Becoming a believer in my Fixed Income Allocation... maybe

[DawgMan]

A few years ago I dropped my AA to 60/40 with the intent of riding out my long term RE holding that allocation (+/- 5%). I really struggled with the lack of return (yield) in my fixed income allocation (primarily intermediate bond funds/ETFs), so I cheated and sprinkled in a preferred stock ETF (6% of my 40% fixed income allocation) to juice my fixed income returns. Throughout the year I infused a significant amount of new $$ and began to play market timer. At the early part of the year, believing we were on a course of continual interest rate hikes I elected to keep the new $$ in money market funds (currently 12% of my 40% allocation) betting bond returns would go negative and MMKT yields would grow. While nothing was sold during the year and my AA is still tracking due to the growth in equities, boy was I wrong! I left some money on the table as had I been a true believer in following "the plan", I would have dumped that 12% in my bond allocation which would have had a total return YTD in the 7 - 8.5% range... who would have thought?? I suppose I can take some solace in that my preferred stock allocation has helped balance my "miss" by returning over 15% YTD, none the less, it should be a lesson learned.

So here I go again, looking at my interest rate predictions for 2020 finding myself a little paralyzed knowing I should just move that 12% into my bond allocation.

Any change in strategy for your fixed income portion of your AA in 2020?

 

[easysurfer]

Any change? Nope.

I pretty much haven't paid any attention to my AA in 2019 as I rebalance at the start of each year and then pretty much "fuggedaboudit" until time to rebalance again next year..
https://www.urbandictionary.com/define.php?term=fuggedaboudit

 

[Dtail]

Keeping to my 55/37/8 AA.
I gave up on Bond Funds in 2019 and did miss out on the extra returns. I have no issue with that and will continue with my Stable Value/CD's for my Fixed Income portion.

 

[audreyh1]

Timing interest rates changes is very, very difficult. I simply use bond index funds and rebalance my AA annually. This lets me buy more after a bad bond year and take profits after a good bond year.

Yes, I was rewarded handsomely this year after being squeezed last year.

I also never worry about money left on the table.

 

[W2R]

Timing interest rates changes is very, very difficult. I simply use bond index funds and rebalance my AA annually. This lets me buy more after a bad bond year and take profits after a good bond year.

+1

 

[GravitySucks]

Yup.
Traded to a shorter duration bond fund because I was sure rates were going to rise. And they did and I felt smart, until they didn't and I felt dumb.
Going to stick with the shorter duration fund for now.

 

[USGrant1962]

I've had a good chunk in ultra-short bond for a couple of years now waiting for rates to rise. After the net ups and downs it is a just little behind total bond / intermediate bond. I now plan to plop it into total bond market if the ten year hits 2% and then forget about it.

 

[athena53]

Late in 2018 my advisor suggested opening a separately managed municipal bond account; Lord Abbett makes all the selection and selling decisions (although it looks so far like they're buy-and-hold types). I'm impressed- annualized IRR YTD is 8.3%. I'm gradually moving into more fixed income- I'm probably over 70% in equities and that's looking aggressive at age 66 and after a long bull run.

 

[pb4uski]

.... Any change in strategy for your fixed income portion of your AA in 2020?

Yes, a very significant change.

Was 60/34/6 at the end of last year (vs a 60/35/5 target so pretty close).... but the 34 was mostly all money market as I had bailed out of target-maturity bond funds earlier in 2018 and my 3.0% 5-year PenFed CDs matured in December and hadn't decided what to reinvest in .

In 2019 I jumped on a number of credit union CD specials as a result of the http://www.early-retirement.org/for...read-2019-please-post-updates-here-95956.html thread.

I bought some 3.5% 5-year CDs in April and August, and a 3.0% 5-year CD in September. I also purchased about 20 preferred stocks that yield about 5.8%... mostly BBB or BBB-. So while fixed income has been an uncomfortable space for me, I'm pretty happy with my current position and plan to stay the course in 2020.

In fact, I overdid it a bit and expect to be 57/39/4 going into 2020.

And that is from someone that had written off CDs and until this year the only CD that I had ever owned were those 3.0% 5-year PenFed CDs.

I know that bond funds have done better in 2019 because of increased market values due to lower interest rates, so my benchmarks are spanking me a bit, but I'm convinced that rates will eventually rise and my day will come.

 

[gcgang]

I pretty much followed the "Bonds are for getting out of jail " philosophy during my accumulation phase.

I think that still holds true, although during withdrawal phase "jail" would be a significant equity bear market. So 35-40% should be enough to bail me out for 7-10 years.

No bond funds except for speculative CEFs in IRRA. CDs and Tbills dominate.

 

[mrfeh]

Any change? Nope.

+1

3 years of expenses in short term bonds and/or CDs. All other fixed income in total bond and TIPS.

 

[Montecfo]

Throughout the last 12-18 months I have been increasing quality of my bond allocation, and tilting a bit toward CD's. That seem to have worked out well.

I think during a long bull run is a good time to think about making sure you own what you want to be holding if there was a big unexpected selloff.

Buy I plan to hold the allocation at 65-70% equities.

 

[BeachOrCity]

Once you have enough money.....

Your risk is largely centered around losing a large portion of it, NOT in missing out having all your money in stocks when they out perform one year.

 

[BeachOrCity]

Oh and I looked at an s&p 500 chart the other day. It showed that in the early 80s the index was back to the highs it reached in the late 1920s (in inflation adjusted terms)!

This data point makes me much more of a believer in the rebalancing approach than the cash bucket approach.

 

[Badger]

Once you have enough money.....

Your risk is largely centered around losing a large portion of it, NOT in missing out having all your money in stocks when they out perform one year.

+1

 

[racy]

I've got a 50/50 portfolio. Fixed income changes? I've reduced my Short Term Investment grade fund. So, my fixed income looks like this now:
*Wellesley bond portion - 27%
*Short Term investment grade fund - 22%
*Intermed Term investment gr fund - 22%
*Hi-Yield bond fund - 22%
*Cash - 6%

 

[VanWinkle]

I remained invested in my boring Intermediate bond funds VBILX and VBTLX and was surprised by the returns this year. I didn't change anything before the year and would have been fine with a low return like prior years. I remember why I have bond funds, and my plan does not allow me to change them to preferreds, high yield, or equities. My 50% equities did just fine without me losing any sleep. Nothing flashy here, just slow and steady growth to combat inflation and keep me flush with income when needed. Avoiding big mistakes seems to be the answer for me.

 

[Chuckanut]

This has been an interesting read. At the end of it, I have concluded that my 60/40 AA is where I should be. I'll re-balance in January based upon 60/40.

I have seen nothing to indicate it is imperative that I increase my equity position, or my bond/cash position. If the market crashes, I can survive for years. If it goes to new highs, I will profit from that. Up, down or level, I won't do much differently.

 

[COcheesehead]

I am close to 40/60, 6 months out from retirement. I have slowly been investing more for current income with long term growth so I have been going beyond bonds into dividends, CEFs with the foundation of my income still being a bond ladder I put in place a few years ago. That represents more than 10 years worth of income needs.
The portfolio throws off more than I budgeted for retirement so I am going to ride this out until SS kicks in 10-13 years down the road at 67-70.