Fixed income conundrum

[bolt]

54 yrs old $2.0 million. 99% equities. I am totally confused on bonds, bond mutual funds and bond ETFs. I would like to retire in 3 years and want to get to a 70/30 mix. Even if I sold to raise the 30% I would not know what to put it in. Thoughts/Suggestions?

Thoughts/ Suggestions you say?

I posted this in another thread here from my files.
I've met & lunched with the well known individual that recorded this data from the 1980s.
He put the vast majority (close to 100%) of his retirement investments in it back then.

Below are two columns:
U.S. inflation and Vanguard Total Bond Market from 1986:

YEAR..INFLATION....RETURN
1986-------1.1%--------15.2%
1987-------4.4-----------2.8
1988-------4.4-----------7.9
1989-------4.6----------14.5
1990-------6.1-----------8.9 (Inflation increased 5.0% -- TBM average return 9.86%)

1991-------3.1----------16.0
1992-------2.9-----------7.4
1993-------2.7-----------9.7
1994-------2.7---------(-2.7)
1995-------2.5----------18.5
1996-------3.3-----------3.6

1997-------1.7-----------9.7
1998-------1.6-----------8.7
1999-------2.7---------(-0.8)
2000-------3.4----------11.6 (Inflation increased 1.7% --TBM average return 7.3%)

2001-------1.6-----------8.4
2002-------2.4----------10.3
2003-------1.9-----------4.1
2004-------3.3-----------4.3
2005-------3.4-----------2.4 (Inflation increased 1.8% -- TBM average return 5.9%)

2006-------2.5-----------4.3
2007-------4.1-----------7.0

2008-------0.1-----------5.2
2009-------2.7-----------5.9
2010-------1.5-----------6.5
2011-------3.0-----------7.7 (Inflation increased 2.9% -- TBM average return 6.3%)

2012-------1.7-----------4.3
2013-------1.5---------(-2.0)
2014-------0.8-----------6.0
2015-------0.7-----------0.5
2016-------2.1-----------2.5

* During ALL four periods of rising inflation since 1986, Total Bond Market enjoyed positive returns.

* During the 2008 bear market when the Vanguard S&P 500 index fund plunged -37%, Vanguard Total Bond Market gained +5%. Investors were very pleased to hold Total Bond Market Index Fund or its or benchmark.

If you're looking to maintain your purchasing power consider these facts above.
Granted the dates are cherry picked but they're factual.

Many custodians TBM ETFs are available commission free.
Research it. It might be helpful.

Good luck & Best wishes!
___________
Past performance not an indication of future returns dogma and all ........

 

[pb4uski]

By in "it" do you mean Vanguard Total Bond? FWIW, Vanguard's most recent economic outlook thinks that a 100% bond portfolio will have nominal returns between 2.7% and 4.1% for the next 10 years (25th and 75th percentiles) with a median of 3.4% (presumably a 1.4% real rate of return).

https://pressroom.vanguard.com/noni...d-Economic-and-Market-Outlook-2019-120618.pdf

 

[VanWinkle]

By in "it" do you mean Vanguard Total Bond? FWIW, Vanguard's most recent economic outlook thinks that a 100% bond portfolio will have nominal returns between 2.7% and 4.1% for the next 10 years (25th and 75th percentiles) with a median of 3.4% (presumably a 1.4% real rate of return).

https://pressroom.vanguard.com/noni...d-Economic-and-Market-Outlook-2019-120618.pdf

They may have it wrong as this year it has returned over 8%......

Taylor may just know what he is talking about.

VW

 

[2177V]

Update to my comment 62 which I had originally had 15 funds.

I decided to reallocated to 50% VFIUX (intermediate treasuries) and 50% VFIRX (short term treasuries) about 6 weeks ago just before the Fed cut interest rates.

I decided to make my portfolio "recession proof" so I adopted an asset preservation strategy. This means preventing loss is my primary objective and making money is secondary. Most economists are predicting a recession within 12 to 24 months and I believe them. Treasuries are the few asset classes that rises during a recession.

On my secondary objective....Yield and value goes in opposite direction and treasuries yield is trending downward. I am also in a position to take an advantage of a possible flight to quality if a recession do occur. Naturally, I will go back to stock when the reward/risk ratio for stocks becomes higher than bonds. This usually happens after a deep decline in stocks. Currently there is no much uncertainty in the stock market for my comfort level.

 

[GravitySucks]

I'm also moving to Treasuries as preservation tools. When my bond ladder wrungs mature they are replaced with Treasuries and FUAMX intermediate T fund.
Glad to see I'm not alone. Fixed income is the most puzzling part for me.

Update to my comment 62 which I had originally had 15 funds.

I decided to reallocated to 50% VFIUX (intermediate treasuries) and 50% VFIRX (short term treasuries) about 6 weeks ago just before the Fed cut interest rates.

I decided to make my portfolio "recession proof" so I adopted an asset preservation strategy. This means preventing loss is my primary objective and making money is secondary. Most economists are predicting a recession within 12 to 24 months and I believe them. Treasuries are the few asset classes that rises during a recession.

On my secondary objective....Yield and value goes in opposite direction and treasuries yield is trending downward. I am also in a position to take an advantage of a possible flight to quality if a recession do occur. Naturally, I will go back to stock when the reward/risk ratio for stocks becomes higher than bonds. This usually happens after a deep decline in stocks. Currently there is no much uncertainty in the stock market for my comfort level.