Balance is overrated

[lawman]

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]

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]

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]

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!]

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]

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]

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]

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]

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]

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]

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]

"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]

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]

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]

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]

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]

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]

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]

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]

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

 

[karluk]

I base most of my opinion on what John Hussman says

For a more in depth explanation of what John Hussman thinks, please take a look at

There's A Chance Stocks Will Crash - Business Insider

 

[clifp]

For a more in depth explanation of what John Hussman thinks, please take a look at

There's A Chance Stocks Will Crash - Business Insider

I've subscribed to Hussman email newsletter for sometime, and generally make a point of reading it. He is basically a permabear, (I think having predicted 12 of the last 3 bear markets) but what he says is generally sensible.

Still this to me is the money quote regarding Lawman's decision to go 95% bonds.

I also explained why, even without a crash, I think it's likely that stocks will deliver poor returns from today's level over the next 10 years. Not negative returns, but poor returns — average annual returns (including dividends) of only about 3% per year. Given that stocks are usually expected to return about 10% per year, that's pretty crappy.
Lastly, I explained why, even though these expected returns are pretty crappy, I'm not dumping my stocks: I expect bonds and cash to deliver lousy returns over the next 10 years, too — maybe even worse than stocks. And I'm also scared we'll eventually get some rapid inflation, which stocks should provide some protection from (unlike bonds). But I'm not expecting the double-digit gains we've had from stocks over the last few years to continue much longer.

Read more: There's A Chance Stocks Will Crash - Business Insider
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[lawman]

For a more in depth explanation of what John Hussman thinks, please take a look at

There's A Chance Stocks Will Crash - Business Insider

Had not seen that...Thanks..He is very difficult to understand but my guess is that in the end he will be vindicated..

I just know I just took a huge profit from the stock market and sleep well at night having put that money into funds that are managed by some of the best bond managers in the world that have a tremendous amount of flexibility to manage their funds ..That's not so say I'm sure my portfolio will be worth more next year than this year but at this stage of life and with valuations where they are today I'll take my chances with bonds..I'll bet you a Coke I get an opportunity to go back into stocks at much lower levels and if I'm wrong well that's okay too..

 

[redduck]

I'll take my chances with bonds..I'll bet you a Coke I get an opportunity to go back into stocks at much lower levels and if I'm wrong well that's okay too..

lawman, could you instead make that bet for a 12-pack of Coke? I would appreciate it.

Hi redduck, I suppose you saw that one of your dividend stocks, KO, lost nearly 4% today after releasing a disappointing earnings report...

 

[ERD50]

Had not seen that...Thanks..He is very difficult to understand but my guess is that in the end he will be vindicated. ....

I suppose the harder he is to understand, the easier it will be for him to claim he has been vindicated!

I just know I just took a huge profit from the stock market and sleep well at night having put that money into funds that are managed by some of the best bond managers in the world that have a tremendous amount of flexibility to manage their funds ..That's not so say I'm sure my portfolio will be worth more next year than this year but at this stage of life and with valuations where they are today I'll take my chances with bonds..I'll bet you a Coke I get an opportunity to go back into stocks at much lower levels and if I'm wrong well that's okay too..

Someone could have said that in 1997, and they still haven't been able to get back in at a lower level.

It could work out for you, or maybe not, or it might end up not making much difference either way. It might take many years to even sort it out in hindsight. I'm more comfortable maintaining an AA that has worked out reasonably well historically.

Tell me why I'm making a mistake.

I can't, I have no crystal ball. We each need to decide for ourselves.

-ERD50