)
I base most of my opinion on what John Hussman says as..

I guess that's one way to look at it.

Really, you should offer some specific points that we can discuss.

youbet 03-01-2014 04:10 PM

Quote:

Originally Posted by lawman (Post 1421866)
Haven't checked in here for quite a while but now that I'm re adjusting my portfolio I'm interested in other points of view..I'm 57, have three pensions, a modest lifestyle and no debt for the last 30 years..I've saved up a sizable amount of money..Preservation of this capital is all that matters..I don't need more money I just need to be able to maintain my purchasing power..The stock market valuations are not justified at these levels... .I'm going to a 90 - 95 % bond funds position..Tell me why I'm making a mistake..Thanks

I can tell you one thing with absolute certainty. This strategy will either work out for you or it won't. Or maybe it will sort of work out for you, but not quite. Or maybe it sort of won't work out for you but close enough.

Hope you sleep better now.......

youbet 03-01-2014 04:13 PM

Quote:

Originally Posted by lawman (Post 1421886)
I expect a real return of 2% - 3% over the next ten years..

I think a intermediate term bond fund 3% real rate of return over the next decade is very optimistic.

lawman 03-01-2014 04:18 PM

"Really, you should offer some specific points that we can discuss."

I don't know how much more specific I can be..I've given you most of the funds I'm in. There is always risks.. The only significant risk I see with my plan is interest rate risk...That's only a risk if need to sell shares while they are down..Barring a complete and total disaster I will not need to do that for at least 20 years...What specifics could I comment on that would give insight?

lawman 03-01-2014 04:24 PM

Quote:

Originally Posted by youbet (Post 1421898)
I think a intermediate term bond fund 3% real rate of return over the next decade is very optimistic.

I agree. That's why I said 2% - 3%..

Also what I did not mention is that my largest investment of all is in I - Bonds that I've owned for many years..I bought them long before they limited the amount one could purchase and when interest rates were much higher..

RenoJay 03-01-2014 04:25 PM

Given a roughly 2% dividend in the stock market I think it makes sense to have at least 20% in equities even if you think the market is overvalued. I tend to agree with your analysis but I still keep 50% in equities.

clifp 03-01-2014 04:26 PM

Quote:

Originally Posted by lawman (Post 1421886)
I'm in intermediate term bond funds..( SSIRX, PONAX, PONDX, HSTRX,PTRAX)
..I'm not worried about higher interest rates..I know they will go up. I hope they do..I'm prepared to stay in bond funds forever..I can't time interest rates and I don't think anyone else can either..I expect a real return of 2% - 3% over the next ten years..I'm much less confident that the stock market will provide that..I base most of my opinion on what John Hussman says as..


Why do you expect that type of real return? Vanguard intermediate bond fund BIV has sec day yield of 2.61%. TIPs bond 5 yields are -.26%, 10 year .47% and the 30 year at 1.28%

The 30 day yields of the funds you own; PTRAX has 1.2% SEC Yield and 2.01% trailing 12 months, PONAX is at 3.51%, PONDA is 3.7%, HSTRX has a 12 month trail return of 1.05%. (I didn't understand SSIRX so I didn't include it) This averages out to 2.1% yield. Last year inflation was 1.5% and has average 1.6% over the last 5 years. So your real return last year was around .6-1% or very similar to TIPs bond

It look like the average bond duration is 6-7 years. This means a 2% rise in interest rate will decrease the value of your bonds by 14% or 1.4% a year over the next 10 years.

I guess my question is what economic and interest rate scenario do you think will occur that would enable a bond portfolio to achieve a 2-3% real return over the next 10 years. Deflation, lower interest rates, a recession ...

I don't disagree that equities are likely overvalued, but it seems to me that bonds are even more so.

youbet 03-01-2014 04:27 PM

Quote:

Originally Posted by lawman (Post 1421905)
I agree. That's why I said 2% - 3%..

Also what I did not mention is that my largest investment of all is in I - Bonds that I've owned for many years..I bought them long before they limited the amount one could purchase and when interest rates were much higher..

This thread makes no sense then. You asked about going to a 90% - 95% bond allocation. You didn't say you already owned most of the bonds and bond funds.

It might work out for you. Or it might not. I say don't worry about any negative comments given here. Jump in with both feet, give it a try and report back annually.

lawman 03-01-2014 04:34 PM

Quote:

Originally Posted by youbet (Post 1421908)
This thread makes no sense then. You asked about going to a 90% - 95% bond allocation. You didn't say you already owned most of the bonds and bond funds.

It might work out for you. Or it might not. I say give it a try and report back annually.

Most of my bond positions have just been taken in the last few days..

youbet 03-01-2014 04:39 PM

Quote:

Originally Posted by lawman (Post 1421909)
Most of my bond positions have just been taken in the last few days..

Sounds like you're all set then. Finish getting up to 95%, sit back and enjoy easy street. It's guaranteed you'll be successful with this strategy!

Texas Proud 03-01-2014 04:46 PM

If you REALLY are concerned with preservation of capital you would not be in bonds at all...

The only investment that will preserve capital are CDs (or cash)... with gvmt insurance in case the bank goes under....

All other investments have a risk of losing capital...

daylatedollarshort 03-01-2014 04:46 PM

I am with you on the capital preservation portfolio, but I am not sure about intermediate bond funds when rates are likely to rise.


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